Private Sector Initiative and Future Prospects for the Japanese Economy

Jiro USHIO (Chairman and CEO, USHIO INC.)

Surprisingly Strong Public Support for Spending Cuts

As a non-governmental member of the Council of Economic and Fiscal Policy (CEFP), I would like to present my view on the fundamental issues for Japan's reform. Two key elements for the nation's reform are tax reform and deregulation and I will take up these issues in turn.

Regarding tax reform, we need to listen seriously to strong public demand for the expenditure cut, as expressed at the Town Meetings, the dialogue between the officials and citizens this spring. Actually, in the world economy, the ratios of the outstanding amount of world-wide national debts are 30% for the EU, 30% for the US, and 40% for Japan.

Furthermore, in terms of newly issued national debts by major advanced countries last year, Japan alone accounts for 80% of their net increase.

What really matters is whether the national debts increase or decrease, not whether the government spending exceeds the level of preceding year or not. No more borrowing being allowed, the government spending must be reduced by 50%. This requires changes in the existing system.

The report submitted by CEFP proposes the discretionary expenses be cut by nearly 2 trillion yen and the related legislations should be amended in regard to non-discretionary expenses. In this way, we can attain expenditure cut in 2 to 3 years.

For example, while total medical expenses continue to increase, officially aided medical services should be decreased to be taken over by private sector. We should expand private medical services, which are not covered by social insurance. For that purpose, what is needed is amendment of laws as well as a change in public attitude. I believe that Japanese people are willing to accept such changes.

Reduction of Corporate Tax and Increase of Tax Revenue

We should combine tax reform with spending cut. Actually, a third to a half of our tax cut needs to be financed by spending cut. The remaining portion must be financed by expanding the scope of the corporate tax and taxing deficit-ridden corporations as well. As a result, we can expect to reduce the effective corporate tax rate by 5 %.

Although we cannot expect much out of discretionary tax reduction, corporate tax cut will be much more effective in reinvigorating the economy. In an old closed-economy thinking, tax cut would result in tax revenue decrease, but in the present-day global economy, tax cut may well lead to tax revenue increase in two to three years time, as the private sector is invigorated and foreign investment is encouraged by tax cut. Those positive effects cannot be expected at all if corporate taxes are raised.

The private sector has tremendous potential, which will be exercised if the future can be "calculated." On the other hand, the private sector won't believe the government and do nothing if the government says discretionary measures will be taken in everything. Private businesses are willing to challenge risk management if only "tax planning "can be set up. As tax planning is not possible in the current situation, we need to establish tax planning within the next five years at the Council of Economic and Fiscal Policy.

Special Zones for Deregulation and Small Government

Regarding deregulation, we have adopted the idea of special zones for reform. For example, a certain ward in Tokyo is designated as a special zone for deregulation under the leadership of the ward head. If that turns out to be successful, then neighboring wards may well follow suit. Thus, local economies will be revitalized. In fact, quite a few localities are inquiring about special zones for deregulation. In this approach we can easily cut through various regulations and speed up administrative procedures.

For other examples, the City of Kitakyushu is proposing a special zone to make its seaport a free port that can operate for 24 hours a day. The University of Tokyo is working with the Ministry of Economy, Trade and Industry to initiate the "Move, Japan!" project, where professors are retained on a contract basis for any specific duration instead of being employed for life time. Regarding the special zones, many other proposals are being made from various regions and institutions.

In this way we can revitalize the economy through tax cut and deregulation. Then the private sector economy will increase in volume, while the government sector economy will shrink and government spending will decrease substantially. At the same time, government tax revenue may well increase, in spite of tax cut, due to an expansion of the private sector economy.

Lessons Learned from Ichiro

Japan has achieved miraculous growth in the postwar period to become one of the richest nations in the world and is now ready to share its fruit with other nations. However, we need to be aware of a possible decline in competitiveness of our economy at this stage. The most important is to maintain the high level of competitiveness, and our challenge is to achieve this while preserving Japan's merits such as high levels of income and welfare, beautiful nature and a safe and secure society.

In order to increase the skill and power of corporate management, important lessons can be learned from Ichiro, a baseball player who has been able to make a better use of his potential in the U.S. than at home in Japan.

This is because the U.S. is a society in which you can concentrate on exercising your potential. What we have to ask is whether we will be able to make Japan a kind of society in which each individual can fully utilize his or her potential power.

Just as we need a small government with few regulations, we should have small headquarters in case of corporations. Our younger generation will be good at developing and brushing up individual ability. What they need, therefore, is to think of others outside Japan suffering from hunger and war. If individuals train themselves to be strong and at the same time considerate to others, we will have tenderness as well as toughness and the social benefit of individual achievement will be maximized as a result.

Reference: Biweekly Magazine "Zaikai", July 23, 2002, Zaikai, Co., Ltd,