To Regain Dynamism of Japanese Economy

Jiro USHIO (Chairman and CEO, USHIO INC. and Member of the Council of Economic and Fiscal Policy)

Management Policy Under Deflation

My view on the prospect for the Japanese economy in 2003 is not as pessimistic as that of some private economists. We can expect some positive effects of corporate restructuring and banks' disposal of non-performing loans. I estimate that the real GDP growth rate for the fiscal year 2003 could be around 1.0-1.5 percent, which is higher than the government forecast of 0.6 percent.

However, it is difficult to predict specifically which industries will go up and which will go down. A kind of polarization will be seen in every industry, that is, the disparities in profits among companies in same business will be larger. One thing for sure is that deflation will continue at least for a while. You have to forget management policies adopted so far under inflation. Instead, you should implement a policy appropriate for the present period of deflation and take into account the substantial decline in prices.

Under deflation, it is more important to utilize goods and assets effectively than just to own them. Land price will be determined by yield of investment on land. You had better rent offices and factories instead of owning them. Even labor should be borrowed on a temporary basis. You can well survive by adjusting your approach in accordance with deflationary trends. You should increase productivity and competitiveness and attach importance to the real growth and profit.

Importance of Creativity and Planning Capability

In order to increase productivity and competitiveness, it is important to enhance the power of technological development and information gathering as well as the power of creativity and planning. The point is how to respond to tomorrow's needs and wants. You wish to pay less for what you need, but will pay more for what you really want. For example, you would buy 10 handkerchiefs that you need for only 1,000 yen, while you might be willing to pay 15,000 yen for an Hermes scarf that you want. Creativity is the source for creating tomorrow's want.

Amid today's sweeping tide of globalization, the free, fair and open market principle of the Anglo Saxon type will be getting standard. As IT enables us to send a massive amount of information all over the world in real time, companies with upgraded IT infrastructure will be way ahead of those without.

However, in addition to paying attention to the wave of globalization and IT, we also should remember our traditional virtues. Japanese people are said to be perfectionist and to take the meticulous approach, to focus on the actual workplace and to be group-oriented, which are all strengths suited to company work. The brand value of "made in Japan" is very high and what we have accumulated in 50 years in the postwar period is our big asset.
What is lacking, though, is managers' commitment. I believe that after the current phase of economic adjustment, there will be signs of new development in Japanese economy by new leaders. Then, growing businesses will take a new form, while old businesses will fade away.

In this regard, we have so far set up Industrial Competitiveness Conference, IT Strategy Council and IT Strategic Headquarters, following the precedent of "Young Committee" (the President's Commission on Industrial Competitiveness) which the U.S. government established to learn from Japan in the 1980s. We are now in a position to launch the project, "Go, Japan", to promote cooperation between universities and industries and to revitalize manufacturing industry and service business, especially in areas relating to health care, environment, energy, security, quality of life and education. Innovation is the key to revitalize these industries, and knowledge in natural science and technology is crucial in today's business world.

In Japan people tend to be satisfied with being on the average level, which has prevented Japanese society from accepting various kinds of value. For example, most of the big companies in Japan, except several companies like Sony, Honda and some venture businesses, cannot take their own unique policy because they are just happy to adopt similar objectives and compete among themselves. However, recently the number of university professors has been growing who become outside corporate directors or policymakers in the government. These people may hold the key to create a more dynamic economy in Japan.

Deregulation and Tax Reform

Government should implement appropriate policies and deliver reforms. The first step to stimulate the economy is to liberalize corporate activities. In the U.S. only space and defense-related businesses are regulated, whereas in Japan there still exist many regulations and traditional practices virtually prohibiting business activities in many areas. For example, foreign companies operating in Japan have a lot of difficulties to find out what is permitted and what is not in this country.

Therefore, the first agenda for the government is deregulation, creating a "small government" by putting in the hands of the private sector whatever could be done by the private sector. As the area the private sector can handle is expanding, leaders with public mind are expected by the public. In the U.K. "public schools" are private schools, because those schools are established by private parties for public purposes. In a country led by the private sector, the leader must have the mind of public service.

Also important is the tax cut. In order to revitalize the economy, taxes especially, on earning in the private sector, should be reduced. Generally speaking, tax should be collected at a lower rate from wider sources and the weight of indirect taxes should be increased. Nippon Keidanren (Japan Federation of Economic Organizations) has proposed the consumption tax should be raised by one percent per year, but I would rather like to see spending cut and a small government created before increasing any taxes.

Not only Japan but also other major countries are suffering from deflation, which is beginning to become global tendencies. Although it is still a minority view, some say that Japan may well be the first country that will get out of deflation, because Japan is the first country that fell into deflation. That might be the case in reality, if we change our way of doing business and if the government adopts proper policies to revitalize the economy.

If the economy is revitalized and corporate profits increase, then deflation will end and price levels will be more appropriate. We have to endure during 2003 and 2004, which is the adjustment period for recovery. Now it is more important to make profits than to increase sales. Companies that can survive during the period by creating high value-added products and service will achieve a greater success in future after deflation is over.