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Home > Opinions Last Updated: 15:03 03/09/2007
September 22, 2003

Reform Must Continue in Japan

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


Deregulation and Privatization

Is Japan able to regain its growth dynamism? While there still exists some pessimism about the prospect for the Japanese economy, I firmly believe that there is a good reason to be optimistic about a solid revitalization of the economy in the near future. The Japanese economy is likely to experience a new phase of growth in the next few years.

What will be the driving force to propel the Japanese economy? Clearly, it is the reform that offers a new set of values and criteria by which people can be encouraged in their economic and social lives. In other words, Japan should be transformed into a society lead by the private sector rather than the public sector, and by local regions and communities rather than the central state and bureaucracy.

In this context, an immediate impetus for the economy is deregulation. In my view, about 60 percent of the official plan for deregulation is being implemented, and it is desirable to raise this percentage to at least somewhere around 80 percent in the immediate future. This would facilitate the structural change of the Japanese economy, which is rapidly shifting toward a service-oriented economy including more efficient services in public administration.

With regard to the so-called Koizumi reform, privatization of the Public Highway Corporation and all the three branches of the Postal Services is required to revitalize the economy. It is my impression that about 60 percent of the Koizumi reform plan has been moving forward, but so far only 20 percent has been accomplished. As a successful example, I may refer to Mr. Heizo Takenaka, Economics and Financial Services Minister, who made a final clear-cut decision on the disposal of non-performing loans in October, 2002. The equity market hit the bottom as the public funds were injected into Resona Bank. The overall accomplishment rate of the reform plan should be raised from the current 20 percent to 60 – 70 percent within the next few years in order to accelerate the revitalization of the Japanese economy.


Framework for a Small Government

More specifically, from 2004 through 2005 much of the authority of the central government should be transferred to the local governments and communities, and many of the special public corporations should be either privatized or abolished altogether. This way we will be able to build a basic framework for a small government which will boost revitalization of the Japanese economy.

In this context, the Council of Economic and Fiscal Policy is functioning well in terms of setting and proposing policies, but it is still necessary to establish a system for the government ministries to work together horizontally for policy implementation based on the Council's proposals and recommendations.

Once such a framework for a small government and a system for policy implementation are firmly established, we will be able to deal with the serious problems of mounting public debts and rapidly aging society in Japan. It is my opinion that eventually the consumption tax rate should be raised to service government debts and finance various programs in the aging society within such a framework.


Reform in Historical Context

Looking back, we can tell that Japan's current prosperity stems largely from privatization of gigantic public corporations to create JR, NTT and JT under the Nakasone administration. At that time, the Japan National Railway was a tremendous burden on Japan's economic growth, just as the non-performing loan problem is now on Japan's economic recovery. But the process of privatization and division into 6 JR companies has turned at least three of them very profitable.

In case of NTT in the information and communication industry, however, it was privatized but maintained its entity instead of being divided. Therefore, the process did not achieve an immediate effect. But, thanks to liberalization in this field, Japan is now on the cutting-edge of technologies and services of mobile-phones and other information equipment.

In the past, Japan has once prospered by developing the so-called "iron triangle" system with a dominant position in the world. However, the economy has been globalized and a unilateral approach does not gain any longer proper recognition from the rest of the world since the end of both the bubble economy in Japan and the Cold War in the world. Initially, there was a series of debate as to which should come first, economic recovery or reform. But consensus for reform has emerged under the Koizumi administration with the motto, no growth without reform."

If we proceed with further reform and transform Japan into a more globally oriented economy, we will be able to see positive effects comparable to those of the reform measures under the Nakasone administration. We need to evaluate the current reform movement in such a historical context.

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