Koizumi Reform is Making Steady Progress

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

Prime Minister Koizumi has, for the last two years, specified clearly the need and direction of the structural reform in his plain words, actually translated it into action and achieved some positive results. For instance, fiscal reform has been progressing and the economy is being revitalized through structural reform. Furthermore, diplomatic and security policies have been steered properly based on the Japan-U.S. alliance and international cooperation. In this sense, the Koizumi administration deserves a high mark on its overall performance.

However, it is difficult to abruptly change the longstanding system of distributing profits out of prosperity among various interest groups. As a result, the speed of reform seems to be too slow, especially from the viewpoint of reform-minded observers in and outside Japan. Therefore, Prime Minister Koizumi should vow to establish a system and show his firm determination to the outside world to carry forward structural reform in a more effective way.

Problems with Implementation and Bureaucracy

The first instance is the pension reform that is currently under way. In the course of establishing a small efficient government and activating economy by private initiatives, it seems to me that the Koizumi administration has not yet succeeded in showing clearly the direction that the social securities reform should also proceed in a small government. In particular, the daft plan of pension scheme revision initiated by the Ministry of Health, Labor and Welfare stipulates pension levels at 50% of 　 average annual income. I am afraid this plan is not sustainable and should be reconsidered fundamentally.

According to that plan, pension premiums should be raised by about a 5 percentage point. But this is not the whole story. We also have to consider tax burden to cover the payments and increased burden for each citizen out of huge fiscal deficit. A comprehensive examination is needed.

Prime Minister Koizumi tries his best to make various policy decisions in a comprehensive and cross-sectional way by taking advantage of the Council of Economic and Fiscal Policy chaired by him. The problem is, however, that actual execution is not coordinated because of rivalry among different ministries and also among different offices within each ministry. The current social security reform is such an example.

In the market economy, there are inevitably winners and losers as a result of competition. Losers can either seek revival or exit. On the other hand, there must be some kind of safety net or protection to ensure equal opportunity to the weak who are not able to enter the market for various reasons. In Japan, however, losers often pretend to belong to those weak to demand such protection from the government. It tends to be rather encouraged by broad range of discretion of ministries. They struggle to increase the amount of subsidies at their own disposal rather than to create a system for problem solving without such subsidies. For instance, they prefer to increase subsidies for vocational schools rather than to provide a voucher system to assist those who want to attend such schools directly.

This situation must be changed. I am proposing a comprehensive system together with rules of implementation involving all Cabinet ministers, instead of relying on bureaucrats in various ministries. Such rules are now being examined and formulated at the Prime Minister's Office. I believe they will be announced within the next few months.

Optimistic Prospects for Reform

I am optimistic about long-term prospect of structural reform, because things have been changing for the better in many fields. There used to be a campaign about five years ago calling for cutting public investment as it is nothing but a bunch of wasted money, but no longer.

It is because this is widely acknowledged even by governmental offices. As such momentum gains, Japan is sure to change within five years.

Japan's business world is also changing rapidly. For instance, employment style has been diversified, with corporations almost freely hiring part-time workers and temporary workers from employment agencies. Workers themselves are happy to have wider employment options. According to my prediction, people will live in near future "three lives"-- from 20 to 35 years old, from 35 to 50 years old and from 50 to 70 years old--switching from one occupation to another. The employment system as well as individual life styles will change accordingly. Self training and education will become crucially important in order to survive and succeed in such a new world.

Universities are indeed changing. About 80 former national universalities have just become independent administrative agencies, where faculty and staff members are no longer civil officers. Outside evaluation will change their budget drastically. This is the most fundamental reform in post-war education in Japan.

The Japanese economy is improving steadily and regaining international competitiveness. Currently, such competitive global businesses accounts for 10 percent of employment and 40 percent of output production, and will continue to grow in the future. What we need is to encourage such trends by reducing corporate taxes and income taxes. On the other hand, the consumption tax rate should be raised to increase tax revenue. This will happen most likely when Prime Minister Koizumi completes two and half years from now.