OECD Forum Report on "The Japanese Economy: The Way Forward"

Takahiro MIYAO (Professor, GLOCOM)

The First Lady of the United States, Laura Bush, delivered a speech on education for children in the world and three Nobel Laureates, Leo Esaki, Robert Mundell and Burton Richter, discussed the issue of creativity in the new century. It was at the OECD Forum 2002 held in Paris from May 13 to 15, where these exciting presentations took place.

The main theme of the forum was "Taking Care of the Fundamentals: Security, Equity, Education and Growth." Interestingly enough, as part of this initiative there was a session on the Japanese economy. This was probably due to the notion that Japan may be perceived by some as a threat to the world's growth and even security. In fact, one of the participants in the Japan session was Clyde Prestowitz (President, Economic Strategy Institute in the U.S.), who has been a severe critic of the Japanese economy, and recently wrote an article jointly with Ed Lincoln called, "Abandoning the Old Guard: Helping Koizumi Out of the Box" in the Asian Wall Street Journal (on April 4). There he called on Prime Minister Koizumi to resign and supported a forced political realignment. That is exactly what he repeated in this OECD session.

Two Japanese participants, Takatoshi Ito (Professor, University of Tokyo and Hitotsubashi University) and I, disagreed with Prestowitz and instead offered policy recommendations that the Koizumi administration could adopt to turn the Japanese economy around.

Professor Ito considered deflation and delayed structural reform as the most serious issues. He suggested inflation-targeting monetary policy and banking reform that included the direct disposition of non-performing loans with the injection of public funds into the banking system.

Instead of dealing with deflation in general and long-term structural issues, I focused on "asset deflation" and the resultant balance-sheet problem that has either caused or aggravated all kinds of trouble including the non-performing loan problem and the current asset deflation spiral. I also offered a set of policy prescriptions such as asset (real estate and securities) tax reductions and asset-price targeting monetary policy. I argued that the U.S. style mortgage interest income tax deduction system should be introduced in order to stimulate consumption by those who have been burdened with huge mortgage payments while the value of their homes have declined sharply over the last several years.

After our presentations, all the questions from the floor were directed to Professor Ito and me, indicating a strong interest in the Japanese economy among the audience. One question was whether Professor Ito or I would agree with Prestowitz's call for the resignation of Prime Minister Koizumi. Of course, neither Prof. Ito nor I agreed. I specifically mentioned that there was disagreement among economists in Japan as well as overseas as to what was wrong with the Japanese economy and on the prescriptions to solve Japan's problems. As such, I stressed that we need more analyses and debate in order to arrive at the right diagnosis and produce effective solutions before talking about political change. Otherwise, we would only add to the current confusion and chaos.

My impression about the forum as a whole was that, with the exception of this Japan session, Japanese representation was much lower than it should be in terms of the number of speakers. There were only six Japanese among some 120 speakers, accounting for only 5 percent of the total. In view of the increasing importance of the EU in the world economy and international politics, I strongly feel that a more active Japanese participation and involvement in such forums is necessary in order to build a mutually beneficial relationship between Japan and Europe.

OECD Forum program:
http://www1.oecd.org/forum2002/programme/index.htm
List of Speakers:
http://www1.oecd.org/forum2002/speakers/index.htm
Summary and Speeches:
http://www1.oecd.org/forum2002/speeches/index.htm