The Council on Economic and Fiscal Policy, an advisory body to the government, has set up a panel of experts to look into structural changes in the Japanese economy. It has been tasked with compiling policy recommendations aimed at facilitating economic structural reforms amid the rapidly changing global economic environment.
The panel apparently also is determined to focus on the country's financial and labor markets as well. As it aims to submit a 21st century version of the Maekawa report, it is expected to tackle structural issues as boldly as the "Economic Structural Adjustment for International Harmony" report did. This report was issued in 1986 by a governmental advisory council chaired by former Bank of Japan Gov. Haruo Maekawa.
In this article, I want to take up three points, taking into account the connection between the economy and politics.
First, the Maekawa report was a far-reaching draft for revamping the Japanese economy under strong pressure from the United States, where "revisionists" who saw Japan as a unique country were demanding the White House adopt a high-handed "results-oriented" policy for reducing Japan's trade surplus. In the past, cozy collaboration or corrupt relationships among politicians, government officials and businesses had been commonplace in Japan. The Maekawa report appeared to be an assault on the foundations of this collusive threesome.
Over time, the traditional relationships between those in the political sphere, government officials and industry had broken down for a number of reasons. The decline of the influence of bureaucrats is the most obvious sign of this change, and they now seem bent on ensuring their own survival, having given up masterminding efforts to unite all actors in implementing policies.
Yet despite these changes, the nation's economic structure itself remains little changed, though it does seem to have become increasingly dependent on exports--external demand--with an emphasis on manufacturing.
This trend toward exports is gaining pace as Japan no longer is faced with gaiatsu or pressure from abroad to review the export-oriented structure.
The Japanese economy today is showing signs of maturity, a tremendous change from the 1980s. We therefore have to ask ourselves whether it is realistic to maintain old-style economic structures, and should do this by scrutinizing the economic and social implications of continuing such a system, and the future impact on the economy of steeply rising prices of natural resources and demographic changes.
I would like the panel to seriously study the appropriateness of our society's ingrained tendency to feel uneasy about the rising value of the yen, something that reflects this country's preference for export-led growth. The panel should not skirt around this issue, especially considering the threat of further increases in the costs of natural resources.
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Domestic demand-led economy
The issue of reforming the country's economic structure is directly connected to a second issue--the shift toward a domestic demand-oriented economy. Just as was the case with the Maekawa report, the panel should clarify how it views, and would realize, transformation of the economy into one led by domestic demand.
The question is: Should we just accept as the inevitable consequences of globalization weak domestic demand, struggling regional economies and the stifling of small- and medium-sized businesses in Japan? or is there a possibility the country can strengthen its economic fundamentals to make it resilient enough to cope with the challenges of this age of global competition? or is there maybe some as yet undiscovered cure-all?
Faced with such changes to the Japanese economy and society, politicians have been in a state of utter confusion as to how to respond. In such circumstances, the policy, for example, of just pressing ahead with road construction is becoming increasingly untenable.
In his e-mail magazine, Prime Minister Yasuo Fukuda has called on big businesses to raise wages for their employees, a rare appeal by the head of government. This move can be seen as an extension of the government's traditional policy of relying on large companies to determine the direction of national income distribution by laying the foundations for annual wage changes for the rest of the country. However, given the prevailing economic environment, such an approach now faces a serious stumbling block.
In short, Japanese manufacturers with an international presence have to cope with severe competition from elsewhere, a situation quite different to the market conditions of the 1980s. This raises the question of how much the government is still having to rely on Japan's multinationals when running the domestic economy.
In the past, Japanese businesses used to position themselves to move in tandem with the national economy as they sought to grow. But this situation has changed dramatically, and it does not seem logical for the government to base its policies on the assumption that businesses are continuing to buoy domestic demand. This is an issue that has to be seriously addressed amid the ongoing changes wrought by globalization.
Third, the government has to review its role in the economy in a way that introduces more innovative policies beyond improving competitive circumstances. Failing to do so will only raise fears that domestic demand will decline to the extent, so much so that Japanese will remain swayed by two external trends--external demand and rising prices of natural resources.
If this happens, people will begin to question the relevancy of the government and feel more uncertain about their future, casting a shadow over the nation's politics and making them increasingly unstable.
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Ensuring a sense of security
In this age of globalization, the most important thing the government should be doing is ensuring the sustainability of society. This should include guaranteeing the public a sense of security amid the drastically changing economic environment, whatever the limits of government policy might be.
Put another way, the government should ensure a social buffer is in place that shields people from some of the storms and stresses faced by companies on the global stage. If the government is indifferent to such stresses and leaves people drifting, then government itself is worthless. Under such circumstances, globalization and democracy would be placed on a collision course.
There is anecdotal evidence to suggest that the abovementioned disintegration of the traditional system has resulted in a chronic decline in public trust. The elimination of unnecessarily collusive relationships among politicians, bureaucrats and businesspeople also has been followed by growing distrust and indifference in our society, as it has become more divided.
Such deterioration and division has become deep-rooted, reflected in the divide between the public and private sectors and central and local government. The decline also has been seen on the stock market and, in one of the most worrying developments, the nation's birthrate, which has been falling.
All of this is a worrying sign that economic and societal progress is being hampered. Rescuing the public from this malaise is a fundamental duty of government, which can ultimately be realized only by the government taking action that justifies its usefulness and indeed very existence.
But instead, the government seems to have been destroying itself, and has failed to assume its proper role of creating confidence in society, as reflected in the pension records fiasco. As a result, the government has merely kindled people's concerns, rather than acting as a social stabilizer.
Over the road-related tax and its effectiveness, there have been many discouraging news reports. The political sector, which is responsible for controlling the government, should adopt bold, innovative policies and approaches, otherwise there will be a continuing decline in society's ability to create a trusting environment. Reform of the civil service system is relevant here.
We could be confronted with a terrible situation, such as that depicted by Keio University founder Yukichi Fukuzawa (1835-1901), in his 1875 book "Bunmeiron no Gairyaku" (An Outline of a Theory of Civilization). In it, he talked about a society in which, to protect themselves, "one million people stay indoors, preoccupied with their respective interests" and "all of the people keep their spare cash at home, bringing the entire loan market to a halt and in effect preventing big companies from emerging."
If the nation's policymakers do nothing to facilitate money flow and consistently rely on the help of the private sector, which is caught up in the whirlwind of fierce international competition, it will not be possible to improve on the current state of affairs.
Policymakers should openly and courageously ask the people for their support so that the country's social security and education systems can be adjusted to guarantee everyone an evenly spread, minimum level of benefits, regardless of the company they work for or whether they are full-time or part-time workers. Without this, there will be no progress at all.
Such a scheme is the minimum necessity to ensure that the country's ability to create social confidence will not be jeopardized further.
Adding further economic benefits to this social scheme will be another challenge. In any case, the nation can hardly feel assured of the future without an adequate political system in place.
