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Japan's economy: Time to bite the
bullet
By Tim Shorrock
WASHINGTON - As Japanese Prime Minister
Junichiro Koizumi moves forward on his government's
plans to clean up the country's bad loans, he should
also be formulating policies to maintain the
competitiveness of its most advanced industries and
expand the employment base, analysts say.
Yakushiji Taizo, a professor of political
science at Tokyo's Keio University, said an industrial
policy set by the Koizumi administration would
complement the work of Heizo Takenaka, who was recently
appointed by the prime minister to clean up Japan's
banking system as head of the Financial Services Agency
(FSA).
Takaneka shook up the Japanese business
establishment last week when he said that no Japanese
company was "too big to fail".
He also indicated
that the FSA would act soon to end the government's
traditional practice of allowing banks to roll over
their loans instead of forcing bad debtors out of
business. From March 1999 to March 2002, the amount of
bad loans held by Japanese banks increased from US$355
billion to $437 billion.
Without the dramatic
actions Takenaka has proposed, many analysts believe
Japan could face a financial meltdown that would make it
impossible for companies to borrow money - and throw
millions of people out of work.
"We need a
political base to implement what Takenaka is thinking
about," Yakushiji told a seminar on the Japanese economy
organized by the Sasakawa Peace Foundation this week.
"We have to touch on how we can do industrial
revitalization."
Specifically, Yakushiji said,
Koizumi's cabinet needs to formulate policies that will
help Japan's most competitive companies, including
Toyota, Canon, Sharp and other world-class producers,
maintain their lead in global markets.
Although
many people believe Japan's competitiveness is gone,
"the truth is, Japanese technology is still very
strong", said Yakushiji.
He pointed to recent
surveys by McKinsey and Co showing that top Japanese
firms are 20 percent more productive than their US
counterparts and mentioned some of the country's recent
industrial innovations, such as the hybrid car engines
powered by both electricity and gas.
An
industrial policy, Yakushiji said, would also have to
raise the performance of Japan's second-tier companies,
such as in the semiconductor industry, which are losing
their competitiveness internationally and have too much
industrial capacity.
It would have to address
the structural weakness of Japan's construction, retail
and agricultural industries, which lack any
competitiveness, are highly dependent on government
spending yet account for 90 percent of Japanese
employment. In contrast, Japan's first-tier companies
account for only 5 percent of the country's employment.
"Unless we solve this problem, how can we solve
Japan's economic problems?" he asked.
Peter
Ennis, the editor of the Oriental Economist and a
longtime observer of the Japanese economic system,
agreed that jobs and employment is Japan's No 1 problem.
"Japan is stuck between a system that doesn't work and a
new system that is [as] yet undefined," he said. "The
key issue is unemployment."
Ennis said most of
the Japanese economy does not face international
competition, while the construction, food-processing and
retail industries employ far more people than all of
Japan's key manufacturing industries, including steel,
automobiles and electronics.
"Reform in Japan
means unemployment; dealing with non-performing loans
means unemployment," he said. "Japan must go through a
very profound transformation to catch up to the modern
world."
Japan's shift from a producer-oriented
to a consumer-oriented economy should have taken place
30 years ago, Ennis said. The ruling Liberal Democratic
Party (LDP), which has been in power since 1955,
"delayed and postponed the tough decisions", he said.
Specifically, he blamed the delay on the
paternalistic, construction-oriented development pushed
by former prime minister Kakuei Tanaka. "Tanaka and his
machine held it [Japan] back."
Real reform in
Japan, which Ennis said must include "fluid capital
markets" that direct investment to the most productive
sectors of the economy, will take at least 10 years, the
New York-based journalist said. "But it will happen,
because Japan is a great nation."
As for the
banking crisis, Japan has "too many resources to avoid a
financial cataclysm", Ennis said.
The most
likely scenario is a series of political crises that end
with the LDP finally breaking up. That would be good for
Japan because it would free the economy from its
"institutional straitjackets", he said.
Yakushiji, too, said a political change was
necessary. Japan has "too many senior people in
important posts" who stifle innovation, he said.
In a reference to the purge of leftists from
Japanese unions ordered by the US occupation under
General Douglas MacArthur - whose rule is remembered by
Japanese as the "GHQ" - Yakushiji said "we need another
red purge like the GHQ's".
Within the banking
industry, Japan needed executives willing to decide
"which companies to put out of business", said Adam
Posen, a senior fellow at the Institute of International
Economics and author of a recent book on the Japanese
financial system.
Posen agreed that Japan's
"terrible banking system" had "eviscerated the
tremendous productive capacity of Japan". In addition,
the "Japanese government and its politicians betrayed
the Japanese people".
But Posen said he is
optimistic because the high level of Japanese technical
innovation remains unchanged. "Nothing fundamental has
really changed from the 1970s and 1980s," he pointed
out. With a "functioning banking system, Japan's
problems could fix themselves".
(Inter Press
Service)
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