The Yomiuri Shimbun January 14, 2014
Govt must reshape growth strategy to bring about effective outcome
Business has been steadily picking up on the tailwind of the economic policies of Prime Minister Shinzo Abe.
The question now is how to maintain sustainable growth. It is essential to end the deflationary spiral that has continued for nearly 20 years.
The government must accelerate the implementation of an effective growth strategy with a view to achieving self-sustaining growth led by the private sector.
The Nikkei Stock Average currently is hovering around 16,000 at the Tokyo Stock Exchange after soaring by about 60 percent in the past year. The stronger yen that plagued the national economy has weakened significantly and remains low in relation to other currencies.
Bold monetary easing and fiscal stimulus measures pushed by the Abe administration plus the business recovery of the United States have helped the Japanese economy. It is to ensure that the move toward improvement does not end up as a “false dawn.”
Tax hike biggest hurdle
The biggest hurdle to this goal is the consumption tax hike set for April.
The tax burden on the nation’s households will increase by ¥6 trillion a year after the rate is raised from the current 5 percent to 8 percent. It is feared that consumption—which accounts for 60 percent of the gross domestic product—will cool off, causing a business slowdown.
Relying only on fiscal stimulus to prop up the economy will lead to the worsening of state finances. To attain economic revitalization and fiscal reconstruction together, it is indispensable to invigorate the economy through implementation of a radical growth strategy.
In connection with the law on enhancement of industrial competitiveness enacted in December and other growth strategy-related bills, the government will shortly work out implementation plans that include timetables and designation of Cabinet ministers in charge of implementation. The government should steadily carry out measures and assess their effectiveness.
It is problematic, however, that the growth strategy is lackluster.
Deregulation steps insufficient
A deregulation plan to establish special national strategy zones under the slogan “to provide the world’s most favorable business environment” fails to do away with regulations that are as hard as bedrock in such fields as employment, medical treatment and agriculture.
Deregulation of working hours, which has been strongly requested by business circles, has been postponed. So has expansion of a mixed medical treatment system under which treatment covered and not covered by health insurance could be provided together.
In his New Year’s press conference, Abe revealed a plan to reexamine the growth strategy in the middle of this year. Half-baked revision would make no sense. To ensure the success of deregulation, the prime minister must lead the way in containing the resistance of government ministries and agencies as well as their related organizations trying to protect their vested interests.
Another challenge for the growth strategy is lowering the effective corporate tax rate, which is higher than those in major countries in Europe and other parts of Asia.
The government must aim at reinforcing the international competitiveness of Japanese companies by realizing the tax cut as soon as possible, while at the same time revitalizing the Japanese market by promoting the inflow of foreign capital.
The recovery of a cheap and stable power supply is the basis of economic growth. It is vital to steadily restart nuclear power reactors whose safety has been confirmed.
Yet we cannot expect much from the growth strategy as long as the companies, who are to play the leading role under the strategy, “have not danced though we have piped unto them.”
It is worrisome that many companies have not shaken free of their defensive stance. This is partly because their business performances were sluggish for a protracted period due to the deflationary trend and the strong yen.
Japanese companies hold a total of at least ¥200 trillion in cash and money on deposit. This shows they have refrained from investing in plant and equipment and manpower in order to set aside cash reserves for emergencies.
Although they have bailed themselves out of the plight caused by the superstrong yen, Japanese manufacturers have been fiercely competing abroad with their rivals from emerging economies. This comes at a time when the domestic market is expected to shrink, due to the declining population.
‘Aggressive stance’ needed
Unless they rack their brains and boldly shift to a stance of conducting business aggressively, it will be difficult for companies to survive the harsh business environment.
Manufacturers will have to enhance their manufacturing power to win against their global rivals.
Meanwhile, nonmanufacturers must urgently work to overcome their low productivity, which has long been considered their main challenge.
If companies increase their profits by aggressively implementing their corporate strategies and raise their workers’ pay in line with increased profits, consumption will rise and business will improve further. We hope companies will contribute to a “virtuous circle” of growth.
For Japan to sustain economic growth, it is necessary to further promote free trade and exploit demand in growing markets such as that in other parts of Asia.
The negotiations over the Trans-Pacific Partnership multilateral trade accord, with 12 countries, including Japan and the United States, taking part, are the key to this goal.
As the conflicts between Japan and the United States deepened over demands for the elimination of tariffs on five sensitive agricultural products—including rice, wheat and barley—participating countries postponed a broad agreement on the creation of a new free trade zone, which they had hoped to realize by the end of last year. Concerning the delay, Japan and the United States, leaders of the negotiations, are much to blame.
An accord over the TPP trade talks would likely give a boost to talks on other economic partnerships between Japan and the European Union and the one among Japan, China and South Korea.
What must Japan protect and how far should it compromise in maximizing its national interests? The government must negotiate tenaciously and try to break the deadlock.
(From The Yomiuri Shimbun, Jan. 14, 2014)