[ Nippon Keidanren ] [ Journal ]
Messages from "Economic Trend", February 2005

Reform of Japan's Social System: From the Public to Private Sector

Yoshihiko Miyauchi
Vice Chairman of the Board of Councillors, Nippon Keidanren
Chairman and CEO, ORIX Corporation

Japan's emergence from the recession that began in the 1990s and lasted for more than a decade, what we often refer to as the so-called "lost decade," has finally given us the chance to be more optimistic about the future. Japan has been making steady progress with structural reforms, albeit at a slower pace than hoped. In my view, these reforms have been steadily transforming Japan's economy. My belief is grounded, in particular, on progress in deregulation, an area I have long been involved with.

The first priority of deregulation was to transform so-called "regulated" markets, which are in the hands of the private sector yet tightly regulated by the government, into free markets. In this field, free markets gradually took hold as certain regulations on economic activity and other means of control were gradually lifted. As a result, over the past decade, many companies have distanced themselves from Kasumigaseki, where several of Japan's national government agencies are located, and have seriously begun competing under free-market conditions.

The current priority, following the deregulation of "regulated" markets, is "government-run" markets. Government officials determine the nature of these markets and are involved in all aspects of their operation. Collectively, these markets have already been integrated into Japan's social structure, and are typically shaped by medical, public welfare, education, and agricultural policies as well as labor practices. The existence of "government-run" markets is rooted in the long-held belief that government must be closely involved in all aspects of these sectors to ensure public welfare and fairness for all. Is this belief justified?

If the vitality and ingenuity of the private sector is applied to the "government-run" markets, then the public would most likely benefit from having more options, and many of these sectors could be made more efficient. In my view, the role of government should be to design policies and systems that ensure public welfare, and then to monitor these markets so as to maintain free and fair competition. However, the operation of the business itself should be left in the hands of the private sector to allow for flexibility of management. I hope this can be the model for tomorrow's society in Japan.

Society is constantly evolving and it is imperative that public policies and systems flexibly adapt to these changes. The role of deregulation is to contribute to building better and more efficient systems in line with social trends. However, reform of Japan's social structure, the bedrock of many regulations deeply ingrained in the fabric of society, is still opposed by many of those who currently have a vested interest in these systems or are too accustomed to them. In conclusion, the reform of "government-run" markets has just begun, and there is still a long road ahead.

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