Messages from Monthly Keidanren, December 1998

Revitalize Japan's Economy through Strategic Administrative Reform

Masahiko Furukawa
Vice Chairman, Keidanren
Chairman of the Board, Mitsubishi Chemical Corporation

The First Provisional Commission for Administrative Reform was created in 1961 by the Ikeda cabinet. Since then, for nearly forty years,Japan's successive cabinets have continued to grapple with the formidable task of administrative reform. Some progress was achieved, in such areas as fiscal reconstruction, deregulation, and reorganization of the government's "three agencies and five operations." Plainly put, however, these were no more than partial remedies, falling short of fill-fledged reform.

In spite of all the time and effort spent toward its realization, why has administrative reform come only midway, as even the government itself has admitted? Perhaps governmental negligence is not entirely at fault.

For one, the speed of change in the environment Japan found itself in far outpaced that of reform. Take deregulation. The need for consensus-building and coordination among interest groups with vested rights has hindered change and limited progress to a steady crawl. A typical example of this is Japan's financial industry. While the world's financial circles underwent structural changes following the "Big Bang"--reforms initiated in the UK, Japan's financial industry, long coddled by the government's "convoy" policy, became subject to criticism from the international community as "lacking a sense of urgency."

Secondly, the Japanese tendency for averting risks and favoring security, both on social and political levels, has encouraged excessive administrative intervention. An intellectual once pointed out that the Japanese notion that "security and water are cost-free" is unique in the world. As a governing principle for any course of action, the Japanese, in its practical wisdom to minimize risks, have long opted for the "number-two position." However, given the dramatic changes in the post Cold War environment surrounding Japan, this Japanese "follower" mentality is now exposed to severe challenges from the marketplace. We have no recourse but to squarely grapple with the task of implementing thorough reforms at any cost.

Now is the time to revitalize the Japanese economy by solving the land dilemma that is currently entangled in a web of vested rights and interests, and adopting urban and housing policies that support a variety of lifestyles. Also imperative is to implement capital relocation, which will provide a strategic impetus for administrative reform.

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