The Positive Economic Effects of Deregulation, and Strategies Needed To Increase Employment

November 15, 1994
Keidanren
(Japan Federation of Economic Organizations)

1. The Importance of Deregulation

1. The Japanese economy urgently requires action in two different areas. The first is the weakening occurring at the core of industries and the employment environment; we must prevent this weakening and find ways to revitalize the economy and industry. The second area needing attention is our socioeconomic system; we must develop a system which is free, and which is easily understandable and fair in the international sphere; in addition, we must work hard to correct external imbalances. Deregulation is the most effective way to accomplish these aims and overcome these problems.

2. Japanese companies and people tend to depend on regulations; this dependence must be changed into an approach based on "self-responsibility."

3. If deregulatory measures are not pushed forward strenuously, the gap between Japan's purchasing power and market rates will increase further, leading inevitably to further appreciation of the yen and weakening at the nation's industrial core. These negative factors would probably lead in turn to further job losses. There is a strong risk that these adverse developments would bring on a general decline, with Japan's businesses falling behind in the world's expanding marketplace, a contracted equilibrium, lower living standards, and less economic activity. Deregulation is the only way to prevent such a situation.

2. Economic Benefits of Deregulation

1. Deregulatory measures would benefit companies and consumers over the medium to long term. New business opportunities would open up to private enterprise, and companies would be able to strengthen their corporate structure by raising their productivity. Consumers would profit from a reduction in the disparity between prices in Japan and those overseas.

2. Over the short term, however, certain problems could emerge. Increasingly severe competition could force companies to adjust, with weaker ones failing. Sectors where productivity is poor could see painful layoffs and a disequilibrium in the employment situation. Stronger employment-promotion measures are needed to overcome these problems. If the adverse effects of deregulation are minimized in an appropriate fashion, the overall positive economic effects will outweigh the negative ones.

3. In this regard it is worth noting that a Keidanren study predicts that, as deregulation raises the productivity of regulated industries and reduces the disparity between prices in Japan and those overseas, the combined effect during the FY1995 to FY2000 period would be a total increase of 177 trillion yen in real GDP and a total increase of 740 thousand people employed.

3. Changes in the Employment Environment Needed To Promote Deregulation

1. In order to obtain the greatest positive effect from deregulation and to rein in the temporary negative effect on employment, of primary priority is the need to achieve the highest possible economic growth rate by revitalizing the nation's economy. To do this, new social capital is urgently needed, together with measures that develop new businesses and industries which can create job opportunities.

2. During the deregulatory process, various employment imbalances -- related to seniority, professional capability, location and age -- will develop. Government and private enterprise must combine forces, elaborating sound measures to deal with these problems.

3. Wide-ranging employment strategies are needed to develop an educational system that serve a fluid labor market, and to expand adult-training programs. Indeed, the entire educational system must be reformed quickly, with a view to fostering creativity which will be invaluable to new industries.