Interim Report of The Committee on New Business of Keidanren

Recommendations for Creating New Businesses:
Building an Economy and Society that Nurtures the Entrepreneurial Spirit

Chapter I : Overview

  1. Why Is New Industry And Business Creation Necessary?
    1. Japan's socioeconomic system is facing a major turning point, after having functioned effectively for over half a century since W.W. II ended. Unless the private sector itself undertakes bold economic reforms now, the country will have difficulty emerging from prolonged business stagnation and in sustaining economic expansion in the future. Without this growth, Japan will neither be able to fulfill its proper role in the global economy nor will it be able to fulfill its obligation to improve the Japanese people's standard of living.

    2. Particularly at this time when leading industries have matured and fears of industrial hollowing-out are being fanned by the yen's continuing rise, it is vital that Japan stimulate the economy and create jobs. This can only be done through the creation of new industries that join technological innovation with social needs and with the emergence of new businesses to sustain these industries. It goes without saying that existing firms as well are expected to form the nucleus of new industries and businesses through re-engineering and through "creative destruction (trying to reform the existing system that is unadaptable to current business style)".

    3. Japan must look to the global economic experience of its allies. The revitalization of the US economy was due in large part to the dynamic technological advances achieved by existing firms. New industries were created through the growth of venture businesses in an extremely competitive environment, particularly in the high tech arena. At the same time, major corporations were revitalizing themselves through re-engineering. The entire economic revitalization effort was supported by the foundation laid by the drastic government deregulation and tax reform initiatives of the 1980s.
      Reforms have not only taken place in the US and Europe, but more recently many Asian nations have swiftly enacted major reforms, including institutional reforms, in efforts to adapt quickly to the realities of the borderless economy.

  2. Impediments To The Start-Up of New Industries: The Direction of Reform.
    1. How does the situation in Japan compare with these developments overseas? Although there are currently efforts being made to start-up new industries, it is impossible to say that such industries are achieving the dynamic growth necessary to reinvigorate the economy.
      As for existing firms, they are attempting under adverse economic conditions to re-engineer their management, but have not yet delineated clear-cut action plans. The situation is so dire that in the manufacturing industry, the rate of business failures already exceeds that of business starts. If this situation is not checked, the entire Japanese economy may not escape major reductions in scale.

    2. It cannot be denied that Japan's slow progress in establishing new industries and businesses is that, because of the success in attaining spectacular growth after the WW II, the national attitude that "stability is best" has become deeply- rooted. At the same time, in society generally, there is a diminished sense of eagerness to face new challenges, of readiness to grapple with any problem without fear of failure, and of willingness to undertake innovative experiments.
      At the same time the operation of the market mechanism, which should be free and vital, is being hampered by excessive regulations pertaining to business operations, raising capital, and the system that places importance on vested rights and by the policy management system. It is clear that these practices are obstructing new business creation and development of innovative businesses by established firms. These institutional and commercial practice are killing the entrepreneurial spirit that is a natural asset of any vital economy and creating an atmosphere in which the starting-up of new industries is no longer valued by society.

    3. In order to rectify this situation, first and foremost Japanese employees and the corporations themselves must initiate internal reforms and develop an openness to new challenges while adhering to the principle of individual responsibility. In addition, economic and social reforms must be enacted, beginning with the deregulation and redesign of commercial practices. We must create an economic environment in which it is possible for entrepreneurs to carry-out various "experiments" in the market without being crushed by forces that preserve the status quo and to have those "experiments" evaluated objectively.
      In addition, we must build a system under which those entrepreneurs who establish new businesses take responsibility for both the risks of failure and the rewards of success, and those who share in the risk of investing also share in the rewards.

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