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July, 2001 |
| Hopes to Koizumi Cabinet's Structural Reforms −Good Reforms and Bad Reforms− |
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"Structural reform" is a word widely heard since the inauguration of the Koizumi administration. But at the same time it inevitably reminds us of Hashimoto Cabinet's failure to implement the structural reform that led to the recession from the second part of 1997. It might be useful to identify the differences between good and bad reforms so that the Koizumi administration won't commit the same errors as Hashimoto administration did. The reform at the cost of the economy is impossible After 1996, Hashimoto administration, assuming that the economy's recovery is well under way, has aimed at cutting the fiscal deficit and reinforcing the financial system. However, the increase of the consumer tax and social security expenses implemented to support fiscal deficit's cuts, have hit hard on the recovering personal consumption. For the sake of finances reinforcement, banks were compelled to lower the loans to small and middle businesses. This led to the increase of the corporate bankruptcies. Consequently the bad loans mounted and the financial system weakened instead of being reinforced. The "bad reforms" incurred an extremely severe recession even in 1997, when the economy was flourishing. If they were to be repeated now, when the economy is stagnating, it will certainly drag the country into a hopeless situation. The major problem with the "bad structural reform" lies in the fact that it's willing to temporarily sacrifice the economy. Standing the pain for a while might seem good but with a clumsy treatment, the pain will only last and the body won't recover. A hasty structural reform will only stand in the economy's way and country's finances and financial systems will surely change for the worse. Economic recovery and structural reform can't be separated The only way to make a structural reform goes through ensuring that the economic recovery is on its way. If the economy would start recovering, fiscal deficit's increase could be stopped and financial institutions' bad loans could be prevented from increasing. But measures as discharging the fiscal expenditures and supporting the banks have proven inefficient. The experience gained in the last ten years makes it clear that such measures for reinvigorating the economy will only give rise to fiscal deficit. This will eventually come back to us through the form of tax raises. The people will become anxious about the future and, as a result, the personal consumption and the corporate investment will become only sluggish. The reform Japan needs now is not a reform aimed at solving the superficial problems such as fiscal deficit or banks' bad loans, but a reform that would revitalize the economy and at the same time ease the future's anxiety. It's essential to realize that the superficial problems' solutions will come along naturally. Reforms of the political and administrative process are essential As concrete measures, present's expenditure raise and future expenditures' reduction financial policy can be given. However, only pledging the overall expenditure or deficit sum or only promising to legalize it, will conduct to the reduction of the necessary public services, thus making unavoidable the people's anxiety toward future. It is essential that the present expenditure projects will be directly connected with the future expenditures' cut or with the income raise. The projects thought to be necessary in the future, for example, could be carried out beforehand. Creating an environment friendly to the elderly by expanding barrier-free constructions or promoting a revolution in information technology (IT) by reinforcing the communication infrastructure would definitely be necessary in the future. Putting in practice these plans from now would prevent the enlargement of the future expenditures. Another alternative is that of starting up new businesses as state-run enterprises on the premise of selling them off to the private sector. Venture capital having as base the postal savings or nursing care enterprises could be examples of such businesses. It is essential to have an entrepreneurial spirit and to make sure that such projects are improving Japan's future life and business environment. This kind of financial expansion projects cannot be carried out while being tied to the present financial rules. The whole political process must be undergone a fundamental change including bureaucrat organizations with unwritten rules. The structural reform for economy's revitalization should not deal directly with the superficial problems such as fiscal deficit or bad loans but with political reforms. Political reforms not as the reorganization of the government ministries or the reduction of the public officials but more consistent reforms, such as the revision of the whole political process. From this point of view, the reforms suggested by Koizumi Cabinet in the beginning, as fiscal expenditures reduction and bad loans disposal, have the typical aspects of "bad reforms". However, they have gradually focused on the problems directly regarding the political process as special funds and reviewing the tax allocation system to local governments. This is the right path leading to the "good structural reforms". Let's wait for the new developments with hope. Translated by Ms. Sheila Rasidgil |
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| ■To Original Japanese Version |
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| 「経済を読み解く」バックナンバー一覧 |
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