Economic growth strategy should include EPAs, regulatory reforms
Asahi Shimbun, Japan
Editorial: Economic growth strategy should include EPAs, regulatory reforms
14 January 2013
Prime Minister Shinzo Abe’s government has started to move on its economic policies.
Abe likens bold monetary easing, flexible fiscal policies and growth strategy aimed at promoting private-sector investment to “three arrows.”
“The government led by the Democratic Party of Japan started its policies with the aim of distributing (the Japanese economic pie) equally (to the people). But unless the government makes the pie bigger before the distribution, the people will only become poorer equally,” said Akira Amari, state minister in charge of economic revitalization. The remark clearly shows a shift from the policies taken by the DPJ-led government.
To be sure, neither employment nor income will increase if the pie remains small. Unless the government increases tax revenues with economic growth, it will be difficult to reconstruct its serious financial problems only with tax increases.
So far, however, the only noticeable measures are the “first arrow,” which strengthens monetary easing by putting pressure on the Bank of Japan, and the “second arrow,” which expands fiscal expenditures by compiling a large-scale supplementary budget.
No industry organizations are opposed to those measures, making it easy for the government to implement them.
However, those measures are policies that only support the economy or temporarily stimulate it. Given the government’s serious financial situation, those policies are risky stimulus measures, like an adrenaline shot.
‘THIRD ARROW’ HOLDS THE KEY
The “third arrow,” which is the growth strategy, holds the key for continuous expansion of the Japanese economy.
The strategy has two pillars. One is the strengthening of economic partnership agreements (EPAs) to promote trade and investment with foreign countries. The other is reforming various domestic regulations and systems.
Superficially, the two pillars are not related, but they are, in fact, deeply connected.
People generally pay attention to possible reductions in tariffs of goods for Japan’s EPA talks with foreign countries. But the negotiations cover a much wider area, from service fields, such as finance and telecommunications, to promotion and protection of investments, competition policies, electronic commerce and intellectual properties. The talks require reviews of various regulations and systems of each country.
The EPAs will make it easier for Japanese companies to do business overseas. And reforms of domestic regulations and systems will attract foreign companies to Japan while simultaneously helping Japanese companies’ businesses in the country. Economic partnerships and regulatory reforms are two parts of the same issue.
However, such a viewpoint is missing in the emergency economic measures compiled recently by the Abe administration. They do not mention a strategy for EPAs with foreign countries. The government apparently took into account the strong opposition in the ruling Liberal Democratic Party against the Trans-Pacific Partnership (TPP), a key free trade agreement.
The TPP covers more than 20 fields, and its contents are ambitious. When Japan showed interest in the TPP, both China and South Korea and the European Union moved toward holding negotiations with Japan on concluding similar trade agreements.
In Japan, however, many people are expressing concerns over possible adverse effects on domestic agriculture, food safety and social security fields, such as medical services and nursing care, as a result of such agreements. Agricultural cooperatives and medical associations are especially opposed to those agreements.
Japanese agriculture is facing a shortage of successors and an increase in idled farmlands. In the social security field, medical and nursing costs are rising as society ages. But there is much need from the people themselves, and those fields have become the focus of regulatory reform.
Deregulation is not always good in fields that are related to the “safety and reassurance” of people’s daily lives. It is a matter of course to consider the merits and demerits of deregulation not only from an economic viewpoint but also from a variety of perspectives. However, it would be unacceptable for industry organizations and related government ministries and agencies to use “safety and reassurance” as an excuse to protect their vested interests.
GET THE PEOPLE INVOLVED
If the government seriously intends to revitalize the Japanese economy, it has to take a step forward.
First of all, the government should express its participation in negotiations for the TPP. As a member of the talks, the government can obtain accurate information, including other countries’ demands. Based on that information, the government should express Japan’s interests in the negotiations and examine the possible effects on lives in Japan. That would give the government a better idea on whether Japan should join the TPP.
At the same time, the government should move to eliminate regulations and systems that only protect vested interests, while maintaining the ones that protect people’s lives.
The Abe administration set up the Industrial Competitiveness Council under the Headquarters for Japan’s Economic Revitalization. It will also revive the regulation reform council, which was abolished by the DPJ-led government. Scholars and business operators will join the councils and hold talks with state ministers of related ministries and agencies.
Will those councils be able to propose concrete measures based on private-sector wisdom and ideas? Which state ministers are trying to protect the vested interests of industries and related ministries and agencies? Are there business operators who are trying to use reforms simply for the benefit of their own companies?
The councils should involve citizens in their talks by not only releasing minutes of their meetings but also making the meetings open to the public.
UTILIZE CASH RESERVES
Business operators should blaze the trail and become leading players for economic growth.
The emergency economic measures contain many steps that urge businesses to make new investments. These measures include subsidies, preferential tax systems and capital injection by government-affiliated financial institutions.
Currently, private companies have an estimated 200 trillion yen (about $2.2 trillion) in cash reserves. If those companies are only engaged in reducing business risks by depending on the government, it will be difficult to achieve economic growth.
High expectations are growing for the Abe administration’s economic policies now that the yen has weakened and stock prices have risen. Unless the “third arrow” becomes successful, however, prices and interest rates could rise amid low economic growth, and the government’s fiscal health could deteriorate further.
Abe should be aware of this possible worst development.
