Strategies for Reviving the Japanese Economy :: essays papers

Strategies for Reviving the Japanese Economy Introduction 1. Assessment of the Current Economy The Japanese economy has begun to show some signs of change as the effects of recent large-scale economic packages have gradually helped to stop the severe economic downturn. But despite this progress, private demand as a whole remains stagnant. Therefore, the economic prospects for self-supported recovery are still uncertain once the economic effects of the last packages have phased out. The fundamental problems pertinent to the weak economy are twofold. First, the true adjustment of the burst of the bubble economy is still insufficient. Second, against the background of the sharp decline in the number of births and the rapid aging of the population, the pace of which has not been experienced in other industrialized nations, the "Japanese system"--the engine of the country's astonishing high growth in the postwar era--has turned problematic with regard to economic growth. First, fears about employment prospects, future pension plans, and the sharp rise in government deficits are obviously restraining an economic turnaround. These fears are attributable to eroding sustainability in the Japanese-style wage and employment systems and the generous social security system. To cope with the situation, provisions of renewed safety nets are urgently needed. Furthermore, the rising fiscal deficits are restraining economic upturn by making people serious about future tax hikes and raising long-term interest rates. Measures to restore government fiscal balances in the medium and long term are also required. Second, the Japanese social system, which has looked highly on across-the-board equality, has generated a bloated public sector and inefficient resource allocation. Typical examples are excessive regulation, overprotection, lack of self-reliance, and the "convoy" system. To cope with these problems, a new system needs to be built in which all production factors such as capital, labor, and land should be best allocated in a more efficient way through fundamental reforms in the public sector and full utilization of the market mechanism. Third, a Japanese management style that depends on unrealized capital gains has become obsolete by international standards, and has made the new challenge difficult. The Japanese financial system of indirect financial intermediation, which is based on land as collateral, has been malfunctioning. A new business management as well as a new financial system that will fit the Japanese economy in the 21st century need to be established early, so that the abundant savings of Japan are best mobilized for economic development in the next century.