*This
is a translation of an article by Yoichi TAKAHASHI, PPPC Chairman
/ Kaetsu
University Professor, written for Gendai Business website on October 21, 2013
What will be Prime Minister Abe’s
‘third arrow’ be like? It will be revealed by the contents of the bills
submitted in the current extraordinary session of the Diet.
The effects of Abe’s ‘first arrow’
and ‘second arrow’, fiscal and monetary policy, will only be observable in 1-2
year. More precisely, the effects of fiscal policy will be seen in one year
while the result of monetary policy will be evident after two years. Actually
the effect the fiscal policy is getting to be evident as there was the 10
trillion yen of supplementary budget compiled in January. On the other hand,
the government started the relaxing monetary policy this April and while there
were certain progresses already, its real effect will be evident from around FY
2015 or so.
Meanwhile, the Cabinet announced
to raise the consumption tax rate from April 2014, and its negative effects on
the country’s economy will surely be apparent within the year. This is why the
author has insisted a compilation of some 20 trillion yen of supplementary
budget to mitigate its negative effects on the nascent economic recovery in the
past column (as of Sep 23, http://gendai.ismedia.jp/articles/-/37067). This is because
possible positive effects of the monetary seen will likely be yet to be seen in
FY 2014, and some further additional relaxing measures will be late anyways if
taken (additional relaxing measures should be taken, indeed).
Bureaucrats never successfully
sketched the “industrial policy” in the past
While the fiscal and monetary
policies have comparatively short-term effects, the effects of ‘third arrow’
growth strategy will be evident in at least five years. The calculation on ‘third
arrow’ assumes at least two years in elaborating and passing necessary
legislations in the Diet, and effects of such legislations will finally be
observable after three years. Needless to say, it is not to say the ‘third
arrow’ is unnecessary and we must go on with it.
In fact, when the author took
part in the Koizumi administration, we undertook the deregulation alone without
doing an industrial policy. The bureaucrats in the Economy and Trade Ministry,
when they speak of growth strategy, would always bring the idea of “industrial
targeting policy” that is groundless in the economic theory and “public-private
fund” which would cause further wasteful spending.
From the beginning, the term “industrial
targeting policy (or industrial policy)” is an incomprehensible concept in
English. Some foreigners would laugh at the term saying “How would the
government officials having no experience of private management know how to
draft a growth strategy? Impossible.” On the contrary, ‘deregulation’ is a
universally common language.
Having worked in the Ministry of
Finance myself, the author has seen the failures of such industrial targeting
policies. Japan Key Technology Center, for example, was established in 1985
funding 280 billion yen but it ended in recovering only 800 million yen, so the
taxpayers’ money were just thrown in vain. The fifth-generation computers and
sigma projects were similarly large-scale wasteful public works. The government
ministries would always fail in financial investment as they are irresponsible
for the results.
In this sense, Abe’s ‘third arrow’
should entail the “deregulation” alone. Still, some members of the Cabinet
still prefer the “industrial policy,” it seems.
Awful media phrasing “special
economic zones to make it easy to fire employees”
The 185th
extraordinary Diet session convened on Oct 15 is the first full-fledged session
since the ruling bloc has enjoyed a comfortable majority in both chambers.
There the focus of attention has shifted from the interparty to intra-party
confrontation within the ruling bloc. The Cabinet bills on the Industrial
Competitiveness and National Strategic Special Zones actually depicts the
confrontation between the “industrial policy” and “deregulation” schools in the
ruling bloc.
The bill on Industrial Competitiveness
is an industrial-promotion-plan to give specific shapes to the growth strategy
of the Cabinet’s economic policy dubbed “Abenomics.” While it is more like a
governmentally-led “industrial policy,” officially, it entails an aspect of “deregulation”
phrased as “special economic zones for corporations.” Nonetheless, this “special
zones for corporations” does not touch on the country’s ‘bedrock’ regulations
such as agriculture, medical care, education and labor. It is centered on
differential supporting measures to the companies such as
that the companies will get benefits if they listen to the Ministry of Economy,
Trade and Industry. Anyways, there is a great concern because it entails no
specific reform menu so far.
On the other hand, the bill on
National Strategic Special Zones aims to undertake deregulatory measures in
certain local areas. It is a realistic approach to do reforms locally because
there is a strong opposition of the vested interests nationally. It had
entailed specific reform menus and there were certain advancements in 10 out of
15 policy fields. There will likely be certain levels of accomplishment of “deregulation”
in 1) regulation on the number of beds in hospitals, 2) medical treatments not
covered by public insurance, 3) new medical schools, 4) privately-managed
public schools, 5) floor-area-ratio regulation, 6) area management in urban
planning, 7) use of residential apartments for accommodations, 8) application
of credit insurance to agriculture, 9) expansion of farmland-use, and 10) use
of historical buildings. Also, there will be some progresses in themes such as
admitting medical practices by foreign doctors, terminable employments and
specification of labor rules for dismissing employees.
Another great concern is the very
different attitude of mass media toward the bills. The media are full of
articles admiring the bill on Industrial Competitiveness in line with the
lectures given by the METI bureaucrats. In the meantime, it was ridiculous that
they phrased the Special Zones bill’s labor part as “economic zones to make it
easy to fire employees.” The actual content of the bill is just a specification
of employment rules, aimed at attracting foreign companies and employees with
high expertise. While the Ministry of Health and Labor, the main opposition
actor, insists it is inappropriate to make differences inside and outside of
the special zones, the point, then, is to make specific, nationally-uniform
labor rules.
While Asahi newspaper reported
that “it will be possible for companies to pledge dismissing employees if they
are late, and the companies to actually fire them when they are really late,”
it is against the public order and commonsense as well as the guidelines for
the Special Zones. Financial Times, on the other hand, wrote the possibility of
breaking through the duality of labors widely divided to regular and
non-regular employees in this country, reflecting a more accurate understanding
on the legislation.
Obviously it is an exposure of
the fact that Japanese mass media are subordinate to the central government
ministries.
Let’s watch the Diet to consider
which school is more growth-oriented in a true sense
Following the twitter of the
world’s top economist Barry Eichengreen, U.C. Berkeley Professor, the author of
this article found an article titled “Japan Rising? Shinzo Abe’s Excellent
Adventure.”
Citing a phrase of Henry
Wadsworth Longfellow “I shot an arrow in the
air, it fell to earth, I knew not where.” Eichengreen stresses a high
expectation on the ‘third arrow’ while comprehending its difficulty. Plus,
Eichengreen goes on by pointing that the ‘third arrow’ will bring
disadvantageous effects to the existing vested interests at this point.
Probably Eichengreen would not
think that there are two kinds of ‘third arrow’; one is the “industrial policy”
which brings benefits to the vested interests; the other is the “deregulation”
by which the vested interests lose the benefits. Perhaps Eichengreen’s
expecting tone reflects his understanding that the ‘third arrow’ refers to ‘deregulation’
alone. Maybe the term “industrial policy” doesn’t exist in the mind of an English-speaking,
American economist as a concept.
In Diet policy discussions, the
opposition parties should consider and compare the differences between the
contents of the Industrial Competitiveness bill of “industrial policy” and the
National Strategic Special Zones bill as “deregulation” measures carefully.
Looking at which parties would support which bill, we will know which political
parties are more growth-oriented in a real sense.
