Reform initiative faces setback

小泉改革の後退

This is evident in the way the Koizumi administration is trying to fight deflation. An antideflationary package in the works focuses on accelerating banks' bad-loan writeoffs, expanding outright bond purchases by the Bank of Japan and easing the credit crunch in the small-business sector. While these steps are necessary, one wonders whether the government is trying to revive the economy in the name of "counter-deflation measures."

Deflation is a serious problem. Falling prices with lower output reduce sales and incomes, throwing more companies out of business and more people out of work. This discourages consumer spending, leading to further deterioration in the economy. The trend, if not reversed, could touch off a deflationary spiral with dire implications for the global economy as well.

The government has been saying for some time that deflation is not yet spiraling out of control. And Mr. Koizumi has repeated that "without structural reform there can be no economic recovery." Now, however, he seems to be saying, in effect, that without beating deflation there can be no reform. It appears the prime minister is edging ever closer to antireformers in his own party, as well as corporate executives and private economists, who all put growth before reform.

So far Koizumi has stood up to the "pro-growth" forces that blame deflation for the protracted slump and call for "controlled inflation" as a way out of the slump. If he is now coming around to their view, he is in for public criticism that he is betraying those who have believed him all along.

Deflation needs to be put in perspective. For the past few years consumer prices have continued to decline, but at a modest rate of less than 1 percent a year. Price declines in high-tech products, such as personal computers, reflect cost reductions due to technological advances. Many items imported from lower-cost Japanese factories in developing countries, such as apparel made in China, have also dropped in price.

While price declines in the service sector partly reflect decreasing demand, it is also true that cost cutting and other restructuring efforts have reduced prices for many kinds of services. Lower wholesale prices and resultant cost reductions have improved the terms of trade in the manufacturing sector.

Japan is one of the most expensive countries in the world. Changing that high-cost structure must remain a key objective of structural reform. So it is essential to take advantage of the falling prices to develop a high-profit structure. On average, pretax profits account for less than 5 percent of sales in Japan, compared with more than 8 percent in the United States. The biggest reason for this is Japan's high labor costs. To win international competition, Japanese producers must either cut wages in line with worker productivity or raise productivity to levels matching the high wages.

Falling prices give businesses an opportunity to bolster their earnings at home and reduce pressures for a production shift to lower-cost locations overseas. The government's role here should be to support corporate efforts in this direction. Bad-debt cleanup in the banking sector is an essential condition for industrial and corporate rejuvenation.

The government and the central bank, therefore, must take the right steps to fight deflation. If monetary and fiscal policy is tilted heavily toward halting the downward price trend, the final answer may have to be found in inflation targeting. Inflation, however, will dampen corporate efforts to bolster earnings.

Earlier this year, the government, working in tandem with banks, rescued Daiei, the leading supermarket chain, through debt waivers and other bailouts. When general constructor Aoki Corp. collapsed, Mr. Koizumi commented that it was a "sign that structural reform is well under way." Daiei may be "too big to fail," given its potential impact on jobs and clients, but from the viewpoint of reform, that alone is hardly a sufficient explanation for why Daiei was saved and Aoki was not.

No doubt the structural reforms launched by Mr. Koizumi present such daunting challenges that they cannot possibly be accomplished under a single administration. Perhaps the prime minister wanted to at least lay the groundwork for the needed changes. Now, however, even that preliminary mission appears increasingly difficult to achieve.

The Japan Times: Feb. 28, 2002
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     首相は「構造改革なくして景気回復なし」と主張してきたが、今や、デフレ克服なくして改革なしということか。改革に抵抗する自民党内外の成長推進派は不況の原因がデフレにあるとし、抑制されたインフレを求めているが、彼らに対抗してきた首相が今になってその意見に同調すれば、支持者を裏切ることになる。

     デフレ克服には長期的視野が必要だ。ここ数年消費者物価は年に1%の割合で下降してきた。ハイテク製品の価格低下は技術の進歩によるコスト削減効果の表れだ。海外日系企業からの輸入品の価格も下がっている。サービス業の料金低下は需要減少の反映でもあるが、合理化の影響もある。卸売価格低落によるコスト削減で、製造業の取引条件は好転している。      構造改革の主な目的は高コスト構造を変えることで、低価格を高収益構造確立に活用することが大切だ。日本企業の平均税引前利益は米国の8%以上に対し5%だが、これは人件費の高さに起因する。製造業が国際競争に勝つには、生産性に応じた賃金カットか、生産性を高賃金に見合う水準まで向上させなくてはならない。

     価格下落は企業にとって国内の収益性を改善し、低コストの海外拠点への生産移転に対する圧力を弱める良い機会だ。政府の役割は、企業をこの方向に導くよう支援することだ。産業と企業の再生には銀行の不良債権処理が必須だ。従って政府と日銀はデフレとの闘いで適切な措置を取らねばならない。金融･財政政策が価格下落防止に傾いた場合、最終的な答はインフレ・ターゲッティングに求められるだろう。しかし、インフレは企業の収益増への努力をそぐことになる。 　小泉政権が着手した構造改革が、一つの政権だけで達成できない難問であることは間違いない。首相は改革の下地作りをしておきたいと考えたのだろうが、今や、それさえ達成が難しくなってきている。

The Japan Times Weekly
March. 9, 2002
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