Economic white paper

Mainichi Shimbun, 17 July 1999

The Economic Planning Agency has put together the white paper on the economy for fiscal 1999. Subtitled Challenges Toward an Economic Revival, it is the 53rd white paper of the postwar era. It focuses on three main themes: economic stimulus measures implemented by the government, corporate restructuring and new approaches to managing risk.

The gist of the white paper is that while government measures to bolster the economy have had a positive effect, the economy is still plagued by structural weaknesses caused by the bursting of the bubble economy. Companies are weighed down by triple surpluses in personnel, plant and equipment, and debts, and a self-sustained recovery led by private-sector demand has yet to materialize. It notes that the shortcomings of traditional Japanese management practices have hindered a full-fledged recovery.

In order to minimize the negative impact of restructuring programs and encourage bold investments into promising ventures, the report proposes new approaches to distributing and managing risk. It also envisions tapping into the large reserves of household savings to cover the shortages in investment funds.

The white paper begins with an admission that there has been an underestimation of the impact of the bubble's collapse and that necessary reforms have been put off out of expectations that the markets would eventually recover of their own accord. We have no argument with this summarization. But we remain somewhat skeptical of its conclusion that the government's swift and large-scale countermeasures have adequately dealt with the three major sources of the downward business cycle: the slowdown in normal business activity, loss of confidence in the financial system, and household anxiety about the future.

The reason for the skepticism is that the improvements on these three fronts have been brought about by highly precarious emergency measures. Outstanding long-term debts of the national and local government combined now total 600 trillion yen; financial stabilization measures and credit guarantees for small and midsized companies have reached 60 trillion yen and 20 trillion yen, respectively; and the Bank of Japan has guided interest rates to almost zero percent. These are hardly normal steps.

The white paper does take note of their abnormality, but the public deserves a fuller explanation. We need to know the potential problems these measures may trigger in the future, whether they will resolve themselves of their own accord once a recovery is in gear, and what potential moral hazards their implementation may entail.

The second chapter dealing with corporate restructuring offers a convincing analysis of the background factors and current realities. But it offers few specifics on what companies can do to keep the negative consequences of restructuring to a minimum.

The paper's final section proposes that households place more of their savings in mutual funds and other investments that carry higher risk but promise higher returns as a way of financing new ventures, given the current reluctance of banks to extend lending. The white paper seems to be suggesting that we emulate U.S.-style risk-taking, but most households are unlikely to jump right in. They are more interested in seeing companies fully clear the bubble's legacy before committing their savings to new, riskier investments.