[Editorial] Japan’s Economic Reforms

The Japanese economy is rapidly moving forward. Last year on the New York foreign exchange market, the Japanese yen was strong against most currencies including the American dollar. That is because Japan’s December increase in machinery orders was 6.8 percent above estimated figures. It is a sign that Japan’s facility investment is coming alive. Bloomberg Media has predicted Japan’s 2005 fourth quarter, or the period from October to December, growth rate to be five percent. This number is much higher than the estimated growth rate of 1.1 percent for the U.S. and 0.4 percent for the 12 major European countries. Japan is now finally reaching long-term prosperity.

In an interview with the Korean media the day before yesterday, Minister for Economy and Financial Services Heizo Takenaka mentioned a “small government” and “loosening regulations” as the key to prosperity. “Make a small government and continuously reduce regulations to promote private economy and make the economy grow.” He even said, “The fate of the country will depend on the reforms in the public sector.” In fact, after privatizing the postal service last year in order to make a “small government,” Japan plans to cut the GDP to public worker wage rate in half in the upcoming 10 years.

On the issue of solving the issue of the gap between the rich and the poor, Minister Takenaka said, “This is not an issue of the government’s size but an issue of what policy to choose and how to use manpower. Boosting the economy comes before tax hikes, and tax income should be augmented by growing the economy. In the 1980s and 90s, the Japanese government became bigger but so did the gap between the haves and have-nots.”

At this year’s New Year address, President Roh Moo-hyun, advocating to solve the wealth disparity, emphasized the need for a big government and tax hikes. His logic is that in order to create jobs and establish a welfare system, more taxes and more governmental workers are necessary. Whether President Roh or Minister Takenaka is right is determined by the economic figures that major developed nations have recorded during the past three years.

The U.S., U.K., New Zealand, and Ireland recuperated economic boosts through the Takenaka method during the 1980s and 1990s. The high growth rate of China and India also originates from the dynamic private economic sector. When the private economic sector is active, opportunities for new businesses and new jobs are created, leading to growth and a narrowing income gap. The Roh administration’s “Big government, spider web regulations” will only deliver low growth and the expansion of the low-income class.