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Tuesday, April 10, 2001

Reasons to thank Mr. Mori


Since he took office a year ago, Prime Minister Yoshiro Mori has seen his popularity nosedive as a result of a series of gaffes he committed. Now that he is set to resign in late April, let me review the role the Mori administration has played.

During Mori's tenure, stock prices plunged and deflationary pressure mounted. I don't blame him for this, because managing the economy is far more difficult than it was 10 or 20 years ago. To put it another way, the economy is much less controllable than it was. So, no matter who is prime minister, it is almost impossible to revive the economy quickly.

Setting economic priorities in "either-or" terms of growth or reform blurs the real economic picture. True, public-works spending has contributed little to growth. But any administration, not just the Mori Cabinet, would have had no choice but to step up such spending.

The fact is that fiscal and monetary policy has become much less effective in stimulating the economy, thanks to accelerated market liberalization, economic globalization and postindustrial development.

There is no question that structural reform is badly needed. But government-imposed reform, as opposed to reform by private-sector initiative, is not likely to turn the economy around in a short period and perhaps even in the longer run.

Structural reform is a catch-all phrase, so there is not much sense in merely saying that delays in structural reform are primarily responsible for the slump in the market. Share prices have plummeted because there is no policy menu for creating a free, transparent and fair market -- which is what structural reform is all about.

The task for the government is to draw up specific policy plans and set clear-cut policy priorities. A "wise government" should push structural reform while taking steps to ease its side effects, such as unemployment and bankruptcy.

Stimulating growth is one thing and promoting reform is another. These are not alternatives; they should be pursued in tandem. No doubt the Mori administration neglected to push reform, but it also fell short in spurring growth. It continued to give the ailing economy large doses of an ineffectual medicine -- massive public-works spending.

What Mori did was essentially a continuation of what his predecessors had done. In this sense, he is only partly responsible for the deterioration in the economy.

Mori trumpeted his enthusiasm for the "IT (information-technology) revolution." So far, however, it has proved to be a dud. It has only encouraged those incorrigible optimists who see it as the key to economic revival. The IT revolution is not much different from the panaceas they prescribed in the 1990s.

There are positive and negative sides to everything. The market is quick to see the positive side, but often ignores the negative side. Economists ought to shed light on the negative side and recommend ways to ease those bad effects. Many Japanese economists, however, look only at the positive side, effectively giving up their role as objective analysts. This is also true of the prime minister's economic advisers, who lack a critical spirit.

It is said that the KSD bribery scandal and the Foreign Ministry embezzlement case dealt a fatal blow to the Mori administration. Even so, Mori's exit can be seen in a positive light if these episodes helped break the cozy ties that bind politicians, bureaucrats and industrialists. In this sense, he may have done the nation a great service.

Looking back, the 1990s was what I call a decade of ethical paralysis. During the bubble economy of the late 1980s, commentators would tell the people: "The time is past to earn money by the sweat of your brow; now is the time to invest money by using your brains." In fact, many Japanese began despising traditional virtues like hard work, diligence, sincerity and honesty.

Thus began a period of ethical paralysis. Politicians, bureaucrats, executives and ordinary citizens alike looked down on these virtues and felt few qualms about doing wrong or being lazy. Mori may have ended this moral stupor, if only by default. In other words, he may have helped bring Japan's "lost decade" to an end.

Indeed, Mori may well have relieved us of the heavy hangover consequent upon the 1980s binge. If so, the job of building a new Japan rests on the shoulders of his successors. Now that Mori has, for all practical purposes, put the negative legacies of the bubble economy behind us, the challenge for future administrations is to craft new social and economic systems for the first decade of the 21st century.

This decade promises to be a period in which side effects from postindustrial development, such as the IT revolution and economic globalization, will become more pronounced. Among these effects are a widening income gap between nations and between individuals, increasing economic risks and uncertainties, and a growing tendency for free competition to create a handful of big winners.

A resurrection of the Japanese system is unthinkable. But then, there is no assurance that the American system will prevail, either. The task for the next administration is to start building innovative systems by anticipating changes in the decade ahead and adapting to them in advance.

During the "lost decade," the quality of leadership, particularly political leadership, suffered severely. This is shown clearly by the muddled process of succession in the Liberal Democratic Party, which continues to grope for its new leader, who will be the next prime minister of Japan.

If the incoming administration fails to begin building new systems for the 21st century, the next 10 years will turn out to be another lost decade. The hope is that politicians of all stripes will get their act together and that both the ruling and opposition parties will try their best to recruit more talented people to run in future elections.

Takamitsu Sawa, professor of economics at Kyoto University, is also the director of the university's Economic Research Institute.


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