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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: fred woodall who wrote (18643)	4/8/1998 10:55:00 AM
From: derek cao	Respond to of 70976

Intereting IBD article on Japan. I agree on most of its opinions. E D I T O R I A L Restructuring Japan Inc. 'S Date: 4/8/98 ame old, same old'' doesn't cut it anymore. Not for Japan anyway. Its latest stimulus package - a Keynesian mix of $124 billion in tax cuts and spending hikes - will likely fall short in lifting Japan from its economic mire. President Clinton had it right when he said last week that Japan must break with its past policies. So did Sony Corp. chief Norio Ohga in warning that cutting taxes would not be enough to emerge from the current slump. The market capped the bad news with Moody's Investors Service tarnishing the country's once-gleaming credit rating. The leaders of the world's second-largest economic superpower must think through matters in true market terms. That means being willing to accept market consequences quickly and openly. It means allowing failures now in order to reap successes over the long haul. That plainly is not, and has not been, Japan's mind-set. For years, Tokyo could afford to look past its internal problems while its export-driven good times roared. Now, as its lending problems in Asia mount, Japan must look inward for economic growth. But it's failed on most moves in this direction. The government, for instance, sought to spark consumer spending and enacted an income tax rebate last year. But with the other hand, it hiked the sales tax rate to 5% from 3%. Former Federal Reserve Gov. Wayne Angell, for one, urges a quick repeal of the sales tax hike. The Japanese economy requires an even more general overhaul. Leaders are talking about tax cuts, and they would be welcome. But they're only a first step. Practices that have long irked outsiders still hamper people inside Japan who could help reverse its fortunes. Japan must take more steps to end the cozy capitalism that has insulated various sectors from the market. Take the stimulus package Prime Minister Ryutaro Hashimoto is expected to detail Wednesday. Tokyo has traditionally favored priming the economy with spending booms. The current package will be little different, with domestic spending initiatives playing a major role. Huge sums get poured into concrete and construction with little thought as to whether such projects can sustain economic growth. Another problem Japan has yet to overcome is that it forges policy backwards: Unveil the overall number in a stimulus deal first and then find the particulars to make the figures work. The problem is, the final numbers often don't come close to the announced figure. The Brookings Institution's Ed Lincoln, who was an aide to former U.S. Ambassador to Japan Walter Mondale, pegs the fudge factor for such deals at about 50%. Following this pork- barrel path since World War II was easy when exports fueled Japan's way. Now it's an export-minded economy starved for internal demand. Savings rates still run high, with the Japanese saving 2 1/2 times as much as their U.S. counterparts as a share of disposable income. One reason is that high savings rates are a response to high prices brought on by a lack of competition that stems from heavy government interference. Indeed, many Japanese who travel outside their country - most notably to Hawaii - can be seen coming out of drug stores and clothing shops with bags full of such staples as shampoo and socks. Business start- ups have hardly been encouraged. The number of permits and official OKs needed to begin a business would appall an American entrepreneur. And without longstanding relationships with banks, venture capitalists can barely operate. Some positive steps have been taken. Back in August '94, for instance, rules on venture capital were eased, and a year later the Diet passed measures to support such ventures through improved tax and financial treatment. But these baby steps will not do the job. For Japan to work its way out of its stagnation, it must trust the market - and its own people.