Decisive action needed to rev Japan's still-stagnant economy

Opinion from "USA Today" March 16, 2000

Reports out of Japan this week show that the nation's economy contracted in the second half of 1999, a flop back into recession that threatens to pull the rest of Asia, and in time Western prosperity, down with it.

Coming after a hopeful spell early last year, the news signals that financial woes aren't yet behind the world's second-biggest economy. And that's bad news for countries consigned to watch anxiously from the sidelines.

The newly recovering parts of Asia need Japanese buyers for their exports. Stock markets wobble on Japan's continued bad news. And the USA can't continue indefinitely to drive the world economy with its shopping; Japanese firms and consumers, their private savings bulging, need to help.The Japanese government has gone into debt trying to shop in consumers' place, spending over $600 billion since 1992 on railroad building and other stimulus projects. Indeed, it might seem Japan couldn't possibly try harder to pull itself out of the doldrums.

Yet things are not as they appear. Many of Japan's efforts have been half-hearted, with programs sputtering out. As this week's statistics show, Japan's stimulus programs rev up the economy in the first half of a given year, then choke. Some taxes are cut; others raised. Now Japan is poised to repeat the stimulus pattern with its upcoming budget.

The parliament has introduced deregulation laws intended to unharness business activity. But bureaucrats protect their cronies in old industries. In the delivery business, for example, deregulation has been spread over 15 years.

Companies and economists recognize the need for the sort of restructuring that first hurt, then re-energized U.S. firms. But few act. Japanese banks riven by bad loans, for instance, promised to lay off workers, but most have yet to do so.

Japanese investors see that not much has changed. So even though Japan sets interest rates at zero -- the only industrialized nation to try to lend money for free -- few investors are inspired to borrow.

Meanwhile, unemployment, at 4.7%, is at its highest in decades. Businesses are contracting. Prices and wages are falling. Japanese citizens, worried about their jobs and pensions, spend less with each passing month.

Only new businesses and workers can stimulate Japan's economy of aging, rich citizens and mature, coddled firms. Yet Japan remains in denial about the need for radical change.

There's a grave need for Western leaders to redouble pressure on Japan to heal itself. How? By pushing for more deregulation, experiments and follow-through. Their next opportunity to exert international influence will come in July, at a G7 meeting in Okinawa.

There may be a glimmer of hope. A mini-boom in Japan's stock markets shows that the Internet is catching on with the Japanese public and entrepreneurs. If bureaucrats would free up their lock on telecommunications, then a new-economy revolution could build a new Japan right in the moonscape of the old one.

Barring another concerted government push for change, such a new-economy recovery may be the best Asian states and the West can hope for.

It's an increasingly uncomfortable wait.

Opposing View (Japanese reforms well on track)

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