# Do structural reforms have anything to do with the recession in Japan?

- Author: Joichi Ito
- Date: 2003-01-04T13:05:19Z


I'm still working on my Blueprint for Japan 2020 for Davos and focusing on trying to figure out what we need to do to "fix" Japan. I'm digging around trying to define the problem.

The biggest problem is the recession, but it's just one piece. It's also a very visible piece. There are other less visible indicators such as the lack of entrepreneurs, high suicide rates, mental health problems, lack of political participating of the people, lack of diversity in politics, huge media companies with little diversity, 4% of the universities providing over 30% of the CEO's for public companies, the medical scandals, a judiciary that is unable to enforce the constitution, the difficulty in filing claims against the government and corruption at many levels. 

Reading Hiroo Yamagata's interesting proposal (from 1998) to increase VAT to simulate inflation, based on Paul Krugman's proposal in Japan's Trip. He says:Hiroo YamagataBut wait! You've been reading the papers, and they say that structural reform and bank clean-ups are essential for Japan's recovery! What about those? Well, those are definitely good things and should be pursued in their own right. But neither have too much to do with the recession.

I think he has a point, but I think that's not a reason why we shouldn't continue to push structural reform. Although reforms don't have as much of a direct effect on the macro-economy as people say per Hiroo's argument, it's difficult to have a healthy economy without entrepreneurs, a healthy, open market, transparency and a democracy that people trust. I think that it is much easier to cause reform during a down market because people are willing to bite the bullet and change in order to survive, power-structures are more fragile and susceptible to change and people are in pain and possibly willing to become more politically active. Now there are a lot of "maybe's and might's" here but I think that when people are happy shopping and getting paid for doing almost nothing, it's pretty hard to stage a revolution. I guess one might argue that we don't need a revolution in Japan, but I think that without one, we won't be able to change into a truly functional democracy. Without a democracy, it is unlikely that Japan can be a global player in the 21st century. Again, a pretty bold claim... So now I think I've identified my homework.

Is there really a problem with Japan or are people just upset because of the recession?
IF there is a problem, how do you cause change? (You need power to change and you don't have real power in Japan unless you are on the inside and therefore unlikely to change.)
Will structural reforms, in the long run, help the economy?

I guess one of the short-term questions that I have to answer is whether we should talk about the economy and involve a bunch of economists in the debate or focus on democracy and deal with the law professors and politicians. ;-)





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Reforming Japanese Democracy