Action 9. Make Japan More Attractive as a Location for Business

Without economic growth, the various problems facing Japan will not be resolved. Without a “strong economy,” the source of a nation’s power, a nation is unsustainable. If the economy weakens, a vicious cycle emerges in which unemployment rises, tax revenue drops, government finances collapse, and investment in technology development and human resources declines. Japanese administrations until now have just been injecting adrenalin into a sick body. But now the money for these adrenalin shots is on the verge of running out. The government needs to stand up and come to grips with implementing structural reform.

1 To Improve the Health of the Economy, Three things are Required: Opening Up Japan (FTAs and the TPP), Increasing Japan’s Appeal as a Place for Doing Business, and Innovation through Dynamism
What needs to be done now is to transform the fundamentals of economic policy. When a body is sick, it is essential to dramatically improve its health, not just give it short-lived stimulation. To improve the health of the economy, the following measures will be required:
1. Opening the country up (FTAs and the TPP): Through economic cooperation and free trade, open up the economy and make this a country where people, goods, money, knowledge, technology, information, and so on can flow in and out freely. (Action 8)
2. Increasing the country’s appeal as a place for doing business: By eliminating the bottleneck presented by the country’s high rates of corporate tax, boost Japan’s appeal as a place for doing business. (Action 9).
3. Innovation through dynamism: Proceed aggressively with deregulation to encourage new market entrants, leverage innovation to ensure that the capabilities of the private sector are demonstrated to the maximum possible extent, ensure that the level of dynamism is adequate, and make this a country that is overflowing with so much vitality that new companies are continuously being born. (Action 10)
2 Reduce the Corporate Tax Rate
To make Japan more attractive as a place for doing business, it will be essential to cut the effective corporate tax rate to international levels (25-30%). We often hear people saying that “if corporate taxes are reduced, tax revenues will decline, and there are no fiscal resources to make up for this.” However, if corporate taxes are reduced, revenue from corporate taxes should actually increase over the medium to long term. If corporate taxes are cut from 40% to 30%, companies’ net income will rise by more than 10%, so their share prices will also increase. Moreover, if Japan is made more attractive as a place for doing business, it will be possible to attract investment. The most important thing is to make Japan a more attractive place for doing business, attract factories, investment, and human resources, and increase the density and speed of economic activity.
3. Overcome Rigidity in Labor Practices
Japanese labor practices are the most rigid in the world. The idea of paying for time is a pre-modern one that emerged when factory labor was predominant. But in the case of knowledge-based work, results are more important than time. Views on ways of working must be fundamentally transformed, rules concerning dismissal restrictions must be scrapped, the Worker Dispatch and the Labor Contract Acts must be amended, the principle of the same pay for the same work must be put into practice, and so on. In other words, a massive reform that will transform labor practices from the foundation is required.
4. Implement Human Resources Strategies and Correct Labor-Market Distortions to Make Japan More Attractive
To make Japan more attractive as a place for doing business, it will be necessary to strengthen the country’s education, which is the source of its human resources. Urgent tasks are to strengthen English education, expand higher education that involves collaboration with the business world, enhance professional skills, nurture and give play to a spirit of entrepreneurship, and so on in order to improve the quality of labor. It will also be important to promote dynamism at companies, break free from the war of attrition that resulted from excessive competition that continued for a long period of time, encourage M&A activity to promote industry realignment, and increase scale to facilitate competition at the global level.
Finally, to implement these policies, the government will need to be equipped with an organization for managing economic growth strategy. Under the Liberal Democratic Party government, the Council on Economic and Fiscal Policy has been reorganized, and the Industrial Competitiveness Council is also engaging in a vigorous exchange of opinions. It will be important for a control tower that is entrusted with powers to continuously draft, implement, and review comprehensive policies.