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"postal savings account for 260 trillion yen of the estimated 1,300 trillion yen in private financial assets in Japan"

At 110 yen/dollar, this is $11.8 trillion


Speech by
Mr.Yoshihiko Miyauchi,
Chairman of Regulatory Reform Committee
at Foreign Correspondents' Club of Japan
May 26, 2000

Good afternoon, ladies and gentlemen.
Thank you very much, Mr. Neff, for a very nice introduction of myself.
This is my great pleasure to be here and also an honor to be asked to talk about the deregulation movement in this country at this esteemed Foreign Correspondents' Club of Japan.
I happen to have been an associate member for almost 20 years but I seldom come to this place. This is the really good time to see fellow members at this luncheon meeting.

I personally have been involved in deregulation issues - now the term became "regulatory reform" instead of "deregulation" - for about ten years as a member or chairman of government committees. Throughout these years I have been driven by the belief that the Japanese economy will only be able to continue to develop if markets are liberalized and market forces dictate the efficient allocation of resources. For a very long time this has been a minority view in Japan, where politicians, bureaucrats and also my fellow businessmen preferred the comfort of protection and control. Many of them still believe economic recovery can be attained through government fiscal policies.
As you know, sustained economic recovery has eluded us for around a decade. The government has attempted to boost the economy through increased government spending. Despite the active fiscal spending of the last few years to stimulate the economy, however, it seems clear that fiscal policy has reached a limit in its ability to spark demand. There has been over 120 trillion yen worth of economic stimulus packages to prop up the economy since the burst of the bubble economy. The combined long-term debt of the national and local governments at the end of this fiscal year will be around 645 trillion yen, or close to 130 percent of GDP.

What this means, I believe, is that the only way to revitalize the Japanese economy is through structural reform. However, one of the problems with structural reform in Japan is that the government is too involved in economic activity itself, in terms of both its economic activities and regulations. For example, postal savings account for 260 trillion yen of the estimated 1,300 trillion yen in private financial assets in Japan, or that is roughly 20%. There will not be a real financial "Big Bang" until these assets move to the private sector. In terms of regulation, the government still places many restrictions on private economic activities. According to one estimate, 42.3% of Japanese industry is regulated in various manners.
It is clear, therefore, that one of the important pillars of structural reform is of course deregulation or regulatory reform. While I have been publicly pushing the idea of a market economy in Japan for close to a decade, we are finally beginning to see some progress in the last two or three years, even if sometimes changes has been slow.

The promotion of deregulation in Japan was started in the early 1980's, when the main objective of reform was the simplification and rationalization of administrative procedures. In the latter part of the decade, the discussion of deregulation began to include structural reform of Japan's economy. That was also when some progress was made on privatization of three large public companies. Those are: Japan Railways, NTT and Japan Tobacco.
In spite of these initial efforts, I think full promotion of deregulation was not started until the middle of the 1990's. By then, more people finally understood the importance of deregulation and came to support it.
In December 1994, the "Administrative Reform Commission" was established in the Prime Minister's Office; four months later in March 1995, the government adopted the so-called "Deregulation Action Program". This was the first comprehensive program that covered all ministries and agencies. Then, the "Deregulation Subcommittee" under this Administrative Reform Commission was established in April 1995. I took part in that subcommittee. This subcommittee surveyed the items included in the Action Program and discussed new items. The Action Program was revised every year, reflecting the discussions of the subcommittee.
The Administrative Reform Commission was dissolved in December 1997. In order to continue work on deregulation, the "Deregulation Committee", chaired by myself, was newly established in January 1998. Two months later, at the end of March 1998, the government adopted "Three-Year Deregulation Program" (the so-called New Program). The Deregulation Committee was changed to the "Regulatory Reform Committee" in April 1999.
With the name changed, the scope of the Committee was widened, to discuss not only deregulation or regulation but also tax and subsidy issues that are closely related to regulation. At the same time, the members of the committee were increased and the committee's secretariat was reinforced.

I do not have time today to go into the details of the Committee's activities and organizational structure, so I will ask you to refer to the handouts for reference of the action program, as well as a history of regulatory reform and a list of members of our committee. However, I would like to stress two important characteristics of both the former Deregulation Committee and the present Regulatory Reform Committee that replaced it.

First, we now have an established forum for continued promotion of regulatory reform. This encompasses both the proposals for new reforms and the systematic monitoring of previous proposals. In this way, we try to push the government into acting on proposals and we actively monitor the progress that has, or has not, been made.
Second, we have direct access to government and politicians. The Committee is under the Cabinet Headquarters for Promoting Administrative Reform, which consists of all government Ministers. The director-general of this headquarters is the Prime Minister, and the deputy director-generals are: Chief Cabinet Secretary and the Minister of State for Management and Coordination. In this way, we have direct access to Cabinet. We aim to keep important items on the agenda and continue to persuade politicians to act on the proposals of the Committee.

In addition to the establishment of a system of continued promotion and monitoring of regulatory reform that I just described, we have seen some real economic benefits as a result of deregulation so far. According to the Economic Planning Agency report in January this year, deregulation in eight sectors has already resulted in 8.6 trillion yen in consumer surplus. The eight sectors include: telecommunications, civil aviation, vehicle inspections, electricity, gasoline and stock trading brokerage fees.
One specific example of successful deregulation in telecommunications was when restrictions on the sale of mobile phones were lifted and the market exploded. Before the deregulation, telephones could only be rented and were very expensive, but when sales were allowed, companies began to compete and the prices came down. The number of mobile phone users at the end of March this year was over 51 million, which represents and increase of 24 times the amount before deregulation. If this trend in mobile phone expansion continues, we will soon have more mobile phones in Japan than people!

Meanwhile, the revised "Three-Year Program for Promoting Deregulation" that was approved by Cabinet in March of this year, includes 1,268 measures in 16 areas, with 351 new measures included. These numbers have increased each of the last three years, so it is clear that despite significant progress made so far the journey to regulatory reform is still quite long.
What we have seen so far is that some regulations were relatively easy to reform because a consensus existed. However, there are some areas that are proving more complex. These include, for example:
1. Areas that require not just simple deregulation, but need the construction of an entirely new regulatory system;
2. Areas on social regulations that are not just economic issues and produce widely different opinions; and
3. Areas that touch on vested interests and could create strong political opposition.

Some specific examples that require more efforts include:
1. The question of NTT interconnection fees, which is essentially a question of how to break up the monopoly of so-called "last one-mile" market. This comes to be a very political issue as well at this moment;
2. Some areas that are considered more or less public goods like medical care, welfare, education, or even labor and agriculture. I think there is still a strong belief among people that the government should regulate the entire system in these areas;
3. Strengthening the role of the Fair Trade Commission in order for the market to work efficiently; and
4. The expansion of legal services for dispute resolution.

When it comes to opponents of deregulation, people often blame bureaucrats for dragging their feet. I think, however, that it is not so much bureaucrats that oppose deregulation, but rather vested interests in the private sector that try to lobby against reforms. One example is the issue of liquor sales. This is a very recent example. In December 1995, the Administrative Reform Commission proposed the abolition of supply and demand adjustment on the sale of alcohol. Then, in March 1998, a cabinet decision was made to abolish restrictions on supply and demand related to population density and distance from store to store. However, there suddenly arose strong opposition from a few vested interests and the implementation became more complex.
Part of these regulations on alcohol sales are scheduled to be abolished in coming September this year, but the issue has highlighted the difficulties in pushing through some reforms. Maybe a historian in prohibition should add a chapter on contemporary Japan. In the US, people tried to stop people from selling and drinking alcohol; in Japan at the turn of the new millennium liquor dealers suddenly called for stricter controls on liquor sales.
Some would say it is a natural tendency of democracy for politicians to be inclined to support these vested interests who sometimes have more organizing ability than the average consumer.
Some people look upon this as a backlash against deregulation. However, I see it as part of the process of progress. Much work still needs to be done and change may sometimes be slow, but the journey down the long and winding road to regulatory reform is finally underway. I personally will continue to push for further reform, for without it the Japanese economy will continue to stagnate.

Having said this, I would like to stop my initial talk and would like to welcome any questions you have.
Thank you very much.

Profile of Mr.Yoshihiko Miyauchi
Yoshihiko Miyauchi is currently Chairman of the Regulatory Reform Committee of the Cabinet Headquarters for Administrative Reform. He joined the Deregulation Subcommittee of the Administrative Reform Commission in April 1995. He assumed the chair of Deregulation Committee when it was inaugurated in February 1998. He has been the chair since then though the Committee was reorganized as "Regulatory Reform Committee" subsequently in April 1999.
He is Chairman and Chief Executive Officer (CEO) of ORIX Corporation, a multinational financial services company. He began his business career at Nichimen & Co., Ltd. in 1960. Joining ORIX in 1964, he went on to become one of its original officers.
He is Vice-Chairman of the Japan Association of Corporate Executives (Keizaidoyukai), and Director of the Japan Federation of Economic Organization (Keidanren).
After graduating from Kwansei Gakuin University, he earned his MBA at the University of Washington.

(as of May 26, 2000)

{Note from the Secretariat}
The above speech was made by Mr. Yoshihiko Miyauchi, Chairman of Regulatory Reform Committee in order to brief foreign correspondents stationed in Tokyo to give them an overall view of Regulatory Reform in Japan. His speech was based on his involvement in regulatory reform for almost a decade to date, most recently as Chairman of the aforesaid Committee . The views expressed in the speech is, however, above all else Mr.Miyauchi's and may not be construed as those of the Committee as a collegial body nor as those of its Secretariat.



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