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Interview: Takeo Hoshi

Mar. 19, 2013

Is Abenomics working? NHK WORLD's Reiko Sakurai spoke to Professor Takeo Hoshi of Stanford University, an influential academic in the field of fiscal policy and corporate governance.

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Takeo Hoshi

Takeo Hoshi

Professor, Stanford University

"Abenomics" is the economic policy of Japanese Prime Minister Shinzo Abe. He has repeatedly stressed his top priority is fixing Japan's stagnant economy and in his first 90 days in power, has appointed a new Bank of Japan chief who endorses bold monetary easing, introduced a new fiscal stimulus package and announced Japan's participation in the Trans-Pacific Partnership free trade negotiations.

What is your analysis on Abenomics?

If I were to grade Abenomics,so far, I would probably give a B+. Monetary policy is in the right direction. I have a serious question or serious doubt about the second arrow. The fiscal expenditure or fiscal stimulus at this point, may not be the right direction for Japan. Fiscal expansion would be the right response for recession in a usual economy. The third arrow,structural reform, is of course good, and it's in the right direction, even though the details are not clear.

What is the danger of expanding fiscal spending?

Our calculations show that about ten years from now, the Japanese government debt, at this pace, will exceed the private sector, financial assets, held by the Japanese, which are available to hold government debt. I don't think the tax increase alone will be sufficient to fix the budget for Japan .So, in order to really fix the budget for Japan, Japan need to control the expenditures in the future.

What should Japan do in terms of structural reform?

For example, there's something called the cost of doing business index, published by the World Bank every year, and Japan is usually ranked not that high compared to other advanced economies. One of the main reasons why Japan isn't ranked high in the cost of doing business index is that the cost of starting up business is considered to be very high in Japan. Creating a one stop place to do all the paperworks for starting up a business, seems to be an easy thing to do. It doesn't cost much for the government, and it can reduce the cost of doing business in Japan, increasing the entry of new and innovative companies that can lead to higher growth.

I also think Abe's decision to join the TPP negotiations is a policy in the right direction. Recent research show that opening up the market increases the productivity growth of domestic companies.

What can we do to strengthen the country's competitiveness?

I've been doing research on "zombie companies", firms that would exit the market if it were not protected by the banks or by the government. We saw an increase of zombie companies from the mid 1990s to the early 2000s and back then, the zombie companies were supported by their banks mostly.Currently, the zombies are protected almost directly by the government policy. The government can change the policy not to protect those zombie firms to make the restructuring easier, and more palatable, for the people who lose the jobs.

Japan is still the third largest global economy, but the country is struggling. What needs to be done?

Japan is quickly aging. And a simple deregulation can raise the growth rate for the Japanese economy, by boosting female labor population. Many women with children cannot work, even though they want to work, because they can't find the childcare facilities. And one of the reasons why the childcare service is in short supply in Japan, is the regulations. Regulations for nurseries are created by one ministry and regulations for kindergartens are created by another ministry, and they don't seem to co-ordinate. By abolishing the distinction between nurseries and kindergartens, and changing the restrictions, we could increase the competition in the childcare industry and the supply of the childcare industry will respond to demand.

What has been stopping Japan from overcoming the "lost decade"?

I think it eventually comes down to politics. When you come down to the details of the structural reform, some people would benefit from the reform and some people would lose compared with the status quo. And it needs political leadership, to implement the structural reform and move the country forward. So I hope the Abe government can continue their stress on the structural reform and try hard on that.


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