From Overseas Press

Japan growth strategy may hurt, not boost, economy

(Agencies)
Updated: 2010-07-09 10:10

COMPETITION

That reflects the domestic focus of the services industry compared with the international exposure of Japan's manufacturers, such as Canon Inc and Tokyo Electron, and another argument against government intervention.

"Only exposure to intense competition can induce companies to come up with ideas for survival," said Mitsuru Taniuchi, professor of economics at Tokyo's Waseda University. "The government has no way of knowing in advance which companies will turn out to be winners," he said.

Private-sector health care is one area that the government tried to support previously in an attempt to promote growth and reduce the burden on publicly provided health care.

But it reduced its support to reduce its own spending, raising questions about its staying power this time around when the government is trying to tackle a public debt burden close to 200 percent of GDP.

Analysts also question if the sector can grow without some relaxing regulations, which some companies say stifle profitability and expansion.

One bright spot for the strategy though is a goal to cut Japan's 40 percent corporate tax rate, which is the highest among OECD countries.

But that might not go down well with the public at a time when the government is floating the idea of doubling the 5 percent sales tax. It would also add challenges to a government that is trying to rein in public debt.

Some analysts say Kan's policies lack coherence and he should focus instead on more deregulation, even though this has been blamed by many ruling party officials for a widening social disparity in Japan.

"The conventional wisdom that the government spending should play a leading role in boosting growth won't do any good," said Koichi Haji, chief economist at NLI Research Institute.

"The government needs to let the private sector allocate resources more freely."