A Policy Package for New Economic DevelopmentTaichi Sakaiya, Minister of State Economic Planning Agency

(Oct. 19, 2000 at Foreign Press Center / Japan)

I. Preface

(1) This policy package has two main goals : (i)firmly establishing the Japanese economy onto a self-sustained recovery path and (ii)providing the basis for launching a future society that will be appropriate for the era of diverse knowledge.

(2) As a result of the swift and large-scale economic stimulus measures implemented by the Japanese government since 1998, the Japanese economy has averted the peril of falling into a deflationary spiral and is now gradually improving, after bottoming-out around the spring of 1999.

The performance in the corporate sector has been particularly favorable, with an increase in corporate profits and a recovery in capital investment.

Nevertheless, employment conditions are still severe, and consumption remains flat.

At the present moment, the government's priority is to foster greater economic vitality and firmly place the economy onto an self-sustained recovery path.

(3) Human civilization is now in the midst of the greatest transformation since the industrial revolution. The great leap forward from a society based on the mass production of standardized goods to a society, with diverse information and knowledge.

For Japan to remain a key player in the global economy of the 21st century, we must take the lead in implementing this revolutionary change.

Consequently another, yet still more important role of the New Development Policy is to advance the structural reforms and the change of mind.

(4) Based on this perspective, the policy package emphasizes four fields that are deemed to be particularly important for the future society. These are: (i)IT revolution; (ii)response to environmental issues; (iii)response to the aging of society; and (iv)upgrading the urban infrastructure.

(5) The government implemented the Emergency Economic Measures in 1998 and Policy Measures for Economic Rebirth in 1999. The government first prevented the economy from falling into a deflationary spiral and then began the journey toward economic rebirth.

The present package is named A Policy Package for New Economic Development toward the Rebirth of Japan (the New Development Policy). It is based on the achievements of the previous two economic stimulus packages, and is designed to both firmly place the Japanese economy on an self-sustained growth path and to strengthen the foundations for new economic development and to construct a society and economy that will be appropriate for the era of diverse knowledge in the 21st century.

II. Leap to a Knowledge Based Society - Basic Principles of the Policy

(1) Ever since the industrial revolution in the latter half of the 18th century, humanity has striven to form an industrial society based on the mass production of standardized goods.

Since the 1980s, however, the advances in information science and software and the wave of globalization have created the era of diverse knowledge, and significantly changed the direction of human civilization. Especially, the rapid and widespread diffusion of the Internet during the 1990s has created a new society with values and human relations that differ from those of the past, and represents the most momentous socioeconomic change since the industrial revolution.

(2) The main purport of the package is to embark upon the creation of a new socioeconomy that is suitable for the era of diverse knowledge in the 21st century.

To these ends, it is first necessary to avert any dramatic decrease in public demand and to firmly position the Japanese economy onto an self-sustained recovery path and to reinforce the foundations so that the economy will never again face the dangers of falling into a deflationary spiral.

(3) For establishing the structure and atmosphere of sustainable economic development in the new era of diverse knowledge, following four policy priorities should be pursued. First priority area is the rapid promotion of the IT revolution.

To this end, we must first reform the systems that comprise the foundations of the IT society, and create an environment for the growth of inexpensive, unconstrained and safe telecommunications services by promoting competition among telecommunications carriers.

We can then secure the self-perpetuating development of IT by clearly establishing three main pillars of upgrading IT facilities (hardware), spreading IT utilization skills (software), and reinforcing information substances (contents). (Expectation is to have 50 million Japanese using the Internet by the end of FY 2001 through a nationwide citizens' movement).

(4) The second priority area is to respond to environmental issues, including the construction of a "recycling society".

We are aiming to move beyond individual regulations for detoxifying and handling waste products to create a recycling society supported by sound economics and ethics through changing socioeconomic systems, developing technologies and facilities, and promoting the environmental industries and venous (materials recovery) industries.

We must also face the challenges of spreading the environmentally sound products and devising a model of society with a focus on environment.

(5) The third priority area is to respond to the aging of society toward creating an energetic and pleasant future society.

We are aiming to prepare the social conditions that are appropriate for an aged society, to create a society in which people can choose to work until they reach age 70, and to form a society where the elderly can enjoy their lives with peace of mind.

As the nation where the aging of society will advance the fastest, it may be said that Japan has the qualifications and the responsibility to pioneer a new culture for the aged population structure.

(6) The fourth priority area is to upgrade the urban infrastructure to create convenient, hospitable towns and cities.Amid the new conditions of civilization, that is, advanced information technologies, a fewer number of children per family, the aging of society, and globalization, the greatest theme for the new era will be to create convenient, highly competitive, hospital towns and cities.

It will also be important to make the usage of Japan's entire national land area efficient, safe, and "recycling".

(7) In compiling each government policy, we must clearly identify the role of each measure for the realization of the future society in order to persuade people to understand and take part in these measures.

To these ends, the goals and the target years of each measure should be explicitly stated so the policy effects will be clearly visible to the citizens, and the measures should be implemented intensively.

(8) The overall scale of the works to be implemented under the basic policy direction presented above will be on the order of 11 trillion yen.

As for the local governments' burdens for these works, extensive local government finance measures will be devised giving consideration to the present extremely harsh conditions of local government finances.

(9) Japan is facing serious fiscal consolidation. To resolve the serious conditions, the government of Japan must promote a revolution in the nation's socioeconomic structure and consciousness, and establish a flexible and efficient system that will be appropriate for the knowledge based society. This will require a wide-ranging public debate not only regarding government revenues and expenditures, but also encompassing Japan's tax and pension systems, the relationship between the central and local governments, and the division of responsibility between the public and private sectors.

Accordingly, the government of Japan shall continue moving forward with collection of the required data and creation of macroeconomic models to examine of Japan's basic policy for public finance management over the middle to long run.

(Figure1) Developments in Real GDP

(Figure2) Three Major Pillars for the IT Revolution