Abe's remedy to spur Japan: Open up more

WORLD / Wall Street Journal Exclusive

Abe's remedy to spur Japan: Open up more

By SEBASTIAN MOFFETT (WSJ)
Updated: 2006-11-02 11:48

http://online.wsj.com/public/article/SB116236736959010024-Avts_90ggQT7B4K0X
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TOKYO -- Japan's new prime minister has an ambitious plan for spurring
the economy and helping the country forge a place for itself in the
hothouse of East Asia. He wants Japan to throw off its reputation as an
island nation that shies away from international affairs and shuns
foreigners and their businesses, and instead open up to the world.

Shinzo Abe, who in September became leader of the world's second-largest
economy, took over a country that has recovered from a decade-plus slump
but still faces long-term problems. With the population declining, there
are progressively fewer Japanese to produce and consume, making it
increasingly harder for the economy to expand. That trend might
eventually lead to lower standards of living and a decline in
international influence.

Meanwhile, relations with Japan's neighbors have been tetchy, raising
questions about the security of a nation that has thrived for 60 years by
spending relatively little on its military. Japan disputes some maritime
gas fields with China, which has increased military spending and whose
economy could be bigger than Japan's in a decade or two. Staunchly
anti-Japanese North Korea recently tested missiles and then a nuclear
device.

Mr. Abe has been giving a series of interviews with foreign media this
week. Talking to The Wall Street Journal, he outlined his broad solution
for Japan's myriad problems: greater openness and a more active role in
international affairs. That would be a major change for Japan, which
thrived after World War II by shying away from international affairs and
promoting exports while restricting imports.

"It's been over 60 years since the war, and 60 years marks one
generation," said Mr. Abe, who at 52 is Japan's youngest leader since the
war and the first to have been born after the war. "I'd like to start
working on creating a new nation, looking at the next 60 to 100 years."

Mr. Abe scored high marks in his first month in office, swiftly visiting
Beijing and Seoul to mend chilly political relations. It isn't clear yet
whether Mr. Abe will succeed in his economic mission. His plans are still
vague and in their early stages. What is more, Mr. Abe is taking over at
a time when there are few short-term economic problems, which may make
the longer-term issues appear less pressing.

One reason for the need to open up is Japan's national debt, which is
equivalent to 175% of gross domestic product -- compared with 64% for the
U.S. The cost of servicing this debt is pushing the total even higher. An
expanding economy could generate higher tax revenue, but with fewer
people working and paying taxes as the population shrinks, the only
solution is to make each person more productive.

"There can be no rebuilding of national finances without growth," Mr. Abe
said. "That's why we need more innovation and openness to raise
productivity, and increase tax revenues."

Among Mr. Abe's plans is to bring more foreign companies to Japan to help
boost growth. Japan's foreign direct investment was equivalent to just 1%
of GDP in 2003, compared with 25% for the U.S. and 43% for France. Mr.
Abe said he plans to look at regulations that might make it difficult for
foreign businesses to set up in Japan, and at the current system of
regulating mergers and acquisitions.

On China, Mr. Abe said he hopes the countries can embark on energy
projects together. The two countries dispute some islands in the East
China Sea, which Japan calls the Senkaku and China the Diaoyu. These are
close to gas fields that both countries want to develop. "Japan and China
are both energy importers," Mr. Abe said. "So it would be best if,
instead of trying to take energy off each other, they cooperated."

He also said a free-trade agreement with China was "within my field of
vision" -- though a condition would be for China to better protect
intellectual-property rights.

Mr. Abe already has set up some original cabinet portfolios that he hopes
will help flesh out his vision. He appointed a minister in charge of
"innovation" and put the economy minister in charge of "second chance"
programs: Mr. Abe thinks Japanese entrepreneurs should be encouraged to
pick themselves up and learn from their mistakes as they can in the U.S.
In Japan, failure tends to be seen as shameful and marks a businessman as
someone not to be trusted again with venture capital. Mr. Abe also wants
more Japanese to be able to take a midcareer break to go to graduate
school.

"I want to give people chances at different ages," he said. "That will
revitalize Japan."

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