Japan’s Reforms Need Central Guidance to Succeed, Adviser Says

Japan’s central government must exert control over the regions to push through regulatory reforms needed for economic revival, said the head of a council on special economic zones.

“Things will turn really bad when you just rely on local governments,” Tatsuo Hatta, 72, said in an interview on April 10 in Tokyo. Special zones give the government the authority to act in areas where local authorities have discretion and “tell them what to do,” he said.

Hatta, who pioneered a series of regulatory overhauls from zoning changes to medical innovation, said Japan should focus on boosting productivity to improve prospects for the economy over the longer term. This should take precedence over efforts to curb Japan’s population decline, he said.

“A drop in the population itself won’t lower productivity because the two have nothing to do with each other,” said Hatta, president of Asian Growth Research Institute. “I don’t understand why we need to worry about the falling population. We can bring in as many high-skilled personnel as possible” from abroad, he said.

Prime Minister Shinzo Abe sees population decline as a bad omen for the nation’s economy, and municipalities are working out plans to counter the problem, vying for subsidies for the fiscal year starting in April 2016.

At the same time, Abe has named several areas including the capital region around Tokyo and the Kansai area surrounding Osaka as zones to enhance competitiveness as part of a strategy to increase Japan’s growth potential. Legislation to create a one-stop service for starting businesses and looser visa rules for foreign entrepreneurs is awaiting discussion in parliament.

Looser Zoning

The government has already relaxed zoning rules to allow residential buildings to go up in Tokyo’s busy commercial areas. That will make the city more attractive for global companies and international investment, Hatta said.

Japan’s population peaked in 2008 and is projected to fall to 124 million in 2020, according to the National Institute of Population and Social Security Research. In five years, Tokyo’s population is projected to start shrinking, according to the institute’s estimates.

To cope with the aging, declining labor force, Japan should be selective in allowing entry to foreign laborers, Hatta said. It’s acceptable to recruit foreign construction workers for a limited period to deal with a supply shortage, but in general, foreign workers shouldn’t be brought in as a cheap source of labor, he said.

“We should decide who lives in Japan for the benefit of Japan,” he said. “If low-income people come to Japan, they will eat up the nation’s social services. We shouldn’t do that.”

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