Why Japanese Deregulation Won't Much Help America

Once again, expectations for the opening of Japan's markets to greater competitive forces are crashing to earth. On Mar. 31, after months of promising to unveil hundreds ef dramatic steps to deregulate an economy bound up in red tape, the Japanese government will issue its report. But already, hopes for new business opportunities are being dashed by preliminary news that nothing much is going to change.

In the runup to this purported watershed, organizations of Japanese and foreign businessmen faithfully filed reams of suggestions for how to decontrol the economy. After all, said Keidanren, Japan's loftiest business lobby and liberalization advocate, deregulation would lift Japan's economic growth by almost 1% a year. At a time when the economic recovery appears to be weakening, that would be welcome news. Consumer confidence is shaken, battered by events as disparate as the Kobe earthquake and the horrible nerve-gas bombing of Tokyo's subways.

By one count, the country has more than 11,000 rules in place to regulate business. One study says observing them costs Japanese industry and consumers from $75 billion to $110 billion a year. Because of weight limits and other rules, shipping a standard 20-foot container between Tokyo and Osaka costs $1,888, vs. $1,444 between Japan and Europe. Imported gasoline, much cheaper than domestically refined gasoline, is simply forbidden.

But the "interim reports" recently released by the government show that in the end, little will change. The U.S., the European Union, Keidanren, and other interested parties have already expressed their disappointment. Nihon Keizai Shimbun, Japan's leading economic daily, complains that the tentative proposals are strewn with vague "bureaucratese" that is bereft of real content.

No one should be surprised. First, the drafting of the deregulation plan was left to Japan's powerful bureaucrats, who have always managed to define the nation's interest purely in terms of their own. They have never shown any willingness to curb their authority and give up power to foster greater market competition, foreign imports, or consumer prosperity. The power of the bureaucrats has never been greater, given the exceptional weakness of Japanese politicians at this point in Japan's history.

In fact, there is strong reason to doubt that the Japanese people really want that much deregulation. It is true that they pay lip service to the idea. But when push comes to shove, the Japanese, perhaps more than most, look toward their government for protection and succor. Thus the country's plethora of rules and regulations. There is no public opposition to Japan's safety rules that effectively require all automobile replacement parts to be Japanese and not American or European.

The brutal truth is that deregulation, when it comes, will probably be designed to enhance the competitiveness of Japanese companies as much as it helps foreign businesses. Deregulation will not be the leg up that many U.S. and European companies hope it will be. "Deregulation" already looks ready to follow the "Structural Impediments Initiative" and the "Framework" talks, becoming one more buzzword that promises much more than it delivers. Perhaps that is why many foreign investors have turned from Japan bashing to Japan passing. They have given up hope of breaking the choke hold Japan's bureaucrats have on the economy and are moving on to more attractive Asian markets in China, India, and Southeast Asia.

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