A Second Opinion On Japan's Ills

Professor Rudi Dornbusch's advice for the Japanese economy is only partly on target ("What's the weakest link in the world economy? Japan," Economic Viewpoint, Jan. 12). He is right to insist that Japan must discard its tight fiscal policies. And Tokyo must move urgently to rescue its banking system, regardless of justified populist antibank sentiment.

But the tax cuts he urges would have little impact, given the saving propensities of the Japanese, particularly when times are bad. And Reagan-Thatcherite deregulation would need years to produce effects, even if Japan were as closed a country as Dornbusch likes to think--which it is not. As in South Korea, a major cause of the present crisis was inadequate, rather than excessive, regulation of the finance industry, largely as a result of past U.S. pressure.

Japan's immediate need is for tax changes and other moves to halt the collapse in land prices. Another need: a morale-boosting commitment to expand spending on badly needed public works while cutting fiscal waste in other areas.

Gregory Clark


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