1. Progressing Priorities for Structural Reform; A case of Japan February 26 th, 2007 Naohiro Yashiro International Christian University and Council for Economic and Fiscal Policy, Japan

2. 2 Speed of the aging in Japan is higher than other OECD, even accelerating recently

3. 3 Declining population of productive age peaking at year 1995

4. 4 Long-run stagnation of the economy is mainly due to a lack of structural adjustment to changing economic circumstances

5. 5 A New Growth Strategy  Increase in average productivity by utilizing Information Technology  Improving competitiveness of under- developed industries through globalization  Removing obstacles for new firms entering the emerging markets in the aging society  Movement of labor force from low productive to high productive industries and regions

6. 6 Productivity growth for offsetting the declining labor force

7. 7 Diversion between a highly productive manufacturing sector and a low productive service sector

8. 8 High levels of research and development expenditures Japan maintains 10% share of exporting high-technology products in the world markets

9. 9 Large gap between inputs and outputs of research and development University management, labor markets, and competition policies need to be improved

10. 10 Factors for low return to R&D investment  Lower mobility of researchers between firms, research institutes and government  Low ratio of foreign researchers

11. 11 Widening gap in outward and inward foreign direct investment Leading to less competition and less employment opportunities in the domestic markets;

12. 12 An Example; Growth prospect in health care service industries  Quality difference in health care services are not reflected in prices;  Insufficient information on quality of health care services;  Restrictive rule on combining public insurance and private insurance in the same treatment based on an egalitarian rule;  Prohibition of firm-managed hospitals makes M&A quite difficult and preventing dynamic efficiency in the medical service markets;

13. 13 Inefficiency in agricultural protection  Japan ’ s share of agricultural production is 1.1%, but accounts for 3.4% of labor force;  Average farmland is 1% of the US and 5% of Germany and France

14. 14 Labor-market “ Big Bang ”  Flexibility in the labor market is a key to improve labor productivity;  Shifting the labor force to high-productive sectors by lowering employment barriers;  Introducing the “white-collar exemption”  Equal treatment of workers between internal and external labor markets based on occupation;  Using private initiatives in the public employment services, despite the ILO treaty

15. 15 Special Zones for regulatory reform  Established in 2003 as an endeavor to enhance nation-wide regulatory reforms  Regulations are eased in geographically limited areas as a testing ground, and are to be implemented to at the national level;  Due to the large degree of independence of ministries, an area-based regulatory reform and decentralization can lead to original initiatives which might take longer;  SZ is intended as a tool for speeding up of the nation-wide regulatory reform.

16. 16 The more the region depends on public investment, the less likely it proposes SZ

17. 17 Role of the Council on Economic and Fiscal Policy (CEFP)  Chaired by the Prime Minister and exercise of the leadership in policy making;  Reflecting the views of four private-sector experts in business and academics;  Since its creation in 2001, it has played a key role in Japan’s structural reform as well as economic and fiscal policy;  Formulating medium-term strategy combined with economic and fiscal outlook