Chapter 2
Building"A Competitive Society with Soundness and Creativity"
and Preparing Safety Nets

One condition for the Japanese economy in the 21st century to recover its vitality is to build"a competitive society with soundness and creativity,"in which the creative impulses and competitive tendencies of people are most honored, by reforming the social system of Japan, which has heretofore placed excessive emphasis on the equality of results. The phrase"a competitive society"tends to remind many Japanese of discarding weaker people and severe competition for existence. However, that image needs to be understood as means to make the whole society richer in consequence. When people are afraid of competition to the point of avoiding contending with one another, the whole society would become too stagnant to save even weaker people.
Benefiting all members of the society requires an environment of"creative competition"by ensuring equality to all who wish to enter into private activities that strive to develop new ideas and original goods and services. "Moral hazards"will prevail if the traditional"convoy system"continues, where consequences do not change regardless of whether people try to do their best. This situation deprives people of their willingness to excel and their ability to shake up the status quo. One reason for the current economic stagnation should be attributable to moral hazards.
If this is the case, the most important thing is to stimulate free initiatives in the private sector based on self-responsibility and self-support. That means saying good-bye to the excessively equal society with too many regulations and too much protection, and to maximize the willingness and renovating ability that many Japanese people have by nature.
On the other hand,"a return match"must be prepared to failed individuals and entrepreneurs in spite of their best efforts. To guarantee"the national minimum of a healthy and cultural life"to all citizens is a precondition for"a competitive society with soundness and creativity"to work well. Most people will not support the idea of penetrating competition principles without providing safety nets.
The Economic Strategy Council has agreed to proceed in building an energetic society of Japan. It might be called"the third model,"different from both Anglo-American and European versions. The following four issues are important for such a society to be realized.

(1) Small and efficient government, including local governments, should be established. For this, excessive interventions of government into free economic activities in the private sector should be avoided, and the hindering of economic potentials resulting from rising tax burdens and social security contributions should be stopped. The basic roles shared by the public and the private sector and by the central and local governments should be reviewed. Furthermore, the public accounting system should be fundamentally reexamined to secure the transparency of public institutions.
(2) The local economies should regain their vitality through their creativity and efforts. They are so dependent on the central government that they feel choked in terms of economic and even cultural activities. For this,"local sovereignty"should be firmly established, so that local economies can behave as they like. Indispensable are tax reform to strengthen the tax base for local authorities, reduction of tax grants from the central to the local authorities, and review of subsidies.
(3) Various incentive systems should be introduced to maximally spur people's efforts and results. For this,"freedom of choice"should be guaranteed, and"an environment enabling re-challenge"should be established through cooperation of the society. Tax reform to reward hard workers ought to be made, and education reform is needed to make Japanese people more creative.
(4) Safety nets should be provided that fit well into"a competitive society with soundness and creativity." Judicial reform is indispensable, as the society is changing from ex-ante coordination, which is discretionary and opaque following administrative guidance, to ex post facto rule-observing with transparency. Furthermore, reforms to establish the social security system, which is sustainable and of confidence, including pension, medical services, and nursing care are urgently needed. An environment to accommodate frequent job changes should be provided to make the best use of human resources. It will enhance people's employability and make talented labor shift to leading industries in the 21st century. The most important is the introduction of"training vouchers," which will help unemployed to obtain new skills. These reforms are also instrumental to eliminate the uncertainties held by people.

I. Building"A Competitive Society with Soundness and Creativity"

A bold change of thinking and structural reforms are necessary to remake Japan into a really innovative society. The people should get rid of the traditional convoy system, and extend their maximum capacity. Institutional reforms necessarily bring various pains. However, as is shown in Chapter 1, if the current rigid systems are maintained, the scenario of true economic revival in the 21st century cannot be drawn. Based on these considerations, the Economic Strategy Council is determined to recommend the following bold reforms, so that Japan will transform itself into"a competitive society with soundness and creativity."

1. Initiatives for"Small Government"

The fiscal situations of both the central and local governments are critical. Bold measures to realize "small government"are indispensable to overcome those crises and to reduce excessive intervention by the government over the free activities of the private sector.

(1) Reforms of Institutional System for Government Employees
The Law on National Government Employees guarantees their status. Rigid personnel policies do not practically adopt personnel exchanges between the public and private sectors. Such an insulated administrative body has acquired more and more power, resulting in a bureaucrat-led economic structure that has hampered the full-fledged initiatives of the private sector. Reforms of the institutional system for government employees, some of which have been implemented, need to be further accelerated.
First, the number of regular officials should be reduced both in the central and the local governments. The Economic Strategy Council appreciates the central government's decision to raise the number of officials to be cut in a decade from 20 percent to 25 percent in accordance with the reorganizing ministries and agencies. The Council expects further reductions to be discussed. The same kind of reduction targets should be set for local government officials
. Second, to this end, an early-retirement promotion should be introduced in the public sector similar to that which the private sector has already utilized. New recruitment of government officials needs to be restrained.
Third, contracting-out to private sector (outsourcing) should be actively utilized. This helps to avoid possible inconvenience to people caused by a personnel cut and to make administrative services more efficient.
Fourth, staff exchanges need to be deepened between the public and private sectors. One method is to introduce political appointees to high-ranking officials equivalent to director-generals. They would be effective in restraining the administrative body from obtaining too much discretionary power, and also in augmenting a monitoring function by public opinion and political circles on the course of administration.

(2) Promoting Institutional Reform through"the Regulatory Reform Commission"
The Deregulation Commission (with 12 members and around 20 secretariats), which belongs to the Headquarters for Administrative Reform to the prime minister, is at present insufficient to promote deregulation against regulating ministries and agencies with bloated staff. Thus, a "regulatory reform commission", which would be a direct panel to the prime minister, should be established with a significant number of personnel assigned to promote deregulation and to strengthen sound competition. That commission should be empowered to review not only regulation but also taxation and subsidies. Thus, not only regulations but also various institutions impeding competition are eliminated.

(3) Improvement of the Public Accounting
The settlement of governments and public corporations should be more carefully examined to make the public sector more streamlined, because it offers information for ex post facto assessment of policies. The central government including public corporations and the local governments, together with associated agencies, should pursue fundamental reforms in their accounting methods along the lines of the directions below. A database for financial accounting needs to be built.
First, financial statements based on the principles of private company accounting need to be introduced. They will clearly disclose fiscal conditions and balance sheets of the government and municipal authorities. For example, the balance sheet of assets and debts with the dual bookkeeping should be drawn. It will divide accounts into current and capital balances.
Second, a comprehensive settlement linking general accounts, special accounts, and accounts in public corporations should be produced. It will clear the financial conditions of the public sector as a whole.
Third, the accounting principle of a cash base should be replaced by that of an accrual base.
Fourth, regarding the municipal authorities, financial statements should be made and published on a unified standard nationwide. Thus, comparison and evaluation among authorities would become possible.
Fifth, outside-audit should be introduced and enhanced in making settlements. Thorough disclosure of settlements are needed.

(4) Effective Usage of State Property
Disposal of state property and its effective usage should be sought as one measure to eliminate the accumulated government deficits through utilization of property like state lands.
First, following a request by the prime minister on the first cabinet meeting of the Obuchi administration on July 31, the list of government property showing possible candidates to be sold, which was published on December 17, is highly evaluated as a meaningful first step in this direction. The actual selling should be undertaken as early as possible. Furthermore, sales of stock shares held by the government are promoted.
Second, on the other hand, the local governments and public corporations have yet not published the details of their properties. Moreover, no comprehensive disclosure in the whole public sector exists. Local governments and public corporations should reveal the corresponding lists immediately, since people have requested them.
Third, state property that could be utilized should be mobilized to help deficit reduction, even if it may be inappropriate to be sold. For example, studies should be made about rebuilding offices and rented residences for employees in the center of cities into high-rises, a part of which would be rented for non-public use; utilizing banks along a river nationwide and sites of public universities are other viable ideas.

(5) Reforms of Fiscal Investment and Loan Program
It has been said that the Japanese government belongs internationally to a type of "small government" in terms of the ratio of government employees to the population. However, that is no longer true, if public corporations and their subsidiaries, which are supported by the Fiscal Investment and Loan Program (FILP), are taken into consideration. FILP funds amount to more than 450 trillion yen, collected through postal savings, postal insurance, and public pension plans. They have worked to prolong the closing of many FILP institutions, the historical role of which has already ended. Furthermore, some FILP funds have become non-performing, such as loans to the former Japan National Railways. Fundamental reforms of FILP are indispensable to shape an efficient "small government."
First, the balance sheets of each FILP institution ought to be revealed in a manner apparent to everyone. Disclosure and transparency should be improved by adopting private accounting standards to accounts of FILP institutions.
Second, based on the Basic Reform Law of National Ministries, reforms of FILP should be further strengthened. In the future, FILP needs to be fundamentally reviewed, including an argument for its abolishment. Individual FILP institution needs to be either streamlined or merged unless its necessity can be convincingly argued. FILP institutions, after proving its necessity, should finance themselves through either issuing its own bonds or through budgetary measures from the general account of the government.
However, as for long-term funds, which are not available in the private market, public institutions to provide such funds should be maintained or newly established only if their existence is justified in terms of public policies. These kinds of long-term funds provisions through public corporations are widely used in foreign countries.
Third, based on the Basic Reform Law of National Ministries, reorganization into the Postal Agency and the Postal Corporation is proceeding as planned. In the future, the management of postal businesses covering mail, postal savings, and postal insurance should be reviewed.

2. Establishment of Stronger Local Sovereignty

One reason for the nation-wide economic slump is attributable to the sagging local economies. Their economic futures may not become rosy unless they succeed in producing area-based industries and culture one after another everywhere, by recovering a self-supporting mechanism that avoids the current dependency on the central government. Therefore, the reforms to establish stronger local sovereignty are unavoidable.
The administrative services provided by basic municipal authorities such as cities and towns should be greatly improved and strengthened in terms of supply capability and efficiency. For this viewpoint, mergers of authorities need to be strongly promoted. At the same time, it is important to keenly implement outsourcing and privatization.
The central government will be basically in charge of state-oriented administration, such as diplomacy and self-defense, and nationwide universal administration. All administrative services related to daily life should be left to the municipal authorities. The local taxation system should be reformed from the root so that the local authorities could secure the necessary revenues for those services by themselves.
On the one hand, without their own revenue sources, it is impossible to warrant the self-sufficiency of local municipals. On the other hand, having their own revenue sources inevitably accompanies heavier responsibility to authorities over local residents. Therefore, the local authorities need to strongly reform themselves to become a management entity of responsibility in each area by leaving behind their dependency on the central government.

(1) Promoting Mergers of Municipal Authorities
The number of local authorities needs to be cut from the current 3200 to at least below 1000. For this, the central government should provide an effective incentive system to facilitate mergers of cities and towns. Local authorities that face difficulties in merging should try to improve their administrative services by utilizing a wider cooperation of surrounding authorities and other existing bodies.

(2) Fundamental Reform of Local Taxation and Finance
The current system of local taxation and finance results in moral hazards, as fiscal transfers from the central government through tax grants and subsidies impede the true local autonomy. It is crucial to exclude moral hazards concerning local finance. Thus, a new system should be established whereby local authorities will be able to finance their administration by local tax revenues.
For this, the taxation system needs to be fundamentally reformed so that the large gaps of tax revenues between local authorities will be eliminated by rectifying the current taxation, under which urban areas have a higher tax base than does the countryside.
In line with the above measures, the current grant system from the central to local governments will be gradually reduced, with special exceptions given to some islands and mountain areas. The issuance of local government bonds should be liberalized in principle.
Furthermore, local government administrations using subsidies from the central government, in particular public works projects, should be reexamined. A new system needs to be established such that the local authorities will be able to make truly autonomous decisions

3. Tax Reform for a Fairer and More Rewarding System

For the purpose of building "a competitive society with soundness and creativity," the current taxation system is insufficient. Taxation needs to be reformed to become neutral to economic activities, and should be simplified. Furthermore, under a new system, it is important that people as a whole share the social costs, and that a person making efforts is rewarded.
First, a flatter bracket of direct taxes should be aimed at to enhance the effectiveness of people's incentives to be stimulated by taxation. Fundamental household income tax cuts as well as reductions in corporate and inheritance taxes are desirable.
Second, in doing so, the maximum tax rate of household income tax ought to be lower than that of the effective rate of corporate tax, with a view to avoiding tax savings through incorporation.
Third, aiming at a neutral and simple taxation system, the tax base needs to be expanded. The problems of lowering the minimum taxable income and taxing enterprises with a profit loss should be tackled, and the special tax allowances and reduced tax rates should be reviewed.
Fourth, in the long rum, the share of direct and indirect taxation should be rectified. Consumption tax hikes will be soon on the agenda as the aged society becomes a reality. Before that, the public sector should be streamlined completely, and at the same time expenditure cuts are needed through rationalization. Furthermore, the consumption tax should be simplified and its tax net should be improved by introducing invoices and abolishing special tax calculation methods.
Fifth, as for non-listed companies, the inheritance tax on giving stock shares at the time of business succession should be urgently and largely alleviated, considering the size of companies. Non-listed companies often face difficulties in succeeding their business, because they can not pay their inheritance tax by selling a part of their stock shares. On the other hand, their tax burden becomes heavier at the time of business succession under the current taxation system, as far as they are making plenty of profit, i.e. their stock shares are priced high in the market. This is a big problem for many small and medium-sized companies, and hinders their entrepreneurship. Measures to alleviate this tax burden should be immediately implemented.
Sixth, tax exemptions for donations should be greatly raised. It is normal that the public goods are provided by the money raised through taxation. However, a right should be allowed in which public goods would be provided through individual donations, should the individual desire it.
Seventh, a taxpayers code should be introduced as soon as possible. The implementation framework on taxing private schools and religious institutions needs to be further refined.
Eighth, the special accounts in the government budget need to be reviewed in the overall reform of the fiscal system. When some are found as having completed their historical roles, they should either be abolished or streamlined drastically.

4. Educational Reform to Build Creative Manpower

Education ultimately decides the future course of the economy. The first relevant factor is the education at home to form a competitive society with soundness and creativity based on self-responsibility and self-support of individuals. As for the education at schools, the education system in Japan has been criticized as failing to foster human resources with creative talent, largely because of the concepts of excessive uniformity and rote memorization. Fundamental education reform is needed to foster people who will become creative and varied. One reason for failure is that the government tends to direct to schools toward the educational ideals of uniformity; that tendency results in the schools' excessive regulations. It is important to provide an environment where not only teachers but also schools make sincere efforts to show their originality by allowing as much autonomy as possible, and by introducing proper competitive pressures.
First, a plural choice system on schools needs to be introduced into compulsory education, which is now uniform and without competition. Students should be allowed to choose schools based on their ability. The educational curriculum should be left to the discretion of each school; that will strengthen competition among schools and help to foster variety among the students.
Second, education and research activities in the universities need to be activated by introducing competition. For this purpose, a strong third-party evaluation organization should be established to assess education and research activities objectively.
Third, the budget for education and research activities in the universities should be allocated in principle according to the evaluation of the above organization. If such evaluation determines the resource allocation, then universities would become more revitalized through an incentive mechanism. The recent report by the University Council is not enough to institutionalize clearly the allocation of resources based on such evaluation.
Fourth, one reason that global venture companies such many of those found in the Silicon Valley in California, have not emerged in Japan is that Japan's national universities tend to be too rigid. The legal status of teachers and professors in the national universities should be dramatically liberalized to allow them to take a second job and to undertake joint studies in the private sector. Their activities are now severely restricted by the same law that applies to administrators in government. Reforms of national universities need to be initiated step by step by considering an argument of future privatization including transformation into an independent administrative body, a development under discussion today.
Fifth, "community colleges"open to local residents should be created further and fostered to enrich lifelong education.

II. Providing Safety Nets to Warrant Security

Society is a place where people compete with one another as well as where people assist others with difficulties. If either of the two functions is lacking, that society would be "incomplete." As the phrase "convoy system"insinuates, traditional Japanese society has tended to put aside the competition function. On the other hand, there has been an excessive life-supporting function to people with vested interests by guaranteeing sufficient income without due efforts. The reason for the Economic Strategy Council to recommend the formation of"a competitive society with soundness and creativity"is that it has judged that transforming the society is indispensable for people to maximize their potential abilities.
However, a precondition for the functioning of the competition principle is to provide safety nets to bankrupt people, despite their hard efforts, and to the unemployed. Needless to say, these safety nets do not guarantee daily well-being to people who do not make any efforts. In other words, they are part of a system to ensure a healthy and cultural life to all citizens and to enable those who have failed to try again. It is after the provisions of these safety nets that people dare to challenge unprecedented plans for self-fulfillment.
As the current economic woes and"pains"accompanied by necessary structural reforms are taken into consideration, provisions of safety nets are an urgent task. In particular, the most important question is what kind of safety nets should be prepared to rapidly increasing unemployed people deprived of earnings opportunities.
It should be noted that the Economic Strategy Council stresses"small government"-type safety nets rather than "big government"intervening in private activities and guaranteeing total life. As mentioned before, the desirable safety nets are to provide civil minimums to all citizens in need and who understand self-responsibility, by assisting them to"re-challenge"their lives.
The following introductions and/or reforms of institutions are necessary.

1. Policies to Enhance Employability and to Ensure Job Security

Restricting human resources to a particular company and organization longer than necessary damages economic potential and hinders efficient allocation. When labor moves readily to industries and companies with higher productivity, reflecting the concurrent structural changes in the economy, an increase in productivity and economic revitalization will ensue. A new system is needed to facilitate flexible labor movement. It is important to get rid of the traditional employment policy that stimulates labor-hoarding to an individual company, and to strengthen official support to enhance the employability of individuals. At the same time, policy measures consistent with the direction of structural reforms are needed to eliminate feelings of job insecurity, which are behind the background of the stagnant economy.

First,"training vouchers"need to be introduced. They will be offered to qualified unemployed people who want a new job with a view to giving a vocational training opportunity that will help them to obtain a necessary skill efficiently. Although details of vouchers are to be examined further, the basic ideas are following. As a reference, the educational training allowances introduced in December 1998 could be fundamentally strengthened by using public money from the general account.

[training vouchers]
50 % of training expenses up to 1 million yen
currently unemployed who have worked more than 10 consecutive years as a full-time employee and who want a new job by obtaining a new skill
How to use:
when he/she enters a university, graduate school, or professional school, tuition and other expenses may be paid by these vouchers instead of cash.
less than 1 trillion yen with 1 million recipients
Public works projects provide physical social overhead capital. "Training vouchers"are expected to contribute to economic growth by facilitating the accumulation of human resources through vocational training and education. Furthermore, they may help the development of related educational industries. One criterion to allocate the marginal budget either to public works or to "training vouchers"is the marginal return to that money. Considering the heavy criticism concerning the rigid allocation of public works and the severe employment situation, it could be well justified, from an economic and social point of view, to spare the budget of public works to"training vouchers."
Second, private worker-dispatch and job placement needs to be in principle liberalized as soon as possible to eliminate mismatches in the labor market. Higher labor mobility entails a flourishing of service industries for job information. For that purpose, liberalization at large should be decided at the earliest possible time. For example, priority should be given to adopting a"negative list"to name prohibited job areas in worker-dispatch and job placement.
Third, staff should be promoted to interchange between the public and the private sectors. The public sector needs to introduce a system to receive willing people from the private sector. This will help the optimal allocation of human resources in a society by avoiding rigidity.
Fourth, institutional neutrality on labor movement should be striven for by promoting measures to make pension qualifications portable.
Fifth, the following measures, temporary up to 2 years, are necessary to eliminate unemployment unrest held by households:
--to significantly strengthen assistance in creating businesses by the involuntarily unemployed (this will help to increase the number of self-employed, which has been declining);

--to broaden unemployment benefits to enhance incentives of unemployed to get a job soon by offering a bonus benefit to workers who have ended unemployment with a shorter period, and by extending the recipient period of unemployed who are retraining;

--to augment unemployment benefits to income earners with families who are involuntarily unemployed, considering the number of dependents.

2. Judicial Reform Matching an Ex-post Rule-Governed Society

Transforming from an ex ante adjustment society through administrative guidance, which is too discretionary and opaque, to an ex post rule-governed one requires the establishment of a new constitutional state of law governing through large-scale judicial reform. It should be accompanied by a significant expansion of judicial capacity. In this process, while the number of government administrators should be reduced, that of judges should be augmented for a more prompt settlement of court decisions.
Furthermore, when a new judicial system that is readily available to people is pursued, it is important to reduce costs in terms of time and money and to provide various settlement procedures according to the nature of the case.

First, for the significant increase of people in judicial circles, the number of people who pass the bar examination needs to be quickly increased from 1,000 planned in FY1999 to more than 2,000. (As a reference, more than 50,000 applicants pass the bar examination in the United State every year. However, it should be noted that the Economic Strategy Council does not mean to suggest that a society with too many lawsuits like the United States is the norm.)
Second, considering the lessons and reforming experiences in other countries, judicial reforms, and in particular those concerning economic affairs, need to examine the following issues:

--to separate the organizations into those dealing an individual trial and the those with other supporting businesses, i.e. planning of information-deepening in trial, court management, and stock-taking of trial records;

--to prepare various lawsuit procedures including the application of routine schedules to a simple case to shorten the time before ruling and the setup of the"standardized procedures"used for special cases to facilitate discussion;

--to positively utilize legal professionals outside the judicial circle, since judicial activities are diversifying and becoming sophisticated;

--to promote the availability of arbitration and mediation done outside the court, and to broaden legal assistance.
Third, judicial reform should be examined at a third-party organization level that encompasses nationwide viewpoints. The current rule of the so-called triangle agreement among judges, lawyers, and prosecutors is too confining. Therefore, extremely relevant are members, process of investigation, and points of discussion of the Judicial System Reform Council, which is a new panel the government is planning to set up.
Fourth, the Anti-Monopoly Law should be applied in a more effective way to promptly eliminate business practices that impede competition. To this end, the Fair Trade Commission needs to be drastically strengthened by reorganizing its structure and by increasing the number of its secretariats to secure independence.

3. Building a Sustainable, Confidence-based Social Security System

One important role of the government in an aged society, in which the number of births continues to shrink, is to provide safety nets for all situations, that guarantee a national minimum of a healthy and cultural life to all citizens in need. It is not an easy task to calibrate the content and level of such a plan properly. However, it should be noted that too generous a standard will cause moral hazards and result in bloated government.
Continued modest economic growth combined with an aging population and fewer children makes the current social security system of pension, medical services, and nursing care problematic: it means rising inequality between generations, and greatly reduced sustainability of the system itself. Reforms so far remain only the combination of increased burdens to people and curtailed benefits. As a result, people have come to feel less confidence and more uncertainty about the system.
What is needed is to build a new sustainable system that makes people confident of the future of social security. The crucial direction is to design the system by offering a wide variety of choices to people by actively mobilizing private initiatives, and keeping public intervention to a minimum. This is basically the same idea as small government which the authorities are currently pursuing for the target of institutional reforms. The most important is fundamental reform, which has not been ever tried, to restore confidence.

(1) Pension Reform
First, public pensions should be restructured to limit the role only to the basic pension, i.e. the primary tier of the current public pension system, which will cover the civil minimum. That level needs to be reviewed to fully finance basic living costs of the elderly depending on the region. Because of the increasing number of non-subscribers to the national pension scheme (Kokumin nenkin), it is almost impossible to offer benefits of the basic pension to all people in the future. For this reason, the source of the basic pension needs to be funded more by tax revenues at the early stage of the 21st century. Furthermore, it is desirable that basic pensions will be financed solely by tax revenues in the future.
During the review, a reexamination of the income tax deduction of public pension benefits to the elderly needs to be considered (they are virtually non-taxable up to a certain limit). It is now too generous for the elderly in terms of generational equality.
Second, the secondary tier, the benefits of which are in accordance with the salaries of the recipients, needs to be tackled for fundamental reform toward complete privatization in 30 years. During this period, the role of the government should be reduced step by step. By this reform, the so-called "double burden problem"could be shared by each generation instead of solving at a certain time in the future all at once.
Public pension premiums would be zero when the basic pension will be fully supported by tax revenues and the secondary tier is totally privatized. Then, individuals will be able to design their own life-plan based on self-responsibility. One example is that people subscribe to the best pension plan managed by the private sector, considering their life-plan. At the same time, the reduced role of the government will contribute significantly to pursuing "small government."
The new basic pension will manage inflationary risks in the future by adopting inflation indexing to the benefits. As for the installment part of the pension, higher yields under inflation offset in principle reduced real benefits, because interest rates move generally in accordance with the rate of inflation.
Third, in the process toward privatization of the second tier, it is necessary to abolish an increase in benefits due to wage indexing of the working generation, to reduce the relative size of benefits to salaries, and to lower pension premiums gradually. These measures will enable individuals to make pension installment in the private pension on their own accord. Existing funds to the second tier will be gradually used to solve the double burden problem.
During a transition period, rising burdens to certain generations are to be dealt with by withdrawing installed funds and by necessary fiscal measures.
Fourth, a defined contribution pension plan that offers an alternative to individuals should be initiated as soon as possible. It is expected to provide various choices regarding private pensions. It is necessary because there is an argument that privatization adversely affects workers in small and medium-sized companies, who are often not part of the second tier of public pensions. Under privatized pensions, they may face insufficient income after retirement without an alternative pension.
The defined contribution pension necessitates a principle of no-tax at making contributions and investing in a fund in the market combined with only taxation of received benefits. The ceiling for companies to count contributions as losses on the books should be greatly raised. Furthermore, the special corporate tax to corporate pension plans should be abolished.
Fifth, as for the corporate pensions, thorough disclosure, clarification of the responsibility of fund managers, and protection of the customer rights are needed. Furthermore, the substitutional role assigned to the company's pension plan for the government (fund management of a part of the second tier) should be abolished soon. After privatization is completed, the association of company pension plans should be dissolved. These steps will be consistent with the direction of small government.
Sixth, relevant data should be thoroughly disclosed, including the data on the amount of burdens and benefits by generation. Their disclosure is the precondition to discuss the desirable pension system.

(2) Medical Services and Nursing Care
First, the central and local governments should provide with safety nets to all citizens. Medical services and nursing care are required to guarantee the socially desirable minimum services.
Second, the basic system for nursing care and medical services for elderly people will be funded by tax revenue. In particular, the public nursing insurance plan to be introduced from April 2000 should be reexamined much earlier than originally planned five years after its introduction. The current health care program for retired elderly, which relies on insurance premiums paid by the working generation, should be replaced by one supported by tax revenues.
Third, when civil minimum standards are guaranteed to citizens, excessive dependency on universal services must be avoided. The system should be redrafted as to offer various services depending on the needs of recipients by introducing competition principles wherever possible, strengthening insurance functions, and considering the idea of privately offered services in publicly owned buildings.
Fourth, medical services need the following reforms to reduce medical costs by initiating competition.

--The health insurance unions and those run by municipal authorities should have stronger power to check the appropriateness of claimed medical costs. For this, deregulation on insurers is necessary. For example, more disclosures and freedom to choose hospitals should be permitted. At the same time, the primary examination of medical records sent by doctors done exclusively by the Funds for Social Insurance Remuneration Payments should be abolished. "Japanese-type Managed Care,"a specialized medical body, should be introduced to make medical services more efficient and cost-saving. It will also help to improve the quality of medical services and to strengthen preemptive medical care.

--Deregulation of medical services, such as allowing private companies to run hospitals, and lifting the ban on advertising should be promoted. Management of public hospitals needs to be reformed by permitting privately offered services in publicly owned buildings or by privatization.

--Medical treatment by doctors should be more standardized. Medical records sent by doctors to insurers should be standardized and processed by electronic devices that utilize computer networking.

--The medicine pricing system of the health insurance system should be fundamentally examined, including a shift to a free market pricing system. At the same time, doctors' remuneration system should be reviewed in terms of improving hospital accounting and management efficiency.
Fifth, the main ideas behind nursing care should be privately offered services in publicly owned buildings, and privatization. It is necessary to make a care-plan for each elderly person compulsory and to provide a wide variety of services by issuing vouchers.

(3) Measures to Cope with the Declining Birthrate
First, facilities for bringing children up with confidence should be provided to cope with the declining number of births. For example, nursery school conditions need to be improved by allowing nursery vouchers that give more freedom of choice, by diversifying nursing services, and by assisting with the creation of child-care centers inside companies. At the same time, tax cuts for having children and special allowances for children should be broadened.
Second, to supplement the declining labor force, the employment of females and the elderly should be facilitated further by diversifying the wage system and job assignments. Furthermore, a necessary legal framework will be positively discussed to accommodate foreign workers, including extension of permit of stay for skill trainees.
Third, considering measures taken in other countries to cope with the declining number of births, an increase in foreign immigrants and the nationality laws need to be reviewed.