On the other side of the non-performing claims of financial institutions, large-scale excess liabilities, excess facilities, and excess employment in industries still remain. To maintain a national sense of well-being and to continue to achieve a high-quality labor force in the 21st century, it is essential to significantly increase the productivity of capital and labor, and to revive an industrial base full of vigor and international competitiveness. Showing a road map toward revived and developed industry helps to lessen the uneasiness of the Japanese people for the future. Revitalization of industry and drastic improvement in the profitability of capital are also necessary for the revitalization of the financial system.
In recognition of this, excess liabilities and facilities in the industries should be promptly disposed of. At the same time, in a competitive society with soundness and creativity, management resources should be focused on growing industry areas and on promoting the speedy development of those areas. New business creation should be aggressively promoted, and strategic research and development should be enhanced to promote new industries.

1. A Framework Toward Industrial Revitalization

The biggest reason behind the productivity of capital declines is the deterioration of asset efficiency as a result of excess liabilities and facilities. It is essential to dispose of excess facilities in a short period of time. At the same time, fixed investment in the area of growing industries should be enhanced. An environment that enables companies to innovate their management organization system to efficiently and effectively utilize the management resources such as capital must be fostered.

(1) Supporting the Disposal of Excess Facilities

• The carry over period of losses should be extended from the current five years to 10 years, when disposing excess facilities. The losses as a result of disposal of excess facilities should also be carried back to the financial statements for the past two years, which is not permitted at present.
  
  
• Measures such as exemption of registration tax and capital gains tax should be adopted to promote mergers and acquisitions coupled with facilities disposal.
  
  
• To promote the liquidation of unused land as a result of facility disposal, various regulations on land such as restrictions on usage should be thoroughly deregulated. Also, special regard should be given by the government when disbursing public works so that consolidation of infrastructure supports new ways of utilizing land. In addition, from the viewpoint of effective utilization, public institutions such as the Housing and Urban Development Corporation and the Organization for Promoting Urban Development Corporation should be encouraged to purchase land.
  
  
• Expenses arising from scrapping and retiring benefits as a result of facility disposal should be covered, with time limits, by the extremely low interest rate lending by the governmental financial institutions as an emergency measure. Debt equity swaps, explained in Chapter 3, should be utilized to lessen the excess liabilities as a result of facility disposal.

An incentive system of fixed investment by tax policy, such as allowing accelerated depreciation within three years, should be introduced and incorporated in growing areas, such as information and telecommunications, biotechnology, environment, and new energy development.

• Enhanced promotion of information-led activities by the widespread utilization of information technologies at all levels of the society leads to the development of the Japanese industries toward the 21st century, and to economic growth. Utilization of information technologies contributes to the enhanced productivity of management resources, to greatly improved efficiency and speed of business operations, and to cost savings. Moreover, it helps to build networks among enterprises, and to vitalize and improve the efficiency of the economy as a whole. This leads to the creation of various new industries in addition to the information and telecommunications industry, and business opportunities.
  
  
• In this context, to promote information-led economic and industrial development such as electronic commercial transactions in a short time, the environment, including a legal framework for it, should be promptly consolidated by rule-making of transactions, attestation, security protection measures, and standardization. It is proposed that leading national projects regarding electronic commercial transactions be promoted, and the government is requested to take the necessary budget measures.
  
  
• As proposed in Chapter 5, the government should put investment in information infrastructure as an important strategic area and proceed with it vigorously. Also, reduction in telecommunications costs and enlargement of telecommunications capacity should be achieved by enhanced deregulation.

• Bankruptcy codes are to be drastically amended to respond more flexibly and promptly to bankruptcy. This enables entrepreneurs to try their hands more than twice. It is also useful from the viewpoint of re-utilizing management resources. In concrete terms, the following reforms need to be done.

  1) The current bankruptcy framework is divided into either a reconstruction type or a liquidation type. It is recommended to amend the related codes toward more flexible treatment. Namely, within the same procedure, self-reconstruction, reconstruction by sponsors, half liquidation and half reconstruction by transferring to a third party, and liquidation should be executed. In addition, an automatic protection scheme of the properties of the debtor company at the time of application of the bankruptcy procedure should be introduced.
  
  2) Measures should be taken to facilitate the transferring of businesses to third parties is allowed even before the reconstruction plan is adopted, by clearly stating so in the related codes.
  
  3) For top management of failed companies to try their hands again, application by individuals who have personally guaranteed the liabilities of the company regarding retrial and exemption from the bankruptcy procedure should be approved. The reconstruction of a company and liability of personal guarantee should be treated within the same procedure.

• The legal framework of holding companies needs to be improved, for example by introducing a consolidated tax system and stock exchange system to cope with separation, grouping, and flattening of companies' organization. Also, the rules and legal framework of the separation of companies needs to be improved.
  
  
• The following system reform should be carried out to facilitate the smooth reorganization of industries.

  1) It is required by the Commercial Law that the auditor of a company needs to confirm the propriety of the purchase price when the company acquires assets or businesses of more than a certain scale within two years of the establishment of the company. It is argued that such procedures would require enormous time and energy, and the necessity and the effectiveness of doing so is also questionaed. Therefore, it is proposed that the company executives should be obliged to compensate the possible loss when the market value of the assets to be acquired is lower than the purchasing price, and the obligation of the auditors to confirm needs to be eliminated accordingly.
  
  2) The Securities and Exchange Law requires that the acquisition of stocks should be made in the open market, when the total amount of acquired stocks exceeds one third of the company. Therefore, when there are more shareholders than expected who wish to sell stocks, and when it is eventually prospected to exceed one third of the total stocks of the company, it is either in the open market to purchase or to divide the projected amount of acquired stocks proportionately within the sales request. In the case of the former, the purchasing company purchases more shares than it plans, and in the case of the latter, the original seller could not sell the shares as planned. Therefore, it is requested that the system should be managed flexibly, provided that the compensation measures are taken when the interest of the small number shareholders is unreasonably impaired.

• Japanese-type corporate governance should be reformed by way of smooth unbundling of cross-share holdings, enhanced independence of auditors, and assuring the effectiveness of audits by accountants (public accountants and accounting firms). The reforms will contribute to the transparency and soundness of corporate management. Moreover, the reforms are designed to combine and utilize management resources appropriately and efficiently. Improvement of productivity through originality and innovation is also expected.

2. Assisting Establishment of New Businesses and Strategic Technological Development

The creation of new businesses, which will offer new employment opportunities and new bases of economic vigor, is the key element for Japanese industries to regain new vigor. It is important to aggressively support entrepreneurs, and to create a society full of innovations.
To assist entrepreneurs, it is necessary to intensively eliminate various obstacles that hinder entrepreneurship. Currently, technological development in Japan does not have long-term perspectives and the goals tend to be unclear. It goes without saying that the key factor of technological development rests on efforts in the private sector. However, both the private sector and the government should jointly work to find out clear and strategic directions. The government should take the necessary policy actions that require budgeting.

(1) Assisting Entrepreneurs

It is important to take assisting measures for entrepreneurs comprehensively and effectively in the field of funding, human resources, technologies, management resources, and cultivation of sales network. Especially it is important to pay due regard to software assistance. It is also desired to establish a system which enables the entrepreneurs to challenge to start business more than twice.

• Because many enterprises that start new businesses usually lack collateral and face difficulties in funding, they must rely on retained earnings when conducting new fixed investment, including research and development. Therefore, a new tax system to assist entrepreneurs needs to be established, including a reserve system to set a certain amount of earnings aside and an exemption of registration tax to lessen the initial cost of business.
  
  
• Since it is often the case that the businesses carried out by small to medium companies and venture companies are risky, it is important to foster "angels." To do so, it is necessary to lessen the burden, when angels suffer losses. For the tax system to assist the angels, "exception of the initial beneficiary" which squeezes the capital gains of the stocks held three years prior to the opening needs to be fulfilled, and the carry-over losses, should be consolidated with salary income, when the invested venture company fails.
  
  
• A tax system to assist venture capital, such as allowing a certain amount of investment to be put into reserves with limit, should be established.

• Vitalization of the OTC market, including a dramatic execution of a market-making system, and a review of regulations before the listing stocks should be implemented.
  
  
• To make the OTC market attractive for small and medium-sized corporations and venture businesses, those other than the member of the Securities Association could establish an OTC market, by amending the Securities and Exchange Law which limits the establishment of the OTC market only to members of the Securities Association.

• Transferring public services to the private sector by way of out-source and/or privatization should be promoted.

• To foster micro-businesses such as SOHO (small office, home office), policy-designed loans should be extended for starting new businesses, grants should be awarded to those businesses, and support to the management should be extended. Since many micro-businesses are based in local areas and are expected to produce big employment opportunities in those areas, the local government needs to assist those businesses as much as possible.

• SBIR (Small Business Innovation Research), which enables the government to allocate intensively its technological development funds to small businesses for the purpose of promoting technological development and new business , is to be aggressively promoted. The government should also support the business after development. For the SBIR system to function more effectively, the budget allocated for the system should be increased.

• From the viewpoint of creating new business and supporting entrepreneurs, regulations in the fields of information telecommunication, medical service, welfare, employment, labor, and standard and examination should be deregulated.

• Biotechnology, information and telecommunications, environment and energy without doubt will become core industries in the 21st century. To vitalize technological development in these areas, it is important to set clear and concrete national targets for technological development, and not to depend solely on individual corporations. In doing so, the government should not forcefully lead the direction, but it should induce the maximum capacity for private vitalization.
  
  
• Appropriate intellectual property protection measures need to be adopted with regard to technological development by enterprises and individuals. Moreover, the tax system needs to be improved to give incentives to technological development. The legal framework of intellectual property protection such as the Patent Law should be strengthened, and the tax exemption system of increased examination and research expenses should be fulfilled.
  
  
• From the viewpoint of assisting the creation of new industries, the central and local governments must spend more on technological development in strategic areas. In doing so, existing technological development should be reviewed from the aspect of effectiveness and efficiency. Also, thorough ex ante and ex post assessments of the development should be introduced.
  
  
• Infrastructure such as facilities to develop technologies should be consolidated.
  
  
• One reason why Japanese technological development has been sluggish is the lack of cooperation among industry, the government, and academia. Especially, research conducted by universities and national research institutions has been separated from the technological development of the industries. To improve and enhance cooperation among these groups, an environment including a legal framework should be consolidated to allow faculties of national universities and researchers of national research institutions to serve concurrently as executives of private enterprises.

3. Consolidating Human Resource Infrastructure

To enhance productivity of the labor force -- an important management resource together with capital -- various measures need to be taken to promote aggressively human resource development in a self-initiative manner. These measures should include:1) issuing "training vouchers" that enable those who wish to change jobs to acquire the necessary capabilities efficiently that were outlined in Chapter 2.II.1,"Policies to Enhance Employability and to Ensure Job Security"; and 2) liberalization, in principle, of the temporary staff offering and job-offering businesses. Also important is to cast the right person for the right position. Educational reform is necessary to foster high-quality human resources. It is important to provide education that matches flexibly the needs of the economy and society, such as the importance of information technology, internationalization, and entrepreneurship.

4. Consolidating Intellectual Infrastructure

Consolidating intellectual infrastructure so as to supply information and knowledge on creative activities like starting new businesses and strategic technological development.

(1) A standard and examination assessment method - a common foundation of technological development -- should be improved. Laboratory materials such as chemical and biological products should be provided fully, and databases focusing on these materials needs to be collected.

(2) The government should promote businesses by developing databases commercially viable enough to be sold.

(3) It is decisively important for an industry to meet international standards to maintain competitiveness. The government and the private sector must systematically collaborate and earnestly propose new technologies invented in Japan to be adopted as international standards.

5. Creation of Leading Industries for the 21st Century

It is necessary for Japan to foster new industries that would lead the Japanese economy for the 21st century as national projects. Especially information telecommunications, environment, medical services, welfare, biotechnology, distribution, and finance are expected to be important strategic areas that will grow rapidly and will provide high-quality employment opportunities in the growing mobilization of the labor force. It is clear from the experience of other advanced countries that the government takes initiatives in the development of those strategic areas, and the outcome of these initiatives is that those industries are becoming important sources of vigor in the national economy. Unfortunately, the ratio of research and development in the front running areas to GDP is low in Japan. Moreover, Japan is behind the world in the industrialization of these front running areas. It is urgently requested that Japan takes positive initiative in these strategic areas, and that Japan becomes a world-class competitor in these areas. These activities will promote the reviving of the Japanese economy, through which Japan contributes to the world.

(1) Setting National Strategies

Concrete national strategies should be set by a committee established jointly by the government and the private sector within the next year to develop promptly the important strategic areas. In doing so, a thorough examination of both successful and unsuccessful experiences of the countries should be made. Based on this examination, strategies that realize the efficient development of each area should be established. The strategies could differ depending on area. There could be one area where the government and the private sector jointly establish intensive research development projects, and another area where prompt and thorough deregulation and lifting of the regulations are necessary to maximize the utility of private-sector vitality. The strategies should be as concrete and effective as possible. The strategies need to be assessed regularly afterwards, and the result of these assessments should be fed back to the policies to maximize the policy effect.

• Strategic deregulation from the clear viewpoint of developing new industries should be intensively carried out within one year. Especially in areas such as medical service and welfare, where public commitment is large under the current regulation, and where authorized institutions are limited, drastic deregulation is necessary from the viewpoint of maximizing the vitality of the private sector and the creation of employment opportunity. In addition, deregulation in areas such as information and telecommunications, circulation and distribution is to be enhanced.
  
  
• Systems should be promptly consolidated such as the establishment of the legal framework across financial services from the aspect of smooth development of the industries, in addition to the deregulation.

• Based on the national strategies, resources must be intensively incorporated. After establishing national technology development projects jointly by the government and the private sector, the result of the projects should be transferred to the private sector. A large-scale national fund for assisting strongly the private research and development of the front running area should be established. Thus, appropriate measures should be taken depending on conditions in each area.
  
  
• Technological development aimed at creating new industries should be intensively enhanced. Strong assistance in the field of budget and tax measures should be taken toward the direction of the business orientation of the outcome of the technological developments.
  
  
• Budgeting should be intensively allocated by the national and local government in the consolidation of the hardware and software infrastructure necessary for the important strategic areas.

• Assistance to individuals who wish to cultivate their abilities on their own should be enhanced to foster human resources that adapt to new industries.
  
  
• Labor-related legal systems need to be completely reviewed to smoothly facilitate the mobility of human resources. By utilizing private vitality, infrastructure, including information sharing, should be consolidated.
  
  
• From the viewpoint of enhancing the human capital exchange with other countries and to vitalize the industries, measures such as the establishment of a program to invite many talented researchers and engineers should be taken.

• Based on the fact that acquiring international standards is one of the most important factors in the international competitiveness and profitability of industries, stress should be aggressively placed on acquiring international standards in the international market. Since European countries are putting emphasis on acquiring the so-called de jure standards, Japan, cooperating with the U.S. , the rest of the Asia, and Europe, should acquire de jure standards strategically.
  
  
• It is important to foster human resources that are able to work in the international conferences. The government supports the participation and activities of private enterprises in those conferences.

• National projects to create strategic industries are going on overseas, especially in the U.S. In Japan, large-scale leading national projects need to be promptly planned and executed to create new businesses in strategic areas, referring to the experiences of the U.S. and Europe. The government should take the comprehensive policy actions mentioned above, including budget measures.