Chapter 5
Strategic Infrastructure Investment Toward the 21st Century and Revival of Local Economies

The goal of infrastructure investment is to provide the bases for prosperous and comfortable lives. In the 21st century, the needs for a beautiful natural environment, a comfortable and safe life, and individual cultural circumstance will increase, and infrastructures to match these needs will be more important.
However, during the past decade, although large public works have been carried out continuously to help out an end to the economic recession that followed the bubble economy, local economies remain impoverished, and infrastructures in urban areas are getting obsolete. In fact, inefficient public works are carried out only to stimulate the economy temporarily.
Today, from a global perspective, it is doubted that Japan is an attractive country in Asia for investors. The repeated issuing of Japanese government bonds resulted in the expansion of Japan's fiscal deficits. Japan may not pass the financial burden to the future generations, considering the change in the population structure and the decline in its potential growth rate. Local governments have difficulties in securing sufficient budgets for achieving new policies because their finances are getting worse rapidly due to the economic slump.
These basic strategies are supposed to change the centralized public work system into a dispersed one. It will support independence of local governments and clarify their responsibility to increase the efficiency of each public works. Additionally, three conditions should be considered in the basic strategies.

  1. Balancing the burden and benefit of infrastructure investment between generations.

  2. Maintaining infrastructure that will measure the needs of the growing numbers of the elderly.

  3. Maintaining a safe environment that has plenty of clean air and water to live comfortable and healthy lives.
Under those conditions, infrastructure investments should be changed as follows.
  1. The current centralized public work planning system should be abandoned. The new dispersed system should not be based on the central government's plans, but on regional wide-area strategic plans. To do this, the local governments need to show the priority of every infrastructure investment by utilizing the local revenue sources that are mentioned in Chapter 2 to work out their strategies. The national plan should be based on these local plans.

  2. Strategic infrastructure investment plans should be worked out in each wide area to achieve intensive and concentrated investments in the infrastructures that raise the international competitiveness of each local wide area, for example airports and harbors.
    The governments should emphasize networked infrastructures to improve urban infrastructures and to activate the movement of people, physical distribution, and information exchange.

  3. The sectionalized public works system should be changed to a cross-ministry system. Especially regarding the environment, the government should set up standards and rules for environmental assessment, standardize the practice of industrial waste disposal, and immediately prepare measures for preventing environmental pollution.
    Additionally, in information infrastructure, the government should work out a cross-ministry strategy centered on the Internet for promoting an information-oriented society across the country.
    Comprehensive developing plans should be introduced to utilize the free ideas of the private sector.

  4. In selecting public works, the governments should emphasize transparency, efficiency, and assessment to reinforce their accountability by cost-benefit analysis. They also need to involve residents in selecting public works and its feedback, and to introduce an integrated evaluation system. Additionally, public works that are carried out to create and keep local employment should be reexamined. The governments should change such public works into ones that contribute to local businesses.

  5. To achieve efficient public works, the governments should introduce new management to utilize the Private Finance Initiative(PFI) framework, and new ordering and bidding systems to utilize the construction techniques that have developed in the private sector. They may outsource the systems or use non-profit organizations (NPOs) for that purpose.

  6. To clarify the responsibility of each local area, the local governments should introduce new regional management into their daily operations and into the decision-making process. Local governments that have serious financial constraints due to tax revenue decline should make efforts to establish wide-area regional strategies in cooperation with neighbor local governments for each project to realize economies of scale in public services. They also need to implement public works after showing their costs to the residents in the construction of large facilities and long-term public works.

The Economic Strategy Council recommends that the government regard the coming decade as a period of focusing intensive investment and public work reform, and that the government initiate new policies to convert public investments into ones that match new needs and to conduct efficient public works.

I. The Basic Strategy of Developing Future Infrastructure

1. Cross-ministry Infrastructure Development Plan and Regional Revival Plans

To revitalize impoverished local economies and to utilize the accumulated industrial resources, governments should decide strategically important areas to be engines of economic revival. New decision-making processes should also be established.
First, the government should allocate public investment in strategically important areas, urban development, housing, information, environment, education, welfare, and international logistics. In other words, the present public work system and its lack of priorities should be corrected. Especially the government need to have a cross-ministry strategy, regarding two very important areas, --information and environment--, to lead private-sector investment.
Second, local governments should settle on wide-area strategic plans, considering the changes in industrial structure and demographic structure. They should cooperate with the central government and private sectors to work out the plans to achieve economies of scale in public service area.
The cross-ministry taskforce should then coordinate the wide-area regional strategy plans to be reflected in the "Comprehensive National Development Plan", and reexamine each ministry's development plan. These actions will result in changing the "Comprehensive National Development Plan" into a future-leading ground design.
1) The government should inaugurate an "Information Internet Committee" and an "Environment Recycling Committee" that report directly to the prime minister. These committees should be comprised of Japanese and foreign experts.

2) Wide-area regional strategy committees, which consist of the national government, local governments, and private companies, should be created in every wide regional area. The committees will decide the priority of public investment and make basic development plans. Public works that contribute to the revival of local economics by enhancing physical distribution and human distribution, for example, information communication networks, and airport and port systems, should be chosen.

3) Concrete changes across public work areas such as budget shifts from agricultural, forestry and fisheries industries to environmental efforts should be considered, based on local needs.

4) To secure the implementation of the policies above, the shares of public work between ministries at the national level and long-term plans of public works should be reexamined.

2. Reforming Local Governments To Increase the Efficiency of Public Works

Unnecessary public works such as low-utilization buildings should be corrected to prepare for the coming aged society. Public works should be allocated on networked infrastructure to collaborate with other areas, and on ones that match emerging social needs, for example barrier-free facilities.
Both the central and local governments should lower the extreme stress on public works as measures for unemployment and small and medium-sized business support. Instead, a policy change toward supporting industries with highly added value should be emphasized. In selecting local public work, residents' understanding, calculation of maintenance cost, and depreciation and disclosure are important, too.
To establish the independence of local governments' finance, they need to reform local administrations and to invite companies to their regions. They need to utilize the existing infrastructure, work with and attract companies more actively, and enhance the area's attractiveness by using hometown resources such as tourist spots effectively for the purpose of creating employment. To understand its financial potentiality precisely, local governments need to produce useful databases on the local economy and industry.
Additionally, the government should clarify the distributing rules of local allocation taxes and reduce them gradually. The current subsidies to local governments should be changed into comprehensive subsidies.
1) The government should stop supporting measures for building investment by a single local government. New public works should be undertaken for larger areas.

2) The government should reexamine the historical roles of regional promotion laws and consider their future.

3) To prevent unreasonable emphasis on dividing work into small pieces to support small and medium-sized companies, governments should reexamine the ordering procedure of public works. The "Uwauke"--a public works ordering system in which small and medium-sized companies receive an order and place the order to large companies--should be corrected.

4) The governments should reevaluate the effectiveness of long-term public works, and use the results for feedback for ongoing parts of public works.

5) The governments need to change objects of public works flexibly to provide public works that match emerging social needs such as barrier-free facilities in urban areas.

3. Active Introduction of Private-Sector Dynamism

Both strategic infrastructure and drastic deregulation are necessary in the 21st century. For example, in information infrastructure, both deregulation to promote new entrance into the industry and the construction of fiber optics are needed. Moreover, in the environmental industry, construction of sewer systems, recycling systems, and waste disposal systems, along with making clear rules of emission and deregulation, are needed.
In particular, the sewer systems in Japanese cities are behind other developed countries, and disposal systems in urban areas are getting decrepit. Therefore, intense deregulation to attract private investment in these businesses and a new framework for public-private joint management are needed.
The governments should use cost-benefit analysis to raise the transparency of public works, and create a comprehensive evaluating system and a monitoring organization to understand the influence of public works on local economies and environment. They also need to encourage residents to participate in the selecting and feedback process.
Local governments should introduce the private sector's accounting methods and maintain the legal system to increase the transparency of local public works costs.
Applying private-sector technology and management to public works requires that the governments change their ordering systems and bidding systems. They should modify the price -centered system into a technology and operation-centered one. Every wide-area region must have an evaluating organization. They are supposed to evaluate technology and management, and to project consumer demand beforehand. Regulation and the legal system should be maintained to promote PFI (Private Finance Initiative).
(1) In construction of roads, rivers, land improvement, airports and harbor facilities, as a rule, the governments should take cost-benefit analysis and announce the results. They also should evaluate every public works after its construction, and announce it.

(2) To introduce technological evaluation and comprehensive evaluation, the government should simplify contact procedures with the Ministry of Finance. They also need to change the bid system based on the Local Autonomy Law.

(3) To diversify the bid system, every wide-area region should have an evaluating organization for technology and management.

(4) The governments needs to introduce a "Value Engineering" method that evaluates not only price but also technology, and a "Design Build" method to enable the same company to do designing and construction.

(5) The governments should aggressively introduce PFI to stimulate investment by the private sector.

(6) Considering that third-sector enterprises went bankrupt because the public sector took the risk of their business, the government should allow a PFI framework only for businesses led by the private sector with contracts that clarify the roles and responsibilities of both the private and public sectors.

(7) Public facilities should be used not only for their original purpose but also for other purposes. The government should flexibly change the act for normalization of grants to promote more effective usage of public facilities.

II. Strategic Projects

Under the principles mentioned above, the governments should reform development planning system, and build infrastructure strategically on the following areas.

1. Improvement of urban lives and raising global competitiveness of Japanese cities.

Cities in Japan are facing the problems such as decline of local city areas and decline of international competitiveness of large cities. However the government should see this crisis as an excellent opportunity to build and to restructure high-quality cities. Improvement of urban infrastructure aimed at doubling space for life and making urban life more safe and comfortable should be taken.
To respond to the growing urban-life-related industries and economic globalization, Japan especially needs to revitalize its large cities. The government should regard urban development as a frontier in the 21st century.
The governments should change policies on urban development from "restraining urbanization" to "leading resource accumulation" and build attractive urban areas where jobs, housing, recreation, education, and medical facilities are combined. They also need to promote street maintenance and build barrier-free facilities to prepare for population aging.
Measures to increase safety in urban areas such as conversion of city structure that will withstand major earthquakes should be taken. The governments and private sector need to make every effort to build attractive international cities to survive global competition between cities. To support this action, the government should promote pilot projects aimed at building future cities.
(1) The government needs to understand the importance of urban development, and to work out urban development plans as national projects.

(2) The government should improve the weak city conditions for earthquakes and other disasters (3) Commuting time should be shortened, and a more comfortable urban life achieved. (4) The governments should promote pilot projects for future cities. (5) 24 Hour international access to be reinforced.

2. Strategic Information Infrastructure Focusing on the Internet

Information infrastructure in the 21st century seems to be developing with an increasing focus on the Internet. The Internet furthers information disclosure by the government and the private sector, and shortens the time and distance between individuals and areas, and plays a important role in developing a society based on freedom.
Japan's Internet environment is behind other developed countries in terms of costs and capacity. Costs and capacity should be improved largely in both access lines to customers and trunk lines.
Although technological innovation is going on today, a fully competitive market has not been formed in the telecommunications industry. To realize substantial cost reduction and capacity enlargement, the government should take the following actions.
First, drastic deregulation is needed to promote new entrance in the Internet and telecommunications businesses. Currently, Telecommunications Business Law allows only Type 1 telecommunications business carriers to own telecommunications equipment. However, in the Internet business, diverse entrants are needed to provide customers with a variety of services. Also, to promote active competition, diverse players, including small and medium-sized businesses and venture businesses should be allowed to own, transfer, and lease telecommunications equipment, including fiber optics.
Second, the government should not only carry out deregulation but also make efforts to reduce the construction cost of fiber optics networks to enable small and medium-sized businesses and venture businesses to have their own networks.
Additionally, the governments should expand the support for CATV Internet, and Community Local Area Network (LAN) to reduce access line costs.
(1) The government should proceed with deregulation to enhance the Internet businesses (2) Information superhighway running across Japan (3) The government should promote CATV Internet, Community LAN, and Digital Subscriber Lines to realize flat rates for the Internet usage. (4) The governments should promote Local PetaNet model projects and build a Pan-Pacific PetaNet. (5) The government should become an electric government. (6) The government should support developing the next generation transportation system (7) Development of information apparatus for elderly and disabled people should be enhanced.

(8) Both government and the private sector should take all actions, including disclosure and risk management plans and organizations to deal with the "Y2K" problem.

3. Creating Environmental Businesses and Building Recycling Society

The government should support the "vein" industry that is responsible for disposal systems and recycling systems to balance economic development and environmental preservation, and institute a public-private joint framework for developing environmental businesses as engines of growth for the next generation.
For example, expanding the use of fuel cells for home and office use may enable a dispersed electric power supply system. The government should support such promising, epoch-making R&D.
To cope with problems in waste management and sewer systems, Japan needs to establish clear lines of responsibility for emissions and recycling between the national government, local government, corporations and residents.
(1) The governments should promote renewal and reconstruction investment in general waste disposal facilities, industrial waste disposal facilities, and new construction of recycling facilities.

(2) With PFI, the government should build hybrid waste disposal facilities and recycling facilities in large designated industrial areas in coastal business areas and local cities.

(3) The government should proceed with deregulation to promote new entry into the waste disposal industry. It will contribute to the establishment of effective disposal and recycling systems.

(4) Information about costs and management of local public organizations should be disclosed. The sewer system should be improved as soon as possible.

(5) Governments should make clear environmental rules on air pollution, soil pollution dioxin, etc. They should tighten environmental regulation and clarify responsibility for emission.

(6) Japan needs to establish an international ecology right exchange in Japan for the purpose of becoming the center of environmental business in Asia.

4. Public-Private Collaboration Frameworks and Fostering New Talent

21st-century type public-private collaboration frameworks that will utilize funds, human resources, know-how owned by universities, public research institutes, and private companies should be created. In local areas, governments need to open national universities to the public and to build R&D centers and venture capital offices at those universities to bring about synergy between the public and private sectors.
Primary education should concentrate on fostering the 21st century-type literacy: "The Internet Literacy." The governments should expand computer education and develop infrastructure to help people cultivate the ability to collect information and express themselves in foreign languages.
(1) The government should open national and public universities for public use and private use, and establish public-private collaboration centers at those universities. They are supposed to be built and operated with PFI. The centers need to be equipped with R&D centers and venture capital offices.

(2) In reforming local R&D institutes such as industrial technology centers, the local governments should consider a location close to the collaboration center on campus to gather research resources.

(3) To activate research activities rooted in local areas, universities should be allowed to establish a fund to accumulate patent fees and donations, and have a free hand to operate the fund.

(4) For primary school education, the Internet access should be improved dramatically. The government should make efforts to connect all schools with high-speed networks (for example 10 Mbps) and to build LAN in all schools and classrooms by 2001.

(5) Governments should expand the qualification of special purpose teachers to make it possible to outsource computer education and foreign language education.

5. Creating Towns to Prepare for Rapid Population Aging

Governments should construct public spaces where the elderly can walk comfortably. A political shift from "uniform minimum welfare" to "diverse welfare by the private sector" is needed.
(1) Three-dimensional design should be introduced for railway stations , bus terminals, and city areas. It would enable pedestrians to walk without walking up and down.

(2) The government should promote building railway stations , department stores and hospitals etc. with barrier-free facilities.

(3) The government should enhance the private sector's new entrance into welfare, and apply contract welfare to provide diverse welfare services.

(4) Public multipurpose space for welfare use around public spaces such as railway stations should be set up and opened to private use.

(5) Governments should aid the private sector's construction of barrier-free residence and rental homes for the elderly.

6. Initiating New Housing Policy

A new housing policy should focus on middle-aged people housing and the supply of tolerable and high-quality housing. Current changes in the housing tax structure is supposed to expand investment in housing, but more measures are needed to enhance high-quality and diverse residences. Improving the quality of houses to stimulate home-related businesses that expand consumption such as information, environment and energy is crucial.
(1) The government should formulate new housing policies to deal with the diverse life styles of people: activation of fixed-term land use rights, and establishing fixed-term tenant rights to enrich the rental and used market for houses and apartments.

(2) The governments should promote improvement of housing durability by performance disclosure, performance guarantees, and maintenance records of houses to increase consumer benefits.

(3) To raise housing value, the government should establish a neutral organization to evaluate the value of buildings.

(4) As measures for aging population, rental houses for the purpose of taking care of aged people and reverse mortgages should be enhanced.

7. Developing Attractive Spots in Japan and Sending Messages to the World

Japan should create world-class residences for sightseeing and business to stimulate international tourism and mobility by utilizing the country's beautiful towns and landscapes. Expanding attractive spots results in Japan's prosperity with people from all over the world.
(1) Japan must build tourist resorts that attract vacationers from all over the world.

(2) Infrastructure for sending information about tourism and business should be maintained.

(3) Japanese unique cultural facilities such as shrines, temples, and other historical spots should be maintained to be attractive tourism spots.

(4) The governments need to support local movements such as "Machi-tukuri" company and NPOs to develop diverse exchange spots.
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