6th January 2000

Takeo Hiranuma

Minister of Economy, Trade and Industry

1. Inauguration of the Ministry of Economy, Trade and Industry

Today marks the inauguration of the Ministry of Economy, Trade and Industry. Since its post-war recovery, the Japanese economy has weathered many storms � trade and capital liberalization, for example, and the high-growth years; the two oil crises; yen appreciation; the bubble-economy years, and the subsequent collapse of the bubble. And every step in the development of Japan's postwar economy over the last half-century has been attended by the Ministry of International Trade and Industry (originally established in 1949 as the Ministry of Commerce and Industry), working to build trade and foster the domestic economy and industry. Here at the dawn of the 21^st century, the ministry has been reborn once again as the Ministry of Economy, Trade and Industry (METI), tasked this time with boosting the economic vitality of the private sector, promoting the smooth development of external economic relations, and ensuring a stable energy supply as part of the broad responsibility of facilitating economic and industrial development.

2. Location in History and Administrative Reform Principles

I would like to take this opportunity to consider afresh the role to be played by METI in light of our location in history and administrative reform principles.

The final report of the Administrative Reform Council, released in December 1997, advocated restructuring "kono-kuni no katachi ('constitution' of this country)" toward the formation of a society that is free and fair."

The report noted that "Faced with a number of formidable issues pertaining to the very foundations of our nation and our society, Japan currently stands at a critical point in terms of whether or not we can boldly take up these challenges and break open a path into a bright new century." We need to consider rebuilding society "around the fulcrum of we ourselves, the people of Japan, creators of this nation," addressing "not the reform of individual policies and systems," but rather planning a "Major transformation of the entire post-war Japanese socio-economic system." These principles provide the basis for today's administrative reforms, and will underlie METI's efforts to promote economic structural reform toward its mandate of economic and industrial development.

An examination of the point in history at which the new ministry has been born clearly reveals the two major roles which METI will be expected to play.

Firstly, METI must set in place an environment which gives the various economic players greater freedom of movement. In a period of enormous change, relations between these players - nation to nation, company to company, companies and the public, companies and NPOs, the young and the old, metropolitan and rural areas - are changing, their value systems diversifying, and their interests becoming increasingly complex. It will be METI's task to create the necessary "playing fields" to fully empower these economic players and the people of Japan themselves, enabling them to function freely. Further, given that the cross-border movement of corporate activities and people will continue to inevitably swell in the years to come, in developing the above kind of environment, we must be aware that the content and speed of our actions will affect Japan's competitiveness as a nation.

Secondly, METI has to take a comprehensive approach to the design of economic and industrial systems. Our socio-economy is made up of tightly-woven interconnections among environmental and energy restrictions, employment, welfare, the relationship between central and local government, and the various public finance-related systems. Obviously, therefore, there are limits to the effectiveness of planning systems individually in response to the issues faced by each of these elements.

In constructing the systems which will form the development infrastructure for Japan in the 21^st century, it is vital to not only correct systemic distortions in each of the various areas, but also to take a comprehensive approach to the various economy- and industry-related systems. Only by taking such a perspective will we be able to bring about the major transformation in Japan's postwar socio-economic system advocated in the Administrative Reform Committee's final report.

3. Roles of the Ministry of Economy, Trade and Industry

METI's critical roles will therefore be to develop an environment in which the various economic players can move freely, and to take a comprehensive approach to designing economic and industrial systems. These responsibilities will have to be addressed across a broad range of fields, from operation of the economy and economic structural reform through to addressing energy and environment-related issues, innovation and the technological development which underpins this, consumer issues, regional economies, small and medium enterprises, and external economic relations.

Faced with an extensive agenda of pressing issues, METI has also revamped its internal structure to create an organization ready and able to meet the administrative needs of a new era. The departments in charge of economic and industrial policy and trade policy, for example, have been reshuffled and strengthened, while newly established entities include the Consumer Affairs Department, the Regional Economy and Industry Policy Unit, and the Agency of Nuclear Safety and Industrial Safety. I expect each department to play its role to the fullest in responding to the administrative needs of the people.

4. METI Inauguration: The Three Challenges

Our mandate as METI personnel will be to resolutely address the various METI-related policy areas, including economy, industry, trade, energy, environment, industrial technology, and policies to spread information, and related to small and medium enterprises, seeking to lay a course for Japan into the 21^st century. Further, as the walls between the external and the domestic economies dissolve, it will also be our mission to contribute actively to the construction of the international economic order in the 21^st century from a global standpoint.

I believe there are three key METI challenges.

(a) Challenge 1: A Medium- to Long-term Economic Growth Scenario

The first challenge is to construct a medium- to long-term economic growth scenario.

Factors such as growing awareness of global environmental issues, the rapid inversion of the population pyramid, the diversification of public values, a lingering economic downturn, and harsh fiscal conditions are creating an increasingly opaque situation. What we must fear above all is that the government's failure to alleviate the uncertainty felt by the people of Japan over their own and Japan's future will cause them to hesitate to take a new step in the direction of possibility. We need to move swiftly to draw a grand design for the stable development of the Japanese economy into the future.

Thanks to the IT revolution and the progress of technological innovation at home and abroad in recent years, the Japanese economy currently has the potential to achieve a qualitatively different type of growth than in the past. Recognizing this, I want to launch wide-ranging considerations on, for example, Japan's latent growth potential, the harmonization of economic growth with energy and environmental restrictions, developments in the IT Revolution, the progress of innovation, the creation of real affluence for the people, and confidence-building in regard to the future. Based on the information obtained, the next step will then be to create a comprehensive scenario for Japan's development and medium- to long-term economic growth founded on the promotion of various structural reforms. In doing so, it is important to bear in mind issues such as employment, social security and welfare, the relationship between central and local government, and fiscal sustainability. Further, METI must ensure a practical scenario by closely monitoring the socioeconomic and industrial situation at home and abroad, and paying careful attention to moves by the various economic players in their respective areas, as well as by making maximum use of SME start-ups and innovation as the wellspring for Japan's economic vitality.

(b) Challenge 2: Energy and Environmental Restrictions

The second challenge is to overcome energy and environmental restrictions.

For the last 25 years, we have gone to great lengths to try to balance economic growth with demands for environmental protection, with discussions tending to take the zero-sum approach of either economy or the environment. Certainly, environmental and energy restrictions impose both risk and cost, but from another perspective, adapting to such restrictions opens the way to creating new added value, providing hidden business opportunities. Today, it is widely recognized that companies which have led the way in responding to the challenge of such "restrictions" are achieving an increasingly strong market presence. The key to resolving environmental and energy restrictions lies in providing products and services based on advanced technology and in encouraging rational, environment-friendly behavior on the part of companies and consumers. To do so, we will need to look at the characteristics of each area and the merits and demerits of the various methods, such as regulations, voluntary efforts and economic instruments, pushing ahead quickly with comprehensive considerations toward the creation of a well-balanced policy package.

In particular, careful systemic design - for example, creating organic links between representative economic tools such as energy- and environment-related taxes and emissions trading on the one hand and less orthodox tools on the other - will allow the various types of energy-users and consumers to choose freely from among a wide range of product and energy options, with an eye also to cost. It will also open the way for systems encouraging even more efficient and effective voluntary efforts on the part of companies, taking advantage of their creativity and originality. While recognizing the imbroglio of interests and systems tied up with energy- and environment-related restrictions, I want to advance comprehensive consideration of these restrictions to ensure that they are operated competitively in line with market mechanisms, which I believe will be an effective means of lending growth dynamism to new competition among companies, industries and forms of energy.

(c) Challenge 3: Innovation Underpinning Economic and Industrial Development

The third challenge will be the innovation underpinning economic and industrial development.

Innovation is the source of industrial competitiveness, supporting economic and industrial development. The current need is to create the kind of environment in which organic links among industry, government and academia produce highly original innovation which constantly challenges uncharted territory. Bringing the fruits of innovation into industrial activities and everyday life will not only boost industrial competitiveness, but also contribute to the national lifestyle as a whole by helping to overcome energy and environmental restrictions, ensuring the safety and peace of mind of the people, and responding to the aging of society.

METI therefore needs to ensure the strategic allocation of resources to those areas of technology which will underpin future economic and industrial development. This will mean the early structural reform of our R&D system, freeing-up research personnel nationwide (the private sector and universities included), and revamping research and academic institutions.

R&D investment needs to be made more efficient by establishing priority areas, ensuring thorough evaluation, and reviewing R&D management mechanisms.

I also want to protect the fruits of R&D and other intellectual creativity and encourage the use thereof by setting in place and operating an intellectual property system which responds promptly and sensitively to dynamic technological innovation.

5. Establishment of the Advisory Council to METI

For METI to execute its responsibilities in the midst of dramatic change, we will need to actively evaluate our own policies and also ensure numerous opportunities for dialogue at various levels and with various institutions at home and abroad, listening attentively to and actively absorbing the views expressed. As one step in this direction, MET hs established the Advisory Council as a forum for the frank exchange of views among persons with outstanding experience and knowledge in their respective fields.

It is important to constantly and consciously reflect on the basic direction of METI policy as a whole, and on our position as public servants, through such fora.

6. Conclusion

The situation facing Japan today hardly encourages optimism, and the road we must travel is a rocky one.

However, looking back on what our predecessors have achieved, I believe that if we are prepared to confront the future in the spirit of challenge, we will find a way forward, and as the first Minister of Economy, Trade and Industry, I intend to devote my entire energy to that task. I ask humbly for the cooperation and support of the people of Japan and all other parties involved in taking on the new challenges confronting the reborn METI and creating together a bright future for 21^st century Japan.