Remarks by Angel Gurría,
Secretary-General of the OECD
11 April 2016
(As prepared for delivery)
Ladies and Gentlemen,
It is a great pleasure to be back in Tokyo. It has become a tradition for me to come to Japan in April, reflecting the importance of Japan within the OECD membership and in the global economy more broadly. And this year it is not my only visit -- I am fortunate to have further opportunities to come back, as Japan is hosting the G7. I will be at the Finance Ministers meeting in Sendai City and at the summit in Ise-Shima, both in late May. As you know, one of the things I am doing on this visit to Tokyo is to participate in an experts meeting hosted by the Prime Minister, which is part of the Japanese government’s preparations for the G7 Summit.
Beyond that, and beyond my bilateral meetings with the Prime Minister and other ministers and senior officials, I am here to launch two new OECD publications. I have just come from the launch of our Territorial Review of Japan, which I did jointly with Mr. Ishii, Minister of Land, Infrastructure, Transport and Tourism.
The other publication is our new Better Policies Series report on Japan, and I will focus my remarks on this. I would like to thank the Japanese government for its active support in the preparation of this report.
Japan has exceptionally high levels of education and training which, together with high R&D intensity, have provided the country with a skilled labour force, making it a leader in technology. It also has the highest average life expectancy in the OECD and ranks at the top of the OECD in terms of personal safety. By these and some other measures, Japanese society enjoys an enviable level of well-being.
With sluggish growth over the past quarter-century, Japan’s per capita income has fallen behind leading OECD countries. Japan’s GDP per capita grew by an average annual rate of 0.8% in real terms between 1990 and 2014, compared to 1.4% across the OECD. Some recent improvement notwithstanding, revitalising growth remains the top policy priority.
The loss of dynamism is in part explained by unfavourable demographic trends. Japan’s population is shrinking and ageing very rapidly. The total population is projected to decline by almost 25% between 2010 and 2050, while the working-age population will shrink even faster, by nearly 40% over the same period. Meanwhile, the share of the elderly will rise from around 26% today, already the highest in the OECD area, to almost 40% at mid-century.
Together, weak growth and population ageing have led to a third major challenge: Japan’s high public debt level. Twenty-three consecutive years of budget deficits, combined with a prolonged period of deflation, have raised gross government debt from around 70% of GDP in 1992 to nearly 230% in 2015. This is the highest ever recorded public debt-to-GDP ratio in the OECD.
Revitalising Japan’s growth will require broad-based policy measures to boost labour productivity. Despite recent improvements, GDP per hour worked is only about 75% of the average of the top half of OECD countries. Boosting productivity will require swift progress on the third arrow of Abenomics.
In particular, Japan needs to advance its integration into global value chains. Japan, the sixth country to ratify the WTO Trade Facilitation Agreement, stands to reduce trade costs for its businesses by up to 12% by fully implementing the measures in the agreement. Such reforms should also help boost Japan’s stock of inward foreign direct investment, which is the lowest in the OECD.
In addition, the corporate sector needs to become more dynamic through improved corporate governance and product market reform. Examples of the latter include streamlining procedures for starting a business and extending the reforms in the National Strategic Special Zones nationwide.
Finally, while Japan has a strong R&D base, investment in other types of knowledge-based capital such as organisational capabilities and human resources for science need to be stepped up, including by strengthening university-science linkages and encouraging greater international mobility of researchers.
Revitalising growth against the backdrop of an ageing population requires Japan to better use its existing pool of talent.
Japanese women are very well educated, but their employment rate is 18 percentage points below that of men as women shoulder the bulk of care for children and older family members. Policies that make it easier for both men and women to combine work and family life can help address this problem. To this end, the Japanese government should promote the take-up of parental leave and expand affordable access to quality early childhood education and care. And, most importantly, it needs to work together with the social partners to make workplace conditions more conducive to work and family life by curtailing the culture of long working hours.
In addition, the employment opportunities for older people need to be improved, notably by enhancing their ICT skills and fostering life-long learning.
Japan needs to maintain confidence in the fiscal situation by implementing a more detailed and concrete strategy to reduce spending and to raise revenues. The strategy should entail a pathway of gradual increases in the consumption tax rate, accompanied by a broadening of direct tax bases and an increase in environment-related taxes. The latter is also important to curb Japan’s greenhouse gas emissions, which had jumped after the shutdown of Japan’s nuclear reactors.
In addition, some social programmes need to be reformed to limit spending increases. This applies particularly in the areas of health and long-term care as well as pensions.
Ladies and Gentlemen,
Japan has already taken some bold and determined steps in recent years to tackle its economic, social and environmental challenges. But broad-based reforms across a range of areas are still needed. As the Japanese proverb says, “beginning is easy -- continuing is hard.”
And in the words of our own motto, the OECD stands ready to help the government to design, develop and deliver better policies for better lives in Japan.