Akira Kojima (Nippon Keizai Shimbun, Inc.)

1. "10-year depression" and a downturn of the economic growth rates

Japan's economic depression started in May 1991. The depression started as a repercussion of the bubble economy enjoyed by the country in the late 1980s. In 1991 the long-running expansion of the U.S. economy began. Then, Japan's economy hit bottom in October 1993. If we accept this announcement, the recession that began in 1991 lasted for 30 months, according to announcements by Japan's Economic Planning Agency following their analysis of business statuses.

However, pressure for structural adjustment in many areas was being exerted on the Japanese economy and industries. First was the pressure to clean up bad debts held by financial institutions, resulting from the collapse of the bubble economy. Second was the pressure on corporate management to cope with the world's highest labor costs, which resulted from the strong yen pushing up Japan's average wages to the highest in the world. Third was the pressure from the advancing "mega-competition" resulting from globalization of the world economy and the emergence of newly industrialized economies such as Asian countries who were catching up with Japan as inexpensive labor manufacturing countries in this business environment. Fourth was the pressure from the changing environment of competition resulting from a recovery by the U.S. industries of their competitiveness. And fifth was the pressure resulting from the shift-taking place in business and industries of technological paradigms to more information integrated and knowledge integrated types of technologies. Such "pressures for adjustment" still remain and can be found even today; therefore, it may be more reasonable, and a better interpretation reflecting the actual state of the economy, to consider that the economic adjustments triggered by the collapse of the bubble economy in 1991, are still continuing at this moment in 1999.

On the other hand, it may be more appropriate to consider the state of Japan's economy in the 1990s to be a process of structural adjustments rather than a simple cyclical downturn of the economy. This process of economic adjustments lasting nearly 10 years now, in which the average growth rate (growth of the real GDP) for the period fell to 1.0% (1992 to 1998) as illustrated in Figure (1), is undoubtedly a "10-year depression" as far as corporate management or household economies are concerned.

Most corporations experienced a sharp downturn in growth rates during the transition to the "10-year depression." This was in contrast to the earlier growth trend, which was based on the ever-lasting economic growth in the past, before it posed pressing needs for fundamental revision of corporate management.

Economic growth rates as a trend showed a sharp downturn from their earlier levels. They were nearly 10% during the rapid growth period before and after the 1960s, then fell to 4% from the time of the oil crisis until 1990, and then reached 1% in the 1992 to 1998 period. The cause of the downturn in the 1970s was a drastic change in pricing systems, particularly that of energy, triggered by the oil crisis. The oil crisis created so-called supply shocks and Japan saw negative growth for the first time since World War II. Later, however, under the new pricing system and with restriction of energy supply, Japan's economy recovered its growth trend by substantially changing its supply-demand structure as a whole, though growth rates did slow.

The downturn of growth rates was accompanied by falling of investments in plant and equipment. The saving rate of the economy as a whole, however, did not fall as much as investments in plant and equipment did. Since this, the Japan's monetary conditions have timeundergone a fundamental turningpoint. The country's economy shifted from a savings shortage to a savings surplus. Therefore, Japan should have implemented the big bang at that time. This is because the so-called indirect financing system formed with traditional Japanese banks at its center was tailored for a stock shortage economy, with its continuation as a basic premise.

The financial system based mainly on indirect financing functioned effectively during the catch-up process of Japan's economy. However, it became rather an inhibiting factor in the post-catch-up phase, with the greater importance of entrepreneurial and venture business activities that can offer uniqueness, creativity and the drive to challenge new industry frontiers and willingness to take risks. Japan's economy now presents a picture in which there is an overlap of the completion of the catch-up process and the downturn of economy's growth rates as illustrated in the "10-year depression." Therefore, it is almost meaningless to discuss the present state of the economy only from the aspect of cyclic economic fluctuations.

2. End of the catch-up process

It is essential to understand the true meaning of the completion of the catch-up process in discussing Japan's economy in the 21st century.

The catch-up process refers to Japan's economic and industrial development process since the Meiji Restoration, in which Japan, a late starter in the race for industrialization following the West's advanced economies as its target, strove to catch up and overtake them as quickly as possible.

This catch-up process can be divided into several phases.

The first phase after World War II ended in the late 1970s. By that time, Japanese industries' production technology and ability had caught up with and was running even with those of advanced Western economies. For example, Japan's levels of raw material steel and automobile production and their technical standards equalled those of the U.S. then. In other words, catch-up was completed for production ability and technology.

However, in this phase, Japan's GDP per capita, its average wage level, was much lower than those of advanced Western economies. Japan's rapid economic growth until the mid-1970s was largely attributable to its low wages and low labor costs, although its production technology and ability was rapidly nearing those of the Western economies, as a sheer fact. Of course, then the world trade environment, in which free trade was guaranteed, benefitted Japan greatly. Because of these circumstances, Japan was able to become the strongest exporter of industrial products, dominating in every export market in the world.

The second phase of the catch-up process finished when the "Plaza Accord" was reached by the finance ministers of the five major countries in September 1985, and the drastic devaluation of yen triggered by the agreement followed. As a result of the strong yen, Japan's average wages in dollar terms jumped to more than double very rapidly, and Japan's average wages have been the world's highest since the late 1980s. Thus, Japan's cost advantages based on its low wage level disappeared and the high wage level became a heavy handicap. At this very moment when the environment surrounding Japan's economy and corporations entered into a new phase, the bubble economy overtook country. Because of it, corporate managers, carried away by the boom under the bubble economy, failed to identify needs for adjustments that Japan should have started in the mid-1980s, and necessary adjustments were put off until later as a consequence.

The completion of the second phase of the catch-up process means that Japan has to compete with other countries in the global market while paying the world's highest average wages, a solemn fact.

3. Impacts of globalization

The end of the second phase of the Japanese economy's catch-up process coincided not only with the emergence of the bubble economy in Japan, but it also came at the moment when the world supply structure changed drastically at the end of the cold war, with the advancement of the global market economy domino effect, the explosive increase in direct investments throughout the world and the resultant large-scale movements of production capabilities and technologies beyond borders.

The market economy domino effect also occurred on a large scale in Asia. In this process Japan's neighboring Asian countries rapidly industrialized. Some observers feel that the currency and financial crisis in Asia starting in the summer of 1997 ended the Asian miracle, but there is no doubt that Asian countries will regain their economic growth trajectories in a few years. Their growth rates, even if they do not recover to earlier levels, are expected to return to several percent per annum.

The world's recognition of the Asian currency and financial crisis saw wide swings during the past year and a half. It can be read from changes appearing in catch phrases used in international discussions. In July 1997, when the crisis started in Thailand, everybody deemed it a "Thailand crisis." The U.S. must also have considered it lightly as solely a Thai problem. It did not participate in the two-nation base support programs for Thailand.

Later, when the crisis spread to Indonesia, experts in various countries were surprised at its contagious nature. In fact, until the crisis spread to South Korea, it was still regarded as an Asian crisis, and critics referred to crony capitalism as an Asian development model frequently in international discussions. When the crisis spread to Russia in 1998 and to Brazil in 1999, the focus of interest of international discussions shifted to the "crisis of global capitalism." In the meantime, discussions were also started in favor of sequencing, in which advocates recommended introduction of various systems according to the stages of development.

In a series of conferences discussing currency problems primarily in the IMF framework in Washington in 1998, Architecture became a symbolic word representing discussions asserting that construction of a new international monetary system is necessary. Presently, most people seem to believe that the Asian crisis was the herald of a crisis of global capitalism, or crises of the global currency and economic systems, that just happened to emerge in Asia in a very acute form.

IMF's forecast for the Asian economy as of April 1999 was revised upward from the previous forecast as of December 1998, and the Asian economy certainly was past its worst stage.

This means that Asian countries will emerge again as competitors of Japanese corporations, to produce and supply products at reasonable levels and quality at low prices by combining imported technology and capital with low-cost labor available in their countries, just as Japan once did to the advanced Western economies, while they will provide Japanese corporations with local production bases in their respective divisions of labor.

Therefore, Japan, where the average wage level has become the world's highest, needs to accelerate its structural adjustments all the more.

4. Global prices

A global market of substantial scale is beginning to emerge because of the end of the cold war and advancement of the global market economy domino effect. In this market, global prices are formed when global supplies of standardized mass-production type industrial products, as exemplified by most home electric appliances, meets global demand. These global prices are determined by the market in advance, and no major industry of any country can exert significant influence on them. Accordingly, corporations will have to accept global prices as given conditions and they must strive to maintain their competitiveness and ensure profits under the given conditions.

This will be a race to control costs to meet global prices. For Japanese corporations, which have to pay the world's highest wages, this competition for cost control is extremely tough.

The following methods of cost control are suggested:

(a) Lowering wages from the world's highest levels.

(b) Altering production systems in Japan by importing parts, etc. from countries where they can be produced at lower cost.

(c) Transferring whole production systems to countries where wages and costs are low to utilize foreign countries' low cost advantages.

(d) Lowering total costs by innovating production processes and restructuring the organization including indirect (administrative) divisions. Prof. Peter Drucker of Claremonty University (US) advances the "8% hypothesis" which postulates any corporation that succeeds in lowering its personnel costs below 8% of the total would be able to secure profits wherever it may be located, (in an interview with the author). This 8% figure is not based on scientific data, but is a "magic number" extracted by Mr. Drucker from his dialogues with many corporate managers as a consultant and from case studies.

(e) Lowering investment costs as a whole. This will depend chiefly on the Japanese government's efforts in its policy making. The government's economic plan (it is an economic view rather than a plan) names rectification of the high-cost constitution as an objective of its political efforts. In question here are the prices of utility services, etc. that are subject to the government's intervention, such as the prices of electricity, communications services, and highway tolls. Contrary to the process mentioned earlier in which global prices are formed, these government controlled prices are determined by adding what is called reasonable profit margins onto costs. Because of this price determination process, costs, even if they are unreasonably high, can be reflected satisfactorily in the prices. Because of this, cost control becomes lukewarm and government controlled prices become exorbitant. Ordinary corporations treat these prices as the cost of services or goods input into their production activities. Japanese corporations are handicapped in the race for cost control because of the higher government-controlled prices that they are charged.

Among the methods mentioned, (a) has naturally its limitations. In the 1999 spring negotiations, many unions and employers agreed to freeze their wage levels, but in the present system the most they can do is put a freeze on wage hikes, and it is utterly impossible to lower Japan's average wages to the levels of other Asian countries. Therefore, not much should be expected from this method.

Methods (b) and (c) were employed actively by the Japanese manufacturing industries in their survival efforts in the late 1980s, when the yen strengthened seriously. That was when the Japanese manufacturing industries' overseas production ratio rose rapidly. This trend has continued so that in the present situation, overseas production value now exceeds total export value for the manufacturing industries as a whole.

If corporations cannot achieve costs that meet global levels after various efforts, such as those I have mentioned, only the following two options will be left to such corporations.

The first option is to be driven out of business. The second option is to seek for a way to become non-price competitive by cultivating new business areas. Considering the fact that Japan has entered into the post-catch-up phase, the country should, in the current context, tackle the second option. Systems suitable for such efforts will differ widely from the system that has sustained Japan's industrial success so far. But the system that was so successful during the catch-up process is now beginning to pose serious impediments to Japanese corporations in the post-catch-up stage.

5. The worst of the financial crunch was over

The depression that started in 1991 entered a completely new phase in the fall of 1997. This was because a classic credit crunch and acute financial deflation were added to it. In November 1997, the interbank market became paralyzed, while many financial institutions including Sanyo Securities went into bankruptcy. The shrinkage of credit became serious and Japan's economy then experienced unprecedented continuing negative growth from the fourth quarter of 1997 onward.

Two abnormal phenomena took place in Japan's financial economy after 1997, (quoted from "Truth of Japan's economy" by Masaru Yoshitomi, 1998). One was the shrinking credit standings of banks, which occurred while the money supply was increasing. The other was the rising interest rates of private bonds, which took place while interest rates of government bonds declined under the ultralow interest rate policy.

With respect to the private bonds, the percentage of lending against deposits of city banks fell to 8.7% in a year ending September 1998. During this period, the balance of lending by city banks dropped by 2.5%, while their balance of deposits increased by 5.5%. Normally, when money supply increases from deposits, bank lending increases in parallel. However, in the fall of 1997 onward, these two became unlinked, and in spite of the increasing money supply from deposits and cash, bank lending did not increase at all; rather, it declined. In other words, it the actual credit was tightening, despite credit relaxation measures in the monetary policy.

Behind this credit crunch, Japanese banks fell into a capital crunch (damaged net assets) due to massive bad assets as a result of the collapse of the bubble economy. The so-called Japan Sell, an avalanche of foreign investors selling Japanese corporate stocks, took place at that time amplifying the capital crunch and accelerating the credit shrinkage. During the bubble economy, Japan's Ministry of Finance opened the way for banks to add a certain percentage of the valuation gains of stocks in hand to their net assets, but this worked the other way around when stock prices declined rapidly. It was the ironical result of shallow wit at the Ministry of Finance, lured by immediate results.

In the meantime, the financial crisis that began in November 1997 can, itself, be deemed a rebellion of the market, which responded with panic in the financial market to the bad asset problem. And the bad asset problem arose amid the collapse of the bubble economy, while the government and banks themselves continued to defer solutions until then.

However, both the credit shrinkage and the financial system crisis weathered the worst and had entered a temporary lull by the spring of 1999. In March 1999, foreign investors' transactions on the Tokyo Stock Exchange Market turned to a net surplus of buying and the Japan Premium, an indicator of Japanese bank credit in the overseas markets, disappeared. In the domestic market, the credit shrinkage began to relax and bank lending showed signs of increasing, although they were still faint.

Disappearance of the Japan Premium was the first such since October 1997, and the net surplus of foreign investor buying since around September in the same year. Incidentally, in the depression following the collapse of the bubble economy in 1991, pessimistic views of Japan's economy spread throughout the country, but foreign investors' perception of Japan's economy was more optimistic. For example, foreign investor buying of Japanese corporate stocks showed steady surpluses from 1991 until August or September 1997, with the net surplus during the period exceeding \22 trillion. This trend changed around August 1997, and foreign investor selling increased until November, when their selling avalanche dominated the market.

6. "Quikening" of recovery in the economy

Following the announcement by Director Sakaiya of the Economic Planning Agency, an increasing number of people began to advance their opinions that there were signs of economic recovery in 1999. The perception of Japan's economy has subtly changed recently among observers both in Japan and abroad including foreign media. The New York Times advanced its opinion in an editorial predicting recovery of Japan's economy.

The important point here is whether the economy has actually changed, not people's perception of it. Chairman Yasushi Kasai of the Japan Economic Research Center, discussing whether signs of economic recovery were real or illusory, pointed out that the prospects of the economy would depend on whether corporate efforts for restructuring succeed. According to him, changes in the actual state of the economy deduced from economic indicators include the following: (1) advancing inventory adjustments, (2) stabilization of the state of the financial system, (3) upturn of consumer spending, (4) stabilization of the yen exchange rate, and (5) increase of public investments. On the other hand, capital investments, employment and wages have yet to turn upward or show any signs of upturn.

Many corporations recorded large losses in the fiscal year ending March 1999. Mr. Kasai views this as partly a result of each corporation's efforts to write off negative assets from the past, and he assesses it as "Positive movements toward the restoration of sound management by corporations." However, scrapping of ineffective plants is the settlement of past investment failures, and therefore, it cannot be regarded as a positive and strategic management decision to improve future profit generation capabilities of the corporation as he thinks. Unless modernization of plants and enhancement of R&D efforts as well as strategic reorganization of employment and management resources meeting the former two needs are implemented together, the measure cannot enhance the corporate constitution in the long run.

1999 will be an important year for determining the future of Japan's economy in the long-term perspective. In 1998, all the countries in the world were truly worried at one stage over the fear of a great depression and a credit crunch originating from Japan, but Japan began injecting additional capital into the banks in 1999 by securing public funds (\60 trillion), although it took longer than desired, to prevent a crisis in its financial system. In addition, measures to stimulate demand through national finances (expansion of public investments and tax reductions), active lending through government controlled financial institutions and the virtually nil interest rate policy taken by the Bank of Japan were added to the package, and these provide a complete set of macro-economic conditions for recovery of the economy. Recovery of the economy is now in the hands of the corporations, and they are expected to advance aggressively their respective management improvement programs, taking maximum advantage of the present macro-economic environment. In 1999 micro-economies, that is, management of corporations, really count.

If corporations do not put forth earnest efforts to improve their management but instead passively enjoy the slight recovery of the economy boosted by government's macro-economic policies, there will be no true recovery of Japan's economy. The present extraordinary actions to boost up the economy from both Japan’s financial and monetary policies will not be sustained indefinitely. If such policies were continued for many years, the country would go into real bankruptcy. What the present financial and monetary policies provide is a bit of breathing room for micro economies, or corporate management, to regain their strength. Unless micro economies get stronger, there will be no revival of Japan's economy.

7. Constructing a system suitable for the post-catch-up phase and the "price of success"

A pressing and crucial task required for revival of Japan's economy is to erase the anxiety over its financial system. After this is done, it must rebuild the various systems that have been introduced to support the catch-up process, recasting them into something better suited for the post-catch-up phase.

Systems for the catch-up process were constructed with the following main objectives: (1) to concentrate resources in the central government through a centralized system in order to distribute them efficiently to target areas as determined from time to time by political emphases, (2) to distribute funds through indirect financing to industry areas that the government values and selects according to its political emphases, (3) in the education system, to nurture children as people having standardized capabilities and to place more emphasis on creating fewer dropouts than on giving support to individuals who have unique personalities or talents and enhancing their strong points. The same approaches are also found in the financial and industry systems, in which an industry association is used as a channel to drive home the government's administrative guidance.

These systems earned us a success story in the 20th century. However, in the last decade of the 20th century, Japan's economy has fallen into sudden doldrums. As mentioned earlier, these doldrums were caused by several factors taking place concurrently such as the aftereffects of the bubble economy, the completion of the catch-up process, the global market economy domino effect and the arrival of mega-competition.

Among these factors, the completion of the catch-up process and the arrival of mega-competition would exist anyway, regardless of the problem of the bubble economy. During the bubble economy period, however, not only financial institutions but also industries in general dabbled in speculation and were swept on by waves of the bubble economy to euphoria. When the bubble ended, everybody was blinded by the depression looming immediately ahead of them. After all, most Japanese corporations have not faced the facts straight on, and thus, the burden of the world's highest average wages, the advancement of globalization in the world economy, and the mega-competition that arose in the late 1980s still remain with them today.

Tasks that the Japanese economy and industries must tackle immediately are to implement, as quickly as possible, the various adjustments that they are still postponing. Furthermore, the switching of systems from catch-up type to post-catch-up type is necessary. The latter requires conversion from a centralized system to a distributed system, from indirect financing system to development of a direct financing system, from expansion of the existing industries to exploitation of new industry frontiers, from an education and

personnel evaluation system for producing an average to systems that value personalities and uniqueness, from a uniform sense of values to acceptance of the diversity of values respecting creativity and uniqueness, from a convoy system society guarantying equality of results to a society guarantying equality of opportunities and allowing a reasonable share of fruits, and finally, from control of the market to the utilization and promotion of information disclosure.

These measures will demand changes in the sense of values held by the society itself. A society guarantying equality of results was functioning nicely and maintained the stability of the society while the economy was growing vigorously. But it is a system that penalizes risk takers. To encourage risk takers to continue as risk takers, it is necessary to guarantee them a reasonable share of the fruits of their efforts, when they assume risks and produce fruits. If their share of the fruits is the same as those who do not take risks, nobody will be motivated to try more by taking higher risks.

Presently, as depicted in Figure (2), the rate of new business openings is declining as a trend, while the business closure rate is on the increase. This is the fewer-born-more-dying situation of business corporations. We need to reverse these trends and raise the birth rate of business corporations.

The paradigm of technology is shifting. It is moving away from Fordism (mass-production system of standardized products employing belt conveyers as started by Ford Motor Co.), which symbolizes the 20th century, with technologies developed mainly by large-scale companies, and it is moving toward a system that is more information integrated and technology integrated that directly satisfies customers' multifarious needs.

A political system meeting this change in times must be a distributed system, rather than a centralized one. Many voices point to tiny distinctions between the policies of different political parties, but there is a growing perception that a large government versus a small government and a centralized system versus a distributed system will become the major point of contention among the political parties.

8. Utilizing the market and improving employment fluidity

The system in the catch-up phase attempted to control and impose many restrictions on the market, but the system in the post-catch-up phase must be one that can utilize the market's own adjustment ability to the maximum extent. Economists, with their excessive enthusiasm to learn new theories from abroad, advanced discussions pointing to "Failure of the market," even when no markets deserving to be called a market existed in Japan yet. In retrospect, however, it is obvious that most cases termed failures of the market were in reality failures of policies. Mr. Yasuo Takeuchi concluded

that Japan's capitalism was really socialism in its essence. There used to be many examples in Japan's capitalism warranting this observation. The government tightly controlled the economy, while politics excessively pursued the equality of results. For a long time in Japan, therefore, financial theories could not escape the confines of financial system theories. This mechanism demanded that information should be reported to the government (administrative organ), instead of being disclosed to the market. As soon as corporations enter into business activities on a global scale, go public, and are listed on an overseas stock exchange, sufficient and accurate information disclosure to the market (investors) will become vitally important for them from the aspect of a desirable form of corporate governance.

Steady changes in this area are taking place among manufacturing industries, particularly as they advance their global management because of pressure from the market, not because of administrative guidance by the government. On the Tokyo Stock Exchange, about half of all transactions are by foreign investors these days. Foreign investor ownership of stocks has risen to around 15%. Structural reform driven by the market will undoubtedly continue in the future. This can be good and important medicine to overcome the "Price of success" or the "Paradox of success," terms that refer to stubbornly clinging to obsolete systems, a tendency that is reinforced by past successes with them.

Underlying the drastic downturn of growth rates, the acceleration of technological innovation and rapidly outmoded conventional technologies, and the growing need for creative and unique products and services, Japan's employment system may change at a much faster pace than is generally expected. The life-time employment system so characteristic of Japan may not have been a factor leading Japanese corporations to successes; the truth may be rather that corporations managed to continue growing in spite of the life-time employment or that the life-time employment system could be maintained because corporations continued their on-going growth.

With the present downturn of growth rates, it is impossible to maintain such employment systems. They have even become obstacles to corporate growth. In addition, they are starting to be damaging also from the workers' standpoint, and cases are now emerging in which life-time employment actually caused damage to workers (according to Kasai). Under the life-time employment system, a worker is trained in a corporation to become a skilled worker in the corporation's system, but under present conditions, where industry structures are changing drastically, he may be ejected from the corporation in a restructuring process. If this happens, he may be useless and unwanted by other employers because his skill is only good in his original employer's corporate system.

The "Economic Strategy Council," prime mister Obuchi's consultative organ, issued a report titled "Strategies for revival of Japan's economy" in February 1999. One of the messages contained in the report is "Construction of a sound and creative competitive society." The key factor determining the future potential of Japan's economy and society is how well Japan will be able to utilize the dynamism of the "market" and "competition." In a sense, 1999 will be the turning point where Japan's real capitalism begins. If 1999 does not become the start of Japan's real capitalism, Japan's economy will remain hanging low from 2000 onward; the "10-year depression" will become a "lost decade" instead of a decade of approach to economic revival, and the 21st century following it will also become a stagnant century.

9. New dream

The force driving Japan forward in its catch-up process was a "Philosophy for overcoming poverty," or a desire to overcome poverty and become affluent like other advanced industrialized countries. When this was first considered, the goal was a "dream." However, the dream gave the nation hope and courage, and the policies that the government drew up for achieving the dream were supported by the people. As the policies began to bear fruit, the people's confidence in their government also grew. Officials of the central government were respected socially by the citizens.

The dream, once considered difficult to achieve, was accomplished in the second phase, as mentioned earlier. At that time, the philosophy for overcoming poverty, and the policies and systems contrived for its materialization completed their historic roles. It was no collapse of the dream. It was no collapse of the system for overcoming poverty. It was the mere fact that the dream had come true, and the system set up for its accomplishment had achieved a great success. The reason Japan's society is suffering from a slumping economy in the present situation is not because various systems particular to Japan and designed for materialization of its dream in the past were baffled. The present situation is a result of the brilliant success of our system and that they have finished their originally assigned roles.

Therefore, what Japan has to do now is to determine the next targets, the next dream and remake the various existing systems and practices accordingly with accurate recognition that the former dream and targets have been achieved. Material affluence has been achieved. What comes next as a target may be real affluence, quality of life or a truly mature society. Mr. Yasushi Kasai, who advocates a catch-up process theory, pointed out that it is going to be pursuit of "quality" or Japan's "final catch-up process" aiming for world top class in terms of quality of life. The author agrees with his opinion.

Unlike the first and second phases, in the final catch-up process, Japan may not necessarily find a model to follow in other countries. Unlike the first and second phases, in which goals could be attained by transplanting models already established somewhere, a goal in the final process is something that Japan has to create for itself. In creating a new culture, a linear or uniform sense of values and resource allocations based on them, although they worked efficiently in the catch-up process, will now work adversely. Creativity is supported and encouraged by a diversity of values and a new resource allocation system. It is also pointed out that culture can only be created out of creative chaos.

Beyond a vague dream, approaches to satisfying the society's needs will also become necessary. In this sense, one of the significant needs that exists obviously in our life today is a need for "environment protection." The earth environment problem is a civil problem in the 21st century world. In advancing technological development or industry frontiers, it is vital to understand unerringly the needs for environment protection. Japan is handicapped by its limited land area. However, in examining the history of Japan's economic development, one will find that inhibiting conditions and handicaps have played the role of an engine pushing the country ahead. For example, the pollution problem and the energy crisis brought significant development of environment control technology to Japan and enabled it to produce the world's cleanest and most fuel-efficient engines. Hybrid cars are a good example of this. The fact that the country has few oil resources itself has made the entire society recognize, with a sense of crisis, energy as an inhibiting condition, and the energy efficiency of Japan's economy as a whole was improved with this sense of crisis serving as a springboard. Thus, Japan's energy consumption per unit output was reduced significantly.

The environment problem is a vital issue common to every country in the world. Due to the limited land area and the density of its economic activities, Japan is quite sensitive to the environment problem. Japan is not alone as a country with strong environmental needs. Needs in this area will grow year after year and at an increasing tempo throughout the world. The country that leads the world in developing environment related technologies and successfully establishes an earth-friendly system will be able to contribute to the world as well as evolving its own technology and economy.

Another problem faced not only by Japan but by much of the world is the aging of society. Needs involved in this are enormous. Japan represents the fastest aging process in the world, and there is no way for a society to avoid aging. It may pose a harsh inhibiting condition to growth of the economy if it is not handled properly. However, if this issue is addressed properly, technologies, services or social systems created in advance of other countries in the process may provide a vehicle for Japan's future development. In addition, the field of care services for the aged bring pressing needs that have the potential to induce rapid development of technology, and we may even someday see businesses that integrate care-service related information or technology.