The role of government

Japan’s system of economic management is probably without parallel in the world. Though the extent of direct state participation in economic activities is limited, the government’s control and influence over business is stronger and more pervasive than in most other countries with market economies. This control is exercised primarily through the government’s constant consultation with business and through the authorities’ deep indirect involvement in banking. Consultation is mainly done by means of joint committees and groups that monitor the performance of, and set targets for, nearly every branch and sector of the economy. Japanese bureaucrats utilize broad discretionary power rather than written directives to offer “administrative guidance” in their interaction with the private sector in order to implement official policies. However, since the early 1990s, efforts have been made to limit the use of such unwritten orders, which have been castigated for creating an atmosphere of collusion between the authorities and big business.

There are several agencies and government departments that concern themselves with such aspects of the economy as exports, imports, investment, and prices, as well as with overall economic growth. The most important of these agencies is the Economic Planning Agency, which is under the Ministry of Economy, Trade, and Industry (until 2001 the Ministry of International Trade and Industry) and, apart from monitoring the daily running of the economy, also is responsible for long-term planning. The practice of long-term planning has been a major force in the functioning of the Japanese economy. According to the economic objectives of the government, various policy measures have been used to shift the allocation of resources among industrial sectors and to influence the organization of specific industries.

Control has been underpinned by the detailed regulation of business activities, particularly in the financial sector. However, by the early 1990s reducing government intervention in the economy had become a major objective of the authorities. This was viewed as a way to create new business opportunities and as a necessity for making Japanese domestic markets more accessible to foreign business, thus revitalizing what was then a moribund economy. A number of deregulation packages to remove and ease controls subsequently were introduced and implemented.

In the 1980s the government relinquished to the private sector its monopolies over the tobacco and salt industries and domestic telephone and telegraph services, and the publicly owned Japanese National Railways was privatized as the Japan Railways (JR) Group. Most of the remaining public corporations are special-purpose entities (e.g., for nuclear power generation) that would be unprofitable to operate privately or are government financial institutions. The government also retains an interest in radio and television broadcasting. It remains active in matters deemed to be of strategic interest, notably nuclear power generation, which is subsidized through a major program to increase generating capacity.

Agriculture

Because of the country’s mountainous terrain, the supply of agricultural land is limited. Japan’s largely infertile and immature soils require careful husbandry and fertilization. However, Japan’s relatively wet climate provides the country with considerable freshwater supplies. The general reliability of the precipitation pattern, coupled with Japan’s extensive network of rivers that can be used for irrigation, make possible extensive wet-rice (paddy) cultivation.

Agricultural production has remained relatively stable since the 1990s; however, for many years agriculture has accounted for only a tiny fraction of the GDP. The agricultural sector continues to employ a relatively large proportion of the working population compared with its contribution to national income, but many farmers have left agriculture for employment in manufacturing and the service sector, and most others rely on outside occupations for a substantial part of their income. As younger people left the farms, the median age of farmers rose steadily.

Japanese agriculture is characterized by a large number of small and often inefficient farms. Larger farms generally are found in Hokkaido, where units of 25 acres (10 hectares) or more are fairly common. The country’s principal crop is rice. Other important farm products include wheat, barley, potatoes, fruits, vegetables, and tea.

The government’s agricultural policy has encouraged self-sufficiency in the more important commodities, although that goal has been achieved only for rice and sweet potatoes (and by 2000 domestic production for both commodities was less than what was needed). Thus, in reality, nearly half the country’s food requirements must be imported. A central feature of the policy of self-sufficiency has been strong protection for local rice production and an artificially high producer price for rice. Legislation enacted in 1995 sought to introduce market principles in the agricultural pricing structure and to place more importance on the needs of consumers. Rice imports were partially liberalized that same year, and the ban on imported rice was removed in 1999, though steep customs duties have remained in place.

Livestock raising, an important farming activity, is generally practiced on a small scale; the largest dairy and beef cattle herds are in Hokkaido. Most feeds must be imported, and production costs are high. In addition, after beef imports were liberalized in 1991, foreign competition began forcing farmers to adopt more efficient production methods and sped up the process of creating larger, more commercial livestock operations.

Forestry and fishing

Timber resources are extensive, consisting of broad-leaved and coniferous forests, but much of the forestland is located in inaccessible mountain areas. Most of the forest area is privately owned, and much of it is distributed among a large number of relatively small holders. The rest is publicly owned; large-scale reforestation has taken place in these areas, especially those that were excessively logged before and during World War II. However, despite Japan’s considerable forest cover, forestry is a marginal activity. In part this is because of the inaccessibility of many of the best stands, but it is also because the domestic logging sector is highly unprofitable, beset with high labor costs, an aging workforce, and other inefficiencies. Even with the addition of limited logging in reforested areas, domestic production cannot come close to satisfying Japan’s huge demand for timber, and the great bulk of Japan’s wood needs are imported.

Japan relies heavily on the sea as a source of food. It has one of the largest fish catches of any country in the world, much of it derived from long-distance deep-sea fisheries. In spite of its dominant international position, the Japanese fishing sector faces some serious problems. Local fisheries are depleted by overfishing and pollution, especially in the Inland Sea, while deep-sea fishing must contend with restrictions placed upon it by countries that claim a 200-nautical-mile (370-km) economic zone in their coastal waters. The number of workers engaged in fishing has declined sharply, and, as with agriculture, the fishery worker population has aged rapidly. Thus, domestic production has been edging down for decades, and imports of fishery products exceed exports. Aquaculture of fish, shellfish (notably clams and oysters), and seaweed is of increasing importance; in addition, cultured pearls long have been significant.