I am honored to be invited to this seminar of AJS, where I am expected to show that there is hope in Japanese politicians after Mr. Mori steps down as Prime Minister. I am not sure if I can live up to your expectations about this role of mine this evening, but I am certain that you have a hope. Let there be no misunderstanding here. I am not speaking of the opposition parties, but I am pledging myself. Let me explain this evening an idea I have been turning over in my mind to make Japan both healthy and wealthy again.

1.Lack of Beacon

We all know that Japan's economy has been sick for the last decade. So has its politics been. Japanese taxpayers have felt a great deal of frustration against policy makers for their inability to address its economic disease. Under the prolonged stagnation, workers have felt job insecurity as the unemployment rate remained high. Future tax burdens and estimated insolvency in social security including pension system are now looming uncannily in view of the mounting public debts and the most rapidly aging population among industrialized countries.

On the society front, one should note that suicides are increasing among many middle-aged workers and small business owners, and so are juvenile crimes among high school and mid-school students.

On top of these underlying disappointments and social uneasiness, quite a few governmental scandals broke out, such as KSD scandal of corruption and embezzlement of the confidential budget at the Ministry of Foreign Affaires. People are obviously upset by political irresponsibility that persists at a national level.

We have witnessed that there have been too many policy errors made by both LDP and bureaucrats. The most obvious example was forbearance policy with respect to the banking problem, which made economic recession longer than it would have been under prompt resolution.

Allow me to remind you of the fact that a few colleagues of mine and myself presented plans for solutions to these problems during the past few years. Let me take banking problems. In 1998, we drafted "Total Plan for Financial Revitalization" of the LDP and Financial Revitalization Law, which set almost all policies for the right resolutions. First, identify the non-performing loans by tough standards; second, write off the non-performing loans; third, close down unhealthy banks; fourth, restructure sound but weak banks with taxpayer's money; fifth, jump-start real estate market by selling collateral; and sixth, keep monetary ease as long as the process continues.

By the same token, for example, in the area of economic safety net, the desirable policy direction was set forth by the Economic Strategy Council in 1999, such as pension portability, effective on-the-job training programs, or education vouchers, and strengthening competition in education system.

Obviously, our problem is not inability to envision solutions, but inability to put them in practice. Behind this inability lies our governance system which lasted for 50 years among the LDP, bureaucrats and businesses. First, the LDP. Since a great majority of the Diet members fear of losing their constituencies' vested interest, they tend to oppose any drastic reform. Interestingly enough, this is also the case of opposition parties. For example, the Democratic Party of Japan (DPJ) tend to oppose to labor reform proposals such as an introduction of pension portability. This is partly why voters begin to distrust not only the ruling but also opposition parties.

Second, the bureaucracy. Since bureaucrats live in the fragmented field of government functions, they tend to stay away from other Ministries' areas. This is one of the reasons strong political leadership is called for. Since structural reform requires a right set of policy packages beyond the boundary of Ministries, the forbearance attitude taken by bureaucrats is an impediment, as is evident from the experience of banking problems.

Our current situation may be described as lack of a controlling tower in the government. In the past decade, the political guru like Takeshita and the MOF conducted the government policy just like a controlling tower, but this system has ceased working. A death of guru politics can be concluded as progress in democracy, but the present system is also unhealthy where smaller political gurus concentrate on their political survival in the coalition, few policy functions are performed by the Prime Minister's Office, and Mr. Kamei drafts policies without proper discussions among Diet members. This makes a contrast to what we did in 1998, when junior politicians led the discussion of resolution of banking issues and finally formulated the framework of the Financial Revitalization Law. This particular case was an event unheard of until that moment.

2.Political Reform Agenda

For a better policy-making process in the government, politicians who are accountable to voters, must of course play a key role in any critical decision concerning the national interests. The Diet must no longer be a mere rubber stamp of bureaucrats-made policy. In this sense, political reforms are needed in a way that politicians can work as lawmakers in its true meaning. Let me take several points.

First, establish year-round Diet session and year-round tax council. The current ordinary Diet session is held only in the first half of the year, and the next year's budget process begins in the second half year. Under this system, Tax Council of the LDP discusses tax regime only between October and December. Thus, the budget appropriation and tax policy debate in the Diet are made only during a few months and bureaucrats have enjoyed policy-making power without confronting political debate during the rest of the year. This closed door regime, in other words, non-democratic approach, was best suited to the iron triangle system, where the smart bureaucrats drafted policy and politicians lobbied their constituencies' interest to bureaucrats and conducted as a spokesperson of bureaucrats-made policy.

Amazingly enough, even today, many politicians tend to follow this style, as is shown in the cases of elderly medical insurance reform and debates on introducing corporate gross-receipt tax. Traditional politicians tend to minimize public discussion, fearful of public fury against increased burdens, while younger politicians try to be accountable to the public. The year-round Diet system will be more accountable to the public, since it prevents current tactical scheduling for minimizing the Diet sessions.

Second, restore the leadership of the Prime Minister's office. We need further to increase in political appointees and non-bureaucrat advisors within the Prime Minister's office, and possibly within individual Ministries. I don't think the current Deputy Minister and Parliamentary Vice Minister system is functioning well, because politicians can be easily deprived of their access to timely, unbiased, and sufficient information, let alone new ideas independent of the bureaucracy to make their final decisions. Besides, Prime Minister and Ministers are very isolated in the bureaucracy without any own policy assistants to consult, and can very easily be brainwashed by bureaucrats. Plus, politicians often give in to bureaucratic decisions, even if they might not agree with them totally, since they believe that a better relationship with bureaucracy will lead to better results for their constituencies through the budget and other policies. I think this could be one of the clues to the question why the structural reform process in Japan is so slow, in comparison with other countries that adopt the same Parliamentary system such as England, New Zealand and Australia.

In addition, we must increase Minister-class politician's own policy staff to strengthen legislative power. Currently we have only one permanent assistant for policy studies paid by taxpayer's money. Legislative assistance in drafting laws as well as gathering independent information must be strengthened for both House members and the Policy Council in the Party.

3.My Plan for 0's

While these reforms will improve the ability of politicians in the long run, we are currently facing the pathetic political reality in Japan. I think Japanese voters are eager to hear politicians' plans for the future as well as test their commitment to reform.

Politicians must compete for their vision of restoring the course of the nation, in order to avoid any extension of the so-called lost decade, when bureaucrats played a role in improvising policies on a case-by-case basis. Politicians have to discuss coherent national strategies and prepare for the future.

Let me briefly talk about my 10 years' plan to make Japan restore health in terms of economic performance by 2010. My plan consists of three steps. In the first 2 years, we concentrate on cleaning up bad assets of banks, as well as enhancing productivity and profitability in the economy. In the course of cleaning up bank's balance sheets, we need re-capitalization of banks, which may not necessarily be made by public funds but by private capital. Also, in order to support the reforms as well as to offset deflationary effects of structural reform, we should massively privatize government agencies and sell governmental and quasi-governmental assets, including airports, highways, public utilities, government-held real estate and stocks, wire-wave frequencies and national universities, on top of the list, my university "Todai."

These measures may entail painful adjustments. More efficient safety-net should therefore be designed to mitigate public uncertainty. The safety net should put an emphasis on productive measures like on-the-job training programs, professional education vouchers, and incentives for job change.

The following 3 years should be focused on restoring primary balance of the national government budget by cutting inefficient public works, along with strengthening capital markets and real estate markets. At this juncture, I believe that capital gain tax reform should be implemented to attract household savings, which is now concentrated on bank deposits and postal savings, into risk capital. I propose that the household capital gain tax rate be reduced to zero at least during the reform period, which will ultimately benefit restructuring of corporate finance. An introduction of carry-over of capital gains and losses in real estate investment will also become a driving force of real estate transactions.

Then, the last 5 years until 2010, we will fulfill fundamental reform of social security, pension, and tax system. Our ultimate goal is to prepare a program to maintain long-term sustainable growth, which is accountable to voters. It must be so accountable that our every child will be willing to pay for our country. That's why I always insist on the importance of restoring Japan as a reform model for our child generation.

4.Momentum for Change

In my opinion, support for these changes is gaining ground. A first positive sign can be seen in local governments. This week again, in Chiba prefecture, an independent candidate supported by no established party was elected to the governor, after Tokyo, Nagano, and Tochigi prefectures, defying both the ruling and opposing parties. Even in my election district, two candidates have been elected to mayors, defeating a candidate supported by both LDP and other opposing parties. All of these and other unconventional governors and mayors separate themselves away not only from the traditional LDP policy platform but also from other established party lines. In other words, voters have expressed discontent with not only LDP, but also the largest oppositions, Democratic Party of Japan (DPJ). In a similar context, there is a growing support among voters for election of Prime Minister directly by voters rather than by votes of members of the Diet.

Another piece of evidence for the momentum for change can be seen in the public opinion towards revisions of the Constitution. While a great majority of the Japanese consider the philosophy of peace embraced in Japan's Constitution to be essential and therefore, never to be discarded in the future, a growing number of people now believe that Japan should play a more responsible role in both global and regional affairs. Accordingly, open discussions have begun in recent years with regard to possible revisions of constitutional provisions that define the national policy framework. In the past, constitutional discussions often centered on Article 9 of the Constitution, which has often been interpreted to limit the exercise of the right of collective self-defense, but recent discussions cover wider issues.

I consider reform in Prime Minister's election as well as comprehensive revision of the Constitution to be of great importance, because it will ensure a prompter and efficient process of policy making.

5.Implications for Foreign Policy

These discussions have implications for foreign policy. It seems inevitable that in the course of the reform, nationalistic views may strengthen. But one should note that Japan's nationalistic view is not inconsistent with a mature relationship with the U.S., China, and other countries.

Recently, the prolonged recession and accompanying economic pessimism have forced taxpayers to reconsider Japan's foreign aid programs. There might be increasing cultural frustrations like in the case of apologies in Ehime-maru incident and fear of Japan being bought by foreign direct investments. But we must bear in mind that some nationalistic attitude in Japan is not defiance, but rather a prelude to a mature relationship between Japan and the rest of the world.

A second implication concerns broad bushed principles of Japan's future foreign policy. Foreign policy is no longer a one-party show of the LDP, but is an item to be discussed and bargained with other parties. In a sense, this is a good news for the stability in the northwestern Pacific, because whichever parties form a ruling coalition, its policy would continue to be realistic. In a different sense, however, this would invite a messy relationship between Japan and the rest of the world because negotiation partners in Asia-Pacific countries may have to begin discussions with a lot more politicians in Japan and they often will have to do it from the scratch. In order to contain possible mess to a minimum level, both the LDP and other parties will have to agree to basic principles in our foreign policy. In this regard, September this year marks the 50th anniversary of San Francisco Treaty, whereby Japan was re-accepted to the international community six years after the end of World War II. We should not miss this excellent opportunity for establishment of foreign policy principles.

6.Closing Remarks

Before closing my remarks on Japan's politics, allow me to say a few words somewhat encouraging. The next Upper House election and possibly ensuing general election may mark the end of the beginning of a new era, when Japan's policy decisions will be made on a more competitive basis, mustering all knowledge of different constituencies.

Until this new regime is established, the current chaotic situation might continue on the Japanese political scene. While Japan has no time to lose in structural reform, we should also be careful about a possible premature birth. Our experience during the past decade shows that neither quick fix nor forbearance policy will offer any lasting solution.

Japan and its politics are now moving toward a new stage of challenge, a new stage where those with similar ideas and visions are determined to stand up for the future. Time has come for my fellow politicians to act beyond faction lines and, if determined to do so, beyond existing party lines. I ask you all here today for a support of our new challenge in politics.

Thank you.