Good afternoon, ladies and gentlemen. When I first looked at the theme of this session, government and business partnership, I was not sure whether the audience regards Japan as a good or a bad model. But my wife said to me, "If you are really invited to that session, it must be a bad model." Well, I am afraid I have no counter evidence. Today, I would like to take a position of "searching for a better model" of partnership.

Japan had long been considered to be a successful model of government and business partnership, often referred to as "Japan Inc." until the 1990s. Japan Inc. consisted of the "iron triangle," where excellent bureaucrats dictated plan of resource allocation, vigorous businessmen followed, and politicians stayed at the bottom for residual bargains. As Michael Gorbachev of USSR paradoxically pointed out, Japan might have been the most successful socialist economy in the world. In fact, this partnership functioned well, when Japan's policy goal was just to economically catch up with the U.S. and Western Europe.

But in the 1990s, too many policy errors and mistakes were made, displaying the reality that excellency in planning by bureaucrats did not ensure good performance. The most obvious example was forbearance policy taken in bank supervision, which made economic recession longer than it would have been under prompt resolution.

I think the Japan model of bureaucratic planning became outdated against the background of the following developments. First, rapid technological innovation. No one can successfully predict or plan recent advancement of information technology. Innovation is a fruit of competitive environment, not dictatorship.

Second, emergence of cross border common interests. Non-government organizations are beginning to play a vital role not only in economic policy, such as standardization of protocols in telecommunication, but also in social policy, such as environment protection and education. The government is not as much committed, for it is trapped by political constituencies.

Third, market pressure backed by intense global capital flow. The market monitors not only a performance of business, but also that of the government. In order to maximize the strength of private sector, taxpayer's burden should be first lessened by enhancing fiscal efficiency, by utilizing private tools like private financial initiatives in public works.

Given these fundamental changes, a variety of private initiatives have recently emerged, bringing with them successful results, such as e-commerce areas. I think basic philosophy we should bear in mind here is that the government must respect these private initiatives.

Then, what is the principal role of government in the new economy? Cannot the government contribute to any private process at all? Of course, the answer is yes, but in a very different way from the old iron-triangle model. Let me point out several key issues.

First, the government's principal role lies in an establishment of "fair playground," where private initiatives can take advantage of the market selection. For example, unnecessary regulatory burden to e-commerce must be abolished, in order to promote cross-industrial competition.

Second, a check and balance mechanism must be installed within the "fair playground." As James Madison noted, "ambition must be made to counter ambition." A de-centralized decision better functions as a check and balance system. The government can contribute to this by keeping the market competitive through its antitrust or intellectual property policy.

Third, coherent law enforcement constitutes a vital part of keeping the playground fair. Transparency in the international context can only be improved by rule-based policy, not by crony relationship. In this regard, especially in Japan, judicial functions must be strengthened by an increase of the number of lawyers and judges, as well as an improvement of legal infrastructure like legal aid or ADR.

A fourth element is research and development policy. We must keep it in mind that simply subsidizing specific projects can easily distort efficient market allocation. The government should flexibly support basic technologies that will create large spillover benefits for the society.

Fifth, cross-border cooperation is becoming more crucial. Global or regional efforts, such as WTO talks or international accounting standards, will play a vital role. We may also promote pragmatic measures like bilateral Free Trade Agreement, which prepare a larger playground. This framework will offer not just tariff policy, but as far as various science policy, such as genetic engineering or high speed internet, educational policy, such as cross border university credit exchange, and health policy, such as international remote medical services.

In conclusion, we have no clear-cut answer to the question as to what is the right model of partnership. However, free interaction of ideas and respect of private initiatives ensures a better performance in this competitive environment. I believe the government should act as a catalyst in the new economy.

Thank you.