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Sep 22 / 2016
PM's Cabinet Office
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Action 81. Correct Market Distortions and Implement a Competition Policy that Creates Industries that can Compete Worldwide

Schumpeter emphasizes “free markets” as the source of innovation. Free competition in the marketplace is the source of economic growth. Due to factors such as globalization and advances in IT, the structures of markets are changing. Amid this environment, in Western countries, rules are being changed and appropriate competition policies are being implemented. Japan, meanwhile, is simply pursuing a policy based on antitrust law. It is therefore necessary to raise Japan’s competition policy to at or above the level of that in Western countries.

1. Abandon policy based on antitrust law, which is designed to protect the economically weak, and implement a competition policy that creates industries that can compete worldwide
As can be seen in the cases of Microsoft and Samsung, a large market share makes a company competitive internationally. In light of this, a policy of ex-ante regulation based on domestic market share (i.e. antitrust-law-based policy) actually serves to quash companies’ international competitiveness. It is even possible to benefit consumers by increasing competitiveness through, for example, the lower costs that result from mergers or market monopolies/oligopolies. In globalizing markets, if Japanese companies are the only ones held back by antitrust-law-based policies, they will never be able to compete with huge, internationalized Western companies and companies in developing-countries that are domestic oligopolies. Japan needs to look at markets from a global standpoint, place more emphasis on delivering efficiency through mergers, eliminate external, standardized merger restrictions that look only at market share, and replace them with a competition policy.
2. Correct/eliminate market distortions and establish a more competitive environment, i.e. one in which fair competition can occur, even in government-manipulated markets
1. Open all public infrastructure with usage fees, such as airports, to the private sector
From the perspective of competition policy, it is essential to restrict the scope of activity of state-owned enterprises to the greatest extent possible and to proactively open government-manipulated markets to the private sector. Several of Japan’s state-owned enterprises, including JR, NTT, and JT (Japan Tobacco), were privatized many years ago, but many more areas can be opened up to the private sector, specifically public infrastructure with usage fees such as airports, ports, toll roads, and water/sewerage. Regarding the construction or refurbishment of public facilities in the future, a concession system should be introduced in phases to open all this infrastructure to the private sector.
2. Healthcare and nursing care: Correct market distortions resulting from subsidies
Subsidies in the fields of healthcare and nursing care also have problems. Public hospitals receive subsidies totaling 1 trillion yen, and subsidies are also paid to social welfare service corporations, which compete with for-profit, private-sector companies in the nursing-care field. These subsidies are distorting the market, and most of the public corporations involved have poor productivity and are only surviving thanks to government assistance.
From the standpoint of competition policy, the Fair Trade Commission should also play an active role in these fields.
3. Forbid the use of antitrust law as a means of protecting one’s own country’s industries, eliminate the threat of foreign companies monopolizing Japanese markets, and play a leading role in harmonizing competition policy among countries
Since the beginning of this century, the number of countries introducing competition legislation has been increasing rapidly. The problem is that with the global activities of companies expanding, competition legislation, and the enforcement of this legislation, varies significantly from country to country. In China, for example, a striking development has been the application of antitrust law to protect domestic industry. Foreign companies are being targeted for indictments and investigations with the seeming aim of sheltering domestic industry. Antitrust law is a powerful method for restricting corporate activity, and it can therefore be used as a means as protectionism. It is therefore important for the Japanese government to refuse to tolerate the use by other countries of antitrust law for protectionist purposes. Through intergovernmental negotiations, it is vital that competition policy and the application of antitrust law be modernized in every country. Ensuring the transparency and fairness of competition policy in each country will also help make Japanese companies more competitive.

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