Q&A WITH YUKIO NOGUCHI

Yukio Noguchi, professor at the University of Tokyo's Research Center for Advanced Science & Technology, is calling for a radical overhaul of the Japanese economy. Noguchi, who recently began a program to promote venture businesses in Japan, spoke recently with BW Tokyo correspondent Irene M. Kunii. Here are excerpts of their conversation:

Q: What do you think is wrong with the Japanese economy?
A: The fundamental reason why Japan is weak in information technology [IT] is because of its 1940s-era economic system. Some say that we lack creativity, but I don't believe it. Our problem is the economic structure.

In the computer industry, most U.S. firms are venture businesses, at least in the beginning. In Japan, they are all big firms like Toshiba and NEC. In the IT industry, we need to recognize new ideas, so flexibility is important. In a big bureaucratic system [of large companies], it takes a long time for ideas to emerge, if they do at all.

Q: Why does Japan have so few high-tech startups?
A: Because of our lifetime employment system, mobility between firms is very weak and there are few capable people willing to work [in risky startups]. Many talented engineers are trapped in large companies such as Toshiba or Fujitsu. So even if they have creativity, they won't be able to realize their talents in Japan.

Also, bank lending is conservative. In the U.S., venture businesses raise money in the stock markets. But where banks are the main source of funds, it's hard to get capital. In Japan, the stock markets are strictly regulated and they don't work to provide money for venture businesses.

Thirdly, our tax structure is biased toward big companies. For example, large companies with many employees are able to deduct future retirement payments. But venture companies with only a few employees on temporary contracts don't qualify. Such companies need a stock option system to attract able engineers. But until this year, our tax system penalized those receiving options by taxing their value even if they hadn't been realized.

Q: Do you think Japan lags seriously behind in the IT sector?
A: Our economic system works as a disincentive to develop new technologies like personal computers. But we can catch up to the U.S. if we change our system. That means structural reform, which would be very painful.

Q: Are you saying that the Japanese government is doing the opposite of what it should be?
A: That's right. All the politicians want to save the old [banking] system. Even the U.S. government is at fault for arguing that we should reduce taxes and relax monetary policy. It would only end up increasing the exports of traditional industry and discouraging growth in the IT sector.

Q: What do you think will happen if the government doesn't change course?
A: If this situation develops into a real crisis, creative individuals and successful companies will start fleeing the country. But that's probably what it will take to make the government change.