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to as the “Old Law”) enacted in 1963 guided the policies for small and medium enterprises in Japan. The Old Law intended to correct the “dual structure” in which small and medium companies trailed behind their large counterparts in wage and labor productivity. If SMEs could not match the performance of large companies, it was not desirable to encourage the creation of more SMEs.1 However, the situation changed in the 1990s when the government recognized that in England and the United States startup companies had provided a valuable stimulus to the economy since the 1980s. Therefore, in 1999 the Japanese government revised considerably the Small and Medium Enterprise Basic Law. This “New Law” aimed to promote diverse and vigorous growth of independent SMEs.2 After this turning point, government took a series of steps to promote startups.3 The Japanese government’s 2001 “Startup-Doubling Plan” has as its target a doubling of startups from 180,000 in 2001 to 360,000 by the year 2006.

2.
THE MAIN POLICIES TO PROMOTE ENTREPRENEURSHIP ACTIVITY IN JAPAN

The primary policies to support startup companies are (1) removal of the minimum capital requirement for the establishment of limited liability companies, (2) provision of education and information for entrepreneurs through the National Startup and Venture Forum, and (3) a new startup loan program through the National Life Finance Corporation, which requires no collateral, guarantors, or personal guarantees, and the expansion of the upper limit of “free property” based on the New Bankruptcy Law.4

Removal of Minimum Capital Regulation

Removal of the minimum capital requirement for limited liability companies was conditionally executed in February 2004 by way of revision of the Law for

1

In 1989 when the reversal of the rate of entry and the exit rate based on number of enterprises was discovered, the author was working for the Small and Medium Enterprise Agency (SME Agency) as a deputy director. A discussion was held for determining policy stance toward this phenomenon. In the discussion, the dominant opinion was that policies that drove small businesses to excessive competition were not desirable.

2

The New Law intends to support highly motivated SMEs in order to revitalize the Japanese economy, in contrast with the Old Law the objective of which was to support existing SMEs to correct social and economic distortion. By definition, New Law and Old Law could be said to have contrasting images of SME policy—that is, one as a part of industry policy and the other as a part of social policy.

3

The “White Paper on Small and Medium Enterprise in Japan” is composed of annual analysis of SMEs and of policies to be taken in the next fiscal year. The first occasion that the “White Paper” focused on policy measures for startup was the parts which described SME policies in fiscal year 1999, the year the Small and Medium Enterprise Basic Law was amended.

4

Entered effect on January 1, 2005.



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