No Bank Is Too Big to Fail : Japan's new 'economic czar' on reform and the Korea model.(Brief Article)(Interview)

He now carries the burden of Japan on his shoulders. Heizo Takenaka was appointed Japan's "economic czar" last week, amid new warnings of imminent financial crisis. He spoke to NEWSWEEK's George Wehrfritz and Hideko Takayama in his office which overlooks the Diet building. Excerpts:

NEWSWEEK: Your new post has been called "high-risk, high- reward." Agree?

TAKENAKA: If we expect high return in the economy, the government also should take some risk. Since I used to be a university professor, I'd like to use an economic term: the cost of adjustment. Liquidity will be needed. As factors of production like capital, labor and technology move to other areas, friction will occur. But through this process the potential power of our economy will increase.

Do those costs include forcing some large companies into bankruptcy?

In all market economies bad companies disappear. I do not deny this basic principle. But from a policymaker's point of view it is quite important to reduce adjustment costs. If a poor-performing company still exists for some special reason, the government will accelerate the speed of market adjustment and provide a safety net.

Mergers have left Japan with four megabanks. Are they too big to fail?

Big banks have their merits. They enjoy economies of scale, which can strengthen their financial base. But we do not hold the idea that they are too big to fail. That would jeopardize good corporate governance and create moral hazard.