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Behind Japan's 'miracle': playing the zaiteku game.

There's something about Japan that makes Americans lose their critical faculties, provoking extremes of hatred or admiration. Among the bashers, the language can get very ugly. For example, these words come from Texas Congressman Jack Brooks: "God bless Harry Truman. He dropped two of them. He should have dropped four." Or Senator John Danforth of Missouri, heir to the Purina Critter Chow fortune, who says the Japanese, are "leeches." Howard Baker, Theodore White and Jack Anderson all say the Japanese are pursuing their dream of empire-building by peaceful means, having failed at military conquest. Anderson says he has access to secret information proving Japan's trade surplus is all part of a hundred-year plan to drive the white barbarians out-though it's hard to imagine who will buy all those Hondas and Sonys once the Japanese have crushed the White Peril.

This nonsense, though dangerous, is largely beneath serious comment. Of more subtle danger is the neoliberal prescription that we should emulate Japan, a line of thinking that has caught the attention of Michael Dukakis and other Democratic pragmatists as well as some of the more enlightened business intellectuals, from Felix Rohatyn to Robert Reich. In this technocratic view, Japan represents capitalism with a human face, where efficiency and equity travel hand in hand. Sounding not unlike a contemporary Calvin ("the business of America is business") Coolidge, Reich admires the way the Japanese "draw no sharp distinction between their business and civic cultures." Management, government and Labor aB cooperate to promote growth, since economic growth is acknowledged as the supreme good. Unemployment is virtually nonexistent, and workers, guaranteed a job for life, cheerfully cooperate with management. Thus equity promotes productivity. Unlike the United States, the productive economy is nurtured, and speculation - what Reich calls "paper entrepreneurialism"- is avoided.

Much of this image is a myth and, like all myths, "deals in false universals, to dull the pain of particular circumstances," in Angela Carter's phrase. In this case, corporatist neoliberals are dulling particular circumstances in order to promote docility and a spirit of self-sacrifice among U.S. workers. Whether they know better or not is a matter for their own consciences. But a closer look at the reality hidden behind the shiny images of the Japanese "Miracle" would be the best way to evaluate their prescriptions. Such a look reveals the following:

* Lifetime employment applies to only a shrinking minority of workers-and it's a luxury subsidized by a reserve army of the "dependently" employed.

* Even lifetime employees are forced into early retirement. * If hidden unemployment is included, Japanese joblessness rates are not all that different from those of the United States.

* The welfare system is the chintziest of the big five economies -that is, behind West Germany, France, Britain and the United States.

* Japanese firms are moving production abroad at a rapid pace, on the model of U.S. multinationals.

SS Financial and real estate speculation is the most intense anywhere in the developed world.

In other words, capitalism with a human face is suffering from ailments quite similar to those plaguing capitalism of a less benign countenance.

"Lifetime employment" is the myth most in need of emystification.

The Japanese were pioneers of a strategy now gaining wide appeal in the United States and Europe dividing the work force into a minority of core workers supplemented by a majority of contingent or "dependent" workers, the term used by the Japanese Ministry of Labor. Core workers have the plum jobs. They are highly skilled, well paid, often company-housed (in a country where housing is very expensive) and guaranteed a job for most of their lives. When business changes, they are retrained or redeployed. But they account for offly about a third of the work force, and that proportion is shrinking with every passing day, because new employees are far less likely to be offered lifetime security.

Unskilled, dull, seasonal or unpleasant Labor is reserved for contingent workers, who can be part-time or temporary employees of big firms, or employees of the innumerable subcontractors supplying parts and services to big fums. (Part-timers are characterized more by the tenuousness of their employment and the absence of fringe benefits than the length of their week, which can be as long as forty-eight hours.) The subcontractors range from medium-sized, relatively sophisticated firms to tiny family enterprises operating in garages and basements. Contingent workers, in-house or out, are expected to bear the brunt of the business cycle: When business is slow, big firms reduce their supply of temporary workers and cut back on orders and payments to subcontractors. This forces the subcontractors to cut costs at their operations, already none too plush, by laying off workers or cutting their pay.

Redundant workers often just drop out of the Labor force by going home to the family. Consequently, their plight doesn't show up in the unemployment statistics. As in the United States, Japanese workers are not considered unemployed if they have given up the job search or if they are working part time despite wanting a full-time job. Were such people counted as jobless, the U.S. unemployment rate would be sharply higher -about 8.3 percent rather than the official 5.6 percent. According to U.S. Labor Department estimates, counting hidden joblessness would raise the Japanese unemployment rate from the 2.5 to 3 percent that has prevailed in recent years to more than 8 percent.

As might be expected, Japanese women are especially "contingent." Their pay is about 53 percent of men's, as compared with 64 percent in the United States. They are found disproportionately in part-time and temporary work and in family businesses. Higher education for women is relatively rare, and careers are rarer still; a 1985 survey of Japan's bigger firms found that 80 percent planned to interview no women university graduates that year. "Instead," noted the March 4, 1985, Business Week, "they will look for high school and junior college graduates who . . . must be younger than 24, cute, well-mannered, and unambitious", whose "main function is to support and motivate male workers" for a few years before snagging a man. Women not young or cute enough to become "office flowers" work menial jobs at low pay with hale chance of promotion.

Not that the life of core employees, white- and bluecollar, is anxiety free. Though layoffs of core workers are rare, they do happen. And short of a layoff, core workers live in fear of a humiliating transfer to an obscure or distant subsidiary as punishment for failure. All are forced to retire from the core at 55 to take a lower-paying contingent job. As Inc. magazine, which celebrates the entrepreneurial culture, put it in its April 1986 issue"All those studies on Japanese management overlook the one ingredient that makes it all work: fear."

To fans of the Japanese Labor market, this fear is a wondrous thing. In an article celebrating the entrepreneurial virtues of small-scale family enterprises and self-employment, Hugh T. Patrick and Thomas P. RoWen note the following less-than-humane stimuli: "Welfare and employment policies that increase insecurity about old age also play a role by

(1) encouraging self-help,

(2) inducing workers to work even for low wages, and

(3) causing people to view entrepreneurship as a means to greater security in retirement. Big businesses do not hire mid-career job changers, and their early retirement programs throw out many people who wish to continue to work. The still limited level of govemment as well as private retirement benefits have, thus far at least, offered relatively little income security even for the retired employees of large firms." Consequently, many Japanese must continue working into their 70s.

Management by fear couldn't work if the social welfare system weren't so tightfisted. Although it pays out enough to keep the poor, handicapped and unemployed from starving, Japan spends the smallest portion of G.N.P. on social welfare programs of the big five economies, and the country lacks a system comparable to the United States' Aid to Families with Dependent Children. Though unemployment benefits are payable for 300days to those over 55, job-losers under 30 get only ninety days' benefits; after that, they're at the mercy of an intrusive and skeptical welfare system. (Only 1.2 percent of the population gets benefits from the Minist of Welfare, compared with about 4.6 percent on A.F.D.C. in the United States. Public hospitals are overcrowded private facities are beyond the reach of the poor, and th handicapped constitutea "semi-underclass," in the words o economists Martin Bronfenbrenner and Yasukichi Yasuba Japanese cities have their roving homeless (furosha), ju like ours; in Tokyo, patrols urge merchant snot to feed the furosha and spread water or wet sawdust on the ground where the homeless might sleep or sit.

Fans of the Japanese Labor market also admire the weakness of Japanese unions. This weakness can be traced to a number of causes: later industrialization than the United States and Europe; the Fascist government of the 1930s and 1940s; a Red purge after the war, strongly backed by the U.S. occupation forces; and an employer offensive in the mid-1950s and early 1960s. Unions are organized by company rather than industry or craft, which makes it far easier to persuade workers to identify with the firm rather than with their colleagues and class. But it was only after management's victory that business discovered the virtues of cooperation. Of course, there is no need to cooperate with contingent workers; they can be discarded when they have outlived their usefulness. All of which makes for efficiency. But so did the Labor markets of Victorian England.

The top priority of Japanese planners since World War II has been rapid economic growth. They have undeniably succeeded. Per capita real G.N.P. grew by an average of 4.3 percent a year 1965-86, almost triple the U.S. rate, with low inflation and very high rates of savings and investment. Conversely, private consumption remains a smaller share of G. N.P. than in most other rich industrial countries. Japanese firms have continued to invest in the newest plant and equipment through two oil crises, recession and the recent high yen crisis, in the endless pursuit of growth.

To what end? Many middle-class Japanese consume at near-poverty levels because of the high costs of housing and education. (Although primary school is free, public high schools charge tuition. The pressures of "examination hell" and university entrance need no recounting here.) Japanese work the longest week in the industrial world. While Japan has enjoyed one of the most extended periods of strong economic growth of any country in history, an annual government poll shows virtually no change in the number of people reporting themselves satisfied with their lives over the past thirty years. Growth may please statisticians and excite the envy of foreign elites, but there's no evidence it makes people happy.

Growth exacts its price as well: declining profitability. If you already have 100 modern auto plants, number 101 can never be as profitable as number 100, much less number 10. Although the rate of profit has declined worldwide, according to economist Anwar Shaikh, the fall has been particularly sharp in Japan. In recent years, according to economist Kazuo Sato, Japanese rates of return on invested capital may even have been negative. What's a capitalist to do in such a case? Speculate.

The Japanese stock market is now the world's largest, having surpassed the United States in mid-1987, despite Japan's smaller economy. The value of all the shares of Nippon Telephone and Telegraph is greater than the value of all the stocks listed on the West German market, even though the Japanese government has privatized only a small share of this slow-growing company. Dividend yields are only about 0.5 percent, compared with 3 to 4 percent in the United States currently, which is fairly low by U.S. historical standards. Ratios of stock prices to underlying corporate profits, or price-earnings ratios-a classic technique for judging the rationality of stock prices -are loony by world standards. In the United States, a price-earnings ratio of 6 is considered cheap; 12, normal; 18, a little racy. In Japan, the average stock sells for more than 60 times earnings, five times current U.S. levels, and N.T.T. has an incredible 150 price-earnings ratio. Blue- chip firms like Sony and Toyota have become major adepts in the art of zaiteku - a pun on high-tech that literally means "econonic tech." Under this Japanese variant of postmodern financial alchemy, firms have been playing the stock market with corporate funds, often using their blue-chip names to borrow cheaply in the Euromarkets to fund speculation in Tokyo. The October stock crash affected Japan the least of any major market, as the government and the major financial institutions conspired to prop up the market. Prices are now above their precrash high, a claim no other stock market can make. As they say on Wall Street, the stock market isn't just discounting the future, it's discounting the hereafter.

Speculators exercise themselves elsewhere, too, notably in real estate, which makes the stock market look almost reasonable. Of course, it seems natural that land shoWd be expensive in a small, crowded country. Japan is roughly the size of California, but offly about a quarter to a third of the country is habitable -meaning that a population of 121.5 milBon, about half that of the United States, is squeezed into an area the size of Ohio. Even so, the real estate bubble has. left rationality far behind. A two-bedroom apartment ninety minutes out of Tokyo cost an average of $570,000 late last year. (Not that these accommodations are luxuriously appointed: 36 percent of the houses in big cities, and 46 percent of the houses nationwide, lack indoor flush toilets.) The market has cooled since then, but not to the point of reason. Land and construction in Tokyo are so "pensive that it takes up to a hundred years to recoup the costs of developing a new office building. Last year, the value of Japanese land increased by 400 trillion to 500 trillion yen, or $3 trillion to $4 trillion-more than Japan's G.N.P. and roughly equal to the total value of land in the United States. No wonder Japanese firms are buying up U.S. real estate; they've been priced out of their home market.

Real estate prices have reached the point where they threaten the real economy: It simply costs too much to set up shop in Tokyo. The government is trying to encourage decentralization, though there aren't many takers, and is even talking of moving the capital to the provinces. Deflating the real estate bubble could have horrible consequences. According to Sato, the inflation in financial and real estate assets has saved Japanese capital from facing the consequences of low profitability: Capital gains from land appreciation have kept Japanese balance sheets in the black, enabling firms to keep investing through thick and thin. In addition, Japanese banks are very thinly capitalized by world standards; they rely on "hidden"- some would say fictitious -assets to support their massive loan portfolios.

Should this game end, things could get very dramatic.

Japan, like all speculators, is leveraged up to its ears; and, like all speculators, it loves to borrow against inflated assets to finance further speculation. Total credit to the private sector is 178 percent of G.N.P. in Japan, versus 92 percent in the United States. Many companies have borrowed heavily to play the zaiteku game. (The government isn't debt-shy, either: Japan's government debt is 57 percent of G.N.P., compared with 55 percent in the United States.) A decline in land and stock prices would threaten a wave of defaults and an end of credit to the United States, the worldwide consequences of which are unpleasant to imagine. As it has many times in the past, Japan Inc. managed to patch last October's near-puncture of the bubble. It's a maneuver it will be called upon to repeat.

So the stock market chugs merrily on, but the real estate market is getting a little bumpy. Commercial real estate values in Tokyo have fallen as much as 50 percent from the summer 1987 peaks. Akio Mikuni of the Mikuni Jimusho credit rating agency told Euromoney that it would take a 70 to 90 percent fall in the real estate market to "bring housing prices into line with what people could actually afford. It woWd bring debt service costs on property investments down to a level where they would be covered by rental income." The only problem is that a fall of that magnitude could bring down the Japanese banking system and, with it, the rest of the world's. With most foreigners expecting the Japanese stock market to crack even as it inches higher, the possibility of a crash in real estate bears watching.

Japan could face some rough spots over the next few years. The export-led, high-growth era is over. It's not clear whether the domestic economy can avoid slipping into Western-style stagnation without the export stimulus. Japanese companies are becoming more like Western multinationals, relying on overseas suppliers and plants. Highwage industrial jobs are disappearing to automation and to new factories in Taiwan, South Korea and Thailand. This "hollowing out" of the economy promises that more core workers will be cast into the lake of contingency, driving the unemployment rate -visible and invisible -upward. Young workers are more likely to find contingent jobs at cafes and oxygen bars than core jobs at Toyota or Nippon Steel. Regional income disparities are widening, as finance-led Tokyo throbs and steel towns sag. Japanese income distribution is now one of the most even in the world - though the distribution of wealth and power is another matter. But this is bound to change as the middle class is fragmented by the emergence of a tee-spending upper class. Until recently, Japan's rich were quite inconspicuous consumers, and class distinctions were less visibly dramatic than in the United States. All these developments threaten to undermine Japanese social harmony.

This look at the reality of the Japanese political economy is not intended as another round in the popular sport of Japan-bashing. Americans were spoiled for years by the absence of serious competition; now, the Japanese have beaten us at our own game. But given the harshness of Japanese Labor markets, the sacrifice of comfort and security to the totem of growth, and the wildness of speculation
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Author:Henwood, Doug
Publication:The Nation
Date:Oct 3, 1988
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