Asia Times: EDITORIAL: Profits up, jobs down



	June 09, 1999	atimes.com

Japan Economy

EDITORIAL: Profits up, jobs down

The current fiscal year is the first in three years that some 1,800 Japanese listed companies expect decent pretax profits - in the 12.5 percent range. Meanwhile, sales are expected to continue on a downward trend, seen to fall by some 2.5 percent in the fiscal year through March 2000. Cost-, mainly job-cutting, will bring about the profit rise.

How good or bad is that?

We don't want to be, or appear, callous about it, but restoration of profitability is the be-all and end-all and must come first if the Japanese economy is going to make a sustainable come-back. That it comes at substantial social cost (April unemployment remained at a 4.8 percent all-time high and male unemployment actually rose to 5 percent) is regrettable, but also a lesson the Japanese polity had better learn and face up to sooner rather than later. For too many years, 50 to be precise, has an absolutely astonishing number of business regulations kept basically unprofitable Japanese companies protected from competition and allowed them to charge domestic prices that, in turn, allowed them to offer lifetime employment guarantees.

That game is now up - or had better be up if there is to be economic recovery for real rather than just a substitute for the previous game: expenditure of taxpayer money (deficit spending) to support fundamentally unviable business undertakings, as, for example, a significant portion of the construction industry.

By reliable estimates, the Japanese GDP can be partitioned into a 30 percent portion accounted for by large multinational, export-oriented companies, by and large competitive on an international scale, and a 70 percent portion contributed by domestic-oriented businesses vastly underperforming in terms of international productivity standards.

The Japanese economy has - rightly in a perverse sort of respect - been described as a supply-side driven economy. Producers have for ever and ever been favored by concessionary bank credits, direct government subsidies, tax incentives, and quasi-monopoly guarantees provided they did what almighty MITI (the Ministry of International Trade and Industry) by it's superior lights told them to do. It all went by the name of industrial policy and was enforced by administrative guidance: Let's sit down and talk about it in a nice Geisha joint, and if you don't appreciate what we're trying to do for you (and the rest of the country), well, that's too bad . . . for you.

The losers, of course, were consumers, taxpayers, and stock holders: high prices, high taxes, no dividends. Any way you cut it, someone has to pay the price for gross market distortions. But given lifetime employment guarantees, fine wages by world standards, and, for the multinationals, market share (over stockholder income) for respectable growth, the scheme worked quite well. In a rigidly structured, hierarchical society, few aspired to be elsewhere than they were and plenty of national pride attached to the stockholder- and taxpayer-subsidized success of Mitsui, Mitsubishi, Matsushita, Toyota, and what have you.

What undid this arrangement was freer global capital flows in combination with a greatly stepped-up pace of technological innovation, jointly exposing Japanese business inefficiencies. And since a modern industrial economy like Japan's obviously can not shut itself off from those developments along the lines of the Tokugawa shogunate of the 200 years preceding the Meiji restoration, the hard decisions must be made now to bring Japanese industry - in particular the laggard 70 percent - up to speed.

To alleviate the pain from further unemployment growth, the government is considering defict spending for public works - make-work jobs if you will - and job training and retraining programs.

Fair enough and probably necessary as a short-term measure. But no one should expect that that will do the trick in the longer run. To avoid European-style chronic unemployment in the 10 percent range, Japan more than anything else must create the conditions for new business formation, most importantly ready access to capital for business start-ups. Only within an environment approximating the free-wheeling entrepreneurship witnessed in the U.S. especially in the past decade can new jobs at high pay be generated at a sufficient rate to avoid Euro-malaise. Otherwise corporate restructuring and higher profits will be a one off deal.

back to the top

©1999 Asia Times Online Co., Ltd.