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Japan's Uncertain Future
| Article
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20640 |
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Section : |
MODERN THOUGHT
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| Issue
Date : |
10 / 1992 |
2,216 Words |
| Author
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Toshiyuki Shiohara
Toshiyuki Shiohara is a vice president of Deutsche Bank in the
New York City Office. |
Arthur Laffer has accurately laid out one of the reasons for Japan's past success. Among the important factors behind its ability to maintain technological competitiveness and superior products ahs been an abundance of capital caused by a high level of savings. The Japanese economy has had the capital it needed to improve its technology.
The average Japanese has always considered incurring debt to be an act of imprudence and inability to repay to be a disgrace. He would rather save to spend than borrow to spend. Governmental policy in Japan also prompted people to save. The interest expense on personal loans has never been tax deductible, not even mortgage interest. On the other hand, the interest paid on bank deposits was, until recently, nontaxable to a certain amount regardless of the depositor's level of income. The Japanese government also enforced a policy of protecting banks from failure. As it was made clear that banks could not fail in Japan, depositors had no fear of losing their deposits.
Accumulation of capital was aided by other factors. Until recently, the income of Japanese workers was kept at low levels, compared with other industrial economies, Japanese labor unions, unlike their counterparts in other countries, cooperated remarkably with corporate management, recognizing that the growth of the corporation would, in the long run, best serve their goals. The corporation was expected to take care of its employees at difficult times, so they were rarely subjected to layoffs. However, they were expected not to make radical demands even when things were going well for the corporation.
Share Ownership in Japan
Japanese companies could reinvest substantial portions of their profits because, in Japan, significant numbers of outstanding shares are held by friendly corporations, banks, and institutional investors. They typically hold the shares not as a pure investment but as a part of their relationship with the corporation. To some extent, it is considered to be a necessary business expenditure. Thus, friendly companies have demanded little in terms of dividend or capital gain. Most of them never sold these shares on the market, and when it was necessary to do so, the sale typically took the form of block sale to another friendly investor, so that the market price did not suffer. This factor has enabled corporate management to focus on long-term goals rather than the short-term goals Western management tends to focus on to please
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