[OPE-L] Neoliberalism and the Poverty of Wealth in Japan

From: glevy@PRATT.EDU
Date: Mon Nov 13 2006 - 21:33:11 EST

---------------------------- Original Message ----------------------------
Subject: Fwd:  R.P. Dore on the disenchantments of Anglo-Saxon Capitalism
in Japan
From:    "gerald_levy1973" <Gerald_A_Levy@msn.com>
Japan Focus
Japan's New Miracle Economy: Neoliberalism and the Poverty of Wealth

By Ronald Dore

LONDON -- "Economic reform" has been the banner slogan of Japanese
governments for the last 10 years, and the new government promises
more of it.

For Prime Minister  Abe Shinzo, it is not quite the strident claim to
fearless determination that it was for his predecessor, but there is
no doubt about the general direction of economic institutional change.
Abe's chief Cabinet secretary is a dedicated neoliberal, and the
appointment of renowned market fundamentalists as academic members of
his Economic Council is a clear sign of which way some of the
long-standing controversial issues are likely to be resolved. Expect
tax reforms to make it easier for foreign firms to take over Japanese
firms, for instance.

What has it all amounted to, these 10 years of deregulation,
privatization, intensification of competition, rethinking welfare,
flexibility in labor markets, etc.? "Trying hard, but could do better" --
the standard patronizing judgment of the Wall Street Journal or The
Economist -- greatly understates the degree to which the Japanese
economy has in fact changed since 1990.

Deregulation has brought greater competition and lower consumer
prices in a few marginal areas like airlines and gasoline distribution
(thus contributing to the deflation that has stifled the Japanese
economy over the last decade). But that has nothing to do with the big
change, the "shareholder revolution," the fundamental change in what
managers consider their job to be.

Back in the 1980s, when the American business schools held up
Japanese management as a model of long-termism and worker commitment,
what managers saw as the best measure of their success, what puffed
them with pride, or made them despondent, was market share -- the
measure of how they were doing vis-a-vis their competitors at home and

Shareholders were treated as creditors, dividends were a kind of
fixed charge, a standard percentage of the share face value of their
shares. The enterprise was a quasi-community and top managers were its
elders. Pay increases kept pace with those of people on the shop floor.

Today they have been Anglo-Saxonized. It is not market share, but the
price of their shares in the stock market that has become their central
measure of how well they are doing. Few top managers any longer bother
attending meetings of the Management-Union Consultation Committee, which
used to be a central enterprise institution. They are too busy preparing
for their next visit to Wall Street or the City, or the next meeting with
analysts. (The Stock Analyst's Association which had a mere 1,000 members
when it instituted its professional examination in 1981, now boasts 21,000
qualified members.)

The contrast in objectives and results between the two periods of
recovery from recession -- the late 1980s and the first years of this
century - - is stark. The Plaza agreement and a 60 percent yen revaluation
plunged the Japanese economy into recession in 1986. In the five years of
recovery that followed (what turned out to be the fatal five years of the
asset price bubble), these large corporations -- employing about a tenth
of the private sector work force -- gave most of the proceeds of growth to
their employees. Wages (plus fringe benefits) went up by 19 percent and
dividends by 2 percent. During the recent, much slower, recovery,
2001-2005, wages went down by 6 percent while dividends went up by 175
percent. (Mild inflation in the first period and mild deflation in the
second affect the real wage implications of those figures, but not their

As for "orientation to the long term," in the first period, companies
put into reserves for investment 60 percent more than they paid out in
dividends; in the second period 70 percent less.

Perhaps even more striking is the erosion of the "quasi-community"
assumption that managers and employees "eat their rice out of the
same pot." In the first period, while wages rose by 19 percent, directors'
salaries plus bonuses rose by 22 percent. In the last five years, while
wages have gone down by 6 percent, directors' salaries and bonuses have
gone up by 97 percent -- and that does not count the stock options that
became legal a decade ago and have increased since.

There are both rational and ideological elements in the explanation
of these changes. In the '80s, the expectation of everlasting capital gains
kept shareholders so happy that stock prices bubbled. Now, they want
income, and forcefully vocal foreign institutional investors now hold 26
percent of Japanese stock, compared with 5 percent in 1990. The network of
mutual cross-shareholdings, the preponderance of "stable shareholders" that
used to provide a firm guarantee against hostile takeovers, has been
largely dismantled, partly because of bank distress, partly by government
regulation. Firms are no longer protected against hostile takeover.

But the ideological element is probably greater. The total loss of
national self-confidence after the world's No. 1 economic miracle entered
its "lost decade" coincided with two important changes: First, seniority
promotion has brought to positions of influence what I rudely call "the
brain-washed generation" -- the high-flyers sent by ministries and
companies to the U.S. for MBAs and Ph.D.s in the '70s and '80s. As true
believers in agency theory and shareholder value, they have become the
dominant voice in ministries and boardrooms, backed up by the media, and
by the economists and the corporation law experts who sit on government

The second big change is the evaporation of the Socialist Party and
the emasculation of the enterprise unions once affiliated with it. The
organized left is now reduced to a tiny and dwindling Communist Party,
dull, doctrinaire and excluded from mainstream politics.

Realization of the extent of the shareholder revolution is slowly
sinking in, and a few alarm bells are ringing. It is becoming a truism that
recovery is painfully slow because the export boom, and a modest recovery
in investment, is not matched by increased consumer spending or consumer
confidence. And that's because wages are not rising.

More striking is the new voice concerned with growing poverty. Books
on income distribution, social mobility, the withering of aspiration,
pour off the press at the rate of one a week, all deploring the new
"divided society." That 28 percent of children in Osaka and 24 percent in
Tokyo qualify for free school meals and textbooks has become one of the
most quoted statistics. The wage figures I quoted above were those for the
labor aristocracy in the big firms. In smaller firms employing half the
labor force, wages fell by 10, not 6 percent.

Yet, there is no effective political force to organize the backlash
and mobilize sentiment among the electorate at large. Until that happens,
investors can relax. The Abe Cabinet will continue to promote the
conversion of Japan to Anglo-Saxon capitalism.

Ronald Dore is an associate of the Center for Economic Performance,
London School of Economics and Political Science, and a former professor of
political science at MIT. He is the author of Stock Market
Capitalism: Welfare Capitalism: Japan and Germany versus the Anglo-Saxons
(2000) and "Dare no tame no kaisha ni suru ka" (The Company: for whom?)
(Iwanami Shinsho 2006)

This article appeared in The Japan Times on November 9, 2006 and in
Japan Focus on November 9, 2006.

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