Li Zhou
Japanese Issues and Topics 2
Professor David Uva
10/21/2014

Summary of Chapter 2

- Lost Decade: Began in the early 1990s (Heisei era), persisted for two decades 1. Dark period began with asset bubble in 1980s 2. Banks: bad loans 3. Economy imploded 4. Social Problems: Unemployment, divorce, suicide, violence 5. Anxiety, insecurity 6. Japan, Inc. lost credibility
- Led to transformation, people found out gov’t was incompetent
- Junichiro Koizumi 1. Bold 2. Amplifying disparities 3. Increasing risk 4. No safety

❖ Economy Implodes ➢ Crash of the stock market and land prices(hammering banks, business, investors, borrowers, customers, and employees ➢ Lost US$16 trillion, 3 times the size of GDP ➢ Lost Decade ▪ A story about how businessmen, policymakers, regulators, and investors RECONSIDERED the norms and verities of Japan, Inc. and began the process of RETOOLING economics institutions, practices, and patterns to REVIVE the economy ▪ Measured and incremental reforms ▪ Other people: Disparities, betrayal ➢ Company ▪ First, little retirement with less pay and bonuses ▪ After the baby boom generation, companies relied on non-regular workers who are usually paid much less and have little job security(Regular workers needed to work long hours(Low birthrate • Baby boomers: people born during the Post-World War II baby boom between 1946 and 1964.

❖ Lessons from Japan ➢ “Lehman shock” in 2008 ▪ Bankruptcy of Lehman Brothers: Financial services firm. Largest bankruptcy in U.S. history. September 15, 2008. ➢ Differences between international economics crisis and the Japanese one ▪ Japan’s was domestic ▪ Japanese gov’t failed to act with dispatch and solve the problems of massive bad debts ➢ Gov’t concealed the extent of defaults ▪ Business conditions remained depressed and the bad loan problems became worse ▪ Then the gov’t began to act (useless and slow) ➢ Bank ▪ Non-performing loans & collateral values evaporating ▪ Gov’t forced mergers between banks and forced the banks to lend money to bad companies ▪ Made the whole condition WORSE ➢ Zombie firms lowered the prices(other firms also lowered the prices(Deflation ➢ Gov’t raised taxes to gain money ▪ Liquidity trap ▪ Richard Koo: the balance sheet recession • Companies repay loans and minimize debt(restore credit ratings(bank suffers • Late 1990s: Gov’t tried more fiscal stimulus, but stopped in 2001(Then adopted quantitative easing, an aggressive monetary stimulus based on zero interest rates and buying back government bonds, stopped in 2006(ZIGZAGGING all the time • Policy: More money supply and allowing more investments • Some said that quantitative easing was actually destabilized the economy ➢ Japanese gov’t should: ▪ Act fast ▪ Recapitalize banks ▪ Guarantee bank deposits ▪ Force banks to fully disclose and write down bad assets ▪ Sustain high levels of fiscal stimulus ➢ The whole society at that time: ▪ Layoffs & unemployment ▪ Massive mortgages(but the value of their property kept decreasing ▪ Fathers committed suicide(life insurance ▪ Homeless ▪ Women(sex industry ▪ Young criminals ▪ Young workers got low wages ▪ Disparities

❖ Media ➢ Transparency & Accountability ▪ Aggressive in exposing a series of scandals involving politicians that have helped citizens more closely monitor government(good reputation ▪ Forcing people to reassess a past that reverberates throughout Japan and in the region ▪ Gave people a voice and supports ▪ Kisha club system: a cartel giving mainstream domestic media privileged access to official sources ▪ Openly discussed social problems and the history

❖ Time of Reckoning ➢ Kobe earthquake (January 17, 1995) ▪ Gov’t’s slow and inept response • No contingency disaster plan • No prearrangements for emergency relief centers • Refused helps from foreigners ▪ Yakuza opened the first soup kitchen for survivors?! ▪ Volunteers(sense of community(NPOs (Japanese non-profit organizations) • Helped people(gained supports(NOP law ▪ Gov’t credibility dropped ➢ Aum Shinrikyo (Supreme Truth Sect) released sarin gas in Tokyo’s metro ▪ Gov’t disappointed the people again • Early indications(failed to report ▪ Why the criminals attacked? • Leader: Shoko Asahara • Reacting against the materialism? • Against social pressures to conform and succeed? ➢ Insecurity

❖ Untrustworthy ➢ Gov’t reputation went down in 1990s ▪ Wining, dining, and living the high life at taxpayers’ expense ▪ Elaborate scams by bureaucrats to falsely claim expenses for trips they never took and accumulate slush funds for discretionary spending ▪ Corruption ▪ Expensive gifts, golfing, nopan shabushabu ▪ Amakudari: Retiring politicians securing post-retiring sinecures at companies they previously supervised in carrying out their official duties ➢ DPJ wanted to fix the problem(Really difficult

❖ Transparency ➢ People supported information disclosure legislation ➢ 1997 : Every prefecture and major town passed freedom of information legislation ▪ People found out that officials responses to their requests fro information are dilatory or incomplete ➢ Judiciary strongly supported transparency ➢ Gifu Prefecture: ▪ Supreme Court overturned high court rulings in favor of the government and supports citizens’ opinions ▪ Governors refused to give citizens the documents(Supreme Court ruled that the prefecture was in violation of its own information disclosure law and rejected the prefecture’s argument that the documents in question are covered by legal guidelines for withholding information ➢ People had momentum to protect the environment ➢ DPJ & LDP supported the idea ▪ Social services ➢ Risk of judicial sanction and public ire ➢ Generally speaking: Advance

❖ Disparities (kakusa shakai) ➢ Prominent & Consequences of the Lost Decade ➢ Income inequality: Gini coefficient rose 13 percent (OECD) ▪ OECD: Organisation for Economic Co-operation and Development ▪ Poverty rate exceeded 15 percent ▪ The topic was ignored before the Lost Decade ▪ Prime Minister Koizumi: • Neoliberal economic policies of deregulation, market liberalization and privatization? • Not the main causal factor… ▪ Factor #1: Aging of Japan’s population ▪ Factor #2: Growing wage differentials between regular full-time workers and non-regular workers • Gov’t allowed companies to hire non-regular workers indirectly through staffing agencies with no job security and low wages(Redundancy • Unsustainability ▪ Factor #3: Social spending outlays on the working-age population are small compared to those targeting the elderly, while low-income households receive little support ▪ Factor #4: Women’s wages < Men’s

❖ Japan’s Quiet Transformation ➢ NPO legislation (1998), national information disclosure legislation (1999), and an ambitious array of judicial reforms adopted in 2002(Strengthen Japan’s civil society + Promote greater transparency and accountability ➢ Rule by Law(Rule of Law ➢ Reform ▪ Slow • Lag between reform initiatives and substantive consequences • Rely on pragmatic compromises and fine-tuning ▪ 4 factors driving the reinvention • Discrediting of Japan, Inc. during the Lost Decade • Staggering fiscal problems • The demographic time bomb • “Global norming”: Japan wanted to become stronger by adopting workable policies and practices ➢ Introducing greater risk in a society that has emphasized minimizing and mitigating risk