Japan’s Consumers Vs. Trade Gap : New Generation Is First With Flair for Spending and Credit
While Congress tries its best to start a trade war with Japan, reasoning people in both Washington and Tokyo have been working on the two big factors that have made the $50-billion trade imbalance between Japan and the United States so gross: the strong U.S. dollar and the outmoded reliance of Japan on export-led growth to drive its huge economy.
The strong dollar problem has, at least for the moment, been solved.
But can Japan turn to domestic spending and investment to free its economy from past piggy-backing dependence on exports, principally to the United States? This factor is yet to be solved.
The problem is more than economic. It involves turning a society of frugal savers and money-accumulators into a more individually conscious society with an urge to spend on housing, leisure opportunities and better social infrastructures.
Prime Minister Yasuhiro Nakasone has taken a strong lead in pushing the emphasis to a consumer-demand economy. He has already done more than any previous Japanese leader to encourage imports and chop down some of the bureaucratic and business restrictions that have worked to keep foreign companies and their products out of Japan. In this effort, Japan’s “presidential” prime minister, as they call him, has tried to lead his country rather than play the more traditional role of a cautious power broker. As he told his friend Ronald Reagan early this spring: “Structural adjustment is no easy task in any country. But Japan must make the kind that occurs once in a century.”
Indeed, for at least 150 years the protected network of costly distributors, the rickety mom-and-pop stores and the lord-vassal relationships between big companies and their suppliers have been part of the social adhesive that has held the Japanese together. In the Japanese mindset all prosperity is precarious, a struggling nation must export or die, and foreigners are to be emulated and caught up with but fundamentally not trusted.
Thus the prime minister has received less than enthusiastic support at home for his initiatives to stimulate local economic investment. Just two weeks after his hand-picked advisory council issued the Maekawa Report, a blueprint for increasing domestic demand, a Foreign Office spokesman denied that the report was government policy. And even now most of Japan’s export-oriented businessmen have shown little zeal for weakening their bridgeheads.
Nonetheless, the move to expand domestic demand in Japan has quietly gained momentum among opinion leaders. Many of them agree that Japan’s tax structure, among other things, must be changed to encourage individuals to invest rather than simply save. At present, interest from savings is not taxed. But no deductions are given for home-mortgage payments or interest on installment debt. Banks and companies tap this reservoir of personal savings (18% of disposable income, compared with barely 6% in the United States) to invest overseas or to export--and neglect investment at home.
Housing costs in Japan remain prohibitively high. Public-works expenditure lags; sewage disposal, for one thing, is scandalously defective. Tax rewards for domestic investment are conspicuously lacking. Wages have been held down in the interests of greater productivity. In the land where the middleman is king, savings in energy costs have yet to be passed on to the consumer. In short, the world’s new economic superpower retains much of the attitude of an economic garrison state, even if it doesn’t look like one.
It is now time, Nakasone is telling his countrymen, to take off the economic armor and start spending a bit more like their installment-happy American cousins do. Some Japanese are beginning to listen. The generation aged 30 and under is displaying a new flair for consumption. Reared in affluence, its members are potential big spenders. As economist Akio Sashida wrote recently: “The new Japanese feel no qualms about borrowing or using credit . . . they are the first generation that knows how to use leisure time.” With the spread of the five-day work week and the emergence of two-income families, new standards of consumption are being created. It is not enough just to be “money rich” in Japan.
Thus the move to stimulate domestic demand and investment will be fueled by an increasingly visible change of mood and interests among Japan’s younger generation--a change long anticipated but only now materializing. The barriers to free communication and free trade in Japan are going down. And with them the Japanese-U.S. trade imbalance will decrease.
That is, it will decrease if American business will pay more attention to productivity and less to unproductive mergers and unfriendly takeovers, if we can get the cost of capital investment down and cease emphasizing consumption at the expense of long-term capital investment. For if the Japanese must move toward more of a consumer society, the Americans must try to remember a little something about production.
