The key demographic changes happening in Japan are population decrease and aging. There are two main reasons for this:
1. Low fertility rates. As fewer babies are being born each year, this directly leads to a decreasing population over time as well as population aging since there are fewer young people being added.
2. Increased life expectancy. While longer lifespans are a positive development, it also means that more of the population is surviving into old age, leading to population aging.
Together, low fertility rates and increased longevity have reduced Japan's population growth and caused its population to rapidly age over the past few decades. With very little immigration to offset these trends, Japan is experiencing both a shrinking and graying population. Addressing low
2. Unique Structural Features Japanese Employment System: lifetime employment, seniority system, company unions Keiretsu Corporate finance and banking system The dual economy
3. Unique Structural Features Japanese-style management Japanese democracy: the Liberal Democratic Party Social consensus on growth
40. So what went wrong? Structural peculiarites of the Japanese economic system What about the Japanese people? Should they have spent more and demanded more?
65. 16-46 Japan Keiretsu form of industrial organization A group of companies that are controlled through interlocking ownership—companies own stock in each other Encourages strong loyalty among the companies, including favoritism in customer-supplier relationships Each keiretsu has a main bank that typically owns stock in other members of the keiretsu
66. 16-47 Japan (Cont.) Japanese banks may own equity in nonfinancial companies, although this is now limited to 5 percent in any single firm Organization of the banking system City banks—represent a disproportionately large fraction of the world’s biggest banks Regional banks Special-purpose financial institutions—include long-term credit banks, specialized small business and industrial institutions
67. 16-48 Japan (Cont.) Historically corporate debt markets have been suppressed, further enhancing power of banks The result is a vast majority of debt financing that comes from the banking system Unlike Germany, stock market is quite large, however extensive cross ownership masks high degree of concentration of ownership Adopted laws that separate commercial banking from investment banking, however, this separation has been eroded
75. 56 1Current Status of Postal Services in Japan ○ Postal Service - Total Mail Volume: 24.8 Billion Items (FY2005) ○ Postal Savings - Balance: 1.7 Trillion USD* (FY2005) - Number of Household Users: Approx. 39.2Million Households (Rate of Household Users: 77.8%) (Oct. 2005) - Number of ATMs: 26,297 Units (Mar. 2006) ○ Postal Life Insurance - Total Amount of Funds: 1.0 Trillion USD* (FY2005) - Number of Household Insurers: Approx. 28 Million Households (Rate of Household Insurers: 56.1%) (Mar. 2004) ○ Post Office - Number of Post Offices: 24,631 (Including Contracted Post Office: 4,410) (Mar. 2006) *1 USD = 117.47 Yen (March, 2006)
76. 57 2 Governance in the Postal Sector 1. Global Governance - Global Network and International Norms ・ Postal network: a global network of interconnected national networks ・ UPU Constitution, Convention or Standards 2. National Governance - Institutional Framework - ・ Relationship between regulator and operator: identical / separated ・ ‘Transition from Public to Private Sector’ 3. Governance within Operators - Norms of Behavior - a) internal governance – CSR, Internal control, compliance, enhanced internal audit, improved efficiency of operations, consumer satisfaction, etc. b) enhanced external audit, acceptance of external executive officers c) provision of services based on user preferences
77. 58 3 Market Change and Expected Reform in Governance Swift and flexible provision of diverse services 1. Enhanced and diversified user needs 2. Increased competition in services or operators 3. Development and use of latest ICT technologies 4. Diversified international collaboration among stakeholders Increased freedom of business management Improved entry intonew businesses Increased satisfaction of complex user needs Improved quality of servicethrough better technologies International regime to reflect different values
78. 59 Fund Management of Postal Life Insurance Fund Management of Postal Savings *1 USD = 117.47 Yen(March, 2006) Total Assets: 1.7 Trillion USD* (End of FY 2005) Total Assets: 1.0 Trillion USD* (End of FY 2005) 4 Basic Principles of Privatization of Postal Services in Japan ・ Vitalize economies through transition from public to private sector ・ Reform in line with entire structural reform in Japan ・ Consider convenience of consumers ・ Utilize Japan Post’s resources (such as the existing network) ・ Consider present conditions of employment in Japan Post
79. 60 Promulgation of Laws on Privatization of Postal Services Government Japan Post Preparatory Period Holding Company Government Transitional Period Holding Company Postal Insurance Company Postal Savings Bank Postal Insurance Company Postal Savings Bank Incorporated Administrative Agency: Management Organization for Postal Savings and Postal Life Insurance * * Post Office Company Postal Service Company 100% Share 100% Share * Holding Company is obliged to dispose of all the shares of two financial companies during the transitional period 5Process for Privatization Privatization (October 2007) Final Privatization (October 2017) Note: The Government is obliged to hold over one third of the shares of Holding Company
80. 61 6 Characteristics of Privatization ○ When privatized, services will be basically the same as those of pre-privatization ○ Separation based on business function (Postal Service, Savings, Insurance, Post Office, and Holding Co.） ○ Complete privatization of two financial companies within 10 years (Disposal of all the shares) ○ To balance the degree of freedom in management, with an equalfooting with private companies during the transitional period
81. 62 7 Maintaining Level of Post Office Network ○ Post Office Company is obliged to maintain a nationwide post office network ○ Criteria: post offices are to be established: a) to meet the needs of local residents b) more than one in every municipality c) in areas that are easily accessible to local residents considering traffic, geography, and other relevant circumstances * In sparsely populated areas, maintain level of post office network that exists at the time of privatization
82. 63 8 Maintaining Level of Postal Services ○ Postal Service Company is obliged to provide universal postal service ○ Ensure nationwide financial services at the post offices - Two financial companies are obliged to have stable agency contracts during the transitional period - After the transitional period, the Social-Regional Contribution Fund can be utilized to maintain necessary financial services ● Holding Company is obliged to accumulate funds from its profit up to one trillion Yen ● To implement Social Contribution Activity and Regional Contribution Activity, profit from the Fund can be provided Social-Regional Contribution Fund
83. 64 9 Postal Service after Privatization ○ Ensure provision of universal postal service ○ Enable flexible revision of postage rates ○ Enable expansion into international logistics business ○ Domestic parcel post business will be regulated under general cargo distribution rules
84. 65 10 Privatization from the Perspective of Governance ○ Postal Privatization in Japan is expected to affect governance in the following ways: a) improve oversight functions by the regulator over the operator b) enable more flexible operations and entry into new business c) enhance the operator’s ability of governance in business management <Anticipated Profit> (Unit: Million USD*) (From “Skeleton Plan for Business Succession Plan of Japan Post”) (*1USD = 118 Yen (Nov. 2006))
85. ECON 4315: The Japanese Economy Lecture 5 Demographics Satoshi Tanaka 02/21/2011
86. Goals 1. Overview the basic facts of Japanese population and its future
87. Goals 2. Examine the consequence of aging and a decrease in population
88. Goals 3. Understand the cause of these changes and possible reactions of the government
218. "Shidehara Diplomacy" which to them seemed too soft on China. Their primary goal was to "defend Japanese interests in Manchuria and Mongolia [more precisely, eastern part of "Inner" Mongolia]).
220. Political Map in the early 1950s Conservative Forces Liberal Party (Yoshida Shigeru) led the peace treaty and the US-Japan Security Treaty. Democratic Party (Hatoyama Ichiro) objected the “subordinate independence.” Progressive Forces Socialist Party (Left faction) sought a revolutionary transformation of capitalism at home and opposed to the partial peace treaty. . Socialist Party (Right faction) sought partial reform of capitalism and accepted the partial peace treaty. Communist Party lost popular confidence since they took violent actions suggested by Stalin
221. 1955 The two conservative parties merged to found the Liberal Democratic Party (LDP). LDP would remain in power in the following 38 years. Business Leaders financially supported. The bureaucrats offered policy expertise and manpower to the party. Leading midcareer bureaucrats left their posts to run for political office under the LDP banner. The two factions of the Socialist Party reunited
222. Economic Policy Debate Arisawa Hiromi (Economist U of Tokyo) and Tsuru Shigeto Japan should develop natural resources (coal and hydroelectric powers) minimize interdependence, fearing foreign conflicts that might endanger oil supplies. Nakayama Ichiro only sustainable choice was to join the global economy, by importing raw materials and exporting manufactured goods
223. Yoshida VS Hatoyama The followers of Yoshida Shigeru followed the American lead in containing the communist bloc. Hatoyama and his allies sought independence from US. They succeeded in normalizing relations with Soviet Union in 1956 without Peace Treaty.
224. Yoshida Doctrine Japan must focus on economic growth Japan must avoid international conflict Yoshida Shigeru Rely on US for security Follow US lead in international relations Focus all energy on economic development
225. Japan: Neo-mercantilism Yoshida Doctrine details: Focus on Growth Grow through export, export, export Protect domestic industry Focus on market share and growth, not consumer satisfaction
226. Japan’s Economic Model Export-led Growth Protect domestic firms at first Demand that they export Provide government assistance to direct investment and to support export Brilliantly successful for Japan (& later Korea, Taiwan, Singapore, Hong Kong, & now China) Standard (not Japanese) 1940s development model Import Substitution Protect domestic industries, produce for domestic market Import only raw materials and capital goods Fails miserably: leads to debt and weak domestic industries that never “grow up”
227. Bureaucracy’s role in economic planning Administrative Guidance Control of import licenses Control of capital allocation Encourage collaborative R&D Amakudari (descent from heaven) Chalmers Johnson’s Classic Study of bureaucracy in Japanese economic development
228. MITI (Ministry of International Trade and Industry) Founded 1949 Responsible for Deciding on the structure of industries and their distribution activities Guiding the development of industries and their distribution activities Co-ordination of Japan's foreign trade and commercial ties Managing specific areas such as raw materials
229. LDP The LPD has a central position between the bureaucracy and business Its uninterrupted tenure of office for the past decades was a necessary guarantee of the government-industry relationship in Japan (Reading 1992) It assumes a central position between the bureaucracy and business, co-ordinating their interests and playing their referee
230. Business (zaikai) The business world is represented by a number of organizations The most important ones are the keidanren (Federation of Economic Organization), nikkeiren (Federation of Employers` Association), keizai-doyukai (Committee for Economic Development) the Japan Chamber of Commerce and Industry
231. Formal and informal consultation among the three players The bureaucracy maintains good access to the communication networks by practicing amakudari (descending from heaven), which removes retired bureaucrats from MITI etc into the LPD or into corporations to benefit from their bonds Strong interdependence with a clear mission Cooperation is not always harmonious and the centre of many scandals
234. DKB Asahi Mutual Life Insurance (DKB) The Dai-ichi Mutual Life Insurance Company (DKB) Daiichi Sankyo Dentsu (DKB) Fujitsu (Furukawa) Hitachi (Hitachi) Ishikawajima-Harima Heavy Industries (IHI) Isuzu (IHI) ITOCHU (DKB) JFE Holdings (Kawasaki) Kawasaki Heavy Industries (Kawasaki) Kao (DKB) K Line (Kawasaki) Kobe Steel (Suzuki) Meiji Seika (DKB) Mizuho (Mizuho Financial Group) Seibu Department Stores (DKB) Sojitz (Suzuki) Sompo Japan Insurance (DKB) Taiheiyo Cement (Asano) Tokyo Dome (DKB) The Tokyo Electric Power Company (DKB) Tokyo FM (DKB) Yokohama Rubber Company (Furukawa)
238. Interlocking Shareholdings A typical Japanese firm has about 70 per cent of its shares held by other companies The shares are held by a large number of firms in relatively small fractional parcels Firm has some kind of transactional relationship with these corporate shareholders (banking, insurance, lending, supply of inputs, purchase of outputs) Firm holds shares in many of the these firms: the sharefoldings are reciprocal Firms hold each other`s shares as “stable shareholders“ (antei kabunushi) (Sheard 1994)
239. Advantages Takeover is impossible Companies also have other strong relationships with each other, they are trading with each other
240. Disadvantages Inflexibility Criticism among companies is not possible either Also prevents access to the market for many foreign companies in Japan
241. Characteristics Close long-term relationship between banks and firms in the same group. Banks “rescue” affiliated firms. Banks place insiders on firms’ board (interlocking directorates - parson). Banks hold some shares.
242. Keiretsu Finance “Main bank” is a dominant lender for its affiliated firms. Avoid free-rider problem and duplication of monitoring and screening efforts. Long-term relationship makes shirking costly to borrowers. • Keiretsu firms have easier access to external funds. • Empirical Evidence • Keiretsu firms rely less on internal funds
244. Conflicts of Interest Debt holders face fixed payout. Equity holders hold residual claim. When firms are close to insolvent, Equity holders have nothing to lose from taking excessive risk. Debt holders do not reap the benefits of risk taking. Debt holders prefer conservative investment strategy. Liability mix might be important to firm value.
245. Banks To (partially) solve adverse selection, screening is important. To (partially) solve moral hazard, monitoring is important. Banks might be in a better positive to do both. Banks observe cash flow closely (provided that borrowers’ profit and loss enter into their deposits. Banks solve “free rider problem” and duplication of monitoring efforts in case of borrowers’ financial distress. Banks must have incentive to do this, though. Government bailout or deposit insurance partly reduce this incentive.
246. Japanese Business Model Post “Ford” industrial model Dr. W. Edwards Deming: Focus primarily on QUALITY Use statistical analysis to measure and improve quality Dr. W. Edwards Deming Empower shop floor workers to control and guarantee quality First presented ideas to US Automakers but was rejected Took his ideas to Japanese industrial leaders and they adopted them, leading them to become the world’s leaders in QUALITY
247. There was another major political protests in Kyushu: The Mitsui Corporation’s MiikeCoal Mine in 1960. Since then the conservative government deemphasized the drive for constitutional revision and confrontation with unions. The result was a new politics of high growth of the economy. Prime Minister Hayatolaunched the “Income Doubling Plan” to commit economi growth to double GNP by 1970.
248. Environmental Protests Chemical pollution-related diseases appeared in 1950s. Mercury poisoning struck and killed residents in southern Japan (Minamata- Kumamoto) and northern Japan (Niigata). Other notable protests: Air pollution (Mie) Cadmium (Jinzu River-Toyama)
250. Postwar Business Cycles in Japan Postwar business cycles in Japan. One complete cycle consists of a period of expansion and a period of contraction.
