Has Japan changed for better?

by Hugh Cortazzi

LONDON — Some people complain that Japanese society has deteriorated with the ending of the lifetime employment system and the replacement of seniority-based promotion systems with ones based on performance.

In the past, almost everyone considered themselves middle class. The discrepancy in monetary rewards between new entrants and board members was low and the emphasis was placed on achieving an egalitarian society where anyone could gain entry to leading universities if they had the necessary ability and could rise to the top.

Competition was limited by bureaucratic rules and nearly full employment achieved. Protection ensured that Japanese companies were not greatly affected in the home market by competition from abroad. As some have said, equal misery was enforced while Japan built up its economic strength.

The old system had merits, but they were not all what they were purported to be. Lifetime employment only existed in major companies — not in the vast number of small and medium-size enterprises that formed the basis of the Japanese manufacturing industry. Employers in big companies expected absolute loyalty in return for lifetime employment.

This often meant that employees had to accept transfers at short notice and without consideration of personal circumstances. The system, whereby a man was frequently sent away without his family (tanshinfunin), caused much pain and often led to the breakdown of marriages.

Able young people were frustrated when their promotion was blocked by the deadwood above them. Top management might not have received the sort of high salaries paid in other countries, but they had many perks, including large expense accounts and chauffeurs. The competition to get into the best universities was fierce and children whose parents had funds to pay for cram schools and private tuition had a big advantage. Japanese society was not as classless as many Japanese claimed, especially when marriage was concerned.

The limits on competition and the protection of Japanese industries, agriculture and commerce meant that the Japanese cost of living was kept much higher than it need have been. Some sections of the population such as farmers and construction companies did well as a result, but the health of the Japanese economy was eroded by corruption, bureaucracy and protection, and an asset price bubble was engendered. The situation could not last and Japan had to recognize that to live in the world it had to open up. The process was slow and it is not yet complete.

There are many weaknesses and distortions in the present economy and society in Japan. Undoubtedly the gap between rich and poor has widened and the proportion of Japanese who regard themselves as belonging to the middle classes has declined. The drop-outs from society and the unemployed are much more visible than they used to be and more people now require welfare assistance. The examination hell has continued, although it will become less intense as the number of young people competing for places declines and current low birth rates take effect. Disillusionment with what Japanese society has to offer them has also had a bad psychological effect on some young Japanese who have become recluses.

But not all the changes have been bad. Japanese companies have become more vibrant and entrepreneurial spirit has been encouraged by increased rewards for risk takers and for those who work harder than others. The Japanese cost of living has become more internationally competitive and this has benefited Japanese industry and commerce. What one Japanese observer termed “Japanese straightjacket society” is now somewhat freer and the younger generation is now readier to challenge the views of their elders and to strike out in new directions.

Japanese taxes are not as progressive as they used to be and social security benefits are generally less favorable to the poorer sections of the community than in other advanced economies. One study has flatly declared that “Japan’s wealth redistribution mechanism is practically ineffective.” The number of full-time employees has been reduced while the number of part-time and temporary employees has increased. The latter receive lower wages. Thus Japan has an increasing proportion of working poor.

Income disparity between rich and poor in Japan has led to a reduction in social homogeneity and the further development of structured social classes. Parents naturally want the best for their children and, if they can afford it, will do all they can to improve educational opportunities for their children.

Even more than in the past, the children of wealthy parents are helped to get good grades and go to good universities and then to get good jobs in full-time employment. They mix more easily with people with similar backgrounds and generally marry someone with similar interests and wealth.

Those unable to get on to the social and educational ladder tend to sink further down the scale. They are liable to lose ambition and may choose part-time employment giving them more time off or give up looking for work and join the growing number of NEETs (people not in education, employment or training). As the Japanese population ages, the decreasing number of younger workers will increasingly resent having to work harder to pay for the pensions of the growing number of pensioners. As social and income disparities grow it will become more difficult to reach a general consensus on policies issues and social cohesion is liable to break down.

While continuing to liberalize and reform, the Japanese government needs to concentrate on finding ways to increase incentives for the lower paid and improve employment opportunities. Higher allowances and better facilities for child care need to be introduced, not only to reduce disparities but also to encourage a higher birth rate. Necessary improvements in allowances and pensions can only be covered by increases in taxes. The Japanese tax system has become both too complicated and inflexible, and will need to be simplified. Indirect taxes will have to go up, but there is an understandable fear that too early and/or too great a rise in the consumption tax would set back the recovering Japanese economy.

The armchair economist, of course, must recognize that it is easier to prescribe the medicine that the economy needs than to administer it without making the economy worse.