The May 9 editorial “Social welfare is not for profit” expresses concern that publicly subsidized operators of social welfare services are accumulating large amounts of internal reserves. Although maximization of public benefits is an essential part of such businesses, much deeper analysis of why they continue to increase their internal reserves could have been done to encourage them to invest well in socially beneficial activities.

A basic misunderstanding seems to lie in the interpretation and implication of internal reserves. They are, by definition, the residuals after a company has paid direct costs, salaries and so on. In short, increasing internal reserves does not necessarily imply that companies are wasting money, but rather that they are investing residuals in their business.

Among the reasons that they have been increasing internal reserves are the uncertainties caused by an aging society including the political situation with regard to Japan’s social security system. Internal reserves could be seen as companies’ optimal reaction to secure financial strength to meet demand.

In general, increasing uncertainty in the future will discourage investments by making it difficult for a company to calculate possible returns on its business. Investments are expected to fluctuate dramatically during recessionary periods.

Therefore, the businesses need a correct understanding of their financial activity and of how to establish a stable and robust social welfare system by investing in social benefits rather than just accusations of increasing their internal reserves.

ken shinohara
cambridge, england

The opinions expressed in this letter to the editor are the writer’s own and do not necessarily reflect the policies of The Japan Times.

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