Crashing and Burning While the Violins Play

Back to Contents of Issue: December 1999

by Hugh Ashton

Small and medium enterprises (SME), employing the vast majority of Japan's workforce, have long underpinned Japan's economy, but they're going out of business faster than new ones can replace them -- so fast, in fact, that in a macabre statistical twist, the overall life expectancy for males went down last year, skewed by the suicides of small businessmen whose companies had collapsed.

In the U.S., if your buggy-whip business no longer has a market, the venture capital is there to help you launch anew on the Web. In Japan, things are rather different. As Kobo Inamura, deputy director -- general of the Communications Bureau in the Ministry of Posts and Telecommunications (MPT) points out, there is very little venture capital in Japan. Nonetheless, there are ways of stimulating small businesses. Both Inamura and Professor Ronald Morse, of the International School of Economics and Business Administration at Reitaku University, agree that the future of Japan lies in IT.

The MPT has been working hard to promote regional development in depressed areas (e.g., the setting up of call centers in Okinawa). Furthermore, Japan Web entrepreneurs, while suffering from a lack of VC funding, can at least receive some preferential treatment in terms of tax incentives and the development of a deregulated infrastructure, thanks to Inamura and his cohorts at the MPT. (Despite the opposition of the Ministry of Finance, the MPT has managed to push through the approval of tax breaks for IT investment by smaller businesses for 1999, and it is quite possible that these will be carried forward to next year as well.)

But it's not enough -- the money to implement the startup visions of the MPT is not there, and government policy places relatively little importance on building IT infrastructure. Why, then, are economic recovery measures still seen (literally) in concrete terms-roads, tunnels, and bridges? The construction industry employs around six million workers, which, with their wives, make up a significant voting block. This sector of the economy is the LDP's power base, and therefore has received the bulk of the recent pump-priming efforts.

In Morse's opinion, building tunnels is a misallocation of resources -- the administration is simply praying that recycling the money supply will bail them out of the current situation.

As a cautionary note, remember that it's precisely those industries ignored by MITI's planned economy (mainly automotive and electronics), where Japan has been most successful globally. There's no doubt, though, that rather than building tunnels, the light at the end of this current tunnel -- the IT industry -- should be the focus of attention. In Inamura's words, this is "the locomotive to pull Japanese industry" out of the current recession.

Hugh Ashton is a regular contributor to J@pan Inc.

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