Running On Empty

Back to Contents of Issue: May 2002

Veteran Japan watcher Gregory Clark explains why he thinks prime minister Junichiro Koizumi, the Financial Times, the Nihon Keizai Shimbun, most Western pundits and a whole host of Japanese economists have it all wrong when it comes to plans for getting the world's second largest economy back on track.

by Bruce Rutledge

GREGORY CLARK is a white-collar version of one of those hard-bitten heroes in a Louis L'Amour novel. He's had plenty of jobs (taxi driver, diplomat, newspaper correspondent, to name a few), he shoots straight from the hip and he likes to get involved in a knock-down, drag-out debate once in a while. He mixes the personal with the political, giving his debates the air of a Western showdown. Recently he's been taking on the Koizumi cabinet and its approach to getting the economy back on track. And while he's more than ready to debate economic policy, he's also got a few personal jabs ready for the prime minister, calling him a "frilly lizard" and saying that he "operates in the stratosphere. He's never really had to fight for an election. He had a silver spoon in his mouth right from the beginning. And he's a flaky person to begin with." So now that the gloves are off, let's get down to economic policy with the president emeritus of Tama University.

"There are large areas in the structure of the Japanese economy which badly do need reform: excessive regulations, areas of the tax system," Clark says. "Unfortunately, that's not what Koizumi and his friends are really looking at. They're more interested in an economic policy of fiscal restraint and, until recently at least, letting the weak go to the wolves, which in a normal, healthy economy is quite reasonable. But when you have an economy as weak as Japan's is at the moment, it's highly dangerous."

Clark says that for most of his time in Japan -- he has lived here since 1969 when he was the Tokyo correspondent for Rupert Murdoch's The Australian newspaper -- the economy has been 'demand-starved.'

"The Japanese economy is quite different from Western economies mainly because of this very high rate of savings," Clark says. "As long as you have this very high level of savings, you have a constant drag on the economy. A lot of the problem here is ideological. It's no secret that the world has moved in a right-wing direction in the last 20 to 30 years. And the right-wing ideologies reject what they see as the Keynesian solution. Keynesian economics purely and simply states that the whole basis of an economy is demand. Without demand, an economy simply doesn't function."

What Japan has, Clark says, is an efficient economy starving for demand. Or, to use a favorite metaphor of Clark's, "There is a bunch of mechanics who are working on an engine that's not functioning well. And they're tinkering with the carburetor, checking the spark plugs, and they've been doing it for 10 years, but it's still not going. Meanwhile, some little kid comes up and says, 'Have you got any gas in the tank?' There's no gas!

"Japan's situation is the exact opposite of that in the West, particularly the Anglo Saxon economies," he says. "The figures are just sitting there for anyone to see this -- JPY1,500 trillion in personal assets. It's just staggering!"

Clark, who served on the advisory panel of former foreign minister Makiko Tanaka, gets visibly upset when discussing how economists, analysts, Koizumi and so many others say Japan's decade-long economic slump is linked to some inefficiency in the economy. "Inefficiencies? Enron is as bad as it gets," he says. "But it doesn't matter. The gas is pumping through. Crime has taken a tremendous price on the (US) economy. The excessive spending on the military. All nonproductive. (In Japan) the engine is in pretty good shape. But there's no gas.

"You could have the most efficient enterprises in the world, but without demand, you're finished. This should be obvious. But why it has become not obvious is that in the past few years the Western economies really haven't had a problem with demand. Their problem has been excessive demand. To meet this excessive demand, you have to concentrate on increasing supply. To increase supply, you encourage the private sector, introduce more competition, privatize if necessary, reduce the role of government, taxation and so on," Clark says. "The thing is that us Westerners, particularly the Anglo Saxons, just want everything and we want it now -- round-the-world trips, yachts, second houses, the latest electronic gadgetry, second cars, third cars; you name it."

Clark calls this insatiable demand a "tremendous aphrodisiac for an economy." But in Japan, he says, there is little demand for the 'lifestyle' goods that fuel the economies of the West. "You've heard the famous quotation from Gin-san (deceased Japanese celebrity centenarian -- Editor) on her 100th birthday? They asked her what she was doing with all the money she was getting from TV appearances and she said, 'I'm saving it for my old age,'" he says.

Clark says that in Western countries, people gain status through wealth, but not so in Japan. "Japan has second houses and so on, but most of the status is in the workplace: I'm Mitsubishi, what are you?" he says. "To get in the good workplace, the Japanese spend profusely. But that's it. After that, your status depends upon your rank within the company, which means hard work, little leisure on the weekends, and to some extent entertainment. My Ginza mama-san is better than yours. They spend very heavily there. And that's it."

Those in Japan who lack status in the workplace -- office ladies or the self-employed, for example -- spend liberally on lifestyle goods or services like trips to Rome or Louis Vuitton handbags, Clark says, but most people are too busy pursuing workplace-based status to be able to take two or three week Roman holidays.

So they lock away their savings in low interest postal accounts, time deposits, or in government bonds. Tinker all you want with the supply side engine, Clark says, but it isn't going to free up all that cash tucked away in savings accounts. And if people don't spend, no amount of tinkering will get this economy back on track. So what should the Japanese do?

"The Japanese are once bit, ten times shy," Clark says. "They should be putting their money abroad, but they won't" because some of them were burned in the 1990s, when they invested overseas only to see the dollar plummet to the JPY80 level.

Since they won't, Clark advises Japan to either borrow or tax those surplus funds sitting in postal savings and elsewhere. That's right -- the doctor is prescribing more taxes to help Japan out of its economic doldrums.

"People still think in terms of basic demands as opposed to what I call lifestyle demands. These two things are very, very different. For us in the West, lifestyle demand took over very neatly from basic demand. It hasn't happened in Japan. Now if you have a society that doesn't have this, you've got to sit down and completely rewrite the rules of economic management. Nobody's done that. And the rules should say that rather than staying in a constant recession, the government should either borrow or tax the surplus funds and use them to provide goods and services which individuals won't buy for themselves. There's nothing wrong with that. Instead of having a second car, we'd have cleaner air, better roads, better sewage. What possibly could be wrong with that?

"There is enormous scope to increase taxation here," he continues. "Here, one-quarter or one-third of those drawing an income are not paying tax. They're very generous to low-income earners, but they're mainly generous to corporate entities. I shouldn't be saying this because I own one of these, and I've become only too aware how easy it is, not to cheat on the taxes, but to avoid the tax. You can write off an incredible amount of expenses and wages. Seventy percent of small and medium companies don't pay any taxes at all. Meanwhile, the president of this type of entity is driving around in a Benz, his wife is wearing furs, she's an alleged employee of the company and his kids are going to the best universities. He's writing it all off. They should crack down on that."

Clark says that the JPY1,500 trillion in personal assets is like an iceberg floating in Tokyo Bay. "We should be looking much more closely for the reasons for this extraordinary iceberg sitting out there literally freezing the economy. There are several reasons for it. One is very much lifestyle. The Japanese are not into conspicuous spending like the US is. They work too hard. They don't have the concept of the weekend yet, which is a major cause of Anglo Saxon spending on leisure and second homes. Confucian-style austerity could be one. Simplicity. The skewed wage system. They're not getting the money when they're young and they want to spend. They get it in large amounts when they get older and they don't need the money, so they sock it away for their old age. The longevity of Japan. The worrywart factor -- the Japanese like to worry about their future," he says.

"The bubble economy is another factor. There was a tremendous transfer of wealth, so the elderly could sell their land at the top of the bubble and the gangsters were able to add to their ungodly wealth through share speculation and so on. But I think the primary and most important factor is a lack of class-status spending."

Born in 1936 in Cambridge, Clark says the UK of his teens and 20s reminds him a lot of Japan. "I used to drive taxis in Oxford in the 1950s and people used to not check their change," he says. Those were days when frugality was a virtue. But nowadays, it seems, saving for a rainy day is no longer something to aspire to -- at least not if a whole country does it at once.

"We have this situation today where there is an absolutely clear inverse correlation between economic health and savings rates," he says. "America is at the top of the health scale and zero savings. Australia is very close behind. Then England. Some European economies are lower because they save 8 to 10 percent. And there's Japan at the top of the savings scale, even during the bubble, and it's the weakest economy. This situation has existed for a long time."

Clark says he is confounded that others aren't talking about the iceberg of personal savings. "In the West, when they see the Japanese economic stagnation, they think it's because of lack of efficiencies in the economy. So they fell in love foolishly with Koizumi's slogans. It's as if there were an iceberg floating in Tokyo Bay and everyone just says, 'look, how interesting.'"

When asked if there is a politician out there with a vision for pulling Japan out of its economic mire, Clark pauses and stares out the window of his office in the Ark Hills Executive Towers. Several seconds pass. Then he comes up with a surprising answer: "I'm interested in this guy Kamei." Shizuka Kamei of the LDP? Clark sees a puzzled look on his visitor's face and adds, "I mean, he's a gangster, and you can quote me on that -- an ex-policeman. But; A, he does understand the need for demand economics and; B, he has the personality to get the country going behind him."

Kamei aside, the political class in Japan leaves Clark less than impressed. "They live a strange existence, these top people here in Japan," he says. "They're pampered so much, they lose touch with reality. They talk slogans. They carry on as if somehow beautiful words are going to change things."

How about in business? Any visionaries there? Clark doesn't miss a beat this time: Yoshihiko Miyauchi, chairman of financial services company Orix. Clark especially likes Miyauchi's idea of creating completely deregulated free trade zones around the country. "Excessive regulations are killing this economy," he says. "The government ought to encourage total deregulation in the hope that this would encourage the production of goods and services that appeal to the citizens."

Meanwhile, the iceberg of personal savings keeps getting bigger and bigger; nobody has figured out how to pare it down and get more money circulating in the economy. Why not? "Ideology does strange things to people and the ideology of supply side economics is so powerful now that you just can't fight it," Clark says. "I had a couple of Americans over here the other day. They were young, bright people and they'd been on the Clinton brain trust, Clinton advisers, Democrats and in that sense not far-right ideologically. They just couldn't understand it. They just took it for granted that if you have a problem with the economy it is because of inefficiencies. That's the extent to which supply-side ideology has penetrated." @

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