Economist slams
Japan’s service
industry

Haruo Shimada finds unresponsive
services hampering
the economy

By Susan Kreifels
Star-Bulletin

Child-care centers in Japan are plentiful and receive generous government subsidies. The problem is, they close at 5 p.m. in a country where virtually no one gets off work that early.

So many working couples are stuck. Some choose not to have children -- a bad trend in a country where the population is shrinking far too much to sustain an economic superpower.

Haruo Shimada, a respected economist at Tokyo's Keio University and a familiar media commentator, uses the centers as a symbol of what's most wrong with Japan's economy.

Incomes are still close to those in the United States, but Japanese continue to be among the highest savers in the world. They're just not buying.

"The industries don't respond to the real wants of the people," Shimada said in a blunt assessment of his country's problems.

Shimada spoke yesterday at a luncheon sponsored by the Japan-America Society of Hawaii.

Japan's economy shrunk 2.1 percent last year, what he called an unprecedented depression. That's despite huge government spending.

While the manufacturing sector anticipates business needs, and several hundred small companies are flourishing, the service industry -- 60 percent of Japan's gross domestic product -- does not anticipate what the consumer wants, he said. "People want to enjoy themselves, but there are no good services."

He said at least 25 service industries are failing consumers. Example: The few financial planners in the country work for insurance companies or banks, selling only their companies' products.

Or take agriculture. "Japan is a gourmet country; good chefs are heroes." But unlike France, Shimada predicted that "Japan agriculture will die quietly" in the near future.

Adding to the problem is, Japanese consumers don't make demands, and the service industry is not creative, nor does it specialize. "It's a Japanese disease," Shimada said.

What's most needed, he believes, is deregulation, a liberalized finance industry and more reliance on risk capital from investors rather than bank loans.

While some are optimistic about Japan's rising stock market and surprising 1.9 percent jump in the gross domestic product in this year's first quarter, he believes the situation may be deceiving.

He attributes the growth to huge government spending rather than needed reforms. Despite the government spending, the private sector has still shrunk overall. "Things are very wrong. There must be painful reform. Japan is not prepared yet."

The public, he said, is not fully aware of the crisis. "The economy is so powerful, it's still floating."

Will Japan be a superpower in 25 years? He doubts it, mainly due to a shrinking population -- the current 126 million is predicted to fall to 90 million in 25 years.

But the country is not ready for large numbers of immigrants, he said. "There's quite a bit of resistance about providing basic human rights."

Despite his list of things that are wrong, Shimada said the rules are changing in his country, especially in the last two to three years. And he said creative entrepreneurs can trigger new trends in the service industry.

Shimada is helping to start a consortium of day-care centers that will not receive government subsidies, nor will they close shop at 5 p.m. "We have those who are willing to pay."