To Our Readers

By John Flanagan

Saturday, September 11, 1999

Brother, can you
spare some yen?

IN a New Yorker cartoon one unshaven, down-on-his-luck man sitting on a downtown curb tells another: "The one single thought that sustains me is that the fundamentals are good."

Unlike the mainland U.S., Japan has bad fundamentals. Last year, its economy shrank by 2.1 percent, impacting Hawaii, too. Compare it to an unlit barbecue, says Haruo Shimada, professor of economics at Japan's Keio University.

Former Prime Minister Hashimoto misjudged the situation. Thinking the economy was recovering and would burn out of control, he doused it, boosting taxes and cutting government spending, Shimada said here last week. The resulting loss of confidence threw the country into a depression.

The new administration poured lighter fluid on the damp charcoal: a 60 trillion yen (more than $500 billion) bank bailout package, interest rate cuts and another 40 trillion for construction. The fire started but, unfortunately, only the lighter fluid is burning, Shimada says. The private sector hasn't ignited and the fluid will soon burn out.

Japan's industries suffer from excess capacity, so there's little incentive to invest. Equipment is old, wages are high, the social security system is too expensive, the population is aging rapidly and other countries are better positioned to compete.

On the other hand, personal savings are huge, the workforce is extremely well educated and Japan has surprisingly underutilized resources, including land. Shimada says one major problem is that outdated, subsidized service industries simply aren't responding to consumer wants.

For example, the financial services industry is undeveloped. The Japanese have plenty of money salted away in savings accounts but no investment advisors to help them put it to work. Deregulation and a risk capital market would help get things cooking.

Meanwhile, most Japanese families can't afford private childcare, yet government-subsidized centers close at 5 p.m. To pick up their keiki before the centers close, Tokyo parents have to leave work at least an hour early. The upshot: record low birth rates.

John Flanagan is editor and publisher of the Star-Bulletin.
To reach him call 525-8612, fax to 523-8509, send
e-mail to or write to
P.O. Box 3080, Honolulu, Hawaii 96802.

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