Shimojo Masao (5): Franchising and norenwake

Franchising and Norenwake

The franchising of retail outlets in the United States is said to have begun with Kentucky Fried Chicken. In a franchising operation, a franchiser offers the products he developed and the expertise gained from conducting his business to a franchisee. That franchisee is allowed to operate a business using the same trademarks and logos, while the franchiser receives royalties from the franchisee as a compensatory payment. This manner of operating a business enterprise was introduced to Japan in the 1960s.

During the Edo period (1603-1868), however, there was a manner of operating a business enterprise that resembled franchising. This was called norenwake. A noren is the curtain hung at the shop’s entrance or other location, and wake means to divide or share. The noren functioned in the same way as the trademark and logo of a franchiser by verifying that the shop was trustworthy. (Noren is now also used as a term to denote the goodwill or reputation a company has earned.)

The norenwake system allowed employees who had worked at a commercial establishment for many years to become independent and launch their own business as a separate enterprise while using the noren of the original business, which corresponded to the trademark and logo. It was not the straightforward capital transaction that defines the relationship between franchiser and franchisee.

As a result, the apprentice system (apprentice→shop assistant→manager） for the employment of boys in their early teens was established in the commercial houses of the period. The apprentice was responsible for miscellaneous chores in both the shop and the house itself. At the same time, he received basic vocational training in the three Rs.

After serving as an apprentice, he reached the position of shop assistant, or tedai. That position corresponds roughly to a mid-level management position in today’s business world. The tedai was responsible for business affairs and was allowed to conduct business on his own by applying his skills and innate resources. While the apprentice received wages that were roughly equivalent to those of a servant, the tedai received a salary. It took from 15 to 20 years for an apprentice to earn the right to act independently, and during this period he learned every aspect of the business.

In a franchise operation, expertise in that particular business is provided to a franchisee with capital. In Japan, however, it was acquired by the individual in a working environment based on the seniority system.

The next position was that of banto, or manager, who had substantial authority in the management of both the business and the household. Capital and business operations were separate in large-scale Edo period commercial establishments. In this system, some people set up a separate establishment and opened their own shop. It differed from the franchise business model in which a person acquired expertise in the business for financial considerations. There was a master-subordinate relationship with the master of the house, and great importance was attached to personal relations. This was the original model of the Japanese style of business management, characterized by the seniority system, lifetime employment, and employee welfare benefits.

Thus, a market economy was functioning in Japan during the Edo Period in an environment similar to that in a capitalist society. The business models, however, differed from those in the United States, where the franchise system originated. They were also different, of course, than the business models in China and the Korean Peninsula, which were unrelated to a market economy. This gave rise to the Japanese business and employment ethic, in which both labor and management discovered a purpose for living in one’s work, in a stable workplace.

- Shimojo Masao

Hands across the Sea of Japan

IT’S A RELIABLE rule of thumb that a nation’s political class is more often the problem than the solution regardless of the matter at hand. The reliability of that rule continues to be borne out by the behavior of the Japanese in Kyushu and the Koreans on the southern part of the peninsula. While the politicos vaguely talk the talk about the importance of good bilateral relations, folks on the ground continue to walk the walk and do the job themselves. Here are two more examples—one of people at work, and the other of people at play.

At work

Busan’s Ulsan region in South Korea resembles Kyushu in that it is the center of flourishing auto and shipbuilding industries. The Ulsan region, however, is home to 1,500 companies in the industrial textile sector that supplies products to both. Many of the firms have created a niche by producing items for car interiors and specialty textiles, and they are eager to develop ties and do business with Kyushu’s auto industry.

To help them make their pitch, the International Footwear, Textile, and Fashion Expo in Busan has invited representatives from Kyushu auto companies to attend the three-day event starting on the 19th. Business and opinion leaders on both sides of the Korea Strait are excited about the potential. The Nishinippon Shimbun described that potential in two stories on the Expo and the specialty textile industry in the Ulsan region that covered half a page.

They quoted Paek Mu-hyon, the chair of a textile industry group in Busan:

“We want to promote technical ties and business with Kyushu’s many auto companies and use high-function Japanese and Korean products to compete against China, which is increasing its presence as a market and production region.”

Who needs summit meetings about East Asian entities when the private sector demonstrates this much enthusiasm to achieve the same result on their own?

At play

Here are two events that go together like ice cream and cake. The first is the Yamaga Lantern Dance, a festival from Yamaga, Kumamoto, in which hundreds of women dance to a stately traditional folk song while dressed in summer yukata and wearing lighted lanterns made of paper and glue on their heads. (Here’s a previous post with photos.) The second is the Seoul World Lantern Festival, which is underway in that city right now and will run until the 15th. Those of you near Seoul and willing to visit will have a chance to have your ice cream and cake and eat it too, when the women from Yamaga perform on Saturday and Sunday.

Yamaga officials say the dancers visit such Asian cities as Shanghai and Singapore once a year, but this is the first time they’ve been to South Korea since 1993. Held on the banks of the Cheonggyecheon, the Lantern Festival is one of the attractions of the 2012 Visit Korea Year. The events feature performances from South Korea, Japan, and China, and the area is decorated with displays of both real lanterns and lantern-like objects. During the Yamaga performance, the streets will be lined with candles in bamboo holders and traditional Japanese umbrellas. In addition to the group from Yamaga, a group from the Nebuta festival in Aomori will also participate.

The lack of coverage given by the overseas media to this flourishing cross-strait interaction notwithstanding, the only remarkable thing about this activity is that it isn’t remarkable at all—it’s a fact of daily life. Regional and local politicians have enough sense to either get out of the way and let it happen, or lend a helping hand from behind, rather than elbowing their way to the front to pose for photo ops.

Now if the national politicians would only get the hint that grand schemes aren’t necessary when people are allowed to act naturally without interference. Everyone else already has.

Situation vacant

ONE FINE DAY, Japan will have a real government at last. Despite a few positive moves in that direction by the recently installed Hatoyama Administration, however, it’s starting to look as if that day isn’t going to dawn anytime soon.

Driving in reverse

People are asking questions about members of the ruling Democratic Party of Japan’s policy study group attending the briefings of various ministry bureaus. The problem is that the party members are not bound to uphold the confidentiality of what they hear.

New Health, Labor, and Welfare Minister Nagatsuma Akira discussed the issue with reporters after a Cabinet meeting on the 25th. He said:

“We’re thinking of a method in which we would appoint them as a sort of project team under Cabinet authority and have them work as part-time civil servants, for whom the confidentiality requirement applies.”

The reason the electorate voted in such massive numbers for a change in government was because they thought it was an urgent priority to disconnect the government from bureaucratic control.

How they manage to disconnect themselves from the bureaucracy by becoming part of it remains to be seen.

Legislation?…Oh yeah, that!

Here’s Prime Minister Hatoyama Yukio on convening a Diet session in October:

“No decision has been made. We haven’t made a decision yet on what bills we’ll propose. Now we’ll start thinking about whether an extraordinary Diet session is necessary. There are two elections coming up (on 25 October to fill vacant upper house seats in Kanagawa and Shizuoka) and we have to see what happens.”

In other words, the people who’ve been telling us they’re ready to handle the reins of government for the past two years still haven’t got a program ready, though it’s been apparent for most of the year that they’d win the election.

Apparently, by-election campaigns take precedence over the Diet’s business.

The Nikkei points out that Mr. Hatoyama has a full diplomatic schedule next month, including summits with the leaders of China and South Korea. Why summits should be a priority isn’t clear, however. Both countries will be right there where they’ve always been for the foreseeable future, and there are no bilateral problems that either could be or need to be solved right away. That means there’s no real reason for Mr. Hatoyama to give them all his milk and cookies just yet.

As a small-government guy, I think it’s a capital idea for legislatures to meet as infrequently as possible—they only wind up getting into mischief and causing trouble for normal people—but would it have been too much to ask of the DPJ to have settled on what they want to do in Nagata-cho before they got there?

Aren’t they supposed to be the policy wanks, the ones who brought party platforms into Japanese politics?

Then again, if the DPJ wins both of those upper house seats, they might be able to disconnect themselves from one of their useless coalition partners and get to work.

And speaking of useless coalition partners…

More Cowbell from Kamei

It was almost a tradition in Japanese politics for one of the members of a new Liberal-Democratic Party Cabinet to shoot his mouth off within a week of being sworn in and wind up shooting himself and the party in the foot.

Well, the new Financial Services Minister Kamei Shizuka is an ex-LDP stalwart, so maybe he’s trying to keep the tradition of loose cannon fusillades alive.

Recall that Mr. Kamei recently said he favored a three-year moratorium on bank loan repayments for small businesses and homeowners—including some interest payments—and using public funds to prop up any banks that might have trouble making ends meet by forgoing all that income.

Mr. Kamei fired off several salvos on a TV broadcast yesterday as a counterattack to the legions of those who were appalled at the idea, including members of his coalition.

“Banks that are so weak that their stock would fall because of what I said aren’t qualified to function as banks.”

The Asahi dryly wondered whether a statement that employs “vague standards” to discuss the qualifications of banks is appropriate for a Cabinet minister with such broad oversight over those institutions.

“(If this measure) causes investors and citizens to lose their faith (in the banks) to such an extent, the financial institutions themselves should reflect on the reasons for their problems.”

Oh. It’s all their fault.

Finance Minister Fujii Hirohisa has said neither he nor the Bank of Japan thinks the measure is necessary. You may fire when ready, Kamei:

“We agreed to introduce that as a policy measure (during the negotiations to form a coalition). I don’t know what he’s talking about after all this time, but he’s just talking to himself.”

Meanwhile, overseas institutional investors started looking for the nearest exit.

In other news, he’s converted to the Hatoyama philosophy of high school student government:

“People can’t live under this radical philosophy of market supremacy, in which the strong eat the weak. I’m only trying to implement yuai (fraternal) politics.”

Mr. Kamei is also the Minister in Charge of Bloviating About Japan Post Privatization. Haraguchi Kazuhiro, the new Internal Affairs and Communications minister, has offered a suggestion for Japan Post’s reorganization. Said the Man in Charge Around Here:

“I’m the Minister in charge of Japan Post. It’s not that person’s (Haraguchi’s) position to make characterizations (literally, draw pictures) about matters that are my responsibility.”

I’ve remarked several times on Ozawa Ichiro’s propensity for creating inherently unstable coalitions, but this must be a record. The new Government’s only two weeks old and already one of the Cabinet ministers is telling two of his colleagues where to get off.

Despite the criticism from within the ruling party and business and financial circles, Mr. Kamei thinks he’s sitting in the catbird seat:

“If they’re so (opposed), they might hope that the Prime Minister will replace me. But that’s not possible.”

Here’s the problem–Mr. Kamei is right. During the campaign Candidate Hatoyama also came out in favor of a debt repayment moratorium while stumping for DPJ lower house MP Kawauchi Hiroshi, a member of the Hatoyama group/faction. Mr. Hatoyama said the moratorium was Mr. Kawauchi’s idea, but he also supported it. Though it went unremarked at the time, that part of the speech was filmed and is up on YouTube.

This has the potential to get really ugly.

On second thought, maybe it’s a good idea to put off a new Diet session until the by-elections after all.

UPDATE:

Oh, my. According to the Asahi, at a press conference on the 28th, Mr. Hatoyama now said:

“It’s not the case that (the three coalition partners) agreed to go so far as a moratorium.” (モラトリアムということまで)

You know how they say charity begins at home? Maybe yuai does too–starting with the coalition government. If Mr. Hatoyama can’t sell it there, how can he expect to sell it anywhere else?

Kyushu companies

HERE’S HOW Nippon Keidanren, or the Japanese Business Federation, describes itself:

Nippon Keidanren (Japan Business Federation) is a comprehensive economic organization born in May 2002 by amalgamation of Keidanren (Japan Federation of Economic Organizations) and Nikkeiren (Japan Federation of Employers’ Associations). Its membership of 1,609 is comprised of 1,295 companies, 129 industrial associations, and 47 regional economic organizations (as of May 28, 2009).

The mission of Nippon Keidanren is to accelerate growth of Japan’s and world economy and to strengthen the corporations to create additional value to transform Japanese economy into one that is sustainable and driven by the private sector, by encouraging the idea of individuals and local communities.

Kyushu Keidanren, or the Kyushu Economic Federation, has 736 corporate members. It sent a questionnaire to its members asking for their opinions regarding 21 policies of the new Hatoyama Administration. They received responses from 150.

The respondents had their choice of two answers: (1) “Definitely want (them) to do it,” and (2) “Definitely want (them) to rethink it” (i.e., We don’t like this at all).

While the survey subjects are businesspeople at larger companies and not citizens at large, the results are worth examining because it highlights a potential disconnect between what the public wants the Government to do, and what the Government thinks it should do.

Here are the three questions that received the most favorable responses, and the three questions that received the most unfavorable responses. Let’s start with the nays first.

* Eliminating tolls on expressways
Yes: 6.7%
No: 54.7%

* Reducing greenhouse gas emissions from 1990 levels by 25%
Yes: 5.3%
No: 35.3%

* Paying child-rearing subsidies
Yes: 8.7%
No: 32.0%

It might come as no surprise to see they’re opposed to the “global warming” policies, but I didn’t expect that answer for the other two. Some might think corporations would welcome toll-free expressways because it would reduce overland delivery costs, but that doesn’t seem to be the case.

Here’s what they liked:

* Reducing personnel costs for national civil servants by 20%
Yes: 35.3%
No: 2.0%

* Drastically revising the system for formulating national budgets
Yes: 32.7%
No: 2.7%

* Devolving authority and financing sources to local governments
Yes: 28.7%
No: 3.3%

It seems clear that people consider the priorities to be smaller, more local, and more efficient government. It remains to be seen whether the new Government understands that.

Shinise

Speaking of corporate surveys, the Fukuoka branch of Tokyo Shoko Research conducted a survey of companies in Kyushu and Okinawa that are at least 100 years old. There’s a word in Japanese for old, established firms with a good reputation: shinise. TSR thinks companies that have been around that long are good investment risks.

They found a total of 1,470 centenarian corporate citizens in the region. The oldest is Kawaguchi Bunten of Nagasaki, a food products retailer that opened in 1470. In other words, it had already become established by the time Columbus sailed the ocean blue. Of the 10 oldest companies, the youngest is Toyo-kan, a ryokan, or Japanese inn, which opened in 1614.

Three date from the 16th century. One is a Fukuoka City shop that’s been selling handmade calligraphy instruments since 1501.

A breakdown by business sector shows that 46.9% are in retail or wholesale sales–not surprising–and 28.2% are in the manufacturing industry.

Tokyo Shoko Research, incidentally, is an old-timer too. It was founded in 1892.

“The DPJ doesn’t have a growth strategy”

THE YOMIURI SHIMBUN recently interviewed Hosei University Prof. Komine Takao, an economist who once headed the Research Bureau of the Economic Planning Agency and was an official in the Ministry of Land, Infrastructure, and Transport. In particular, they asked him about the economic policies of the Hatoyama Administration. Here’s how it went:

*****

The growth strategy of the Hatoyama Administration is based on expanding domestic consumption by providing financial assistance to households. What do you think of that?

That sort of thinking has no value as a growth strategy. They’re not talking about something beneficial, such as reducing taxes or implementing other fiscal measures, which would result in economic growth as incomes continue to rise. They’re just discussing how to divide up the pie among corporations, the government, and the citizens. But the pie itself won’t get any larger.

A growth strategy is how to make the pie larger. Even if some benefits accrue this year, they’ll be short-lived.

To put it in extreme terms, the DPJ doesn’t have a growth strategy.

How should growth be depicted?

Utilize the blessings of globalization, increase imports and exports, primarily to Asia, and then expand domestic demand as the benefits are returned to the people. The only growth strategy is to take the royal road (i.e., the proper path).

Improving productivity demands aggressive investment in R&D for technology. Operating resources will have to be diverted to growth sectors, such as long-term care and medical treatment. Demand is rising for high-quality medical treatment and long-term care, but working conditions are poor, including low wages, and there is a labor shortage.

Services should be diversified, and there should be a conversion to a mechanism in which high quality services are available on an out-of-pocket basis. That’s how the latent demand for medical treatment and long-term care will be actualized.

What is the biggest problem for the management of the economy?

There is absolutely no discussion of current economic conditions, or what sort of growth rate is envisioned over the medium- to long term. The DPJ way for macroeconomic management seems to be “the daily life of the people” itself.

Economic growth raises incomes, and price stability means stability in daily life.

The Minister of Economic and Fiscal Policy should have the extremely important role of analyzing daily economic trends, formulating the government’s perception of the economy, and delivering that message. There seems to be a lack of interest in that.

There are discussions of reevaluating public works projects.

There have always been vested interests, whether for roads or for dams. One problem in the past has been that there was no change in the proportion of the budget allocated to public works projects.

The biggest advantage in the change of government is that (the new government) has no pre-existing ties, so that presents an excellent opportunity to determine a new sequence of priorities.

I wonder if their rollout of policies hasn’t been reckless, however, such as their announcement of the suspension of dam construction projects so soon after they took office. It takes time, but they should gather the people involved and discuss the issues. That would smooth out the rough edges.

There have been strong objections from business and financial circles of the new Government’s targets for reducing greenhouse gases.

There are some advantages to setting strict targets. The strategic utilization of regulations could change the course of the economy and society. For example, when the price of oil quadrupled during the first oil crisis, people were alarmed that the Japanese economy would collapse.

But Japan developed the technology to cut back on oil consumption, which transformed the industrial structure. The economy evolved in such a way that growth could be achieved with very little increase in oil consumption.

It might have been the case that we were able to achieve something unanticipated.

Financial Services Minister Kamei Shizuka is calling for the introduction of a moralistic system with a moratorium on the repayment of debt by small businesses and others.

That’s out of the question. It’s absurd.

In a system based on contractual agreements, it is not legally possible to change the terms of the loan relationship at the time the contract was made before the loan is repaid. Several problems would ensue, including the flight of foreign capital if the situation in Japan were perceived to be that severe. It would also put small and medium-sized lending institutions in a serious bind.

The contempt for moneylenders making a profit without working for it seems to stem from a reading of The Merchant of Venice.

He doesn’t seem to have asked the opinions of specialists or the people involved. I can only say that he is treating the authorities responsible as his personal property.

*****

MEANWHILE…

Those nefarious oil barons are at it again. Now they’ve gone and bought out another one of the good guys.

Which one?

(Prof. Mojib Latif of Germany’s Leibniz Institute) is one of the leading climate modellers in the world. He is the recipient of several international climate-study prizes and a lead author for the United Nations Intergovernmental Panel on Climate Change (IPCC). He has contributed significantly to the IPCC’s last two five-year reports that have stated unequivocally that man-made greenhouse emissions are causing the planet to warm dangerously.

Oh, no! What did he do?

(L)ast week in Geneva, at the UN’s World Climate Conference–an annual gathering of the so-called “scientific consensus” on man-made climate change –Latif conceded the Earth has not warmed for nearly a decade and that we are likely entering “one or even two decades during which temperatures cool.”

The Eco-Church worshipers have been reduced to sputtering that Dr. Latif also said he thinks global warming will resume again. Except he isn’t sure when or why, and he was wrong the last time, and he agrees with people who say climate change is cyclical, and, and, and…

But this week in New York, Prime Minister Hatoyama addressed the world’s largest congregation of thugs and despots at their jamboree on the left bank of New York’s East River and promised that Japan will cut its greenhouse gas emissions by 25 percent by 2020 from 1990 levels.

Somebody needs to tell Mr. Hatoyama a few things, in addition to the statements of people like Dr. Latif and the long line of scientists to precede him. For one thing, the terms of art in the English language have changed. Now that even the Eco-Church can’t deny that the globe has stopped warming, they’ve been warming up to the phrase “climate change” instead. And that phrase “greenhouse gases”? It’s so yesterday! Please–now it’s “carbon pollution”. Didn’t you listen to President Obama’s speech while you were there?

He might also have profitably listened to Chinese President Hu Jintao, who said during his two-minute greeting that his country would take “determined action”, but who was equally determined not to specify what that action or its targets would be.

Then Mr. Hatoyama could be told that:

“As the International Energy Agency concluded, the major nations in the Organization for Economic Cooperation and Development ‘alone cannot put the world onto the path to 450-ppm trajectory, even if they were to reduce their emissions to zero.’”

Someone also might remind him that the U.S. has pledged to reduce emissions by only 20% from 1990 levels by far-off 2050, and “the 80% target means reducing fossil-fuel greenhouse-gas emissions to a level the nation last experienced in 1910.”

Horse, meet buggy!

Then again, if Prof. Komine thinks the DPJ doesn’t have a growth strategy…

Nah!

While some of the speeches in New York might have been diverting as an exercise in observing public lunacy, particularly those from the Libyan and Iranian leaders, Mr. Hatoyama should have focused on this line from Mr. Obama:

“Nor do alignments of nations rooted in the cleavages of a long gone Cold War (make sense in an interconnected world).”

Translation: If China, Russia, or North Korea start to get really uncool, don’t you Japanese go calling us on the phone and ask for help.

If you don’t care for my interpretation, you could always ask the Czechs, the Poles, the Israelis, the Hondurans, or even the Iranian demonstrators for theirs.

But I admit there could be other ways to render that. Heck, now that everyone knows Mr. Obama isn’t interested in keeping his story straight on anything from one week to the next, there might not be any real interpretation at all.

Will a DPJ government be catastrophic for public finances?

SOME ECONOMISTS are taking a closer look at the election platform of the victorious Democratic Party of Japan and recoiling at what they see.

One of them is Carl Weinberg, chief economist at High Frequency Economics, as this Bloomberg article reports.

The election win by the Democratic Party of Japan “will set in motion spending plans and tax cuts that will destabilize Japan’s public finances,” Weinberg, chief economist at High Frequency Economics in Valhalla, New York, said in an e-mailed response to questions… “A catastrophic breakdown of Japan’s public-sector finances will be the biggest story ever to hit the world economy in our times, eclipsing the current financial crisis,” Weinberg said. “Coming in the midst of the yet-to-be-resolved global financial crunch, it will worsen and prolong that still-unfolding crisis.”

What specifically is the problem?

Weinberg’s judgment reflects skepticism among private analysts that the DPJ…will follow through on its pledge to avert an increase in government bond issuance. “Most of the DPJ’s pledged spending requires semi-permanent funding, and tax revenue is falling,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “If the DPJ implements all the promises, it may end up increasing bond sales and eventually will need to raise the sales tax to finance them…Even though Japan is dealing with a once-in-a-century recession, it’s crazy to expand spending more given these fiscal conditions,” he said.

This could put the DPJ between the proverbial rock and the hard place rather early in their administration. The recent poll was regarded in Japan as the first “manifest election”, i.e., an election in which competing parties presented themselves to the electorate through policies spelled out in campaign platforms.

Implementing significant portions of their platform will cost a lot of money, and very few people inside Japan or out seem to think there’s a way to get that money without flirting with financial disaster. Election results do not change the rules of basic arithmetic.

But failing to implement those planks, significantly modifying them, or trying to weasel their way out of it will only result in charges of See! What did we tell you? They shouldn’t have been entrusted with forming a government to begin with!

The incoming administration has said it will pay for its priorities — increased funds for child care, education and employment — partly through diverting as much as 5 trillion yen ($54 billion) of stimulus spending already approved.

As chance would have it, that is directly related to another post I have half-finished, but meeting a translation deadline comes first. I hope to complete it by tomorrow.

Most people, including many overseas observers, realize that the DPJ won only because it did not carry the tainted brand of the LDP. If the party behaves in the mistaken belief that their policies have won a mandate, rather than fulfill their fiduciary responsibility–which should take precedence over politics–Japanese voters may find that they have jumped from the frying pan into the fire.

The skillet is already getting hotter. Mr. Hatoyama’s recent pledge to boost the cuts of CO2 emissions to 25% despite the growing worldwide awareness that claims regarding anthropogenic global warming are largely specious is not a good omen at all.

It’s understandable (if not forgivable) for opposition parties to sweeten their political platforms with pie-in-the-sky spending promises, but you have to take your head out of the clouds to drive the car. The DPJ has seldom, if ever, devoted much time to discussing macroeconomic policy. Now, people around the world–not just Japan–are crossing their fingers that the party has either been hiding its light under a bushel or is a very quick study.

Hatoyama talks money, others talk Hatoyama money

AS WE’VE SEEN before, the opposition Democratic Party of Japan leader Hatoyama Yukio–who could well be prime minister by this time next month—has been embarrassed by revelations of campaign funding oddities. (That’s assuming a man who has spent that much time in politics is still capable of embarrassment.) His campaign war chest is enormous, dwarfing those of other party leaders and past prime ministers. That war chest was filled by an eyebrow-raising number of both the anonymous and the dead.

We’re about to find out some more next week. The September issue of the monthly magazine Bungei Shunju is due out on Monday, and it will have a long feature on some of Mr. Hatoyama’s financing issues. In addition to the personal contributions, it will examine some problems that may exist with the money received from his mother, 86-year-old Yasuko, the daughter of Bridgestone Corp. founder Ishibashi Shojiro. It’s widely suspected that she has shoveled a substantial amout of cash to both Yukio and his younger brother Kunio, who recently left the Aso Taro Cabinet.

Another publication taking a closer look at the Hatoyama finances will be the weekly magazine Shukan Bunshun in its holiday 13/20 August issue. The same company publishes both the monthly magazine and the weekly magazine.

This is serious money we’re talking about here. Hatoyama Yasuko still owns about 70 million shares of Bridgestone stock. Before he died, grandfather Shojiro gave both brothers enough Bridgestone stock to ensure they would remain plutocrats for life. In January 2008, Kunio said he had suffered a paper loss of “three to four billion yen” on his holdings, and added that his brother took a four-billion-yen hit. Yukio’s comment? “He talks too much.” (JPY 4 billion is about $US 42 million. If those were just valuation losses, you can imagine what the size of the portfolios must be.)

The article will reportedly focus on the connection between the Bridgestone fortune and the brothers’ assets, and the lack of transparency in Yukio’s campaign money. Whether any damaging revelations will emerge remains to be seen, but considering how the Japanese electorate feels about money politics and the DPJ leader’s attempt to don the clean party mantle, the articles are unlikely to burnish his reputation.

Coming out the same day will be an article in the September issue of Voice featuring an article written by Hatoyama the Elder holding forth on other people’s money rather than his own. Mr. Hatoyama says he would like to work toward the creation of an East Asian Union with a common Asian currency in the future. (The article isn’t out yet, so I don’t know how close of a union he has in mind.) Mr. Hatoyama says the union would be a framework for economic cooperation and security in the region.

Titled “My Political Philosophy”, the article also discusses the problems of a global currency system centered on the dollar. Mr. Hatoyama thinks the current financial crisis will accelerate the trend toward regional union.

One the one hand, he writes:

“Stronger economic ties and regional interdependence have formed a sufficient foundational structure for an economic sphere.”

He refers specifically to Japan, China, South Korea, Taiwan, Hong Kong, and the ASEAN countries. But on the other:

“There are differences in population, development, and political systems, so an economic union won’t be achieved overnight…it will require at least 10 years.”

Considering the differences in population, development, and political systems, not to mention scores of other factors, a properly functioning common currency would take so many years one wonders why Mr. Hatoyama is talking about it at all, but the man does love him some pie in the sky. Yes, he really is serious about that yuai stuff.

For starters, true currency integration would mean that individual countries or territories would have to give up control of their monetary policy. While you’re calculating the odds of that one, consider how long it will be before the Chinese provide enough transparency in their financial system to make the idea workable.

Before getting grandiose, how about encouraging smaller-scale steps first, such as fostering the growing economic ties between the southeastern Korean Peninsula and Kyushu? Meanwhile, the Sinosphere can work on its own regional integration.

The public intellectuals who like to talk about this sort of thing will probably love the idea, but there’s going to be so much on Mr. Hatoyama’s plate, let’s hope someone in the DPJ will attach a tether to the Man from Outer Space—as even he refers to himself—to keep him from floating into the ether and his mind focused on more immediate and pressing issues.

Afterwords:

Here is a very brief explanation of what can happen with common currencies, and what is needed before they can function well. The conclusion:

A common currency can be expected to result in comparable prices in different regions only after a substantial equilibrating period of widespread trade.

Japan’s economic stimulus: A list

“I will not let anyone tell me that we must spend more money.”
- German Chancellor Angela Merkel

1. THE GREAT AMERICAN stimulus measures of 2008-2009 are such a dismal failure they would be farcical had they not increased the likelihood of a calamity.

2. The Obamateurs now in charge of the government and financial policy instill a sense of confidence in no one.

3. The American President recently submitted his first budget, which will wind up tripling the deficit.

4. But he quickly assured the public he would eventually cut that new deficit in half.

5. You do the math.

6. The American public already has.

7. A recent poll in the United States shows they’re opposed to further bailouts of financial institutions by a 45%-34% margin.

8. Other polls show they are opposed to bailouts of other industries by even greater numbers.

9. They have plenty of company.

10. Czech Prime Minister Mirek Topolanek told the European Parliament:

“All of these steps, these combinations and permanency, is the road to hell.”

11.

“We need to read the history books and the lessons of history, and the biggest success of the (EU) is the refusal to go this way.”

12. He added:

“Americans will need liquidity to finance all their measures and they will balance this with the sale of their bonds but this will undermine the liquidity of the global financial market.”

13. Desmond Lachman, the former deputy director of the International Monetary Fund’s Policy and Review Department, compares the United States today to countries with emerging markets whose currencies collapsed, such as Russia, Thailand, Indonesia, Peru, and Argentina.

14. Mr. Lachman thinks this is one of the problems:

“In visits to Asian capitals during the region’s financial crisis in the late 1990s, I often heard Asian reformers such as Singapore’s Lee Kuan Yew or Japan’s Eisuke Sakakibara complain about how the incestuous relationship between governments and large Asian corporate conglomerates stymied real economic change.”

15. And is not the situation dire when the Chinese feel compelled to criticize the financial policies of a free market democracy?

16. To finance its stimulus (stimuli?), the U.S. government must sell more bonds and other debt instruments.

17. But signs have appeared that the interest of foreign investors in American debt is waning, as the bid/cover ratio (which compares the number of bids to the amount of notes sold) for the most recent offering of five-year notes slid from 2.21 at the last sale to 2.02, and they had to boost the interest they’ll pay to get that.

18. The investors have already lost interest in U.K. debt.

19. Last week, there weren’t enough bidders to purchase a tranche of “gilt-edged” 40-year British securities.

20. The global economic downturn means that Americans are importing fewer products, which in turn means that other countries will have fewer dollars to buy their debt.

21. That’s already happened with Brazil, and some are suggesting it might happen with Japan and China too.

22. If too few people buy treasuries, another solution would be to “monetize the debt”; i.e., print more money to cover it.

23. Say hello to inflation, everybody.

24. “You cannot spend your way out of a recession or borrow your way out of debt.”

25. Yet another byproduct of the stimulus measures will be white collar crime.

26. Said FBI Director Robert Mueller last week:

“The unprecedented level of financial resources committed by the federal government to combat the economic downturn will lead to an inevitable increase in economic crime and public corruption cases.”

27. Many in the United States are warning that the government shouldn’t deal with the problem in the same way the Japanese handled theirs in the 1990s.

28. So, how is Japan dealing with its own economic crisis today?

29. They’re using a unique one-two punch combination.

30. Not only are they imitating today’s American policies, they’re imitating their own policies from the 1990s!

31. Japanese Finance Minister Yosano Kaoru already pledged 10 trillion yen (US$ 104 billion) in stimulus measures last October.

32. Said Mr. Yosano:

“It’s not a situation where new fiscal spending of 2 to 3 trillion yen would be enough of a remedy.”

33. He added that a new package of 20 trillion yen would not be out of line.

34. Some financial wizards in Tokyo agree with him.

35. From Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo:

“The domestic economy might really tank and there’s basically no way out of it except if the government helps.”

36. Mr. Schulz thinks 10 trillion yen should do it, but some disagree.

37. From Junko Nishioka of RBS Securities Japan in Tokyo:

“The government should spend about 20 trillion yen at least to fill the supply-demand gap as Japan’s recession is deepening and facing the risk of falling back into deflation.”

38. “I’m bid 20 trillion, 20 trillion yen, do I hear 30, do I hear 30, anyone for 30?”

39. Yes–Japan Business Federation Chairman Mitarai Fujio and Japan Chamber of Commerce and Industry Chairman Okamura Tadashi are asking the government to spend 30 trillion yen.

40. Hey a few trillion here, a few trillion there, and pretty soon we’re talking real money!

41. All this talk about turning on the cash spigot is causing some members of the ruling Liberal Democratic Party to have visions of sugarplums—and pork—dancing in their heads.

42. They’re looking forward to turning back the clock to the era of LDP hegemony and its Third World-style partnership of the ruling party, the bureaucracy, and business and industry.

43. They’ll get to sprinkle money in rural areas and the cities, in the towns and on the beaches, to build more roads, more bridges, and even faster maglev trains.

44. Happy days are here again!

45. But the Tokyo financial wizards have more prudent suggestions.

46. Junko Nishioka thinks the government should spend the money on such green projects as alternative energy, solar panels, and hybrid cars.

47. Martin Schulz prefers low-tech solutions, such as insulating buildings, which he thinks will support employment.

48. He says:

“Money should be spent as fast and as efficiently as possible.”

49. The old saw that you learn something new every day is true.

50. I just learned that someone believes there are no internal contradictions in the suggestion that government spend money as fast and as efficiently as possible.

51. I also learned that someone seriously believed there was an entity on the face of the earth that could efficiently spend that much money, regardless of how fast they spent it.

52. Is there anyone who doesn’t think that most of that money is going to be wasted?

53. As for the rest of it, let’s not forget Robert Mueller’s warning of the funds that will wind up in some bureaucrat’s pocket.

54. Don’t worry, it’s only money of the mind.

55. Japan already has the highest ratio of public debt to GDP in the world at 170%

56. But the only way the government of Japan can come up with that kind of scratch is by selling more public debt.

57. Since overseas investors, including other nations, are unlikely to buy even more Japanese debt—they’ve got enough problems selling their own, remember—the Bank of Japan will have to buy it instead.

58. And where will they get the money?

59. They’ll print it!

60. Didn’t I say this was money of the mind?

61. At least Junko Nishioka won’t have to worry about deflation any more.

62. Say hello to inflation, Junko.

63. But perhaps we should consider the benefits of all those new solar panels, the unemployed financial industry executives taking temporary work to insulate buildings, and the rural roads, bridges, and maglev trains the legislators will figure out how to fund anyway.

64. The national legislators won’t be the only beneficiaries, of course.

65. Another group to benefit will be the Kasumigaseki bureaucracies, led by the Finance Ministry, who will get to think of creative new ways to spend all that money and further tighten their grip over the Japanese government.

66. In short, the primary beneficiaries of the new Japanese stimulus program will be the people who consider themselves the permanent governing class.

67. Happy days are here again!

68. But remember how FBI Director Mueller warned that public sector corruption was inevitable?

69. One manifestation of that corruption will be more slush funds, which are already endemic in Japanese government at both the national and local level.

70. We may not know how many buildings will wind up being insulated, but there will be more than enough softball uniforms and taxicab chits to go around for all of Japan’s public employees.

71. In 2001, former Foreign Minister Tanaka Makiko revealed that her ministry alone had a 20 million yen slush fund for internal staff parties.

72. At the same time, a total of 326 foreign ministry officials were disciplined for using more than $US 1.6 million of ministry money for personal expenses.

73. Another foreign ministry official was arrested on charges of defrauding the government of tens of thousands of dollars in phony hotel bills.

74. The Japanese consul general in Denver was fired for using government funds for personal items, including buying artwork for his collection.

75. And Ms. Tanaka dug all that up after only a few months in office!

76. Meanwhile, the Ministry of Internal Affairs and Communications released a survey of public-private sector partnerships and public corporations in Kyushu and Yamaguchi Prefecture last week revealing that local governments with a stake in those companies have indemnity contracts with financial institutions for 170 of them, 21 of which have debt exceeding their assets.

77. The debt covered by all these contracts amounts to 30.8 billion yen.

78. If those so-called Third Sector companies go bankrupt, the losses will have to be covered by funds from the general accounts of the local governments.

79. Heck, with the number of children plummeting every year, we didn’t need all those primary schools anyway.

80. If Mr. Yosano wants to spend the public’s money to benefit the economy, perhaps he could hire outside auditors—preferably from outside the country—to turn Kasumigaseki upside down, shake it by its heels, and see how much cash falls out.

81. What else could be done instead of printing more money of the mind?

82. One solution would be to slash taxes, downsize the government, and put the money back in the hands of the people.

83. Will the people of Japan suffer without the Sports in the Ministry of Education, Culture, Sports, Science and Technology; the Tourism in the Ministry of Land, Infrastructure, Transport, and Tourism; the Okinawa and Disaster Management parts of the Ministry for Okinawa, Northern Territories Affairs and Disaster Management (the Foreign Ministry can handle the Northern Territories); the entire Ministry of Science and Technology Policy and Food Safety; the entire Ministry of Consumer Affairs; or the entire Ministry of Social Affairs and Gender Equality?

84. However did they manage without them?

85. Author and college professor Ikeda Nobuo thinks the Ministry of Agriculture, Forestry, and Fisheries could be eliminated entirely, and explains how in Japanese here.

86. That ministry has an annual budget of three trillion yen.

87. If you want a stimulus, put that money back in the hands of the people and watch how stimulated they get.

88. Another solution would be to take an axe to Japan’s effective corporate tax rate of 40%, one of the highest in the world.

89. There’s no such thing as a corporate tax anyway.

90. Corporations are really tax collectors instead of tax payers—their customers pay the taxes in the form of higher prices while the company collects the money with one hand and gives the government its cut with the other.

91. Years ago, some Japanese would complain about their fellow countrymen who had a monkey see, monkey do attitude when it came to all things American.

92. The monkeys are still around, but this time they’re not asking for peanuts.

93. The problem is that these monkeys are going to wind up holding an empty tin cup and banging it on the sidewalk…

94. …of the road to hell, as the Czech President observed.

95. “You cannot spend your way out of a recession or borrow your way out of debt.”

96. But that’s not going to stop them from trying, is it?

One man’s gunk is another man’s gold mine

FOR MOST PEOPLE, seaweed is just unpleasant gunk that gets in the way of a good time. It’s the stuff everyone tries to avoid when swimming at the seashore, or that gets tangled in fishermen’s lines and stuck on the bottoms of boats.

But the Japanese, of course, love to eat it.

And now, the Okinawans are beginning to view it–as well as other aquatic plants—as a marine bioresource.

The grapes of the sea

To turn all that gunk into products that are beneficial for the user and profitable for the consumer, the Okinawa government, through the Okinawa Prefectural Fisheries and Ocean Research Center, has been working for the past three years with the University of Tokyo, the University of the Ryukyus, and bioventures and health food companies in the private sector to develop the marine bioresource industry. They’re also working to establish better control of intellectual property, primarily through the Okinawa Technology Licensing Organization, to ensure that research results and benefits flow to local enterprises. The Ministry of Education is kicking in 100 million yen (about $US 1.026 million) to help with the effort, and the prefectural government is adding another 41 million yen to the pot.

One project they’re working on is the cultivation and promotion of so-called green caviar (Caulerpa lentillifera), or sea grape, as it is known in Japanese. Usually found on sandy or muddy sea bottoms in shallow protected areas, it is eaten in salads and all sorts of other dishes, as you can see from this link. They’re also studying ways to maintain hygiene in the production of the plant as a food item, the creation of secondary products using the plant (such as shampoo), methods for increasing yield, and the development of a fertilizer specifically for the plant.

Try to imagine the fertilizer delivery mechanism for a plant that grows on the sea bed!

Another project is an examination of the efficacy of fucoidan, a substance present in such popular Japanese seaweed varieties as hijiki, kombu, and wakame, and which some think has potential for cancer treatment. In the same way that many local governments in Japan are doing with other products, the Okinawans are trying to boost its value by creating a regional brand.

Still one more project is the development of a kit for the simple and quick detection of ciguatera toxins, which are found in some subtropical fish.

One man’ s meat is another man’s poison, some say, but Okinawa is hoping that some people’s gunk turns into a treasure for all the islanders!

Are Japan’s newspaper prices unfairly fixed?

NEWSPAPERS IN JAPAN are sold under a system in which the newspaper companies negotiate a contract with retailers (newspaper sales agents) for the fixed price at which the latter will resell the papers. This is in principle forbidden under the anti-monopoly law, but that law was amended in 1953 to make an exception for newspapers and books. For newspapers, the combination of this amendment with a special designation (the prohibition of fixed discounts) means that they are sold nationwide at the same price.

Tsuruta Toshimasa

During Reading Week in October 2008, Chief Cabinet Secretary Kawamura Takeo had this to say at a press conference about the regulations governing the resale of newspapers: “Maintaining the system is important for maintaining the written language and the culture of the printed word.”

Not everyone agrees. One of them is Prof. Tsuruta Toshimasa, who served as the chair of a group studying this issue for Japan’s Fair Trade Commission. J-Cast interviewed him in January, and here is a quick translation of that interview.

*****

Please give us a brief explanation of the problems with the regulations governing the resale of newspapers.

The basic problem with the act of resale is that it limits competition in the distribution industry by restraining prices. It deprives the retail industry of the freedom to conduct business and is not in the consumers’ interest.

In contrast, the newspaper industry claims that eliminating the regulations would result in harsh price competition. Newspapers would become expensive in remote areas, which would be a problem for the consumers. They also offer the excuse that it would force them to cut back on reporting expenditures, so the quality of the newspaper would decline. They say that the foundation of democracy could not be maintained as a result.

What has been happening with this issue recently?

The trend in the 1990s was for promoting competition. A similar system for cosmetics and pharmaceuticals was scrapped. We also discussed newspapers in the group I chaired at the Fair Trade Commission. The group finally recommended in March 2001 that the regulations for newspaper resale be eliminated to encourage competition. But the final decision of the commission was that it would be proper to maintain the regulations for the time being because a consensus had yet to form among the people.

There was some talk after that about the flexible operation of the resale system, but essentially nothing has changed since 2001. I thought then, and I think now, that the newspaper resale regulations should be abolished.

Previously, in the Diet, Watanabe Tsuneo, then the chairman of the Yomiuri Shimbun, criticized you by name.

Mr. Watanabe gave unsworn testimony at a special lower house committee on deregulation in June 1996. He cited me and two other scholars, saying, “There are three ideologues who want to crush newspapers.” He even said that the reason our arguments weren’t widely reported was because “it was the same as not writing at length about the theories of Aum Shinrikyo.”

Watanabe Tsuneo

But as I recall, none of that exchange was reported in the newspapers. Of course, anyone is free to oppose our arguments. Yet, while they run editorials calling for deregulation, saying that the market and the consumers should decide prices, newspapers want special treatment for themselves because they claim to be a public institution. They do not treat opposing opinions fairly. I’ve had doubts about their approach since that time.

We say that if newspapers have such a unique role, the absence of the resale regulations wouldn’t create destructive price competition. It’s absurd to think that we want to destroy newspapers. We want the newspapers to be sensitive to consumer needs when they conduct business.

Why was Mr. Watanabe so adamantly opposed to the abolition of the system?

He probably felt it would it would shake the foundation of the newspaper’s operating policies. Their business model is to sell only their own newspapers through the retailers and boost their sales totals, maintain that high number, and then raise ad prices as a result. Also, to increase sales, the sales groups distribute free gifts to subscribers and engage in pressure tactics. That is neither content- nor price-based competition. Perhaps these groups don’t pressure consumers as much as they did before, but at any rate, they’re fiercely opposed to change because they’re worried the model they built will collapse.

It’s been quite a while ago now, but a newspaper article once appeared saying that “a certain scholar maligned newspapers by declaring that newspapers were the same type of product as toilet paper.”

That was terrible. To begin with, the essence of the problem is that the newspapers themselves did not clearly define themselves as a public institution, which is what they claimed to be. Nevertheless, they took the words of Tokyo University Prof. Miwa Yoshiro out of context and wrote a distorted account. I’ve read the records of what he said.

During a meeting of a subcommittee of the Fair Trade Commission in 1995, opinions were exchanged about the reasons newspapers needed special treatment. The head of the sales department at one newspaper said that newspapers were very much a public institution serving the public interest. Prof. Miwa asked for a definition of a public institution and the public interest. A member of the Japan Newspaper Publishers and Editors Association explained, “It is very important to have a mechanism by which people can obtain newspapers at the same inexpensive price no matter where they live.” Another newspaperman answered, “They are a beneficial product that nearly all of the general public can use.”

In regard to newspapers being a public institution, Prof. Miwa said that if newspapers had to be distributed to everyone, the same would have to be said about—for example—toilet paper. In other words, he merely said that the definition the newspapers gave for being a public institution was insufficient.

Have the ties between the Liberal Democratic party and the newspaper industry influenced the debate over the regulations?

I think so. It’s my sense that now the people chosen to serve on the Fair Trade Commission are on good terms with influential people in the party, so the tenor of the debate regarding abolition of the system has changed.

Newspapers distribute quite a bit of information on the Net for free. Isn’t it contradictory to take the approach of insisting on a uniform price nationwide for the hard copy?

I agree with that. Long-term subscribers to the newspaper don’t get a discount or any other advantages, while some people can read the same information on the Net for free or very inexpensively. There are a lot of people who don’t read the print editions of newspapers, but get their news from the Net. They’re not just young people; many of my acquaintances get their news that way now. If the companies had developed a distinctive way to create newspapers, the print editions should have been even more dominant.

If the regulations for resale had been abolished and newspapers had developed a more distinctive and competitive format, do you think they wouldn’t have suffered as much as they have?

I think that’s right. People probably protected the system to protect the newspapers, but it’s ironic how newspapers have suffered while they were being protected by that system. I suspect that’s because they used the system to protect themselves while avoiding the competitive aspects of fully displaying their individuality.

How does the system work in other countries? Why don’t they have that system in the U.S.?

I’m not aware of the latest information, but when I studied it before, only Japan and Germany of the OECD countries had such a system. The other countries don’t have it because it’s not necessary. Newspapers are bought and sold like any other product.

The decision of the Fair Trade Commission in 2001 was to maintain the system for the time being, but there hasn’t been any discussion of the system lately. Have they decided to keep it?

I don’t think there’s been a formal decision. There is a strong undercurrent that it’s strange to have special treatment for newspapers. The view is that it will inevitably become an issue for the Fair Trade Commission at some point. But it takes a lot of energy to confront the newspaper companies, so changing the system might be difficult as long as the leaders of the commission are not committed to change.