Japan - more unequal

Doug Henwood dhenwood at panix.com
Wed Jan 5 08:04:08 PST 2000

Financial Times - January 5, 2000


Recent studies appear to show that Japan has become far less egalitarian, a trend its government seems unwilling to face, writes Gillian Tett

For many Japanese intellectuals, theirs is the world's last big socialist state. Although Japan has embraced many trappings of capitalism, its post-war system incorporated two features: heavy bureaucratic control over the economy, and a strong commitment to egalitarian ideals.

This, after all, is a country where most people describe themselves as middle class, and dislike displays of personal wealth or success. This is an economy that enjoys a reputation for having one of the most equal distributions of incomes in the industrialised world.

As important, it is a culture that abhors the extremes of wealth of parts of the western world. Corporate reform is all very well, mutter Japanese officials, but not if it means catching the American disease of inner city poverty co-existing with "fat cat" executive salaries.

To many in Europe, Asia and the US, this egalitarian spirit has its attractions. They believe it has helped Japan to maintain both social cohesion and low crime rates. But does the egalitarian stereotype represent reality?

A recent paper by Douglas Ostrom, head of the US-based Japanese Economic Institute, suggests it does not - at least, not to the extent that the Japanese believe. After surveying recent Japanese and western income research, Mr Ostrom argues that not only is Japan's income structure now less equal than many western countries, but the gap between rich and poor in Japan is widening.

While some might dismiss this as "Japan bashing" from America, Mr Ostrom raises points that Tokyo policymakers would be unwise to ignore. He argues that the data underlying Japan's egalitarian reputation - including an influential 1975 study by the Organisation for Economic Co-operation and Development - are out of date. Since then, groups such as the OECD and Luxembourg Income Study (LIS), a group specialising in global income studies, have attempted fresh research. But the LIS claims that Japan has - rather strangely - refused to provide detailed data on income distribution that would allow meaningful comparisons.

In spite of this, the LIS recently compared the data it has collected for 18 other western countries with Japan's 1992 household survey data. It concluded that Japan's distribution of income in the early 1990s was less equal than that in Canada, Germany and France, although more equal than the UK and US.

Last year, Toshiaki Tachibanaki, a Kyoto professor, also tried to estimate income distribution in Japan. He found that distribution of income was not only more unequal than in most European countries, but was almost as unequal as in the US itself.

The Economic Planning Agency, Japan's statistical body, disputes this conclusion. Anecdotal evidence certainly makes it hard to believe that Japan is approaching US levels of income inequality. It is also unclear whether the international comparisons capture the large non-cash benefits that many Japanese companies give their staff.

These quibbles aside, the most important point in Mr Ostrom's paper is the direction of change. During the 1990s the level of assets held by Japanese households has become slightly more equal on paper, since falling land prices hit the richest families hardest. But actual income distribution has become more unequal, although average income per head remained broadly flat in the 1990s because of economic stagnation. The income of the poorest quartile of the population was 26 per cent of the average income in 1996, according to government data. This compares with a figure of some 30 per cent 10 years earlier.

What does this mean for Japanese policy? Some reform-minded economists say the trend may not be an entirely bad thing, since it may make the economy more dynamic. Iwao Nakatani, a Hitotsubashi University professor, argues that Japan's pursuit of egalitarianism has been a key reason why the country has lost competitiveness and become less innovative in recent years.

Even some Japanese voters appear to share Mr Nakatani's views. A 1996 survey by Dentsu Institute of Human Studies, a research group, found that more Japanese people then believed in "equality of outcome" than "equality of opportunity". By last year, only 17 per cent favoured "equality of outcome", while 51 per cent preferred "equality of opportunity".

If Japan is becoming less egalitarian in spirit, the shift carries risks as well as opportunities. Most notably, Japan's welfare system is surprisingly flimsy compared with most western societies, largely because the corporate sector has until now shouldered much of the welfare burden.

Since Japanese companies can no longer afford to bear this weight, life may be brutal for the Japanese who fall through the safety net. This leads many Japanese policymakers instinctively to oppose any reforms that would further widen income distribution.

Indeed, most politicians are reluctant even to discuss income distribution in public, fearing it would provoke embarrassing frictions. Japan's failure to produce internationally comparable income data for the LIS, in other words, may be deliberate.

Such reticence is understandable given the scale of structural and economic problems faced by Japan. But the Japanese government cannot ignore the issue indefinitely if it wants to press ahead with market reform.

With an election looming this year, a political debate on questions such as the social safety net is desirable, if only to inform public policy.

At the very least, Japan's government should try to produce some internationally reliable statistics showing exactly how unequal Japanese society has become.


Rich and Poor in Japan: How Wide is the Gap? Douglas Ostrom. Japan Economic Institute, October 1999.

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