LEADERS & LETTERS: 'Zombie' companies from the Japanese service sector can be removed by regulatory reform
By Ludwig Kanzler
Financial Times; Apr 29, 2003
From Dr Ludwig Kanzler.
Sir, David Pilling started with the wrong premise about Japan when he asked: "How could a corporate sector that dominated the world a decade ago have become so unproductive?" (Comment & Analysis, April 21). Japanese labour productivity has all but decreased during the 1990s; in fact, it grew slightly, from 68 per cent of the US level in 1991 to 71 per cent in 2000. At the same time, however, per capita hours worked shrank by more than 20 per cent relative to the US, as the proportion of part-time hours worked (and probably also of "hidden unemployment") increased strongly. The result was that Japanese per capita gross domestic product fell from 82 per cent of the US level in 1991 to 70 per cent in 2000.
Mr Pilling is of course correct to argue that the Japanese service sector has been an important impediment to growth, lingering at only about 60 per cent of the US level. The McKinsey study quoted estimates that GDP could be raised by some 30 per cent if the gap with German, French and British productivity levels, let alone the US level, could be closed.
As the study argues in detail, the key to doing this would be to remove or lessen government interference in the many service industries where it is impeding competition among private-sector players. Examples range from the provision of rationed social welfare services crowding out more productive private providers, to regulations in effect barring new entrants or cross-regional mergers, for example in retailing as well as in nursing services.
In addition, correcting income tax and social security regulations that currently lead many part-timers to limit their labour participation to Y1m [$8,300] a year would alleviate labour shortages in certain service industries.
Regulatory reform - not inflating the economy or pulling the plug on bad loans - is the key to removing "zombie" companies from the service sector.
Ludwig Kanzler, Tokyo 155-0033, Japan