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Commentary (June 9, 2004)

Socialist Japan lags capitalist China

Masahiko ISHIZUKA (Counselor, Foreign Press Center/Japan)

The Japanese are still inclined to look down on China, despite that country's recent spectacular growth reminiscent of Japan's economy in decades past. That is not just because of the relatively underdeveloped state of its economy but also because of the notion that the country still sticks to socialism, a system has been proven unworkable and bankrupt.

But Michio Morishima, professor emeritus of the University of London, says in his book, "Japan at a Deadlock," that Chinese socialism today is little different from Japan from 1945 to the early 1990s. In his view, the Chinese economy, though nominally "socialism," is in fact "capitalism from above."

In this system, the state leads and imposes capitalist practices on the national economy to push modernization, national empowerment or other goals. Morishima argues that, with the exception of the U.S., capitalism everywhere started this way and gradually gave way to "capitalism from below."

China's economy looks like Japan's did for most of the postwar period until the early 1990s when the system went into a deadlock and started to show signs of unsustainability. The U.S. stood by Japan in a close relationship as Japan prepared under such a capitalist system, and Morishima says he would not be surprised if Washington chooses to ally with a growing China over a declining Japan in the future.

Outright socialism

Yuko Kawamoto, a Waseda University professor and leading advocate of reform, sees a lot of outright socialism in Japan's economy. In the two scholars' view, Japan could even be overtaken by China in terms of capitalism, while Japanese scoff at what they perceive to be China's archaic socialist system and complacently compare it with their supposedly capitalist system.

As Kawamoto sees it, in contrast with the dazzling growth of the Chinese economy, Japan continues to suffer from socialistic practices that dominate its financial sector, among other things. She points to state-run postal savings and insurance as an example. In her recent book, "Changing Japan," she describes the government-run postal savings system and its use in public projects as nothing but socialism. The problem is not only its size, but also its role in channeling the huge amount of funds absorbed by the postal savings and insurance to the treasury investment and loans program.

Pastel savings total 230 trillion yen ($2.1 trillion), equal to the combined assets of the four largest commercial banking groups, and postal insurance has 125 trillion yen, more than the combined assets of the five largest life insurance companies. About 40% of the funds collected by postal savings and insurance is invested in government bonds, accounting for a quarter of such bonds issued. In the meantime, the outstanding balance of lending by the treasury investment and loans program, also known as the "second budget," stood at 400 trillion yen at the end of fiscal 2003, five times the annual general account state budget and equivalent to 80% of Japan's gross domestic product.

The lack of transparency and accountability of the projects served by the program is appalling; nobody is held responsible for inefficiency and the resulting deficits in many of the government corporations and projects in which the postal savings and insurance money is used.

The most notorious example is the highway related public corporations, which have accumulated huge debts and are poised to continue to add to the deficits by building highways that will lose money. If roads are built with tax money, deficits are accounted for by parliamentary deliberation and approval. The expenditures and revenues of the public corporation, however, are not subject to parliamentary checks.

If the operation was a private-sector corporation, it would never be allowed to continue losing money. Such a company would go bankrupt. That never happens to government enterprises. But even the government or state corporations cannot sustain such money-losing operations forever, which has become crystal clear in the wake of the collapse of the socialistic system. Even China is trying desperately to shake off the untenable socialist system.

Kawamoto declares that the lesson the world should have learned from the history of the 20th century is that any enterprise run or guaranteed by the state is doomed to fail. But Japan has been slow to learn this. The proposed privatization of the postal business is a belated response, but its outcome is uncertain. If this project of privatization succeeds it will indicate that the country really is shedding its traditional socialist inclinations.


As Morishima sees it, the socialistic system in Japan, firmly instilled as "capitalism from above," has come to a deadlock, proving itself no longer workable at the beginning of the 1990s. The problem, he points out, is that Japan is not prepared to end state-led capitalism, which should be replaced by capitalism from below, of private enterprises that make profits and sustain themselves without government assistance or initiative.

Politically, this transition from one kind of capitalism to another roughly corresponds to different stages in the advancement of democracy. Morishima's pessimism reflects his doubt about the strength of democracy in Japan. Kawamoto says that whether Japan can rid itself of socialism depends on individuals' and private corporations' willingness to be independent and self- reliant, instead of relying on the state for sustainable economic well-being.

(Originally appeared in the June 7, 2004 issue of The Nikkei Weekly, reproduced here with permission.)

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