Today's Disparities Echo Yesterday's 'Dual Structure'
Despite economic growth, source of societal gaps long masked but
never solved; now politicians scramble for answers as it rears ugly
Masahiko ISHIZUKA (Councilor for the Foreign Press Center Japan and a Lecturer at Waseda University)
A central issue regarding the Japanese economy in the 1950s was the
"dual structure," just as the nation was about to embark on
spectacular postwar growth. This concerned, among other things,
disparities in wages between big companies and smaller ones - pay
checks at companies with employees numbering more than 500 were
nearly double those at firms with fewer workers.
The situation improved as economic growth progressed, bringing
salaries at smaller firms to about 70% of those at their bigger
counterparts. But recent statistics show that the situation has
reverted to the pattern that prevailed 50 years ago, mirroring the
widening economic and social disparities that have emerged as key
political issues in modern Japan.
Even though the dual structure diminished as a result of economic
growth - which also brought about what has been viewed as the most
egalitarian society in the developed world - it did persist, but
only to a less visible and controversial extent. It was masked as
the entire economy expanded robustly, while the government, rich
with rising tax revenue, was able to provide weaker sectors with
numerous kinds of assistance.
These two sources of generosity have ceased to exist, however, and
the dual structure has reemerged as "disparity" in contemporary
terminology. On top of this has come the globalization of the world
economy, which has made the weaker part of the Japanese system
ruthlessly exposed to unprecedented competitive forces from abroad.
An appropriate question to ask, then, is why the dual structure, the
source of disparity, survived the golden age of the Japanese
economy. Why was it not wiped out completely?
In connection with this, the issue over raising the national minimum
wage is telling. The Japanese minimum wage, which varies from region
to region, is not only low by international standards, but it has
also been raised by only a paltry margin over the years. It is lower
than the social security benefit, so strictly economically speaking,
it actually makes more sense to be on welfare than to work. An
advisory council recently recommended the government raise it from
the current national average of ¥673 ($5.90) an hour by ¥17 for
fiscal 2007. Since 2002, the yearly raise has been limited at zero
The reluctance to raise the minimum wage stems from the poor
condition of many smaller firms, which constitute the vast majority
of corporations. As their profit margins are so thin that they
cannot afford to abide by a higher minimum wage, they have voiced
strong resistance to any significant rise. By extension, this has
lead to the fear that a higher minimum wage could increase
unemployment because some firms may simply opt to hire fewer
Why are these smaller firms placed in such a difficult position? One
thing commonly cited is their low productivity, and how to improve
this is a major point the government is considering as part of its
policy to spur the nation's economic growth. Another problem smaller
firms face is their weak position vis-a-vis larger companies that
contract out business to them as subcontractors. Cost-cutting
pressure from big companies is relentless, squeezing small firms'
profitability and ability to pay higher wages. The pressure keeps
mounting in the midst of the globalizing economy, which exposes
Japanese firms to ever tougher international competition.
The crushing defeat of the governing Liberal Democratic Party in the
July 29 upper house election is attributed, among other things, to a
rebellion in rural areas - dependent on agriculture and public works
investment - as well as other weaker sectors of the economy where
people are resentful of having been victimized by reform policies
and mercilessly left unattended.
Tales abound of the misery in depopulated and nearly deserted remote
communities. Such communities have been traditional strongholds of
the conservative LDP, and still enjoy disproportionate
representations in parliament thanks to a skewed electoral system
geared to conservative, rural interests.
That these former LDP territories are starting to desert the party
reflects its transfiguration from the guardian of rural interests to
a party that caters to sectors more in tune with globalization. The
shift started under the government of former Prime Minister
Junichiro Koizumi, and Prime Minister Shinzo Abe has declared
himself to have inherited those policies, stressing his intention to
But although Abe cried for "reform for growth" during the election
campaign, he faces rebellion from within his own party ranks against
such pursuits in the wake of the election. It is true that, backed
by his immense popularity, Koizumi managed to push forth reforms and
achieved results, but it is also true that he did nothing to look
after those who were victimized or left out of the resultant
All of this is putting the LDP in disarray. In a way, the party has
always been a chimera containing these essentially conflicting
interests, but it has somehow managed to juggle them in the past.
Now the relentless advance of globalization - combined with the
equally relentless deterioration of the government's fiscal
situation - is making it difficult for the party to keep all of its
batons in the air.
By contrast, the opposition Democratic Party of Japan is suddenly
buoyed by its huge election victory, but this does not necessarily
mean that the party is offering a really viable policy to resolve
the knotty issue of pushing reform while rescuing people who are
victimized by the very same reform.
Same tune, different key
What is the DPJ's answer? Income compensation to farmers was the
centerpiece of its policy to correct widening income disparities
between rural areas and big cities. This idea was engineered by
party leader Ichiro Ozawa, who concentrated his election campaign on
canvassing rural electoral districts throughout the nation.
His policy worked as far as the election results were concerned. But
the electorate as a whole does not appear to be convinced that this
can be the right answer to the fundamental problem the nation faces.
To many, it looks little different from the LDP's past policy of
doling out money to rural areas in the form of subsidies, public
investments and other giveaways.
In truth, the nation has yet to be presented with a truly viable way
to solve the dilemma of domestic interests vs. globalization, which
lies in the background of the persistent dual structure in this
country. Future political contests should center on finding
solutions to this issue, and the considerable wrangling could augur
major political realignment.
(Originally appeared in the August 27, 2007 issue of The Nikkei Weekly, reproduced here with permission.)