The Social Contradictions of Japanese Capitalism

Behind the bad economic news from Japan, the writer argues, is a worse social crisis—one he witnesses daily in microcosm in the Japanese village where he lives
Out-of-control Japanese economic beast
The online version of this article appears in two parts. Click here to go to part two.

IT'S not every day that a nation's economic woes -- and the whole world's -- come knocking at your door, especially when you are the only foreign family in a Japanese mountain village a couple of hours outside Tokyo. But by the turn of the year we had already heard so much amazing news about what everyone said was the world's richest and most admired economy that we were ready for -- well, almost anything. Even so, the request of the polite young man at our door on a snowy Monday morning was, to put it mildly, a surprise.
"Can you help us out, Sayle-san?" our visitor asked. We know him well. He works at our village credit union, which accepts savings and lends so that people can buy homes. "If you have any spare cash around the house, please come and pay it in straightaway. It's only for twenty-four hours. You can take it out again tomorrow."

"We'd like to help," my wife, Jenny, said, "but as it happens, we don't have an account with you. And what you have just said doesn't exactly encourage us to open one. Why do you need my housekeeping money?"

"Well, it's no big deal," he said. "I'll try next door." And off he went.

Here I should explain that I am Australian and Jenny is English, but our three children were born and raised in this village, and the villagers treat us like family. When our house burned down, by accident, nine years ago, our neighbors collected close to $13,000; insisted that we accept it, along with old clothes, dishes, pots and pans, and a typewriter for me to get back to work on; found us the house where we now live; and generally made it clear that they wanted us to stay among them. As other villagers have hit trouble, we have slowly been repaying their bounty.

I stopped by later to ask our visitor what was going on. His new office, all glass and chrome, stands out among the old wooden houses on the village street. "We don't usually keep cash over the weekend," he explained. "I was afraid that someone would try to take money out this morning, the word would get round that we couldn't pay, and in an hour we'd be cleaned out."

It didn't happen, but an hour later a neighbor called us with some breathless advice. "If you have any money in the Yokohama Bank, take it out," our caller advised. "They'll be the next to go." Jenny went down to take a look, and sure enough, lines of people were making withdrawals. It turned out to be just a rumor, but it showed how jumpy ordinary Japanese are getting these days.

I called a friend from Sydney, who is one of Tokyo's most successful currency traders. "We're expecting forty to fifty banks and insurance companies to go under, merge, or be taken over in the next few months," my friend said. "Good business for us, if we play it right." That night a banker friend of ours called from Geneva. "How's the mood there?" he asked. "If the Nikkei [the Tokyo stock index] drops below twelve thousand, the world economy goes bust." I checked the papers: the Nikkei, which touched 38,915 on December 29, 1989, was yo-yoing between 14,000 and 15,000. (It is since up.) New York in 1929 felt edgy and nervous, old-timers say, just as Japan does in the spring of 1998.

Next I did a mood check at our village post office. I am there most days, posting letters, but mail delivery is not its main business. Japan has 24,638 post offices, big and small, which also accept savings and offer insurance policies. A flashing sign over the counter showed the day's interest rates: 0.25 percent for deposits held for a year, 0.455 percent for those held for five years. Despite these microscopic rates, I saw our gray-haired neighbors paying in thick wads of cash, the yen equivalent of $10,000 or so at a time, to be rewarded with a low bow from the postmaster (an honored man in our village) and a packet of tissues, as a small, friendly gift. Money has been pouring into postal savings since the crisis began, last year, and the system now holds, with insurance and pensions, the yen equivalent of $3 trillion -- enough to pay off three fifths of America's national debt. It is by far the biggest (and most stagnant) pool of capital in the world. Japanese savings in banks and the post-office system have been said to be two thirds of all the money readily available to lend to our indebted planet.

With that majestic Mount Fuji of all-but-free capital, how can Japan be in economic trouble, and why is it not rescuing the rest of Asia? Well may we ask. That Japan's crisis is deep is obvious, even in our sleepy village. For months doom has crowded the Japanese media: first a major bank on the northern island, Hokkaido, collapsed, then one of Japan's "big four" stockbroking firms, and then another bank. Almost every day a new case has surfaced of corruption in the heart of Japan's national administration, with payoffs to gangsters and crooked politicians, and lavish wining and dining of top Japanese bureaucrats and ex-bureaucrats, who increasingly resemble the terminally corrupt nomenklatura of Soviet communism's last days. Exports are soaring, but Japan's economy has paradoxically gone into deep recession. As the Bank of Japan delicately puts it, "A prominent recovery in final demand is hardly foreseeable." The Finance Ministry has confessed that Japanese banks hold bad loans worth a confidence-crushing 76.7 trillion yen ($614 billion), proportionally ten times as much as America's savings-and-loan failures cost.

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