Loyola Consumer Law Review

Volume 11 | Issue 1 Article 4

1998

Consumerism in Japan: Rising Star or Setting Sun?Thomas Flannigan

Amada Andrews

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Recommended CitationThomas Flannigan & Amada Andrews Consumerism in Japan: Rising Star or Setting Sun?, 11 Loy. Consumer L. Rev. 22 (1998).Available at: http://lawecommons.luc.edu/lclr/vol11/iss1/4

FEATUREARTICLES

Consumerism in Japan:Rising Star or Setting Sun?

by Thomas Flanniganand Amanda Andrews

Dazai Osamu,' founder of theJapanese taiyouzoku ( "Sun-Tribe")school of literature, is a householdname in Japan. While Japan rose fromthe devastation wrought by World WarII and began rebuilding a prosperoussociety, Dazai and his followersscorned Japan's new-found affluenceand urged a return to traditionalJapanese values of thrift and hardwork.2 The Japanese people have sincerallied around both Dazai's teachingsand his suicide, his ultimate protestagainst Japan's westernization andrapidly rising materialism. This idea ofself-sacrifice is still the central theme ofthe Sun-Tribe, as Danzai's followerscall themselves. Today, IshiharaShintaro, Japan's most popularpolitician and a loyal follower of theSun-Tribe, continues to preach restraintand frugality in sharp contrast to theprevailing ethic in other advancedindustrial countries.3

While much of the world haspromoted credit and free access toconsumer products, Japan has clearlymarched to the beat of a differentdrummer. Japan has not experiencedthe powerful force of the consumermovements that has shaped public

Thomas Flannigan has a Bachelorof Arts from Boston College and aMaster of Arts from the Universityof Chicago. He received his JurisDoctorate from DePaul University.Amanda Andrews received herBachelor of Arts from theUniveristy of California, SantaBarbara. She is a Juris Doctoratecandicate at the Illinois Instituteof Technology, Chicago-Kent.

policy in most of Japan's tradingpartners. Japan continues to maintaina powerful web of formal and informalrestrictions on consumer behavior thathas no exact parallel in any member ofthe OECD.4

Defying the Laws of Gravity

First-time visitors to Japan areusually impressed by the bustling,cosmopolitan nature of publiccommerce. Stores, some large, somesmall, seem to be everywhere, and areopen long hours. Advertising iseverywhere. Foreign trademarks, or at

220 Loyola Consumer Law Review Volume 11, number I

least those that appear to be foreign,are visible all over business districtsand shotengai, the lively shoppingstreets that adorn nearly everyJapanese neighborhood and town.Shops are usually clean and goods arebeautifully presented. The drab,smelly bazaars of the communist worldseem light years away. Japan appearsto be something of a consumer'sparadise.

To the contrary, the image does notmeet the reality. Shoppers who spendtime investigating almost any industrywill find that some rules of capitalismthat supposedly govern humanbehavior seem to have been caught in astate of suspended animation in Japan.Japan has the highest production costsfor cement and concrete in the world,yet is a net exporter of both items. Thelow cost producer of both products,Korea, has a negligible marketpresence in Japan, although Koreancement and concrete sell wellthroughout the world.

Beer is another puzzlement.Sapporo Beer, brewed in Tokyo, sellsfor 3 Hong Kong dollars (U.S. $.40) percan at the Pic N' Pack chain in HongKong, and .80 cents per can all over theU.S. In Tokyo, nearly every store andvending machine sells the identical canof beer for 230 yen (U.S. $1.80). Anopen capitalist system would quicklyimport Korean cement and Dutch beeruntil the local Japanese producers wereeither driven out of business or madeto become more efficient. In Japan, aninvisible hand, one quite different thanthe invisible hand envisioned by Adam

Smith, 6 seems to keep high costdomestic producers flourishing, andconsumers paying far too much for toolittle.

Japan has become famous for itshigh prices. The media has spreadstories of Tokyo stores selling 50 dollarmelons and 8 dollar apples. This is dueto Japan's heavily protected andterribly inefficient agricultural sectorwhich leads to high prices for basicproducts such as melons and rice.What is less obvious is how expensiveconsumer products manufactured inJapan are in Japan. In 1992, one of theauthors was in Manaus, Brazil, in theheart of the Amazon jungle, and met agroup of Japanese tourists laden withPanasonic VCRs and Sony stereoequipment. All of this equipment wasmanufactured close to their homes inJapan, yet they were able to buy suchequipment in Brazil at half the pricecharged in Japan.

Elsewhere in the world, goods aregenerally cheaper when purchasednear their point of production. InJapan, this supposedly universal ruleof economics has been discarded. Japanis the most expensive place in theworld to buy many Japanese products.Taggart Murphy, former partner ofGoldman Sachs who has resided inJapan for many years, providesanecdotal evidence of these highconsumer prices:

"Eight brussel sprouts cost 280yen (U.S. $3.29) or better than 41cents per sprout at my local store.Four grapefruit-type citrus calledhassaku run for 480 yen (U.S.

Loyola Consumer Law Review * 231998

$5.65), a liter of milk for 188 yen(U.S. $2.21), a head of lettuce for260 yen (U.S. $3.06) and two smallcod fillets 600 yen (U.S. $7.06). Ipay 3,300 yen in tolls to go somesixty miles on the expressway...Last summer, I tried my hand atgardening. A bag of fertilizer thatin the states would go for $4 costs3000 yen (U.S. $35.29). ',

Explanations for this phenomenonare specious at best. Some point to the"inefficient" distribution system.8 Thisdoes not provide a plausible explanation.If the Japanese distribution system wasat the root of the problem, retail pricesof Japanese goods sold abroad wouldalso be high, because at least some ofthe high transaction costs would beadded to the product before it leftJapanese shores. In fact, the opposite istrue. Japanese auto parts, cosmetics,beer, film and a host of other productssell for lower prices abroad than inJapan. Classical western economics,and western consumer movements,offer little help in explaining thisphenomenon. While appearingwestern and consumer-friendly, Japanhas actually bent Adam Smith'sinvisible hand to favor producers andnational goals, rather than the interestsof consumers. The end result involvesa system that defies the laws of gravityas calibrated by western economists.The end result also mandates that theJapanese consumer often subsidizesexports by paying high domestic pricesfor Japanese goods. Whether theJapanese consumer ultimately benefitsshould be carefully considered. But

first, the the origins of the currentJapanese system must be considered.

Early Contact with the West

Japanese civilization evolved underthe influence of China, in isolationfrom European civilization. Europeansfirst came into regular contact withJapan in the 16th century. By this time,Japan had already become a highlydeveloped nation. Accuratecomparisons are difficult, but somehistorians believe Japan had the 3 rd or4 th highest GNP of any nation in theworld by 1600. The literacy rate anddevelopment of its economy comparedfavorably to all but a few Europeannations.9

Japan severed almost all contactwith Europe in 1609, at the beginningof the sakoku jidai, or period ofseclusion. Japan's only contact withEurope was through a Dutchconcession on the man-made island ofDejima (advanced island), in the harborof Nagasaki. The Dutch tradersisolated on Dejima were generally notallowed ashore. Japanese who had anycontact with Europeans or otherwesterners outside of Nagasaki wereeither put to death forced to live a lifeof exile due to the contact withwesterners. 0

Two hundred and fifty years ofseclusion ended when an Americanflotilla, commanded by CommodorePerry, reached Edo (Tokyo) in 1852,demanding that Japan open to theWest. When Perry's kuroifune (blackships) 1 returned the following year,Japan's elite felt they had no choice but

24 * Loyola Consumer Law Review Volume 11, number I

to accede to Perry's demands.Diplomatic relations and trading postswere established, and Japan begantrading with the West.

The terms of trade with the west,including Japan's tariff rates, were setby America and Europe. Japan wasforced to sign a series of humiliatingtreaties which provided that westernnationals resident in Japan were notsubject to the laws and courts ofJapan. 2 The legacy of these "unequaltreaties" as well as chronic tradedeficits with North America andEurope, enforced the earlier Japanesereticence of trading with the west.

In spite of these misgivings, Japanenjoyed a period of prosperity.Between 1853 and 1923, Japanmodernized at a remarkable rate.Japanese elites assimilated much of thetechnology from America and Europe.Japanese silk and light manufactureswere exported around the world, andforeign products became increasinglycommon on Japanese shelves. Mogos(modern girls), and mobos (modernboys), youths dressed in westernfashions sported by flappers inAmerica, roamed the streets. Towestern observers, Japan appeared tobe evolving in the direction of awestern, consumer-driven economy.

Japan Changes Course

This period of prosperity andrelative openness to the west endedabruptly on September 1, 1923, when amagnitude 8.2 earthquake struckTokyo. The resulting fire and chaoswiped out 40 per cent of Japan's GNP

and killed 144,000 people. During theaftermath of this tragedy, known as theKanto Dai Shinsai (Great KantoEarthquake Disaster), Japan lookedinward and began to establish newpolicies governing foreign trade.Japanese were urged to buy Japaneseproducts and to conserve resources inorder to rebuild the nation.

This effort was spearheaded by theMinistry of Munitions, a governmentalbody now known as the Ministry ofInternational Trade and Industry("MITI"), an agency without an exactcounterpart in the United States. In1925, The Ministry of Munitions beganimplementing policies that favoredproducers, especially producersattempting to crack foreign markets.MITI encouraged the acquisition offoreign technology and discouragedthe importation of foreignmanufactured goods. These policies ofeconomic nationalism paid offhandsomely; Japan recovered from thedevastation of the Kanto Dai Shinsaiand its economy boomed, even aswestern economies were collapsingduring the Dai Fukyou (GreatDepression) of the 1930's.

Unfortunately, Japan also adoptedmilitaristic policies that culminated ininvasions of much of East Asia andSoutheast Asia, and its ultimate defeatby the Allied forces in World War II.Japan had many national slogansduring World War II, but one of themost enduring was HoshigarimasenKatsu Made Wa (We won't ask foranything until we have won). Japan,which manufactured 8 tons of steel in

Loyola Consumer Law Review * 251998

1940 knew that it could only hope todefeat the United States, whichproduced 80 tons of steel the sameyear, if it worked harder and made asuperior sacrifice. Japanese consumersendured far stricter levels of rationingand material hardship than consumersin the U.S. or Europe, and this sacrificecontinued throughout the war. Eventhis level of sacrifice was not enough.

Power in the Ministries

The Allied Occupation of Japan didnot break the power of the eliteministries vested with enormouspower and discretion in regulatingnearly every aspect of the Japaneseeconomy. Various governmentministries, such as okurasho (Ministry ofFinance) and MITI recruit each year 20to 30 of the brightest graduates ofTokyo University, especially graduatesof the elite law faculty. These graduatesgenerally stay with the ministry formost of the rest of their working life,toiling long hours for modest salaries.They generally are not corrupt andmake their decisions based on theirperceptions of the Japanese nationalinterest.

When each ministry elects a newjimu jikan (vice minister), roughly everytwo years, all bureaucrats older thanthe new vice minister must resign andare placed in prestigious, high-payingjobs in the companies they wereformerly regulating. This process,know as amakudari (descent fromheaven) assures a close relationshipbetween the ministries and the privatesector.

For the second time in 25 years,Japan was faced with the necessity ofrebuilding its economy, and theeconomic nationalism fostered by theprewar Ministry of Munitions wascontinued by MITI. These policies,including protectionism, were fullysupported by the Allied Occupationforces. Americans licensed or gaveaway technology, encouraged Japaneseeconomic development, and opened itsmarket to Japanese manufactures.American and Japanese expertsrewrote the Japanese tax code, hopingto stimulate savings and investmentand discourage consumption. Theentire nation of Japan worked andsacrificed as never before. America'sleading expert on Japan, ProfessorChalmers Johnson, noted

In 1945, amid the ruins of Osaka, agroup of businessmen lamented toan American observer that themilitarists had 'started the wartwenty years too soon.' Althoughthe figure should probably bemore like forty years than twenty,it is nonetheless true that fromabout 1941 to 1961 the Japaneseeconomy remained on a warfooting. The goal changed frommilitary to economic victory, butthe Japanese people could nothave worked harder, saved more,or innovated more ruthlessly ifthey had actually been engaged ina war for national survival, as infact they were. And just as anation mobilized for war needs amilitary general staff, so a nationmobilized for economic

26. Loyola Consumer Law Review Volume 11, number 1

development needs an economicgeneral staff. The men of MCI,MM and MITI had been preparingto play this role since the late1920's. During the 1950's, thetrumpet finally sounded.13

By the time of the Tokyo Olympicsin 1964, Japan had clearly rejoined theranks of advanced industrial nations,and the rationale for continuednational sacrifice had becomeoutdated. To paraphrase the oldslogan, Japanese consumers could askfor material things because they hadindeed won the battle to rebuild Japan.However, Japan continued to promotea doctrine of sacrifice towards nationalgoals of economic development. In the1960s, MITI issued one of its periodic"white papers" which predicted thatJapanese per capita income wouldsurpass per capita income in theUnited States by 1988.4 At the time, itseemed to be a hopelessly optimisticprediction. Japan indeed surpassed theU.S. in per capita GNP one year earlierthan predicted, in 1987. In the samedecade, Japan passed the U.S. in steelproduction and automobileproduction. By 1993, more than one-half of all private savings in the worldwere held by Japanese citizens orcompanies. 15

Japanese consumers shared in thisspectacular economic advance, but notto the extent that consumers in otheradvanced nations had shared in thenational bounty. Japanese workerscontinued to slave long hours, living incramped housing, and paying some ofthe highest consumer prices in the

world. Compared to the consumers ofother nations, they continued to be acooperative and dedicated group ofpeople. They continued to sacrifice inways that the consumers of othernations would only sacrifice in time ofwar. When a consumer movement inJapan finally surfaced in Japan, itevolved in a direction radicallydifferent from consumer movements inNorth America and Europe.

Consumer Movement in Japan

Americans would generallyconsider consumer groups to bededicated to the interests of consumersin general or specific groups inparticular. Such organizations can beexpected to pressure governmental orprivate entities for disclosure,improved safety, or better prices. Theyare usually at loggerheads withgovernment or industry, or both. RalphNader has been criticized for manyfoibles, real and imagined, but he isgenerally not regarded as a tool of aninvisible power structure.

In contrast, consumer groups inJapan usually find their initiatives to beblunted or coopted to organize theirbehavior to conform to national goals.The Dutch journalist Karel VanWolferen noted,

Take, for instance the consumermovement. Middle-class Japanesehousewives are a potentiallyimportant political presence.Finding themselves withincreasing leisure, they havedeveloped an enthusiasm for

Loyola Consumer Law Review * 271998

neighborhood causes, and hardlya neighborhood today is withoutits fujinkai, or women's group. TheJapanese housewives' association,Shufuren, was one of the earliestpressure groups, established in1948 mainly to counter post-warblack marketeering. In the late1960s and early 1970s it joinedChifuren (an umbrellaorganization of a multitude offujinkai) in spearheadingconsumer campaigns that gave theimpression of a new kind ofpolitical activism. But after someminor successes, such as aregulation making it mandatoryfor manufacturers of canned fruit-juice, and a lowering of prices oncolor TV sets, its activism wasessentially blunted ... Eventhough in the late 1980s thenumber of consumer groups isestimated at almost thirteenthousand, and though Chifurenclaims a combined membership ofmore than six million housewives,their existence is hardly evernoticed. This is remarkable, giventhe wealth of justification foragitation afforded by the excessivemark-up for most items(particularly food).'6

Japanese consumer prices are thesubject of a certain degree of awethroughout the world. Tokyoperiodically tops the list of the world'smost expensive cities. Visitors areregaled with horror stories of twohundred dollar cab rides and thousanddollar restaurant tabs. What is less

famous is the uniformity of prices forbasic goods and services. A visitor toTokyo can spend the better part of anafternoon wandering through shopsand find beer, lipstick, rice andhundreds of other items selling foressentially the same price in everystore. Van Wolferen noted,

Most salary men are urbanconsumers, and it is they who,through relatively high amount ofsavings, subsequently channeledinto the keiretsu for capitalinvestments, have played a crucialrole in sustaining the economic'miracle'. It is they who in the late1980s were still subsidizingJapan's export industries by beingsystematically deprived of low-cost imports and by payingconsiderably higher prices thanconsumers in the westernindustrialized countries for almostall daily necessities. In most othercountries the rise of the middleclass upset and basically changedpolitical relations. In Japan such adisturbing influenced has beenminimized.

This consumer subsidy of exportindustries and the interests ofproducers can be found in manysectors of the Japanese economy.

Rice

Throughout the 1980s, the UnitedStates, Thailand and other nations wereprotesting against the Japanese ban onimported rice. The shufuren, orFederation of Housewives, became

28. Loyola Consumer Law Review Volume 11, number I

involved in this interminable struggle.Most Japanese married women do notwork outside the home, but exercisenearly absolute control over householdexpenditures. 8 Most keep a detailedlog of household receipts andexpenditures, and are judged, at leastby the ever-present mother-in-law, byhow efficient they are in marshalingassets and pinching pennies. At thetime the shufuren became involved inthe rice dispute, Japanese rice costnearly ten times as much ascomparable American or Thai rice.19

Consumers in general and housewivesin particular would normally supportreforms that would allow virtuallyidentical competing products to be soldto consumers at a small fraction of theprevailing and virtually uniform retailprice.

However, the shufuren opposedopening the Japanese market to foreignrice, and organized noisydemonstrations in favor of the ban.Most of the demonstrators resided inTokyo, far from the rice farmers whowould be hurt by the proposed reform.All of them knew that their precioushousehold ledgers would benefit fromthe competition provided by foreignrice. Yet they demonstrated against areform that would save them money.They perceived a greater priority thanhaving the cheapest basket of groceriesthis weekend.

Automobiles

When Toyota introduced its Lexusautomobile in the United States in1991, the Lexus was not sold in Japan

at any price. Even Toyota executiveswere forced to sign onto a waiting listbefore they could buy a Lexus. Whenthe auto was finally sold in Japan, thesticker price was nearly double thesticker price in the United StatesConsumer rebellion never occurred;many Japanese understood that theinterests of the Japanese consumer hadto be subverted to the export goals ofthe Japanese government. The Lexusautomobile was the Japaneseequivalent of the American spaceproject. Government and industrycooperated for years to acquire andperfect the necessary technology, andto mass produce an automobile asgood or better than any automanufactured in the United States. Theenormous sacrifices required continuedafter the Lexus was widely available inthe United States. The people whodesigned and built the Lexus could noteven buy one in Japan until an exportmarket had been established.

The Petroleum Industry

Japanese pump prices are thehighest in the world, with a gallon ofgasoline costing nearly $5.00. Japanimports nearly all of its petroleum, butother nations do the same and avoidsuch high prices. However, othernations normally have competition inthe form of American, English andDutch multinationals, that export andmarket refined petroleum products.Japan is one of the few nations in theworld to blunt this form ofcompetition.

There is no law or regulation

Loyola Consumer Law Review * 291998

banning the import of refinedpetroleum into Japan, but it isimpossible to accomplish. Section 12 ofPetroleum Industry Law ("PIL")required prospective importers tonotify MITI and to file plans.2 ° MITIwas given statutory authority to issue akankoku (formal request) to theimporter to change the plans.However, MITI could effectively banthe import of petroleum into Japan bymeans of gyosei shido (administrativeguidance).

This power is described by Sato Taijiin Ore Wa Tsusansho ni Barasaeta, ("IWas Butchered by MITI").2 1 Sato anentrepreneurial Japanese and presidentof Lions Oil, attempted to undercutretailers and import gasoline into Japanfor distribution to independentresellers, who could gain market shareat the expense of the established cartel.Sato initially bought gasoline on thedomestic spot market, while finalizingplans to import. Frank Upham,Professor at Boston College LawSchool, described the reactions toSato's consumer-friendly plans,

Local members of the gas stationtrade association organizedconvoys of cars to go to hisstation. Each bought Y500 (6dollars) of gas; demanded cleanashtrays, windshields etc.; andpaid with Y10,000 notes. They cuthis hoses, poured water in hisstorage tanks, blocked deliverytankers and harassed their drivers.When Sato complained to thepolice about the harassment,including the cutting of hoses and

insertion of water, they replied,'You're destroying order in theindustry. You're the problem. '22

Sato persisted in his plans to importgasoline from Singapore Petroleum.When a tanker carrying importedgasoline reached Kobe on December28, 1984, amid much media fanfare, itappeared that the domestic cartelwould finally be broken. However, thefinancing he had arranged wassuddenly canceled on January 4, 1985,and the tanker left Japan withoutunloading gasoline. MITI forced Satoto abandon his plans to importgasoline:

MITI also issued a statement inwhich it reiterated the threat tonational security posed by Lions'actions and promised to apply itskankoku not only to the case beforebut also to any future instances ofgasoline importing. As for thegeneral propriety of unrestrictedimports, MITI noted that thearrival of foreign goods in Japaneseports without any priorconsultation would be 'regrettable'... The kankoku was clear andunequivocal and, should it beviolated again, resolute and sternenforcement measures would betaken. There was, not surprisingly,no mention of what such measureswould be or on what legal basisthey would be taken.23

MITI was able to stop importationof gasoline without triggering aconsumer rebellion. It is difficult toimagine such a scenario in other

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members of the OECD. Cheaperimports are usually praised as a benefitto consumers and a stimuli fordomestic producers to become moreefficient to match the foreigncompetition. Efforts by an OECDgovernment to restrict imports wouldnormally require legal authority, andsome modicum of due process,whether in the form of an anti-dumping complaint or customsregulation. In Japan, MITI and othergovernment agencies are vested withbroad authority to act for the perceivednational interest. Administrativeguidance is more powerful than many,if not most, laws.

Interestingly, Japanese consumerswere not always so cooperative. Priorto World War II, Japan was the site ofsubstantial consumer unrest. Theinfamous "Rice Riots," 24 violentdemonstrations against highcommodity prices, tarnished Japan'simage abroad. Until World War II,Japan was often regarded as a nationwith rebellious consumers. LosingWorld War II, with concomitantprivations, changed the social contract.Since most Japanese were impecuniousin 1946, there were few vested intereststo overcome in implementing nationalpolicies favoring economic developmenteven at the expense of personalsacrifice. Most Japanese believed thatpersonal sacrifice was essential forrebuilding Japan. 25

Peer Pressure

Long working hours provide anadditional restraint on consumption.

Workers who spend long hours in afactory or office, as well asinterminable commutes on packedtrains, often lack the time or inclinationto indulge in excess consumption.Nakamura Masanobu, managingDirector of the Daiwa Institute ofResearch, provided a tongue-in cheekillustration of this phenomenon,

For a long-term solution tobilateral trade imbalance, U.S.pressure should be more socialthan economic. I would adviseU.S. Trade Representative CarlaHills to ask her Japanesecounterpart before a negotiatingsession: 'By the way, how manydays did you take off last year?' Ifthe answer is less than five, sheshould say, 'It's no use negotiatingwith you. You have no personalfreedom and you don't evenrealize it.' Why talk about freetrade with someone like that?Holidays and trade are related. Aperson who is legally entitled to avacation but cannot take itbecause of custom or peerpressure will find extralegal waysto limit U.S. imports.26

Japanese interested in leisureactivities face a host of barriers thatdiscourage all but the most intrepid.Expressways are rare and saddled withhigh toll charges. Public transport,although plentiful and run withprecision, tends to be extremelycrowded. Once a person has arrived athis or her destination, infrastructure inleisure facilities is woefully inadequate.

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Ski slopes, swimming pools and tenniscourts are packed to capacity andbeyond. Golf Courses are so over-utilized that many enthusiasts must getup at 3 A.M. to take advantage of pre-dawn tee times under klieg lights. Theever-present high prices discourageprofligate shopping.

Savings Before Consumption

Japan ministries, including but notlimited to MITI, have implemented aseries of policies that discourageconsumption and encourage saving.Almost every Japanese household tookadvantage of a program which enabledindividuals to open a savings accountat the government-sponsored postalsavings banks. Interest on theseaccounts was exempt from taxation solong as the account's balance did notexceed the equivalent of $10,000. Theplan was so successful that Japaneseopened multiple accounts at differentinstitutions. By the mid 1980s therewere more of these accounts than therewere people in Japan. During the sameperiod, the United States taxed interestincome under Section 61 of the InternalRevenue Code. Japan encouragedsmall savers with tax breaks while theUnited States discouraged savings bytaxing interest income.

The U.S. Government did notinterfere with the private sector whenit promoted issuance of credit cards tovirtually any U.S. resident, includingthose who had declared bankruptcy. InJapan credit cards were banned by theMinistry of Finance. When credit cardswere finally allowed, complex

regulations prevented popularacceptance. In 1998, it is still difficult toobtain a credit card. Taggart Murphynotes:

Until the 1980s Japanesehouseholds had effectively nooption for financing majorexpenditures except for savings.Credit cards, installment planfinancing for consumer durables,and other forms of consumercredit all were stymied in order toencourage saving at every point. AJapanese colleague in the late1970s told me that when heresigned from a major Japanesebank to join Bank of America'sTokyo office, where we both wereworking, his credit card hadpromptly been revoked. This wasa married man with plenty ofmoney and a good job. HisAmerican counterpart would havehad to throw away ten pounds ofjunk mail a month offering creditcards and other inducements tospend .27

By contrast, U.S. Government policyencouraged profligate consumption oncredit. Until 1986, heavy use of creditcards provided a tax benefit sinceinterest on credit card debt could beutilized as an itemized deduction onSchedule A. In Japan, savings wereencouraged while savings were beingdiscouraged in the United States At thesame time that Japanese consumershad difficulty getting access toconsumer credit by use of credit cards,American consumers who acquiredlarge credit card debt paid lower taxes

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than consumers who stayed out of debtby limiting their consumption.

Consumption Patterns and SeniorCitizen Policy

Japan and the United States facefiscal difficulties due to the costsassociated with aging populations, buttheir approaches to these impendingcrises have been quite different. Effortsto slash the costs of Medicare byrequiring affluent senior citizens to paya greater percentage of Part B costs in1995 triggered protracted conflictbetween President Clinton and HouseSpeak Newt Gingrich that shut downthe operation of the U.S. Government.In Japan, a new source of revenueshouhizei (consumption tax) wasimplemented in 1994 with nonoticeable protest on the part ofconsumer groups. Nearly alltransactions were subjected to a valueadded tax of 3 per cent, which hassince been increased to 5 per cent.Every consumer in Japan was forced toshoulder the burden of paying forfuture social security costs.

Every nation has budgetaryproblems and Japan is no exception tothis rule. However, Japanese budgetdecisions are normally made with aneye towards the future and care of theyoung. Income enhancement or spoilsfor the seniors are low priorities.Funding is lavished on schools andinfrastructure for the young. Tax codesfavor stay-at-home mothers and back-to-work grannies. Senior citizensdiscounts are rare. Most prices and tax

rates are equally applied to all agegroups.

Japan has produced a system thatfavors the young at the expense of theold, and has produced a generation ofyoung Japanese who are bettereducated and more productive thantheir parents and most of their youngcounterparts in the United States. Thesacrifice of Japan's elderly, the result ofdeliberate government policies, hasproduced spectacular dividends for thenation. Japan's national wealth andprestige have risen in tandem with thesoaring literacy and productivity of theyounger generation.

The situation is very different in theUnited States. The United States,goaded by powerful pressure groupssuch as the American Association ofRetired Person ("AARP"), hasproduced a system that favors the oldat the expense of the young. "Retired"individuals, many of whom continueto work and accumulate capital, aregiven discounts on virtually everygood and service traded in the UnitedStates. State, local and federal taxregimes are rigged to assure thatseniors pay far less than the young.Americans over the age of 65 areexempt from the punishing 15% SocialSecurity withholding. Ninety per centof American workers under the age ofthirty pay more in Social Security thanin federal tax, and know they willnever get this money back. One recentpoll found that more X Generationrespondents believed in UFOs thanbelieved in receiving any payback fromSocial Security.

Loyola Consumer Law Review * 331998

Today's seniors routinely take outten to fifteen times as much in SocialSecurity and Medicare benefits thanthey paid into the system, adjusted forinflation. More than two millionimmigrant seniors receive free Part AMedicare benefits without ever havingpaid into the system. Meanwhile, fiftypercent of Americans between twenty-one and twenty-five years old werewithout health insurance at some pointin 1995, although most dutifully paidfor Medicare benefits for the elderly.

While American seniors areenjoying an unprecedented era ofprosperity and consumption, fueled bya web of tax breaks, subsidies anddiscounts, Japan's seniors continue topay the same high prices otherconsumers must pay for goods andservices. Many continue to work longhours and take less out of the economythan they put in. Even though theirgeneration has essentially "won" thestruggle to rebuild Japan, Japan'sseniors are a remarkably quiescent lot,and ask for very little in the way ofmaterial rewards.

Antitrust in Japan

The ultimate weapon in favor of theconsumer in the United States is thevery real threat of the U.S. governmentsuing large companies, such as IBMand Microsoft, if they become toopowerful in the marketplace. Japanalso has antitrust laws and anenforcement agency, the Japan FairTrade Commission, ("JFTC").However, Japanese antitrust laws andthe JFIC are radically different from

their counterparts in the U.S.Japan never enacted its own

antitrust laws until it was forced to bythe Occupation. This legislation28 wasenacted at the behest of the SupremeCommand of the Allied Forces ("SCAP")to break up the zaibatsu (money gangs),that had been instrumental in Japan'swar effort. Huge combines such asMitsui, Mitsubishi and Fuji, operated acentral, bank, steel company,housewares company, and so on, undercentral ownership and control. Eachzaibatsu resembled a parallel economy,but competed against other zaibatsu inJapan's domestic economy. Throughoutthe 1930s, the Ministry of Munitionshad encouraged the development ofeach group in preparation for Japan'swar effort in Asia and beyond.

After the war, SCAP reasoned thatthe concentration of economic powerin a few hands was anathema to itsgoals. The SCAP officials probably didnot have the interests of Japaneseconsumers at heart, but they draftedand forced Japan to pass 29 legislationmodeled after the Sherman AntitrustAct 3 0 in the U.S. The watchdog JFTCwas patterned after the Fair TradeCommission ("FTC") in the U.S.

Japan obediently enacted theAntimonopoly Laws, but did little toenforce them. In fact, the JFTCappeared to pursue policies thatcontravened the competitive intentunderlying antitrust laws. The JFTCdid nothing as MITI reorganized thezaibatsu into keiretsu (related line)groups of companies. With the keiretsu,no holding company owned a majority

34e Loyola Consumer Law Review Volume 11, number I

of the voting shares of all thecompanies in the group. However,cross-shareholdings between membercompanies, often coordinated by asingle large bank, accomplished manyof the same objectives of the originalzaibatsu. The new organizations weretermed shinkon zaibatsu (newly-marriedmoney gangs). The free-trade SCAPofficials were placated, and MITImaintained much of the authority overthe Japanese economy it had enjoyedprior to World War II.

Professor Mark Tilton of PurdueUniversity noted,

The Japanese Antimonopolysystem differs from the U.S.system in that all antimonopolylaw is embedded in one law.While enforcement in the U.S. isshared by the antitrust division ofthe Justice Department and theFederal Trade Commission, inJapan it is concentrated in anindependent FTC. Thisindependence and completeauthority might have made theFTC very powerful; but onceSCAP's production was lost at theend of the occupation, thecentralization of authority made iteasy for opponents of the law tolimit enforcement by simplycontrolling a single institution. Inaddition, it is still very difficult fora private party to bring anantitrust suit .... Therefore theFTC always acts as both judge andprosecutor. According to FujiwaraIchiro, a former MITI official, thisdual role presents a problem

because the Japanese areuncomfortable with thelitigiousness of theAntimonopoly Law. The FTCtherefore avoids spendingexcessive time and expense oncases in favor or discussion andcompromise. Nevertheless,such a cultural argument isunnecessary for explaining theFTC's weakness. Its lack ofpolitical support is due to thehistorical association of cartelswith development andconsiderable obstacles tobringing suit within the legal

31system.

The JFTC has proven to be asilent watchdog when it comes toenforcing consumer rights. The JFTChas brought very few price-fixingcases and has imposed token fines inthe cases that involved penalties.Since private citizens cannot bringantitrust suits in Japan and the JFTChas done so little to enforceconsumer rights, this avenue forconsumer protection has largelybeen closed.32

Propsects for the Future

Japan ended a remarkable periodof economic growth in or aboutJanuary, 1990, when the Tokyo StockExchange retreated from recordhighs, and the Japanese financialsystem became severely burdenedby nonperforming loans extendedduring the "bubble economy" of the1980s. By 1998, the financial

Loyola Consumer Law Review 0 351998

retrenchment had taken its toll with thebankruptcy of Yamaichi Securities Co.and many smaller firms. This period ofretrenchment spawned somespeculation that Japan's days ofsuccess through state-guidedcapitalism were over.33 Many reasonedthat the Japanese system that hadproven so successful in restrainingconsumer demand and channelingcapital and resources into exportindustries would have to reform inorder to extricate itself from financialruin. Much of this commentary wasexcessively pessimistic. Foreignobservers essentially discounted theviability of the Japanese system duringthe oil crisis of 1973, the second oilshock of the early 1980s, the endaka(High yen) period from 1988 to 1994,and again during the financialupheavals of 1997 and 1998. Suchpessimistic prognostications provedfalse in the past and may well prove tobe false in the year 2000 and beyond.During the supposed collapse in theJapanese economy between 1992 to1998, Japanese companies increasedworld market share in a host of keyindustries, including shipbuilding andautomobiles4

Although Japanese citizens andcompanies sustained financialhardships after the collapse of thebubble economy, there has been nosignificant change in the organizationof the Japanese economy that wouldincrease the power of consumers orconsumer groups in formulatingpolicy. Power continues to reside in thebureaucrats, who have shown scant

inclination to serve the interests ofconsumers. Japan's domestic pricescontinue to be extremely high.Incentives for consumers to save anddisincentives to consume remain inplace. Change is likely to come slowly,if it comes about at all.

Conclusion

The spirit of national sacrificeembraced by followers of DazaiOsamu may seem anachronistic in1998, to foreign observers as well asthe Japanese themselves. However,many of the bureaucrats still believe inthe old time religion, and show noinclination in relinquishing the powerthey have to regulate the Japaneseeconomy and consumer behavior. Fortheir part, Japanese consumers havecontinued to be a remarkablyquiescent lot, remaining silent duringthe imposition of the consumption tax,and continuing to pay excessive pricesfor most basic goods and services. Thelong-forecast consumer rebellion thatwill discard the doctrine of self-sacrifice in favor of greater consumerrights has still not materialized. Until itdoes, Japanese consumers seemgrudgingly content to ask for verylittle and allow the bureaucrats to manthe helm.

Endnotes

I Throughout this text Japanese nameswill be rendered in the Japanese style, withthe surname first and the given namesecond. Thus, Dazai is the family name andOsamu is the famous author's given name.

36* Loyola Consumer Law Review Volume 11, number I

2 Dazai's moment of fame came withthe publication of his epic novel "The SettingSun." DAZAI OSAMU, THE SETTING SUN

(Donald Keene trans., 1956).

3 No to Ieru Nihon (The Japan That CanSay "No") Tokyo Kappa Homes 1989.

4 Organization for EconomicCooperation and Development. Japanacceded to this elite group of rich nations inthe late sixties. HERBERT GLAZER, THE

INTERNATIONAL BUSINESSMAN IN JAPAN 28-30(1968).

5 MARK TILTON, RESTRAINED TRADE:

CARTELS IN JAPANESE BASIC MATERIALS INDUSTRIES

80-83 (1996).

6 ADAM SMITH, THE WEALTH OF NATIONS

(London, J.M. Dent & Sons 1981).

7 TAGGART R. MURPHY, THE WEIGHT OF

THE YEN 93 (1996).

8 KAREL VAN WOLFEREN, THE ENIGMA OF

JAPANESE POWER 393 (1989). Van Wolferenexamines the distribution system in Japanand reaches this conclusion: "Thedistribution system is not complicated. It isrigged". Wholesalers and retailers are oftenowned by keiretsu (related groups ofcompanies), that have an incentive to keepretail prices and profit margins as high aspossible.

9 See DAVID BERGAMINI, JAPAN'S IMPERIAL

CONSPIRACY (1971).

10 See FRANK LEQUIN, THE PRIVATE

CORRESPONDENCE OF ISAAC TITSINGH (1992).

11 "Black ships" has remained a

common term in Japan, representingunwanted pressure from the west,

particularly America.

12 EDWARD J. LINCOLN, JAPAN'S UNEQUALTRADE 61-63 (1990).

13 CHALMERS A. JOHNSON, MITI AND THE

JAPANESE MIRACLE 241 (1982).

14 MITI issues regular Tsusho Hakusho("White Papers") concerning thedevelopment of the Japanese economy. See,e.g., Showa 38 Nen Tsugo Hakusho, SoronTokyo: Ministry of Finance Printing Office1963.

15 EAMONN FINGLETON, BLINDSIDE 1995;

See also CHALMERS A. JOHNSON, JAPAN: WHO

GOVERNS 1995.

16 Van Wolferen, supra note 8 at 52-53.

17 See id. at 174.

18 LEAL PHILIP, THE ROAD THROUGH

MIYAMA (1989).

19 Japonica rice, the strain of rice grown

in Japan and considered unique by manyJapanese gourmands, is cultivated in the U.S.and is a popular gift item for Japaneseresidents in the U.S. returning to Japan.

20

1962.Petroleum Industry Law, Law No. of

21 See Frank K. Upham, The Man WhoWould Import: A Cautionary Tale AboutBucking the System in Japan, 17 J. JAPANESE

STUD. 323 (1991).

2 Upham, supra note 21 at 328.

2 See id. at 333-34.

24 See Johnson, supra note 15, at 92.

Loyola Consumer Law Review * 371998

25 See CLYDE V. PRESTOWITZ, TRADING

PLACES (1988); IVAN P. HALL, CARTELS OF THE

MIND (1998).

26 Nakamura Masanobu, Confessions of

a Corporate Warrior, 1995 Japan PolicyResearch Instit. 132.

27 Murphy, supra note 7 at 95.

28 Shiteki Dokusen no Kinshi oyobi

Kousei Torihiki no Kakuho ni kan suruHouritsu [Law Relating to the Prohibition ofPrivate Monopoly and to Methods ofPreserving Fair Trade] Law No. 154 of 1947.

29 See KAWAI KAZUO, JAPAN'S AMERICAN

INTERLUDE (1960). See also PHILIP CURTIS, THE

FALL OF THE U.S. CONSUMER ELECTRONICS

INDUSTRY (1994).

See 15 U.S.C. § 1 et. seq.

31 Tilton, supra note 5 at 30-1.

32 See FRANK K. UPHAM, LAW AND SOCIAL

CHANGE IN POSTWAR JAPAN (1987); ELEANOR

HADLEY, ANTITRUST IN JAPAN (1970); JOHN OWEN

HALEY, AUTHORITY WITHOUT POWER: LAW AND

THE JAPANESE PARADOX (1991).

33

(1989).See BILL EMMOTT, THE SUN ALSO SETS

34 Defying the Odds, Japan ShipbuildersBeat Back Their Hungry Competitors, WALL ST.

J., Feb. 12, 1998, at A19.

38* Loyola Consumer Law Review Volume 11, number I