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Yohei Sasakawa
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Japan Should Lead the Way Toward Practicing Public Interest Capitalism (2) [2020年03月18日(Wed)]
Business Communities Reluctant to Raise Wages

I have no objection to raising compensation for senior company executives in Japan, which is said to be lower than in the United States and western Europe. But while Japanese companies’ internal reserves hit all-time highs almost every year and executive compensation keeps rising, why do employees’ wages remain stagnant in contrast to other developed countries?

As a rule of thumb, internal reserves are supposed to pay dividends to shareholders, make capital investments, and raise employee wages. Regrettably, Japanese companies have been reluctant both to raise worker wages and make new capital investment, despite the government’s call on the business community to do so.

I understand companies’ cautious attitudes are attributable to Japan’s rapidly aging society and declining population as well as their experience in wrestling with the fallout from the collapse of Lehman Brothers in 2008−the so-called “Lehman shock” that triggered a global financial crisis. But if so, companies are not taking on social responsibilities.

Konosuke Matsushita (1894-1989), the founder of Matsushita Electric Industrial Co., now known as Panasonic Corporation, and revered as the "god of management” in Japan, is famous for such quotes as “Business is people,” underscoring the importance of developing human resources.

Eiichi Shibusawa (1840-1931), known as “the father of Japanese capitalism,” who founded over 500 banks and business corporations, including the First National Bank (now Mizuho Bank), Tokyo Gas, Sapporo Brewery and the Imperial Hotel, developed his solid conviction that morality and economic activity are compatible−the doctrine that saw morality as an essential part of economic activity and stressed pursuit of the public interest. 

It is the mission of a company to value people and proactively work on virtuous business management for society. This is the tradition that Japanese companies have cultivated over the years. From this April, the principle of equal pay for equal work will be applied to large companies. I would hope that the business community will act proactively, working to narrow the income gap between regular and non-regular employees.

Companies’ internal reserves are after-tax revenues. So, there may be a lingering objection in the business community to imposing a tax on internal reserves, claiming that it would amount to double taxation and possibly encourage more Japanese firms to manufacture their products abroad. But if Japanese companies leave their internal reserves mostly untouched, it would give more reasons for a new tax on them. 

The Sense of Crisis Also Spreading in the U.S., Europe

In the United States and Europe, there is also a growing sense of crisis about shareholder capitalism, which has brought about excessive income gaps and serious environmental degradation. Prior to the annual World Economic Forum in Davos, Switzerland, in January, the NGO Oxfam International came up with a mind-boggling report revealing that the world’s 2,153 billionaires had more wealth than the 4.6 billion poorest people on the planet in 2019. I do not think that such a distorted society is sustainable.

High on the agenda at the Davos conference was how to redefine capitalism, and there was a strong call for switching to “stakeholder capitalism,” which values all employees, society and the environment.

At a time when shareholder capitalism remains dominant in the world, Japan still maintains stable employment compared to other countries. Japan, which values human resources and social harmony, should be in a position to lead the world toward having second thoughts about shareholder capitalism.

Public interest capitalism should be one of our goals. I sincerely hope that Keidanren (Japan Business Federation), comprising the nation’s 1,412 big business corporations, will take the initiative now to achieve this goal.

Posted by Y.Sasakawa at 09:00 | OTHERS | URL | comment(0)
Japan Should Lead the Way Toward Practicing Public Interest Capitalism (1) [2020年03月17日(Tue)]
While western-style shareholder capitalism is dominant in many countries, there is a growing interest in “public interest capitalism” in Japan. Different from shareholder capitalism and Chinese-style state capitalism, this is a new form of capitalism as advocated by Mr. George Hara, a venture capitalist and special adviser to the Japanese Cabinet Office, in his 2007 book, A New Inquiry 2.0 into the Nature and Causes of the Wealth of the Nations.

Unlike shareholder capitalism, which is focused on maximizing shareholder returns, public interest capitalism is the idea that a company’s role within society is to benefit all stakeholders, including not only shareholders, employees, customers and suppliers, but also communities and the nation where they do business.

Such an idea is deeply embedded in Japanese commercial traditions. The philosophy of sampo-yoshi (three-way satisfaction) means good for the buyer, good for the seller, and good for the community. By espousing the principle of sampo-yoshi, Japanese companies could go a long way toward practicing public interest capitalism.

Companies’ Internal Reserves Hit All-Time Highs

But at a time when globalism enjoys currency across the world, companies in Japan are apt to follow shareholder capitalism, resulting in a rapidly widening social gap. This is clearly reflected in the relation between companies’ internal reserves and employees’ wages.

According to statistics compiled by the Ministry of Finance, internal reserves of Japanese corporations in fiscal 2018 stood at 463 trillion yen, registering an all-time high for seven years in a row.

On the other hand, the Organization for Economic Cooperation and Development (OECD) reported that Japanese workers’ average per-hour wage declined 8.2% from 1997, and that the average real per-hour wage, after adjusting for inflation, fell 10%, making Japan the only country among advanced nations that saw wages decrease. This is a factor causing a persistent contraction of private consumption expenditure in the third largest economy in the world.

Besides, Tokyo Shoko Research said that there were a record 280 Japanese companies where executives earned 100 million yen or more in fiscal 2019, with the total number of such executives coming to 570, also a record. Meanwhile, the gap between executive compensation and workers’ wages increased for four straight years through fiscal 2018, when the pay gap ratio stood at 4.2 to 1.

As a result of repeated amendments to the 1986 Temporary Staffing Services Law, many more Japanese industries can now hire non-regular workers with lower wages than full-time workers. According to the Ministry of Internal Affairs and Communications, Japan’s non-regular workers in fiscal 2019 totaled 21.65 million, accounting for 38.3% of the nation’s total labor force, a sharp rise of 15 percentage points over 23.2% in 1997.

This has resulted in a wider gap between the wages of regular and non-regular workers, putting a lid on growth in the nation’s overall wages.

(To be continued)
Posted by Y.Sasakawa at 11:38 | OTHERS | URL | comment(0)