Japan Questions Economic Equality

By Michael Edrington--The Washington Post

Takuya Nagayoshi, 10, and her 12-year-old sister, Shiori, watch television in their family's farmhouse in one of the poorest regions of Japan.

Shiori Nagayoshi played a lovely piece of classical music on the piano next to the big-screen TV in her family's small living room. Her in-line skates and her $250 Nike sneakers -- a must-have item for a fashion-conscious 12-year-old in Japan these days -- were stashed by the door.

During the day, Shiori attends a brand-new junior high school, right next to the town's new $16 million community hall. She studies English on CD-ROMs in the school's state-of-the-art computer lab, and she listens to her favorite Japanese pop music on a CD player in her room at night.

And this is just about the poorest place in Japan.

This farming and fishing town at the southern tip of the main island of Japan has one of the lowest per-capita incomes of any place in the nation. In the island prefecture of Okinawa and in some other extremely remote islands, the figures are even lower. But Sata is near rock bottom on the main island, although you'd never know it from the comfortable life in the Nagayoshi family farmhouse, or in virtually any other house in this hilly seaside town.

U.S. leaders constantly struggle with the vast and divisive income gap between the United States' wealthiest and poorest citizens. The rich are getting richer and the poor are sinking deeper into poverty in what former labor secretary Robert B. Reich called a "chasm of inequality." The trend is a global one, with the United Nations reporting that the incomes of the richest 20 percent around the world grew three times faster than the incomes of the poorest 20 percent from 1960 to 1990.

But Japan has virtually no such income gap, and that is no accident. Almost all personal wealth was destroyed in World War II, leaving Japan's aristocrats and peasant farmers alike struggling for the same food scraps in the bombed-out ruins. From that starting point, Japan set out to rebuild itself as a land where everyone was equal. The national government established an aggressive system of taxing the wealthy and subsidizing the poor, hoping to eliminate the highs and lows and create a society where everyone was comfortably in the middle.

Astonishingly, that vision largely has come true. Only 2 percent of Japanese households have incomes of less than $16,000 a year, and only 2 percent have annual incomes topping $160,000. The vast majority are in the middle: Just over half of Japanese households earn between $35,000 and $75,000 a year.

Japan's average per-capita income last year was $31,886. The richest place in the country was Tokyo, where the average per-capita income was $35,200, and one of the poorest was Sata with an average per-capita income of $19,240 -- a relatively modest span between wealthy and needy.

"Modern Japan is almost neurotic in pursuing economic equality and has achieved it to a degree not achieved anywhere else," said Taichi Sakaiya, a prominent author and commentator on Japanese society, in his book "What Is Japan?"

The effect of Japan's relatively narrow income gap can be seen here in ways large and small. Only 1 percent of the population is on welfare. Public schools in every part of the country look alike, because the government guarantees parity right down to the books in the library. Japan has a 99.9 percent literacy rate.

Corporate titans have relatively modest incomes, resulting from a purposeful effort to prevent a gigantic divide between entry-level workers and the company president. Many American chief executives are paid millions. But according to a recent study here, the average chief executive at companies including Toyota and Honda earns about $300,000 a year.

The parity is obvious in almost any neighborhood in Tokyo. There are no equivalents here of exclusive Beverly Hills or desperate Bronx slums; things are more mixed. One branch of Japan's richest family, the Tsutsumis, lives in a fabulous walled compound in the Hiroo neighborhood of Tokyo. A few doors down, a working-class family sells cucumbers, tomatoes and milk from the door of their one-room house.

Japan does not have the permanent underclass that exists in the United States. Only 1 percent of births are to unwed mothers, drug addiction is rare, and families feel a strong obligation to provide for their own. The government's welfare system is a nearly foolproof safety net for the few who do fall between the cracks. Partly because few people are abandoned by family and society, Japan has one of the world's lowest crime rates.

"Japan is more of a semi-socialist society than a capitalist country," concludes economic analyst Kimindo Kusaka.

But the question now facing Japan is, can it, and should it, continue paying the price to maintain the equality it has built in the last 50 years? Already, economists say, the gap between rich and poor has widened slightly in recent years. And many argue that, if it is to jump-start its stagnating economy and remain competitive, Japan will have to adopt reforms that will create an income gap more like that of other rich trading nations.

"The smallness of the gap is a good thing, but it is being maintained at big expense," said Iwao Matsuda, a lawmaker in the opposition New Frontier Party, noting that many people are fed up with sky-high income and corporate taxes that are used to prop up poorer citizens.

Matsuda and many other critics argue that Japan no longer can afford lavish subsidies. In order to stay competitive in the world, especially as China emerges, Japan must scale back its massive central government, deregulate its economy and loosen the government grip on life here to allow market forces to work more freely, they say.

Matsuda said that means the government cannot continue to subsidize the poor through a 50 percent income tax on wealthy citizens or a 37.5 percent corporate income tax. They say Japan's 70 percent tax on inherited wealth also must go because it represents outdated and excessive government interference. That tax raises a bundle for the government, but it also forces families to sell their homes to pay the tax man when their parents die.

Many economists think Japan uses pork-barrel projects as a crutch. The massive amounts of money the government spends on public works and construction keep many people working. But many observers say that money would be better spent on new industries, factories or other investments that would generate income and far greater numbers of jobs.

"It's wasteful; that spending doesn't improve the efficiency of the economy," said R. Taggart Murphy, an American financial analyst.

Already, there are signs of cracks in Japan's system of wealth distribution, mainly due to fundamental demographic and societal changes underway here. Japan is rapidly becoming the world's oldest society, and all those elderly people need expensive medical care that is putting a huge strain on the national health insurance system.

The Japanese government does not have the cash it did in the "bubble economy" days that ended five years ago. The government is grappling with huge debts rung up by banks during the "bubble" days, and for the first time, it is allowing banks and credit unions to fail. The national railroad is billions of dollars in the red.

A small but increasingly visible number of homeless people live in cardboard boxes on the streets and in subway stations and some neighborhood parks. Beggars and bankruptcies, until recently viewed here as an American problem, are becoming more common.

Taken together, they mean Japan has less money for education grants, agricultural subsidies, public works projects and other programs designed to even out the distribution of wealth between cities and rural areas.

Just as important, the political landscape has changed. For almost 40 years, the Liberal Democratic Party held single-party rule in Tokyo, so it had virtually unlimited control over the national budget. That enabled the party to act as Japan's Robin Hood, collecting tax revenues from wealthy urban areas and distributing them to the poorer rural areas. In return, vote-rich agricultural Japan showed its gratitude with decades of support for the party's politicians.

But the equation has changed: The Liberal Democratic Party is still in control, but it no longer has a one-party lock on power. It shares power with several smaller parties, and the buzzword in Tokyo these days is reform: smaller government, less regulation, a more nimble economy where market forces are allowed to work.

Prime Minister Ryutaro Hashimoto, who is also president of the Liberal Democrats, is leading the reform charge. Skeptics say it is unlikely the party will carry out meaningful reforms, but supporters say it will have to if Japan wants to maintain its global competitiveness.

What it all means for places like Sata is unclear.

For decades, the government has provided in this beautiful seaside town. The town's annual budget is about $41 million, only about $2.5 million of which is raised through local taxes; the rest comes from the regional or national government.

Sata's two largest employers are town hall, which has about 90 people on the public payroll, and the Setoyama-gumi construction company, which keeps 130 full-timers and part-timers busy, mostly with public works projects.

The man most responsible for the government goodies is Susumu Nikaido, 87, a Liberal Democratic politician who represented Sata in the national parliament for 47 years before he retired last year.

Nikaido said he visited the United States in the 1930s and was amazed at President Franklin D. Roosevelt's extensive government programs to help workers through the Depression. When he returned to Japan, then a poor country on the verge of war, he set out to use the government as a tool to eradicate poverty.

"This is what I have demanded for 50 years," Nikaido said.

And it is what he has received, as illustrated by life in the Nagayoshi family farmhouse. They are fairly typical in Sata: a father who holds down an office job to supplement farm income, a mother who works on the farm, three kids in school and a retired grandfather who still gets up before dawn every day to feed the cows.

When Toshiharu Nagayoshi wanted to buy cows a couple of years ago, he got a $15,000 interest-free local government loan. When those cows have calves, Nagayoshi can sell them without paying tax on his earnings, thanks to sympathetic government regulations. To feed his cows, Nagayoshi purchased a new hay baler for about $15,000 -- half of which he paid for with a national government grant.

"Our family has worked hard, but that is minor compared to the national government's policies," said his wife, Kazuko Nagayoshi.

The possibility of the government retreating from its policies is terrifying to families such as the Nagayoshis. But the momentum of a changing world may be too strong to stop. Sitting at her piano, 12-year-old Shiori says she knows one thing for sure: She wants out of Sata; her future lies in the big city.

© Copyright 1997 The Washington Post Company