No Pain, No Gucci
Far East Economic Review
By David Kruger/TOKYO
July 12, 2001

A decade of economic stagnation has changed the country in many ways. But for most middle-class Japanese, recession is no cause for crisis

THEY LINED UP FOR HOURS, desperate souls camping on the streets overnight. When the time came, security guards let them in one by one through the heavy glass doors.

As Japan continues its march toward recession, each week brings more dismal economic news, more warnings of the difficult times that lie ahead. But the line snaking through Tokyo's tony Ginza district on June 28 was not in front of a government office providing assistance to the needy or unemployed. It was not in front of the latest discount shop offering cut-rate prices on daily necessities. This line hugged the newest outlet of French luxury retailer Hermes, an 11-storey, $137 million monument to high fashion, high society and high prices that conjures up memories of the free-spending days of Japan's bubble economy of the late 1980s.

"The products are expensive but if it's something you really want you should buy it," says Wako, a fashionably dressed thirty-something standing in line the next day with about 100 others waiting to enter the store. She's come, she says, in part out of curiosity, though she's ready to buy if something catches her eye. "These are high-quality products," says her friend Haruko, "and I can use them for a long time. It's expensive, but if I save in other areas I can afford it."

Not everyone's budget is so flexible. Masao, 52, runs his own importing company. Sales have plunged 33% in the past five years. Orders in his mainstay watch business are down almost 70% from three years ago. He's getting hit from all sides as consumers tighten their purse strings, his competitors cut prices and retailers drive harder bargains. "Profit margins are falling," says Masao, who once employed two staff but now runs the firm alone. To save money he has stopped eating in restaurants and has cut back on shopping. "I don't know about next year," he says. "Competition is fierce."

Life in Japan is not what it used to be. A decade of economic stagnation has changed the country in many ways. A university degree no longer reserves its owner a job at a top company. A job at a top company no longer means a job for life. Shopping at discount stores is now as fashionable as shopping at department stores once was. Companies are laying off more staff and pushing early retirement to cut costs. But they are still nowhere near as ruthless as in the United States. And neither is life in Japan as dismal as the headlines suggest.

Tumbling industrial production, falling business sentiment and plunging exports may keep economists and company managers up at night, but for most middle-class Japanese (and the vast majority of Japanese consider themselves middle class) the economy's slow decline remains more a matter of concern than a cause of crisis.

"The recession is not touching everyone equally or in the same way," says Mariko Fujiwara, research director at the Hakuhodo Institute of Life and Living, which studies public attitudes on a wide range of issues. "This recession has brought much greater disparity among Japanese people in general. Even in this recession some people are making a lot of money and in this recession some people have lost an awful lot."

Many people have been hit hard by the changes of the past decade. Land and home prices fell off a cliff in the early 1990s. Most people who owned homes at that time are paying off mortgages widely out of line with the value of their homes today. Unemployment has more than doubled since 1990. On June 29 the government said the unemployment rate rose again in May to 4.9%, matching its record high set in December and January. Just under 3.5 million people are out of work. Tokyo now has 5,700 homeless people, almost double the figure five years ago, according to the metropolitan government.

Yet the fact that such data causes alarm is more a reminder of how high Japan had climbed by the end of the 1980s than an indication of how far it has fallen since. After 10 years of flat growth, Japan remains the second-largest economy in the world. Its population is among the richest. Unemployment is the second lowest among Group of Seven countries; the number of homeless is a fraction of that in the United States.

"Today's picture of Japan doesn't really present a typical recession or disaster economy using the global standards," says Yotaro Kobayashi, chairman of the Japan Association of Corporate Executives. "We continue to be relatively comfortable and rich and therefore it is very difficult to drive people to change their lives," as some observers say is needed if Japan is to remain competitive in the global economy.

As Prime Minister Junichiro Koizumi and his team put their reform plans into action, many people may not have a choice. Between 130,000 and 190,000 people could lose their jobs as the government pushes banks to write off their most serious bad loans over the next two to three years, according to the Cabinet Office. Some private economists and think-tanks expect the figure to top 1 million. The Cabinet Office said that up to 600,000 people would be forced to change jobs.

For many Japanese, though, the bleak news and projections of pain to come amount to little more than a nagging concern, rather than a cause for a drastic reorganization of their lives. "Most people still think unemployment is something that happens to other people," says Mariko Kurokawa, a 33-year-old former bank employee who now spends her days taking baking lessons and keeping track of her two children.

One recent afternoon, as the children played video games and chomped on cookies, Kurokawa and other mothers of children at the local kindergarten chatted about how their lives have changed in the past few years.

Ryuko Arai, a 38-year-old housewife whose husband teaches high school, says she now hears more stories of people falling on hard times, and that one of her friends is always worried about her husband losing his job. But Arai's husband's salary has risen each year and she hasn't adjusted her spending on account of the country's economic woes. "My life has changed but it has been a gradual change," she says. "I don't feel that it is any worse now than it was 10 years ago."

Hatsue Hasegawa, a 43-year-old housewife, says times are tough at the local mall where her family runs a shoe shop and real estate agent. In the past month three of the mall's 50 stores closed down, and new tenants have not moved in.

How has the slow economy affected her family? One of the golf courses at which her father had a membership went bankrupt. Another membership is worth just half its previous value. Her brother-in-law, who works at a construction company, saw his bonus fall this year.
Hasegawa's greatest worry, however, has nothing to do with the economy or her own financial situation. She has safety on her mind: "In the past Japan was a safe country but now the number of people without morals is rising."

Fujiwara at the Hakuhodo Institute says many people feel a general sense of decline in the country (see chart). "If what we see as Japanese strengths are seen to be deteriorating, that is quite devastating," she says. "For example, the general safety of the society is being challenged right now by horrible crimes." In the most recent tragedy to stun the country, on June 8, 23 people were stabbed at an elementary school near Osaka; eight children died. "That sort of thing has been much more on the ordinary people's mind than the economy."

In a small pharmacy on a quiet street just a few minutes from the bustle of Tokyo's Shinjuku entertainment district, Keiko Higuchi, 54, isn't doing booming business, but she never did. Sales are flat but profits are steady. Higuchi's husband is a salaryman and their daughter works for a large cosmetics firm. "If you look from outside Japan maybe it seems like there is a crisis," she says. "But I don't feel like there is a crisis . . . Of course, people who are affected by factory closures and that kind of thing are worried about the future, but those things don't have much impact on my life."

Up the street, Koichi Takayama's small grocery business has been squeezed as the weak economy pushes large supermarkets to work harder to attract customers. "For the past 10 years it's been difficult to make any profit," he says.

Takayama, 45, says he's getting by for now but the future is full of worry. He has no union, no pension, no one to take over his shop when he retires and no one to fill in should he fall sick. In the meantime, the community is ageing, which means smaller families, older customers and more work for fewer sales. "Older people don't eat so much," says Takayama as he divides a box of snow peas into handful-sized portions. "I have to sell everything in small packages."

It is that type of change that is affecting many small businesses. Takayoshi Yokoyama, president of Seiji Corp., has been importing watches and clocks from Hong Kong, Taiwan and China for 15 years. He says sales have climbed every year he's been in business, but in the past few years he has had to be quick on his feet and flexible. In March he began selling "healing aquariums," thin-screen machines that display placid underwater scenes. They are now his best-selling product.

"We can't compete with large companies," says Yokoyama, who employs 21 people, up six from last year. "We have to do business that large companies think is too expensive." That means taking smaller orders and doing more paperwork to achieve the same level of sales as before. But Yokoyama works hard to stay positive. "If we think as the Japanese newspapers say, small companies like us can't survive. I don't think Japan's future is bright, but will get better."

His recognition that times have changed and that survival in today's more competitive world takes speed, stamina and guts is spreading, says Fujiwara at the Hakuhodo Institute.

For decades, Japan's rapid growth and strong sense of community ensured that almost all boats rose with the tide. But "now the disparity exists between those who make it and those who do not," says Fujiwara. "Workers, for the first time, realize that they have to become responsible for themselves. And how they reinvest in themselves will make a big difference in times of crisis."