The Model of The Japanese Economy

Japan’s system is also called capitalism. But Japan has never been a free market capitalist country. It is not a liberal economy. Japan has six major conglomerates. Originally eight but merged into six conglomerates. Now the six zaibatsu account for nearly 1/3 of Japan’s total economy. The other 60% of small and medium-sized enterprises are inextricably linked to these six zaibatsu. They either make components for them or help them with some intermediate links or service links. So, Japan’s six conglomerates or zaibatsu have formed control over Japan’s economy.

This is very interesting. Each of the six zaibatsu is diversified. They engage in finance, insurance, business, real estate, and everything else. Each zaibatsu has a diversified economic structure. But competition between zaibatsu is strictly prohibited. In Japan, if you use a Mitsubishi bank card, you cannot transfer money to the Mitsui Banking System. Large general trading (wholesale) business known as sogoshosha are strictly prohibited from competing within large zaibatsu in Japan. Each zaibatsu is diversified and can do anything. There is no competition between zaibatsu.

More importantly, Japan has always keep its own technology to itself. The stickiness of technology, Japanese technology cannot be taken away by others. They can transfer the industry to you, give you the equipment, but the technology must be kept to themselves. Some people say that this is because Japan, like Germany, emphasizes the spirit of craftsmanship. Wrong. Japan’s corporate system is called the seniority wage contract system. For example, young people. If I go to a company in Hong Kong, you can work hard and you have some innovative spirit, and you can get promoted. In Japan, young people enter the company and follow the senior employees honestly. When your senior goes on a business trip, you carry his bag, and when your senior drinks after getting off work, you accompany him. You follow the old rank and file step by step and slowly move forward. When your senior becomes a section chief, you may be able to reach his position. When he becomes a section chief and then moves up, you can take over as section chief. No one can jump ranks and levels. So, it is very uncomfortable for Westerners to go to Japanese companies. Japanese companies are like this. The seniority salary contract system is strictly implemented. What is the biggest advantage? Technology cannot flow away. Like an apprentice, you have to follow the senior step by step. Only then can he gradually pass on the set of technology he mastered to you. You can’t get the full set of technology before he gets old and retires. Therefore, technology becomes sticky, that is, it is stuck inside Japanese companies by the seniority annual employment system. Members are not allowed to compete. Large conglomerates or enterprises do not compete. Do you think Japan has a capitalist system? East Asian capitalism, what is East Asian capitalism? Japan is a typical representative.

Okay, what is the system in Japan’s rural agricultural sector? They said it is a cooperative system. Have you heard of it? Japan’s rural agricultural sector is known as JAS. Japanese Agricultural Association. JAS is a comprehensive monopoly, of what is known as a cooperative. No enterprise can enter into competition with JAS. It has become a highly monopolistic power group. It is protected from competition from any enterprise. It was not until 2001 that the Japanese government allowed natural persons to enter agriculture. Before that, natural persons could not enter agriculture. Only JAS was allowed. What business can it operate? Finance, Japan’s rural finance accounts for 28% to 30% of Japan’s national finance. The state directly joins the financial support for agriculture with Japan’s comprehensive agricultural cooperative finance. The state uses finance to support Japan’s agricultural cooperatives. Through agricultural cooperative finance. The state has established a central farmer’s treasury to protect Japan’s rural finance. There are no competitors. It is not like what we imagine in Hong Kong where there are so many banks that can compete. No, Japan’s rural finance is fully controlled. There is only one operator, JAS. What else does it operate at the same time? Insurance, insurance in the agricultural sector also belongs to JAS. It operates real estate, supermarkets, wholesale, processing, restaurants, tourism, and all the tertiary industries. All the tertiary industries you imagine are within the JAS system.

So, when we talk about the East Asian model, the degree of monopoly in Japan’s rural agricultural sector is the highest. Including education, training, medical care, all these service industries are all here. Supermarkets, wholesale, catering, all in JAS. Therefore, JAS is the system with the largest economic volume in Japan’s rural agricultural sector. There are no competitors. It was not until 2011 that the Japanese government said that it would allow companies to enter the agricultural sector for competition. But none of these companies can do everything like Japan Agricultural Association. What’s more, the government has given it tax exemption and financial support. It is exempted from taxation in its financial business. But it must return more than 51% of the profits to farmers. It can do anything, such as training farmers, promoting agricultural technology, educating farmers, and doing social work in rural areas. The government gives it the monopoly in profits. It returns more than 50% of the profits to the countryside and farmers. Therefore, the income of Japanese farmers is higher than that of urban residents.

The Japanese system is very stable. Why is there no social unrest? Why don’t people take to the streets to protest? To a large extent, it is because the six major conglomerates or zaibatsu control the urban areas, and the JAS controls the countryside. Your allocation depends on it. Your company must follow the seniority-based salary system step by step. Who can rebel? No. If you have a bad record, you are finished. Can you still get a job? No. So, Japan is a very strange country. It is a society with strict internal control. What is the East Asian model? Japan is a typical East Asian model. Then externally, Japan’s expansion is the fastest in the world. How does Japan carry out the Abe version, that is, the Japanese version of quantitative easing? I have told you before how it expands in developing countries. So, people generally calculate GDP, which is the gross domestic product. Right? But they don’t count earnings from overseas. So, when you look at Japan’s GDP, the growth rate is a few tenths of a percent. It has been less than one percent for a long time. Sometimes, it is even negative. But Japan had developed an external economy two times the size of the economy of Japan overseas. Its overseas remittance income is much higher than the internal GDP value. What is the East Asian model? This is the East Asian model. The typical Japanese model.

China also has strict control. I just said that 70% of industrial fixed assets of China are in the state-owned sector. 70% of banking and financial institutions are in state-owned banks.