Bill Totten's Weblog

Wednesday, May 17, 2006

From Democracy to Rapacity

by Bill Totten

Nihonkai Shimbun & Osaka Nichinichi Shimbun (March 09 2006)

(I've written a weekly column for two Japanese newspapers for the past several
years. Patrick Heaton prepared this English version from the Japanese original.)

In the early spring of every year, our company invites its customers to hear me give a presentation on topics similar to those that I discuss in this forum. I choose topics that are of interest to me, or that I wish to propose for others to think about. This year I had originally planned to speak on "Who owns the company?" because at the end of last year I co-authored a book entitled "The Company Does Not Belong to Stockholders" (Yosensha Press). As I was researching data for my speech, however, I decided to expand my topic beyond the level of the company to the level of the entire country.

Japan supposedly is a democratic country. In a democracy, the people are supposed to be the masters of the country. But what are the people of this country now doing for Japan? Most people, including me, give priority to themselves, to their companies, or to their families. Of course it is only natural that people think of themselves and their families when discussing their nation. But if they are completely disinterested in the affairs of state, the country can end up going down the wrong path. This is because politicians themselves are more focused on their primary concern - the job of getting re-elected - than on what is best for the country.

It is indeed sad that within the ranking of voting rates for the thirty OECD nations, Japan ranks fourth from the bottom. Is there any wonder that Japan's politicians appear to be more interested in working for the major corporations that contribute funds to them than for the general public, which obviously doesn't even care enough to vote?

The political system in Japan seems to be devolving quickly into a system that plunders its own people. When I first came to Japan in the 1960s, Japanese widely practiced mutual help and seemed proud to live in a country where everyone believed they were in their national ship together. That view, generally held by everyone, stands in stark contrast to the present situation, where the current prime minister thinks nothing of favoring creation of a wider gap between rich and poor citizens. Indeed, the Koizumi cabinet's so-called "reform movement" actually promotes policies that bring about a law-of-the-jungle economy in which disparity in income levels is the natural [intended] result.

Raising Consumption Taxes Unnecessarily

Having been trained in mathematics and economics, whenever I look at social trends, or anything for that matter, the first thing I examine is numerical data. I usually don't accept as correct any data given to me unless I check it myself. This tendency also may result partially from having managed a technology company for many years. Probably also related is the availability of excellent PC software that allows me to handle data easily, as well as having ready access on the Internet to a wealth of data provided by the government and various international organizations.

I recently did an Internet search on OECD data to see how Japan ranks against the other 29 wealthiest nations in the world. Japan is ranked ninth in terms of productivity per capita. Significantly, it is ranked fourth from the bottom in terms of providing social welfare and unemployment compensation for its citizens. It is ranked third from the bottom in terms of the relative rate of poverty, an index that is used to discern disparity of wealth. This ranking underscores Junichiro Koizumi's nonchalant attitude about allowing a situation of large disparities in income to develop.

At the same time that the prime minister extols this trend, the ruling parties are doing everything they can to push through an increase in the consumption tax. The reason they give is that because of a declining birthrate and the demographic aging of the population, there are increased costs in social welfare. But if we look closely at the real data, we can see that this justification is a lie. The real reason the government wants to raise taxes on average citizens is to lower taxes on the wealthy and on corporations. If the government went back to taxing these two groups at the level were taxed until two decades ago, when Japan was at its peak of prosperity, there would be no need to raise consumption tax.

This is clear from the data published by the government itself. Those data show that income taxes and corporate taxes have decreased in terms of national tax revenues, and not merely because of reduced company income from the recession. The actual corporate tax rate until 1984 was 43.3%, but by 1998 his rate had been lowered to 34.5%. Similarly, in 1974 the average income tax rate on wealthy individuals was 75%; by 1989 it was lowered to 50% and by 1999, it had fallen to 37% - that is, to half of what it had been in 1974.

Our Responsibility

Currently, there are about 2.6 million companies in Japan, 99.99% of which are small and medium-sized. Only 206 companies, or 0.01% of the total of all companies in Japan, are using the recently-legalized consolidated accounting procedures to drastically reduce the corporate taxes they owe. Being able to apply such procedures to one's own income might make the average citizen want to adopt such procedures, even though he would probably feel he was evading taxes. But if various special interests, such as the nation's privileged large industries, lobby the legislature to make consolidated accounting legal, then of course it would then no longer be considered illegal tax evasion. It is unfortunate that this has happened.

Any time particular individuals or special interests use society's infrastructure to benefit themselves preferentially by not paying taxes, while foisting the costs of developing and maintaining that infrastructure on others, what they are doing is morally the same as tax evasion. I believe the implementation of the consolidated accounting policy is principally a political payoff - a gift - from Prime Minister Koizumi to Keidanren, Japan's predominant corporate lobby.

If all of us were only to think of our own companies' profits and never attempt to take action against these types of policies, politicians like Koizumi would change all the laws to be overwhelmingly in favor of large corporations.

Concerning this issue, one of the guests who attended my spring lecture commented, "Citizens cannot expect to have political leaders and a political system that are superior in quality to themselves". I believe that sentiment is absolutely correct. Each and every one of us is culpable and shares responsibility for the negative direction Japanese society is taking: degeneration into a society where the rich plunder the poor. We may from time to time direct our anger at the politicians, but in the end, we are reaping exactly what we have been sowing.

Bill Totten


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