Bennett Richardson: Economic growth at any price?

Japan is a country that has long prided itself on economic egalitarianism. During the nation's post-war boom, politicians ensured that the miracle economy was peopled by a society where "everyone was middle-class". Equality was so imbued that Chinese exchange students studying in Tokyo are said to have joked that a year abroad in Japan carried with it the distinct possibility of being converted to Communism.

But painful restructuring aimed at ending 15 years of economic stagnation is creating a split in Japanese society into what the local press call the "winners and losers" of the new economic reality, in a trend that threatens the social balance.

Surveys taken this year by major national newspapers show more people perceive a growing income gap and hold fears for the future. An Asahi Shimbun poll showed that 74 per cent feel the income gap between rich and poor is widening. A Nihon Keizai Shimbun survey revealed that 37 per cent of Japanese consider themselves to be lower class compared to just 20 percent in 1987.

Sales of luxury cars and condominiums are booming as the small group of "winners" conspicuously splurge, while a larger group of "losers" are stuck with low-paid, part-time jobs that disqualify them from housing loans.

The issue has become a political football. Prime Minister Junichiro Koizumi has said that he doesn't see the emerging gaps as a problem, which has given the Opposition ammunition to criticise his reforms. Even some politicians in the ruling coalition Government argue that wide disparities will sap social vitality and push Japan down the path toward becoming a rigid class society. Polls already show that a majority feel the nation is in the process of becoming the kind of place where a child's future occupation and income will be dependant on opportunities afforded mainly by their parents' income.

Masaaki Takahashi, an analyst at Tokyo's Daiwa Institute of Research, compares the trend to the game of "toss-the-coin" in which the loser forfeits the coins.

" People with more at the start win over the long term because they can continue playing even if they lose a few times. Although the game is fair on a one-on-one basis, those with more money are able to monopolise the play overall."

Recent economic indicators in Japan have been impressive. The Nikkei 225 rose 40 per cent last year. But analysts say the growing segmentation of Japanese society into low, middle and high class can be seen in income figures, employment trends and even health statistics.

The number of earners in the lowest wage bracket of under 2 million a year ($24,800) has crept up to around 19 per cent of the population today from 16 per cent in 2000, while those with no savings at all to their name has ballooned to a quarter of the population from just 12 per cent six years ago, according to the Bank of Japan.

The increase in low income earners despite a recovering economy can be attributed to a large group in their 20s and 30s stuck in part-time jobs. Although unemployment is falling, part-timers make up more than a quarter of the Japanese workforce. Many opted for such jobs after graduation to delay entry to the strict culture of traditional Japanese firms, but have ended up branded as unemployable full-time. Research shows that the bulk are unable to land regular jobs later, are less likely to marry, and have little chance of owning their own homes.

At the opposite end, a small group are earning more than ever in salaries tied to performance. A report by the National Tax Administration found the top income taxpayer in 2004 was a fund manager estimated to have earned around 10 billion ($124 million), marking the first time tax rolls had been topped by an ordinary salaried worker.

Traditional systems such as lifetime employment at one company and seniority-based wages have been progressively abandoned. Companies such as Nissan Motor have radically altered their wage structure in the past few years after coming dangerously close to collapse. In an about-face from the traditional Japanese pay system based on length of time with the firm, Nissan now selects high-potential employees in their 30s for more responsibility and higher pay. Other large Japanese firms, such as Hitachi and Panasonic-owner Matsushita Electric Industrial, have recently abandoned seniority-based wage systems in favour of performance-based pay scales.

Those who are doing well in the new economy are not lost for choice in how to spend. Japan boasts hundreds of luxury apparel outlets, including the largest Louis Vuitton, Prada and Chanel stores in the world. A survey by the Japan Travel Bureau predicts a record 18 million Japanese will take overseas trips this year, and even more in the future as the baby boomer generation retires and travels more.

Regional disparities exacerbate the gaps. The undisputed engines of the current economic renaissance are Nagoya, with its concentration of Toyota-related businesses, and the area around Tokyo. Despite a shrinking population nationwide, Tokyo is growing by 100,000 people a year as workers seek better job conditions. Evidence is also growing that wage disparities are affecting health in Japan, especially among the young.

A key indicator of sound health in a country that is largely homogeneous racially, is average height, affected by things like lifestyle and nutrition. Despite the lack of opportunities for exercise, and the stress of living in large cities, statistics show the average heights of teenagers in relatively affluent urban areas have outpaced heights in rural areas, says Jean-Pascal Bassino, a research fellow studying inequality at Tokyo's Hitotsubashi University.

Many now blame the growing income and social gaps on the deregulation and market liberalising policies of Prime Minister Koizumi and his chief economic architect, Heizo Takenaka. Just as New Zealand went through growing pains with Rogernomics, so Japan is now faced with growing social disparity.

"Wage inequality is a perfect example of the unavoidable trade-off of fairness for economic efficiency that occurs" under the type of neo-liberal policies that Japan is pursuing, says Toshiaki Tachibanaki, a professor of economics at Kyoto University.

"We are at the point where we need to decide if it is a good or bad thing."

* Bennett Richardson is a Tokyo-based writer whose work has appeared in numerous Asian and US financial newspapers and magazines. He has a special interest in Japanese modern history, politics and economic policies.