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No. 21 — June 5, 1998

 

Feature Article

JAPAN’S GROWING NONPROFIT SECTOR RESPONDS TO GOVERNMENT SHORTFALLS by Barbara Wanner

Summary

Amid all this year's hubbub over Tokyo's difficulties in developing an effective economic stimulus plan, Japanese lawmakers enacted, with comparatively little fanfare, a bill with important implications for the nation's economic, political and social welfare needs. Informed observers hailed the mid-March passage of the so-called Nonprofit Organization Law –– which will give corporate status to Japan's broad array of largely voluntary, self-governing nonprofit organizations –– as the sowing of the seeds for the flowering of a "civil society."

Dissatisfied with the government's increasing inability to address effectively today's plethora of domestic and global policy issues and distrustful of the leadership provided by scandal-plagued politicians, the Japanese people in recent years have become more directly involved in looking after the public interest through their support for, and involvement in, nonprofit organizations. Some experts regard the recent surge in the number of Japanese NPOs as part of a global phenomenon of organized volunteer activity. Others see specific events in Japan — particularly the Great Hanshin Earthquake of January 1995 — as the catalysts for the boom in grass-roots civic participation.

Still other commentators attribute the nonprofit sector's new dynamism to the business community's growing interest in good corporate citizenship. Too, the demise of the Cold War system appears to have created a more tolerant environment in Japan for NPOs. During the East-West standoff, such organizations tended to be viewed unfavorably as proponents of left-wing, subversive and/or antibusiness positions.

Comparisons of American and Japanese nonprofits are difficult because of the varying terminology used to describe these groups as well as the different ways they are treated by the two countries' legal systems. In the United States, for example, "nonprofit" typically refers to an organization that is chartered under state law and classified as tax-exempt by the Internal Revenue Service. In Japan, in contrast, a rigid system of state control of the nonprofit sector has meant that many so-called NPOs are not legally incorporated and, thus, are hard to account for. Nor do noncertified grass-roots groups enjoy the advantages of tax-exempt status.

The NPO law, by facilitating nonprofit incorporation, goes at least part of the way toward creating an independent, private, voluntary sector similar to the U.S. model. Some observers have high hopes that the legislation will jump-start a truly democratic, bottom-to-top social transformation, particularly at a time of sharply declining voter participation. Japanese nonprofit managers are less optimistic, though. They argue that legislators' refusal to include tax breaks in the NPO law will continue to hamper the spread of grass-roots volunteerism and the proliferation of nonprofit groups. Thus, the evolution of Japan's civil society may await further reforms.

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Weekly Review

JAPANESE BANKS LOSE MONEY AND PUBLIC TRUST by Jon Choy

For years, Japan's 19 largest private banking institutions papered over their bad-loan problems, hoping to grow their way out of them. Now they are being forced by the government and financial markets to deal squarely with the mountain of nonperforming loans that resulted from the rapid deflation of the late 1980s' "bubble economy." The plethora of minus signs in big banks' financial reports for the year ended March 31, 1998 shows a clear break with the past practice of disguising negative results and indicates that leading banks are moving toward complete disclosure of financial information.

 

JAPAN'S CURRENT ACCOUNT SURGED IN FIRST QUARTER; YEN CONTINUES TO SLIDE by Douglas Ostrom

Japan's external imbalances are growing rapidly and have returned to mid-1990 levels. A number of factors — not least the recent weakness of the yen — suggest that the trend is likely to continue for another six months to a year. Those are among the chief conclusions emerging from an examination of the current account data for the January-March quarter. The surplus in the current account, the broadest measure of trade, soared 78.6 percent in the first three months of this year compared with the same period a year earlier to ¥3.6 trillion ($30.3 billion at ¥120=$1.00).

 

DEPARTURE OF SDPJ, NSP FROM RULING BLOC UNLIKELY TO HELP AT POLLS by Barbara Wanner

To no one's surprise, leaders of the leftist Social Democratic Party of Japan and the New Sakigake Party have ended their often awkward, four-year alliance with the conservative Liberal Democratic Party. The June 1 move followed the SDPJ's May 30 announcement that it was dissolving a parliamentary tie-up with the ruling party due to disagreements with the LDP over the pace and the scope of political reform and pending legislation that would broaden Japan's role in the U.S.-Japan security alliance.

 

SANCTIONS FAIL TO DETER PAKISTANI NUCLEAR TESTS; TOKYO OFFERS TO HOST TALKS ON KASHMIR by Eric Altbach

Despite the damaging economic sanctions threatened by Tokyo and Washington, Islamabad announced that it had proceeded with a series of five underground nuclear tests May 28 and one more May 31. The detonations were Pakistan's way of responding to the underground nuclear tests conducted by its South Asian rival, India, May 11 and May 13 (see JEI Report No. 20B, May 22, 1998).

 

Notes:

The upper house of the Diet voted May 29 to approve bills aimed at getting the economy moving again. One piece of legislation amends the Fiscal Structural Reform Act of 1997, easing the goals for restraining government spending and eliminating new issues of general revenue bonds (see JEI Report No. 17B, May 1, 1998). Now the deadline is March 31, 2006 — two years later than originally planned — for lowering the combined central and local government fiscal deficit to 3 percent or less of gross domestic product and for ending new government borrowing via deficit-financing bonds. The amendments also give Tokyo the power to suspend temporarily the act's tough fiscal requirements when the economy enters a downturn.

In what might prove to be a Pyrrhic victory for American retailers and manufacturers of consumer goods, the upper house of the Diet approved a Ministry of International Trade and Industry-authored bill May 27 that will supplant the Large Retail Store Law in less than two years. Repeal of this 1973 small retailer-protection measure has become a fixture on Washington's list of Japan market access barriers because of the power it gives a MITI-affiliated council over the construction of the types of stores most likely to carry U.S.-made products as well as their operating hours and days open (see JEI Report No. 11B, March 20, 1998).

Washington and Tokyo are in the process of reviewing implementation of several bilateral market access agreements that the U.S. trade policy team says are not delivering the expected benefits for U.S. competitors. The first such regular annual consultations covered the late 1994 flat glass arrangement, arguably the least effective of the 30-odd trade accords the Clinton administration has negotiated with Japan. The pact is unlikely to lose that dubious distinction as a result of the working-level talks held in the U.S. capital May 27 and 28.

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