Japan's economy is mired in what arguably is its worst slump ever. It is suffering from a multitude of domestic ills stagnant demand, serious structural problems (especially in the financial sector) and a credit crunch in addition to the burden of the East Asian economic crisis. Small and medium-sized enterprises, widely considered the economy's backbone, have been particularly hard-hit. This is a matter of considerable significance because these firms matter both economically and politically. Their importance stems in part from their sheer numbers. It also arises from the way in which smaller businesses have become deeply integrated into Japan's economic and political networks.
Small and medium-sized enterprises exist in great profusion in virtually every sector of the economy, accounting in 1997 for approximately 78 percent of all employment and for more than 50 percent of total value added. Small wholesalers and retailers populate the many tiers of the inefficient distribution system. In some of the other of Japan's least competitive industries construction, most notably they predominate. At the same time, small and midsized manufacturers constitute the vast subcontracting networks that provide components and subsystems to the big Japanese multinationals that have been such powerful competitors in international markets.
Today, smaller companies across all sectors of the economy are in severe distress, having been whipsawed by slumping aggregate demand as well as by the reduced availability of bank loans. However, the worsening problems facing these businesses are not just the product of the recent downturn. During the weak recovery from late 1993 to early 1997, they lagged behind their larger counterparts, a significant departure from the typical cyclical pattern. Accordingly, small and midsized firms are faced with the challenge of responding to both structural and cyclical pressures. Rising bankruptcy rates demonstrate that many have been overwhelmed.
The government already has responded with a number of measures designed to help the companies making up the core of the economy. It remains to be seen, however, whether small and medium-sized businesses can adapt to survive the current crisis and how the political system contributes to this process.
OBUCHI ELECTED PRIME MINISTER; NAMES 'ECONOMIC RECONSTRUCTION CABINET' by Barbara Wanner
As anticipated, Keizo Obuchi, the newly elected president of the ruling Liberal Democratic Party, easily won the premiership in July 30 Diet balloting. Reflecting the anti-LDP outcome of the July 12 upper house elections, the opposition party-dominated House of Councillors chose Democratic Party of Japan President Naoto Kan as prime minister. However, Mr. Obuchi captured 268 of the 494 valid votes cast in the more important 500-member lower house, effectively overriding the upper house action. The constitution stipulates that the decision of the House of Representatives always prevails when there is a discrepancy between the upper and the lower chamber concerning election of the prime minister, ratification of treaties or enactment of the national budget.
LDP SUBMITS BANK-RESCUE LEGISLATION AMID SKEPTICISM by Jon Choy
The ruling Liberal Democratic Party opened a special session of the Diet July 30, and after electing Keizo Obuchi as prime minister moved quickly to introduce the legislation necessary to implement its plan to resolve the banking industry's nonperforming-loan problem. Skeptical domestic and international observers are scrutinizing Tokyo's moves, looking for evidence that the new prime minister and his cabinet will deliver on their promises to end the bad-loan crisis and get the economy back on track. A series of recent public statements by Obuchi administration officials, including remarks by the prime minister and his Fiance minister, have sowed doubts among analysts that the government is committed to making the hard choices that many outsiders say are necessary to resolve the country's financial and economic problems.
JAPAN'S TRADE SURPLUS JUMPED YET AGAIN IN SPRING by Douglas Ostrom
The Asian economic crisis has begun to affect Japan's trade. That is one conclusion to be drawn from the April-June customs-clearance trade data. The overall trade surplus soared 46.6 percent from the spring 1997 figure to nearly ¥3.7 trillion ($27.1 billion at ¥135=$1.00). However, other numbers tell the real story of the Asian influence.
HOUSE GOP, WHITE HOUSE SPLIT OVER FAST-TRACK TIMING by Eric Altbach---
Over White House objections, GOP leaders in the House of Representatives announced plans to schedule a late September floor vote on fast-track trade negotiating authority. Majority Leader Dick Armey (R, Texas), speaking to reporters July 29, said that Republican principals have scheduled debate and a vote on the controversial trade measure for the week of September 21. "Exports are critical to America's farm economy. We must reduce trade barriers to help American farmers to prosper," Mr. Armey said in announcing the proposal. House Ways and Means Committee Chairman Bill Archer (R, Texas) echoed these sentiments, saying that fast track would help boost agricultural exports, which were down 3.3 percent in the October 1997-April 1998 period versus a year earlier.