January 31, 2006

Japan wealth gap fears fuel attack on PM Koizumi

By Ritsuko Ando

TOKYO (Reuters) - Is your annual salary lower than your age
multiplied by $1,000? Do you eat lots of snacks and fast foods?

Japanese readers who answered yes to these and other
questions by Atsushi Miura in his recent best-seller "Karyu
Shakai (Underclass Society)" were told what they may have
suspected all along: they are members of an emerging class of
the new poor.

The book touched off debate about a new social divide in a
country that has long seen itself as virtually classless, and
now fears of growing disparity are fuelling a political attack
against Prime Minister Junichiro Koizumi.

Seiji Maehara, leader of the main opposition Democratic
Party, says Koizumi's market-based reforms have neglected
society's weakest.

"We stand for something completely different from
Koizumi-style 'survival of the fittest' which is expanding
societal gaps and failing to provide safety nets," Maehara
recently told Reuters.

He and other Koizumi critics cite government data showing
the ranks of welfare recipients have swelled by about 35
percent over the past five years.

Government data also shows that nearly 24 percent of all
households have hardly any savings at all, up from 12 percent
five years ago, despite the economic recovery of the past few

Japan's Gini coefficient, a measure of income inequality,
has been rising in the past several years.

The coefficient rose to 0.308 last year from 0.297 a decade
ago, according to the latest government data.

A Gini coefficient of 0 indicates perfect equality, while
economists say a reading above 0.4, as in the United States,
shows high inequality.

The trend is particularly worrying in Japan, which has
prided itself for its even wealth distribution, thanks to heavy
rural subsidies and inheritance taxes after the end of World
War Two.


The debate about Japan's wealth disparity and the attack on
Koizumi has intensified since the arrest last month of Takafumi
Horie, the chief executive of Internet portal Livedoor Co., on
suspicion of breaking securities laws. Koizumi had tapped Horie
to run in a parliamentary election last September.

Although he ran as an independent and lost, critics say the
LDP's choice of the brash entrepreneur Horie -- known for such
utterances as "people's hearts can be bought with money" --
reflected a lack of concern for common people.

"The Livedoor incident raises crucial questions for
Japanese society," the Yomiuri Shimbun said in an editorial on
Tuesday. A poll by the newspaper showed 74 percent of Japanese
believe inequality is worsening.

"Prime Minister Koizumi has made clear that he intends to
carry on with his structural reforms," it said. "But the public
feels that even as reforms progress, the wealth divide is

Debate may also heat up along with a battle later this year
for the top job at the LDP, a position that carries with it the
prime ministership. Koizumi's term ends in September.

Some say that the issue is overly politicized and that the
Gini coefficient's uptrend is exaggerated by Japan's aging
population. Income differences tend to increase with age, a
point government officials have made to shrug off critics.

Koizumi said in parliament on Wednesday, "My understanding
is that the wealth gap in Japanese society is not so much
bigger than other countries, although it is true that the
number of households on welfare is rising."


But Naoki Iizuka, chief economist at Dai-ichi Life Research
Institute, said the problem was not just the numbers.

"The Gini is definitely skewed by demographics, and you can
say that current levels don't pose much of a threat," he said.
"But these days you see a large proportion of young people who
are unemployed and untrained, and that is a problem."

Economists say the income gap is likely to spread further
in the years ahead due to a rise in "freeters" -- those in
their late teens to early 30s without full-time work, who drift
from one unskilled job to another.

Their numbers are estimated at around 2 million to 4
million, depending on surveys. Another half-million have
withdrawn from society altogether and are called NEETs -- not
in employment, education, or training.

In his book, Miura says the new underclass is characterized
by a lack of motivation rather than just income differences,
but economists see the economic downturn of the past decade as
the root cause of low motivation.

For the past several years, companies have been replacing
full-time workers with part-time hires to cut costs, providing
little opportunity for long-term career advancement.

The trend toward cheaper labor is expected to slow as the
economy recovers and the baby-boom generation retires, but
economists like Dai-ichi Life's Iizuka say the government
should ensure NEETs and freeters have access to training.

Still, others like Nomura Securities economist Ryota
Sakagami are wary of the treating the growing divide as a major

"A bigger gap is not necessarily negative," he said. "One
could say that greater competition will mean greater incentives
to work harder, to gain marketable skills. That could actually
lead to a more dynamic economy in the long run."