I’ve read that there are a lot of unprofitable, small and uncompetitive companies in Japan which only survive because of cheap credit, and that the government pushes banks to lend to these companies through debt guarantees. Is that true?
If so, this is probably the reason why Japan is so stagnant and wages haven’t grown in decades. These businesses don’t have the money to raise wages because in order to raise wages you need higher revenues. And these zombie companies prevent profitable businesses and start ups from growing, partly by keeping scarce labor from them and unfairly competing with them.
The Japanese seem to value stability and order over dynamism and progress. Not to mention some benefit from the status quo. It’s sad how such a country is hold back by bad government decisions.
https://www.reddit.com/r/japan/comments/16g3k40/is_it_true_that_the_japanese_government/
7 comments
1) Have you seen the US and it’s (auto/airline/etc)
2) US and European wages are stagnate except for the top 25% and deindustrarized faster than Japan until China overplayed it’s hand, and we are starting to see Japanese wages to start to increase because the world is running out of cheap labour
Zombie companies were traditionally not small, but large entities. They’re “too big to fail”. So it’s not small companies driving this phenomenon. The Japanese government did encourage more lending to small and medium sized companies in the late 90s and early 2000s, but that’s largely because lending was disproportionally to large firms (including zombie firms) before that point.
It’s further complicated by the fact that many large Japanese companies are built around banks, with complex webs of mutual ownership. Japan maintains low interest rates to keep lending cheap. But this is of more benefit to large Japanese conglomerates built around banks. They keep related companies alive on life support for far too long. Realizing losses on non-performing loans would hurt these companies more in the short term, which would be bad for the bonuses and reputation of executives. This is especially true for companies that the bank actually has ownership stakes in through their complex webs of mutual ownership.
This article gives a good summary of the issue. As the number of zombie firms in certain sectors rose, the number of new entrants into those sectors (unsurprisingly) fell: [https://www.chicagobooth.edu/review/zombie-lending-japan](https://www.chicagobooth.edu/review/zombie-lending-japan)
It depends on what you mean by “zombie company.” I read some time ago that something like 70% of Japanese companies lose money, which sounds terrible. But most companies are small family owned businesses whose owners can extract value from them through other means without generating profits which will just be taxed. The tax agency spends most of its time going after such business for such reason.
The fact that METI has a whole agency devoted to small businesses and a huge pot of money for subsidies for them may also be a factor if it keeps such businesses doing whatever the METI thinks they should do rather than being more innovative.
The JP govt is a river of slush funds to grand old operators like Mitsubishi Heavy Industries amongst many, having fed them with endless stimulus projects over the last 40 years. That’s half of what all this military build up is about. More tanks that sink in the mud and jet fighters built panel for panel as copies of US models.
A lot of this money trickles down to MHI’s vast chain of indentured suppliers. Maybe some people have noticed if you go out into the countryside of Japan, you’ll find strange, “Bond villain lair” type compounds, often completely empty, built by JP corporations with govt funds. There’s one near my place owned by Fujitsu. Giant sprawling complex with immaculate gardens and just 1 car there every day. Massive waste of money. Meaningless “make work” programs.
1. Zombie companies are old and big. Traditional Japanese conglomerates are massive groups, with many subsidiaries.
2. Japan also pays a lot of subsidies for startups and basically every other company that bothers to look into it (e.g. for digitization). There are companies whose main business is to help other companies get subsidies.
3. Reducing Japan’s social/economic/demographic woes to “without subsidies the labor market will be revitalized and the economy/wages will grow again” is a serious hot take.
4. If one of the big ones fail, you will risk setting off a domino chain that will be much more costly for the government. It’s also risking another lost decade until the environment for startups grows enough to cover what was lost (if it ever does).
5. Just because a company is not profitable, doesn’t mean that it has no role in society and in the economy. Having it go bust will not just leave a monetary hole.
Plus a million more reason why the government is afraid to change the status quo. It’s complex and any changes will involve a lot pain. Everybody knows the situation is bad and not sustainable, but there are no simple solutions.
This totally doesn’t happen in the US or Europe! LoL…
You mean like Amtrak and Kodak…or AMC?