Section 6 | Economics and Economic History | Session 9, Panel
Chair: Dennis Tachiki
Discussant: Franz Waldenberger
Maximillian J.B. Hall (Loughborough University)
There is widespread agreement that a two-pronged attack, embracing both micro- and macro-economic reform, is necessary to turn around the fortunes of the Japanese economy. This paper focuses on the former set of initiatives adopted by the authorities in Japan, concentrating on those banking sector reforms implemented since around the year 2000 when the reform programme appeared to enjoy renewed impetus.
The paper begins by reviewing the main problems still besetting the Japanese banking industry and responsible for its continued fragility, as exemplified by low profitability, both in absolute terms and relative to G7 competitors, weak capitalisation, poor asset quality and excessive credit and market (stock and bond) risk exposure. The main reform initiatives are then identified. These embrace: the creation of a new financial architecture governing the regulation and supervision of banks, with the newly-formed Financial Services Agency featuring as its operational epi-centre; the reform of safety net arrangements, and most especially those concerned with deposit insurance; the authorities' attempts to speed up the banks' resolution of their non-performing loan problems; the Bank of Japan's share-buying activities; the authorities' quest for the right to engage in "pre-emptive" capital injections; and recent improvements in corporate governance arrangements. The latter part of the paper represents a personal assessment of these reform initiatives, from an efficiency/cost-effectiveness standpoint, and includes recommendations for further change.
Mariusz K. Krawczyk (Fukuoka University)
The presence of money around us is so obvious that in reality we do not think about what money is. The idea that a certain good may be given up for another more useful one sounds by no means strange to anyone. But the fact that a possessor of a good may be willing to exchange its utility for small seemingly useless metal discs has been always attracting attention of social thinkers. The emergence of money can be traced down to the transaction costs of exchanging goods. Similarly, the evolution of money from commodity money to metal money, to documents representing money, and to electronic impulses stored on plastic cards can be attributed to currency competition.
In this paper, I propose to compare the development of electronic money systems in Japan and in Germany against the principle of currency competition. Despite of high publicity and support from authorities the experiment with electronic money (advertised as one of key elements for a so called “information technology revolution”) in Japan has quietly ended with almost no results. Almost at the same time the very similar experiment with German electronic money system seems to be doing very well. There seem to be a few reasons explaining differences in performance of both systems that I intend to analyse in depth.
The German EC Karte has developed from the Euro Cheque payment system. The Euro Cheque was widely used for deferred payments in Germany after the Second World War. The system was supported by main German banks and worked until 1980s without serious challenges. Its payment procedure involved a plastic card necessary for payment authorisation (i.e. cheque holder identification). As the electronic systems were gradually developing, the plastic card was used for speeding up the payment process with the paper cheque gradually becoming only a confirmation tool. At the same time, around the second half of 1980s, the German financial markets experienced a technological revolution on its own. A Spanish bank, making good of the EU promoted liberalisation of financial services, entered the German financial markets with quality new product, with credit cards. Major German banks, in order not to loose their market share, responded with introducing their debit card system, the EC (European Cheque) Karte. The banks utilised the already existing mechanism of the Euro Cheques simply by abolishing a paper part of the payment and replacing it with direct electronic payment via the already existing plastic card. The new payment system proved to be very popular for at least two reasons. First, it involved an already familiar payment tool (the card necessary for cheque payments) and its connection to all major banks in Germany; the payment can be done no matter which bank the customer has his account with (other systems, including for instance Mondex, can work with one bank only). Second, as most of European banks charge a uniform account maintenance fee regardless of the amount transactions going through the account, the increasing amount of payments going via the account means decreasing marginal costs for each transaction and creates incentives for doing even small payments via the debit card. Currently the EC Karte is successfully competing with credit cards and is a very popular payment method, at least in major German cities.
On the other hand, the Japanese experiments with electronic money were based not on the access type of account like the German banks have done but on the stored value accounts. That means, a customer cannot utilise his cash balances as long as they are not stored on a specified account. This system, currently continued in Electronic Toll Collection system as well as in recently announced NTT system that utilises data transmission abilities of mobile phones, is rather inconvenient as it requires “reloading” customer’s account with fresh cash and cannot be used with various bank accounts. The Japanese experiment with electronic money system has also one additional drawback as it relies on the banks that have been currently suffering from outbreak of banking crisis. The Japanese banks, unable to raise their profit margins from their main lending activities (i.e. lending to corporate customers) and suffering from the fall-out from the non-performing loan crisis are not able to invest seriously in the technological progress.
The German and Japanese electronic money systems represent two different mechanisms. German banks used the already existing tool for developing its system while the Japanese have been attempting to create an entirely new system. German e-money system involves payments between various accounts while the Japanese e-money must be “reloaded” and in this sense it is a mere extension of widely used “prepaid cards”. The German system was launched almost at the same time when the credit cards were introduced while the Japanese system must compete with the already well-established credit card network. The German system maintenance costs are included in the account maintenance fees while the Japanese banks try to pass the maintenance costs on to customers and businesses. This results from a very different financial condition of German and Japanese banks involved in the electronic money experiments.
What is necessary then for a success of electronic money system in Japan? First, not an entirely new system but using an already existing instrument may be a wise choice (for instance expanding the Post Office J-Debit card). Only a country-wide system with numerous bank accounts involved may be able to lure customers. Second, in order to make the system desirable for customers not a stored value type instrument but a direct access type of debit card should be introduced. Third, as Japan used to be a cash (not credit) preferring society, I think there is still a niche for e-money here. But since the potential entrants into cashless transaction market face an almost monopoly of credit card companies (Visa, Master, JCB) at least initial involvement of authorities may be desirable (in a current condition of the Japanese banking industry one can hardly hope for their serious competition attempts against credit card companies). Such an intervention might be desirable for at least two reasons. First, it would help to de-monopolise a currently heavily concentrated market and second, it could provide a badly needed boost for Japan’s high technology industries.Phong Tran and Misuzu Chow (Macquarie University)
Japan-made high-tech, high-quality hardware, from cars, cameras, laptops, TV, VCR/DVD, printers, watches, trucks to software-embedded computer-controlled machineries and robots, have inundated the world markets for a long time, creating a perception of “ubiquitous Japan”. While Japan-made game software can be seen plenty in shops, Japan-made business software has not been widely mentioned. This raises a new curiosity on the reality of Japan’s strength and weakness in business software development, sales and marketing.
This paper reveals the result of an investigative study into this aspect of Japan IT. The study, which is part of a research into cultural effects on Japan’s IT production, sales and marketing, uses software product ownership quantification to determine the relative strength of Japan’s software industry. It has found that among the G7 economy powers, Japan has the second highest number of developed software systems, behind USA, for Enterprise Resources Planning, Computer-Aided Design/Computer-Aided Manufacturing and Enterprise Application Integration. However, the percentage of its software systems being globalized is low compared with those from Germany, France and UK. It has also found that more than 60% of Japan’s business software exports are to East Asian countries, and the remainder are to EU and USA. In contrast, business software from UK, Germany, France and USA are globalized in most countries in Europe, USA, Asia and South America. Japan does not have an outstanding global system like those from Germany and France. These factors have made Japan’s IT less visible than the other G7 countries’ IT.