The Rise and Fall of Abacus Banking in Japan and China phần 3

Chapter 2 The Rise of Abacus Banking in Japan In the summer of 1997, in the middle of the banking crisis, one of the authors tried to wire money to the United States through a major bank in Japan. To his dismay, the employee-crowded branch could not handle the wire transfer and he had to visit another downtown branch, not to mention that he had a hard time finding someone who could speak Eng-lish. But even when he arrived at the other branch, things were no better. He received several greetings, a box of tissues, and free blood pressure monitoring services, but not the ‘‘core’’ banking services he expected. In fact, it was easier for the Foreign Exchange desk manager at the bank to recommend a ‘‘competing’’ bank rather than undergo the procedure of wire transferring. In the end, after waiting for over an hour and after checking his blood pressure several times in the monitor across the bank counter, the desk manager did him a ‘‘favor.’’ He went to an ATM ma-chine to withdraw the cash, counted the money three times—one with his abacus, another with an electronic calculator, and a third in his PC— and wired it to the United States, for a hefty triple fee: a currency con-version fee, a wire transfer fee, and the loss of ten days’ interest (the time it took the bank to have the funds transferred). Though just a personal experience, this example demonstrates how Japanese banks treat their clients, and how such treatment differs from that offered by banks in other countries, especially the United States. Specifically, in the United States, a visit to the local branch of a major 20 The Rise and Fall of Abacus Banking in Japan and China bank and a moderate fee are sufficient for wiring money overnight, all over the world. But the difference between Japanese and U.S. and Eur-opean banking extends beyond money-wiring procedures and fees to the ways that Japanese banking performs its fundamental functions and earns its income, and the ways that government bureaucrats supervise the industry and control the behavior of bank managers. In the United States, private banks are true for-profit institutions. Ac-cording to prevailing corporate governance, individual and institutional stockholders who appoint professional managers to oversee the day-to-day operations own them. In this sense, managers are accountable to the bank stockholders. They must enhance stockholder value or risk losing their positions.1 At the same time, bank managers must limit traditional risks (liquidity and credit risks), market risks (foreign currency risk, in-terest rate risk, liquidation risk, etc.), and operational risks. Government regulators impose a number of constraints to limit competition in the banking industry and the risks associated with it. The Glass-Steagall Act, for instance, limits cross-state competition and competition between the banking and securities industries. Yet government regulators do not monitor the day-to-day operations of individual banks and control the behavior of bank managers. This has been especially true since the late to mid-1970s, when currency liberalization, financial deregulation, and globalization weakened the Glass-Steagall Act and increased both market opportunities and risks. In this sense, U.S. bank managers perform a dual function—as accountants, monitoring fund flows in and out of the bank treasury, and as credit risk analysts, evaluating the risk and returns of investment alternatives. In contrast to American banks, Japanese private banks are not true for-profit institutions. According to the prevailing corporate governance, bank stockholders appoint management to oversee day-to-day opera-tions, but have little control over it.2 Specifically, banks that are owned by large corporations and operate under what is known as keiretsu re-lations are not too concerned with profits, but rather with relations and mutual obligations with other keiretsu members. In this form of ‘‘rela-tional banking,’’ banks serve more as corporate welfare agencies, pro-viding low-cost financing to their keiretsu clients who are also their shareholders as compared to other clients, rather than as true, profit-maximizing enterprises. Japanese banks are not overly concerned with traditional banking risks either. Under a policy known as ‘‘overlending,’’ for instance, the BOJ has virtually eliminated liquidity risk. Keiretsu relations, fast economic growth, and rising asset prices have The Rise of Abacus Banking in Japan 21 also limited individual and systemic credit risk. Tight government reg-ulation has limited competition among banks’ corporate clients, among banks and the securities industries, and among banks themselves, re-ducing market risks. Government regulation further monitors the day-to-day performance of banks, controlling, in essence, the behavior of bank managers. In contrast to their American counterparts, Japanese bank managers basically perform only one function—that of accountants or abacus bankers, who keep records of transactions and assign loans according to government guidelines and keiretsu relationships rather than according to the principles of credit risk management. In this sense, Jap-anese banks have grown accustomed to deriving their income from a thin interest rate spread rather than through investment risk manage-ment. This has been particularly true in the first four decades that fol-lowed the Occupation, an era of high economic growth and savings rates, tight government regulation, and asset inflation. Arguing this hypothesis in more detail, this chapter takes a closer look at a number of structural facets of the ‘‘extended high-growth’’ era, from the early 1950s to the late 1980s, and investigates how such facets nur-tured abacus banking.3 Specifically, the chapter reviews the sources of Japan’s economic growth, business relations, and government policies over the said period, and how they have provided a virtually risk-free environment, giving rise to abacus banking. Japan’s postwar economic expansion began with the economic reforms of the Occupation, especially the breaking of zaibatsu groups, land re-form, and democratization of the political system: Probably the most important among the reform programs were land reforms and the revision of the constitution, both of which have a lasting impact on Japanese society, most likely because they found solid backing in the minds of Japanese people themselves.4 Occupation’s economic reforms were supplemented by post-Occupation government policies, which included the importation of foreign technol-ogy, the protection of domestic industry, U.S. investment and instant access of Japanese corporations to the American market, and macroeco-nomic stability.5 In addition to Occupation reforms and post-Occupation government policies, a number of demand and supply factors have contributed to Japan’s economic growth. On the demand side, domestic demand growth played a major role in accommodating economies of scale and 22 The Rise and Fall of Abacus Banking in Japan and China sparking growth in the 1950s and 1960s. According to Denison and Chung’s classic study on the sources of growth, a major factor in Japan’s growth for the period 1950–1962 has been the economies of scale, a much more important factor than in other industrialized countries.6 A study by Porter further supports this point: Demand conditions proved to be one of the most important of the determinants of national competitive advantage in Japanese industry. In a remarkable number of industries in which Japan achieved strong positions, the nature of domestic demand characteristics provided a unique stimulus to Japanese companies. The domestic market, not the foreign markets, led industry development in the vast majority of Japanese industries. Only later did exports become significant.7 Exports played a role in the 1950s, but they became important much later—indeed, after the first oil shock, and even then the growth of ex-ports lasted for only ten years, until 1985, when the yen appreciation forced Japan to switch to domestic demand growth.8 Export demand grew at 17 percent in 1976, 12 percent in 1977, 18 percent in 1980, and 14 percent in 1981; exports declined by 1.4 percent in 1986, 1 percent in 1987, and 0.5 percent in 1990, and they remained stagnant throughout the mid-1990s. Domestic demand rose by 4.1 percent, 6.2 percent, and 4.6 percent for the corresponding years, and although at low rates, de-mand picked up in the early to mid-1990s.9 On the supply side, growth in inputs, that is to say, growth in the labor force and in labor force participation, expansion of working hours, gains in labor productivity, and growth in total factor productivity (spread of new technology) account for Japan’s rapid economic growth. In fact, employment rose at an annual rate of 1.3 percent between 1960 and 1973, 0.6 percent between 1973 and 1979, and 1.2 percent between 1979 and 1989. Between 1979 and 1988, labor productivity increased at 3.1 percent, compared to 0.9 percent for the United States and 1.9 percent for Germany; between 1989 and 1993, labor productivity increased by 1.4 percent in Japan, compared to 1.5 percent for the United States and 0.3 percent for Germany. Between 1979 and 1988, total factor productiv-ity increased at a rate of 1.8 percent, well above the corresponding rates of 0.4 percent for the United States and 0.7 percent for Germany; between 1988 and 1993, total factor productivity in the United States increased by 2.4 percent in Japan, compared to 2.3 percent in the United States and 0.1 percent in Germany. Overall, for the period 1979–1995, Japan’s total factor productivity increased by 1.2 percent annually, compared to 0.5 The Rise of Abacus Banking in Japan 23 Exhibit 2.1 Economic Plans: Fiscal Years, GNP Growth Target, and Average Annual GNP Growth Achieved (1956–1992) percent for the United States and 0.4 for Germany. It is these gains in total factor productivity, a kind of technological catch-up, that have pushed Japan well past the limitations of input growth.10 In most Western societies, policy makers are preoccupied with con-sumer prosperity, but not in Japan. In this country, production comes before consumption, work before leisure, and corporation before family, at least in the first three decades that followed the end of the Occupation. ‘‘Grow or perish’’—that is how the ‘‘Yoshida Doctrine’’ defined Japan’s economic strategy in the postwar era. Reflecting this doctrine, all three economic plans from 1958 to 1970 stated explicitly that maximum growth was the most important goal (see Exhibit 2.1). The Income Doubling Plan of 1959, for instance, called for high savings and investments as the ve-hicles to achieving rapid technological innovations and high growth, as did the 1958–1962 plan. Pursuing the objectives of the Yoshida Doctrine, corporations, workers, banks, and the government all joined forces to accomplish this objective. Companies invested heavily in capital equipment, paid little in divi- ... - tailieumienphi.vn