Opinion

Two cheers for deflation

By Joseph LaPenta

The expression "three cheers for (a person or thing)" means great, joyous approval. I think deflation is wonderful and long overdue, but I can only give it two cheers, not three.

Simply put, deflation means that price levels are falling. Of course, consumers are overjoyed, and we are all part-time consumers. Deflation is a normal economic process that will happen when consumers restrict their spending. They may do it because prices are too high, or because they are worried about the future and would rather save than spend.

3 Japan has traditionally protected its local markets with taxes on imports, complex regulations, price-fixing, cartels, monopolies and other practices that prevented competition and tended to keep prices high. In the late 1980s and early '90s, prices reached insanely high levels. But Japan's markets are now closely tied to markets all over the world. In general, free markets tend to correct themselves. The bubble finally burst, and prices have begun to fall.

When I first came to Japan, it cost three times as much to make a long-distance phone call to the United States than it did to call Japan from America. Why? Because NTT had a monopoly on service, and consumers had no choice. Since then, regulations have been changed and more long-distance servers have entered the market. Charges have dropped dramatically.

Things were the same at the supermarket. Similar products by different domestic companies were all the same price, and imports were always more expensive. Most prices have since fallen, and some imports are now cheaper than their domestic counterparts.

How about eyeglasses? Have you ever wondered why the cost of eyeglasses is not covered by national health insurance, the way it is in many other countries? Typically, a pair used to cost between ¥40,000 and ¥60,000. Recently, however, "discount" shops such as ZOFF are charging between ¥5,000 and ¥9,000 per pair.

Foreign pressure is another factor in deflation. Japan, as a member of the World Trade Organization (WTO), must allow imports at reasonable prices if it wants its own products to be accepted abroad. In recent months, UNIQLO, a brand of clothing made in China, has become al- most as hot an item as cellphones. The same is true for products as different as shiitake mushrooms and cars.

But why only two cheers for deflation instead of three? Because many are suffering and more pain is probably on the way. With increased competition, unprofitable companies will go bankrupt and unemployment will increase. That's only natural: it's called capitalism. But who is to blame for the "pain" that some politicians are telling people they must bear?

Clearly much of the blame lies with industry, politicians and bureaucrats. They maintained the closed, expensive, over-regulated system far too long. That system may have helped Japan to recover from wartime devastation and make tremendous economic gains in the post-war period, but it has long outlived its usefulness. Japan's conservative leaders should stop opposing necessary changes and blaming inexpensive imports that are selling like hotcakes. Instead, they should be helping much more to reduce the pain caused by the failure of many of their own policies.

Shukan ST: Feb. 1, 2001

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