It's not hard to understand why Daiei was saved from ruin. The supermarket chain, which opened its first outlet in 1957, symbolized Japan's post-World War II boom. It rose up to serve the nation's exploding consumption society and became Japan's top retailer. (It's now No. 2, behind Ito-Yokado Co.) Letting it fail, Tokyo feared, might have slammed fragile consumer and business confidence.
Truth is, all Japan did was add to the nation's bad loan problems. Daiei couldn't repay its debts before its latest bailout. What makes anyone think they'll be able to pay in six months? Remember that Daiei's business plan was the same as those of Sogo Co and Mycal Corp, both of which already collapsed. The question isn't if Daiei will join them, but when.
Tokyo is fighting reality, including those who have built a reputation calling for reform. "The economic impact of Daiei going bankrupt would not be small," said Junichiro Koizumi, Japan's prime minister. Daiei, he said, was rescued out of "the eagerness of the private sector and the government's commitment not to cause any kind of financial crisis." By bailing out the worst of Japan's deadbeat companies, Tokyo is increasing the risks of an eventual crisis in Japan. Each week that passes means Japan's bad-loan problem gets worse. And the nation's two-parts-socialism, one-part capitalism policies have left Koizumi and his Cabinet in denial over the depth of the economy's troubles.
For proof, look no further than this comment by Heizo Takenaka, Japan's minister for economic and fiscal policy: "Companies that are still viable should be reconstructed while the non-viable shouldn't. The market judged that Daiei is a viable company."
Which market would that be, Mr. Minister: The one populated by investors, or the one Tokyo thinks it controls? Japan doesn't have a monopoly on denial in Asia. In South Korea, Hynix Semiconductor Inc, an operation that should have been allowed to fail long ago, is in talks for yet another bailout. If market forces had their way, Hynix's employees wouldn't have jobs. But since South Korea lacks a social safety net able to absorb Hynix's failure, it's protected.
Tokyo's problem, of course, is that its economy is loaded with Hynix-like companies that can't compete in the global economy and can't die because politicians won't let them. It's almost unthinkable that Japan would let a giant, Enron-like company collapse. And that's exactly why investors thinking Japan's current reform drive is for real might want to think again.
True, the swamp that is the Enron affair will get even deeper. At least 10 Congressional committees are beginning investigations into its fantastic fall from grace and the Bush Administration's role, if any, in it. Yet once the dust settles, the US's brand of capitalism -- warts and all -- will still be much purer than Japan's.
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