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Commentary (September 13, 2004)

Blame It on the Cell Phones

Takamitsu SAWA (Professor, Kyoto University)

The continuing doldrums in the Japanese economy began with a slowdown more than 13 years ago -- in May 1991. The slump stems from sluggish consumer spending, which accounts for 60 percent of the gross national product, and bad loans plaguing Japanese commercial banks. Let's consider the reasons for sluggish consumption.

First, Japanese industries in the past decade have failed to develop revolutionary consumer products that create substantial new demand instead of merely replacing existing products. In the bubble years of 1987-90, revolutionary consumer products debuted one after another, including home-use fax machines, automobile phones, CD players and Japanese-language word processors. Real consumer spending during that period grew at an annualized 4.7 percent.

Popular consumer products introduced in the 1990s include notebook PCs, car navigation systems, viewcam-corders and cell phones. Among the new products marketed since 2000 are digital cameras, DVD systems and ultra-thin television sets.

Except for car navigation systems, though, these products are not revolutionary in the sense of replacing existing products or necessarily contributing to growth in total domestic demand. In addition, they do not produce ripple effects on other industrial sectors.

Second, consumers tend to look for entertainment when they have enough of life's necessities. Movies, music, other forms of entertainment, sports and travel should attract more consumer spending. In today's Japan, services to provide entertainment are insufficient.

Spectators of professional baseball, soccer and sumo are declining, and ticket sales for movies and concerts are slow. The recent onsen scandal -- in which some resorts added mineral substances to heated tap water and called it natural hot-springs water -- is likely to dampen tourist business.

Book sales are reportedly slow. The main demand-side problem is widespread use of the Internet, which has obviated the need for some books. Still, the supply-side problem is the publishing industry's failure to meet readers' needs.

Third, television viewing has been on a downtrend, eroding the impact of television ads on consumer demand. As a result, fashion is losing its relevance. One factor is the deterioration in the quality of television programs, especially from private broadcasters.

Now let's consider automobiles. Japan's fast economic growth since 1958 would not have been possible without the expansion of the automobile industry. An automobile weighs more than a ton and is made up of steel, nonferrous metals, glass, plastics, rubber and other materials. Increased auto production benefits many suppliers of raw materials.

To make the automobile run, fuel is essential. Gasoline is made from crude oil, carried to Japan by supertankers and refined by oil companies. Gas stations on major streets create a number of jobs. Motorization makes it necessary to pave and expand existing roads and to build expressways, which benefit construction companies. It also creates demand for automobile mechanics and benefits damage insurance companies. It fosters business for large shopping centers with parking space, as well as parcel-delivery services.

If Japan did not build automobiles, its gross national product would be about half of what it is today. The labor market would be radically different, with more than 20 percent of the national population employed in the agriculture, forestry and fishery sectors.

Moreover, the automobile industry has unparalleled ripple effects on other economic sectors. Third World countries in Asia nurturing their own auto industries are keenly aware that their economic development would be impossible without such ripple effects.

Cell phones are another story. Statistics show that one out of every two Japanese has a cell phone. Yet the booming sales of cell phones have contributed little to business recovery.

A cell phone, weighing only about 100 grams, is made up of electronic components. Popularization of cell phones no doubt benefits manufacturers of those components, but has few ripple effects on other industries. Cell phones consume little power, but cell-phone bills of 15,000 yen a month are a burden for college students, not to mention the many middle-school and high-school students who have them. Cell-phone bills tend to dampen household spending.

Many young people addicted to cell-phone communications buy few books or even comics. They waste hours each day in text-message communications and Internet games with little time left over for other forms of enjoyment. The cell phone is the cause of the business slowdown as well as the erosion in young people's intelligence and scholastic abilities.

(This article appeared in the September 6, 2004 issue of The Japan Times)

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