CHEAP GOODS AND DEAR SERVICES

April 1987 - Tokyo Business Today

A favorite ploy among visiting foreign journalists nowdays is to write about the price shocks that hit them on arrival - Narita taxi $150, hotel orange juice $6, steak dinner for two $200, and so on.

One could of course point out that some things also come very cheap in Japan - good quality used car $1,100 (if you know where to look), freedom to walk the streets without being mugged $0. But most of this would miss the main point, which is that Japan does indeed have some massive price distortions. Services are for the most part very expensive. Manufactures are quite cheap. And since it is the relative price of manufactures that decide the exchange rate (unless capital outflow is very large), then clearly the distortion is not very healthy for Japan.

Why are most services so expensive? At last count I think I had indentified four different factors. But if readers can find some more I would be glad to know of them. The topic casts an interesting light on the Japanese soul.

1. The fussy consumer. Everything has to be perfect. And if people are put off by an unwashed taxi or a blemished melon, then obviously people selling melons and taxi rides are going to charge more for their services.

2. The non-price conscious consumer. In their competition for customers suppliers can concentrate on providing mood and atmosphere rather than cheaper prices.

3. The cloying group instinct. It helps to undermine efficiency in distribution and other service areas.

4. Traditional contempt for service industries. For more than a century the best Japanese talent has gone into making things more efficiently rather than selling things more efficiently. Elite university graduates still turn up their noses at jobs involving the distribution, retail, transport, construction or leisure industries.

On top of all this is the ease with which service monopolies are created, and the strange attitude the Japanese take to the problem of monopoly. So if KDD decides to charge for calls out of Japan two or three times what the rest of the world charges for telephone calls into Japan, few question whether something is wrong. KDD knows best. Or like taxes and the weather, it just has to be tolerated.

If I want gas laid on and the fee arbitrarily imposed by my local gas monopoly is $2,000 dollars I say thank you. I can of course choose the local electricity monopoly, but there the ripoff in terms of monthly charges is even worse than gas.

Then there is the airline monopoly. NHK television recently showed us how Iranians could easily cover the cost of the 70,000 Air Iran return air ticket to Tokyo by bringing in nuts and carpets for sale and taking out Japanese textiles and appliances. Only as an aside was it mentioned that a JAL ticket for the same route cost 300,000.

Poor old JNR is being hacked up because it doesn't make a profit. In fact it does provide quite a good service but has its hands tied in its efforts to compete with road transport. Meanwhile the tobacco monopoly people are allowed to poison the people's health, not to mention spend a small fortune on bonuses and health sports facilities for themselves, just because their protected monopoly allows them to make enormous profits.

Politics too are involved. The more a monopoly makes the more, it feeds out to the politicans. The more the politicans get, the more they will protect the monopoly. The more the monopoly is protected .... A neat vicious circle, and one exploited not just by the farmers.

Sometimes one wonders how Japan survives in the face of such gross irrationality. But then one worries what would happen if Japan did try to operate "rationally" like the rest of us. People across the board, and not just in the protected monopolies, would discover how smart it is to avoid doing an honest day's work. Maybe its better to stick to the lesser of the two evils. But even so....

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