This is also a big factor in making prices soar through the roof. Of course Japan has lots of laws like The Anti-Monopoly Law and The Fair Trade Commision that are supposed to stop illegal practices, but the FTC has always been understaffed, underfunded, and more of a paper tiger than anything else -- just the way Big Business wants it to be. And to be blunt, The Anti- Monopoly Law has hurt consumers as well, by allowing high-priced boutiques and mom-and-pops to block the establishment of big stores (which handle more foreign goods) as well as discount stores which increase competition. Currently the US is pushing for abolishment of the whole law. This may bring other troubles though. Japanese social security is woefully inadequate, which is the real reason why all Japanese squirrel away all their money and have the highest savings rate in the world. But that alone isn't enough. So how will older couples make ends meet after retirement? The mom-and-pop store, of course. With growing numbers of elderly, this problem will reach a crisis in a few decades.

The reason why cartels and collusion are the de facto rule of the land is in the way that the Japanese market functions. And unless foreign firms learn this they are doomed to fail in Japan. In most markets in the world the goal of the firm is profit. In Japan, it's market share. Whenever there is a new product like a walkman introduced, every company cranks out as much of the product as they can, at razor thin profit margins (sometimes at a loss, even). Then there is a major shakeout -- usually the firms that have less financial backing (i.e. they don't belong to a keiretsu with a big bank to back them up) have to drop out. In the end, you have a small number of firms, which quickly form a cartel and jack up the prices to make money. Distribution channels are securely locked away, blocking any would-be competitors. At that point, the game is over. Japanese business also has cozy ties with Japanese bureaucrats, and often employs them after they retire in a system called amakudari, which gives them a key player with all the government connections still in place. In the 20th Century, most governments would take up anti-trust legislation; Japan has actually encouraged the growth of big firms to raise its GDP. Ever since Japan reopened itself to the world in 1868, it has been on an export craze to make money -- while carefully protecting its own industries. Few Japanese even know, let alone know why, a Japanese camera costs more in Japan than in New York. A lot of the reason is that Japan is out to capture market share, while already securing it from competition at home. This kind of strategy, by the way, is why the Japanese market is the most competitive in the world, and if your company is more interested in next quarter's profits you will not survive.

One of the more well known and blatant forms of collusion is called "dango", which is bid rigging, usually by the massive multi-billion dollar construction firms. (Currently 10% of Japan's workers are in the construction industry). The firms divvy up the list of upcoming public projects, then each company bids higher than than the agreed upon to get the contract. The firms get a guaranteed contract at a high rate, and the taxpayer gets screwed. The projects can run into the billions of dollars, such as the construction of roads or Kansai Int'l Airport. Some action has been taken against the firms of late but since it can take over 10 years to prosecute and the fines are relatively minor, there is little incentive to be fair. Plus with Japan's economy in a coma throughout the 90s, instead of fixing the real problems the politicians are trying to stimulate growth by throwing out more band-aids of pork barrel projects, such as building dams the local people don't want or the infamous "roads to nowhere". All this when there is now the worst unemployment since WWII, massive public debt and a banking sector staggering under bad loans, and the Japanese government is officially in debt at 130% of its GDP (the actual unofficial amount could be as high as 270%). Another case is the beverage and beer industry. When Coca-cola announced it would raise its price to 110 yen per can, every other beverage maker did the same thing. Such is a common practice, but there was no extreme need. No explanation was given, and even worse, none was even asked for. The beer industry is another example. For some reason, all 4 Japanese beer giants charge exactly the same price. The reason given? All four just happened to choose the same price at random. Of course. Nearly every industry acts this way. Domestic flights are more than double that in other countries. Companies often keep tight relationships with distributors and retailers, including advancing them capital they can't pay back as well as training in selling. And the last thing a retailer is going to do is bite the hand that feeds him by selling a lot of foreign goods that are far cheaper. This economic policy was designed to strengthen large companies and have Japan catch up to the west after WWII. Now that Japan has caught up, however, new policies have never been implemented, and Japan is stuck with a "dual economy". An excellent analysis of what has gone wrong was written by Richard Katz. Even the media makes an information cartel of sorts, with it's press clubs (kisha) that all act together and keep other reporters that might report more than the official party line out. The Japanese people all get their news from a self censoring, government mouthpiece press. There is next to no mainstream investigative reporting, or whistle-blowing, deep muckraking stories of the under-the-table deals. Only when a major financial scandal erupts does it ever come out, and after a few weeks of perfunctory apologies and superficial changes, it's back to business as usual. This doesn't mean there is some shortage of intellectuals in Japan; the Nihon Keizai Newspaper, and magazines like Seiron, Ronza, and Gendai all offer good reporting. But it is impossible to see the inner workings of government and just how far the corruption goes. Pinning down the responsible party in nearly impossible.

3. The Bulky, Rigged Distribution System

(Or: Do you really need 3 people to wrap your hamburger?)

For a business to succeed in Japan, it needs at least 2 essential things. One of course is capital. The other, however, is control of the distribution channels, and this is where many foreign firms fall short. Japan's distribution system is a complex maze and their are thousands of regulations to follow. This system is currently strangling the domestic economy. After WWII, Japan had millions of people who needed work fast. So a system was made that employed lots of workers, though many of the jobs were (and still are) redundant. Also there are often several wholesalers sitting between the producer and retailer, each taking their cut. This is one of the principal reasons why just sending the value of the dollar through the floorboards didn't work. From Sept. '85 the value of the dollar vs. the yen fell by more than half. Yet products in Japan made from imported parts/ingredients didn't budge. The real reason was that the middlemen were eating up nearly all the savings. When the dollar hit 100 yen, the Japanese booksellers still used the old 175 yen/dollar rate, and didn't pass any savings on to the consumers. (You'd be wise to buy whatever books you want in Japan before you come, since the very same books in Japan will cost 2 or 3 times more). In 2000 Merill Lynch economist Jesper Koll noted that Japan has 392,000 wholesalers -- a staggering number. Yet two-thirds of them just sold things to eachother and not retailers or producers, and four-fifths of Japanese wholesalers have less than 10 employees each. Distribution channels in Japan are extremely exclusive -- usually an arrangement to carry your goods also means only your goods and no competitors. Then they have to fight it out with eachother for the store owners to carry their products on the best shelves; space being extremely limited. For decades Japanese people were told (and they accepted) the notion that higher prices were necessary to keep the whole nation employed--and Japan has had the lowest unemployment rates in the industrialized world. Also with land prices so high storage costs are also wildly expensive, and with Japan's narrow, poky streets large and cheaper distribution is impossible. Docking fees for ships and planes is also insanely high, and it can cost more to ship something across Tokyo than to ship it across the world. High gasoline taxes and expensive electricity also make transport more expensive. In many ways Japan's distribution system makes up the largest Non-Tariff Barrier (NTB). Other NTBs will be mentioned later.

4. Snob Appeal