Japan finds a 'stealth' cure for zombie businesses: Let them fail

Years of faltering growth and population decline left many of Japan's small and medium-sized firms squeaking by on state help and almost-free funding.

Japan may scale back its corporate welfare, socialism for the rich after it has produced so few results and hurt Japanese competitiveness.

But the larger Japanese society and working population will be suffering the effects for a longer time.

replace sclerotic businesses with those able to deliver growth.

Finally! And there are many new startups these days. Let the growth begin!

In a written response to questions, Japan's Ministry of Economy, Trade and Industry said it would continue to support small and medium-sized enterprises (SMEs) with funding and other measures, adding that companies needed to boost their earning power through investment 

Another round of subsidy will given?

Japan spent 63.2 trillion yen, or about $400 billion, on SME support in the pandemic, according to a 2022 finance ministry report, with around $267 billion disbursed as "zero-zero" loans, which required zero collateral and had zero-interest-payment grace periods.

In US there were, NINJA loan now Japan has zero-zero loans. Both of them is to support unproductive things.

It said bankruptcies were now "on a slight upward trend" and had returned to pre-pandemic levels, while workers were changing jobs for better conditions, including higher wages.

Even if those worker able to change job, they might not get their past few months salaries.

https://e.vnexpress.net/news/news/88-vietnamese-workers-left-unpaid-for-2-5-months-in-japan-4759685.html

Zero zero loans was a terrible idea. I know people who borrowed several tens of millions of yen without a need or a purpose. It’s no surprise that many of these loans ended in default.

The article should have mentioned unemployment, which is incredibly low in Japan. That means that too many engineering and other workers are trapped in zombie companies that don't give pay raises, dragging down the economy as a whole.

Inevitable, but I'd like to add a point: small businesses tend to be owned by families who have owned them for generations. When the owner of a friend of mine went bankrupt, he committed suicide. There is a large difference between running a small business and working in the corporate world. Support is required.

""To be sure, the government expects the change to come via mergers and acquisitions, rather than large-scale bankruptcies and lay-offs, one of the people said. The government has help centers to advise small businesses on M&A.""

Agree, Merging and Acquisitions are the right answer rather than going out of business, in many cases many governments actually facilitate these events to save Jobs and the supply chain.

Demographics also relate to this. The majority of SMEs are family owned and a large proportion have no plans for succession when their current company president dies or retires. Merging with another company solves that problem.

Tricky questions posed.

Straight capitalist economics would say "let these under performers fail "...

More manufacturing to China may be the result.

Social economics would say "employment and production are best kept in Japan ".

Personally, and I'm not a purchaser of heavy manufacturing or ships etc, I'd pay a little more to buy a Japanese product.

Japanese tools, for example, far better than Chinese made one.

Covid grants kept companies going during lockdowns, but Covid loans, globally, were like a free taster of a drug that would eventually finish you off. The extra debt was the straw that broke the camel's back. You can't freeze an economy, add debt, deprive it of staff, and then expect it to do anything other than keel over and expire.

Japan's unmentionable problem is that the vast majority of small businesses may have had such low margins and so much debt, for so long, that a wave of the magic wand of 'creative destruction' could polish most of them off. Culturally, these companies have shouldered debt and reduced profits to stay in business and not sack people, whilst the RotW shuffled the pack. And not just in bad spells, but for years - decades even.

The West never coped particularly well with industrial transitions (coal miners don't easily take to infosec posts), and Japan has held off doing this for so long, that the numbers involved could cause political instability.

As for M&As. They are a good way of loading your company up with the debts and other problems of someone else's failing company. At best, you are making an expensive investment with an uncertain return.

The current way of doing things is not sustainable and needs reform (it was probably one of Abe's arrows). But it has been that way for so long, that it may not be fixable. It will certainly require more talent to implement than is typically found in government. It may be comparable to the debt issues facing the Chinese economy, in scale, cultural origin, and consequential risk.

They may be hoping that larger companies will simply absorb smaller ones, using their cash piles to erase the debt. That might work, as long as there is enough cash in the system, and a willingness to wave goodbye to it.

Quote: Business owners are reluctant to raise prices for fear of losing customers.

That's not how it works, folks. You maintain your profit margin by raising prices, whenever governments wreck the economy. If sales fall below viability, you axe the product. Like Yukiko Izumi, you audit, renovate and innovate. Because if you aren't making a profit, you are not a business, you are a charity.

Japan has always been a pseudo socialist/communist country which was fine during the early days with high production and low costs but the music had to stop sooner or later.

“channel workers and investment to its most productive companies” only sounds good on economics textbooks. Jobs at productive companies require training and education. Let the “zombies” fail and many of newly fired workers will remain unemployed for a long time or end up on much lower paying jobs.

Bankruptcies have surged as the loans came due.

What does this expression mean? I've got a コロナマル経 loan myself, the document is sitting here in front of me. The first repayment was due 33 days after the money was provided. It wasn't provided in a go out and play and wait for time bomb to go off manner. My loan "came due" one month later.

SMEs shouldn't be recipients of "welfare policies," said Akira Amari, an influential lawmaker from the ruling Liberal Democratic Party. 

I kind of agree with this, but wonder why the focus is on SMEs. The same surely applies to large businesses as well, including "too big to fail" banks and other financial institutions, manufacturers who fudge safety data, and the like.

Japan ranks below the OECD average for annual wages and per capita GDP. The latter, a barometer of labor productivity, shows Japan at $33,834, behind France and Italy. 

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Japan lags quite a few countries these days in many areas.

Japan’s business culture is too concerned with decisions taken by and opinions of Keidanren which influences the government.

Japan has hundreds of local banks which are at the root cause of the issue : lending zero zero loans.

Once the magic money creation will run off as it should have, the hose of cars will collapse. It can't be controlled. If so, it would take decades...

I wonder how Yukiko could buy and merge if company had been losing money for a decade. Personal money I assume. The only way.

I was interested in this article when it was floating around LinkedIn a week or two ago.

Am I suffering from false memory syndrome, or did JT publish this same story (or a very similar version of it) about a year ago?

After searching the site, I find there has been a succession of very similar stories.

Lots of opportunities here.