A rchive Date
[ 23-07-2002 ]
Category
[ International Relations ]
sub-Categoy
[ Japan ]
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[http://www.webfin.com/en/news/news.html/?id=20101
Underground: Japan's Secret Economy Flourishes
Asia (Jul. 22, 2002 - 07:33)
TOKYO (AP) - Economist Takashi Kadokura leafs through pornographic magazines, phones the brothels and massage parlors advertised inside and asks for rates, waiting time and room occupancy.
He calls his research the "direct method," and he uses it to sketch a vignette of Japan's booming underground economy - a market worth the equivalent of $193.3 billion a year, equal to 4.9 per cent of the country's gross domestic product.
Most economists look at Japan, the world's second-biggest economy, in terms of office workers in starched shirts turning profits at flagship firms like Sony, Toyota and Mitsubishi. But Kadokura, who claims to be the first to put a specific figure on all the money passing under the table, sees a parallel economic force generated by prostitutes, gangsters, drug runners and their customers.
"The underground economy is too big to ignore," the Dai-Ichi Life Insurance economist said, noting the total is more than the government's 2002 health and welfare budget.
In a best-selling book that chronicles his two years of research, Kadokura illustrates how Japan's underground economy has flourished - even expanded - despite the decade-long downturn in the country's aboveboard economy.
His book, "Japan 'Underground Economy' White Paper," doesn't advocate illegal entrepreneurship. He acknowledges that the underground economy often involves the peddling of drug addiction, the exploitation of women and the blackmailing of honest entrepreneurs.
From the government's point of view, it also drains badly needed tax revenue because people try to hide their ill-gotten gains.
But the book credits the underground economy with helping the country weather hard times by providing jobs to those squeezed out of legitimate work and lifting consumption by giving people money to spend.
"The underground economy is like a giant dish that catches those falling out of the real economy," Kadokura said. "It has bad sides and good sides."
The underground economy encompasses unreported earnings from, among other things, theft, extortion, protection rackets, prostitution, gambling, drug dealing and simple tax evasion.
The increase in many of those vices is driven in part by hard times, but even underground entrepreneurs are faced with some of the same pressures that legitimate business people face.
For example, to win customers in an increasingly cash-strapped society, gangsters are slashing prices on illegal drugs, Kadokura says. Amphetamines that sold for $446 a gram a decade ago are now going for as little as one-fifth that, helping spur a 7 per cent surge in abuse cases in 2000 alone.
Part-time prostitution is increasingly seen as a way of supplementing sliding income or lost jobs. An hour at a Tokyo massage parlor can now cost less than $83, compared with double that during the economic boom years of the 1980s, as a surge of sex workers undercuts rates. Kadokura estimates Japan's sex market at $14.2 billion annually.
Much of the money earned in the underground economy goes back into propping up the legal economy. Schoolgirl prostitutes spend their earnings on fashionable handbags and designer dresses, while gangsters increasingly invest their take - estimated at $11.6 billion a year from drug running alone - in legitimate business ventures such as real estate and high-tech firms.
Kadokura estimates that $128.3 billion is pumped back into the system, an amount equaling about 5.3 per cent of official consumption.
A decade ago, few economists bothered to study the impact of the underground economy, which was viewed as irrelevant or simply repugnant. But many now see it as a microcosm of the economy at large.
"There's the underground economy as a rebel and the underground economy as an entrepreneur," said Jesper Koll, chief economist with Merrill Lynch in Tokyo. "It is very important because it teaches you where the flaws in the system are and where the entrepreneurs are flocking."
Kadokura based his research on police records, government surveys, private reports and directly reading sex ads, checking into chat rooms or making calls himself. He stresses that his findings are ballpark figures.
Kadokura expects the underground economy to expand as underground businesses get a boost from advancements in mobile phones and the Internet, as well as the opening of international financial markets. That could make it easier to carry out dubious transactions on the sly and launder the money.
For Tokyo's economic planners, that means more headaches. With the jobless rate above 5 per cent, corporate bankruptcies on the rise and the banking sector overwhelmed by billions of dollars in bad loans, economic recovery is the government's top priority.
But drafting budgets, filling government coffers and rolling out economic reforms could become increasingly difficult with more than 5 per cent of the nation's wealth generated underground and kept under wraps, with taxes being paid, Kadokura said.
"Nobody has thought of this as a part of real economics before," he warned. "That could be a big mistake, if the government wants to grasp the real picture."
 World Fact Book (CIA)]
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