Private Debt and Social Welfare in Japan: Consumer Finance, the "Middle-Risk Gap", and Japan's Social Contract（日本における個人負担と公的保護：消費者金融、ミドル・リスク・ギャップ、日本社会の契約）

 The recession of the 1990s has caused a social crisis in Japan, with unemployment, homelessness, private household debt, and suicides reaching unprecedented highs. These problems coexist with the macroeconomic phenomenon of a pronounced “middle-risk gap” in Japan’s interest rate structure. This gap suggests that Japanese banks are unwilling to lend to small firms in the middle market, all the while money lenders and loan sharks earn high returns at rates exceeding 20% p.a. This paper examines the social problems and the interest rate structure as they relate to Japan’s social contract. Because the postwar system of lifetime employment made the build-up of a well-funded public assistance system less important, the government now offers support to unemployed through employment creation measures, such as highly subsidized loans to defaulting small firms. These programs are not only increasingly ineffective in providing a social safety net, they also distort markets, as evidenced in the interest rate structure, and inhibit economic reforms in Japan.

Professor Schaede is Associate Professor at the Graduate School of International Relations and Pacific Studies, University of California, San Diego. She is an authority on Japanese business and management; regulation and government-business relationships in Japan; Japanese financial markets; antitrust; and corporate strategy in Japan. Her major areas of research have included the structure of financial markets, the role of trade associations and antitrust policy in Japan, and the role of the government in Japan’s regulatory system. Her ongoing research project concerns venture capital and small-sized companies in Japan.