How Japanese small businesses help the poor

The United States has largely ignored Japan's way of aiding its lower classes , and Japan's results suggest that the US has been making a mistake. But because Japan's approach is cheap and relies heavily on business -- small business -- it may appeal to the Reagan administration.

Since at least the mid-1950s, the Japanese have emphasized helping small business aid the poor and the lower middle class. And during that time they have virtually eradicated poverty.

The lower classes tend to depend on small business for jobs in every country. Because workers in large companies have power and their bosses tend to pay them better than do small companies, big companies generally automate more and pick and choose more among applicants.

The gap between workers in big and small companies has been especially dramatic in Japan, where big companies are run largely for employees. Large Japanese companies almost exclusively hire new school graduates, leaving other workers little hope of entering.

Thus, about 25 years ago the Japanese decided that nothing they could do for their lower classes would help more than effective aid for small business. The more vigorous were the small businesses, the thinking went, the more they could pay their employees and the more money they could offer people who needed jobs. Today, all of Japan's political parties -- including the Communists -- portray themselves as small business's best friend.

The Japanese system is designed to ensure that every small business wanting to borrow money gets a careful analysis from a loan officer. More than 1,000 private lenders are especially chartered to serve small business, and an array of government-operated finance agencies employ some of the nation's most talented bureaucrats. From 1955 to 1977, long-term lending to small business in Japan increased more than 200 percent.

The government also aids industrial associations that sponsor seminars, research, and reports for small business and funds 558 local research institutes that serve them.

Though Japanese pollution and safety regulations have been strong enough to reduce emissions and accidents more than America's, Japan's environmental agency and Labor Department have been careful to administer them with sensitivity to small business. Special loan programs help small businesses pay for mandated changes.

Other programs discourage bisness in small business's traditional fields, though these may find it harder to administer programs that aid small companies directly. A man who wants to open a supermarket in an old Japanese neighborhood , for instance, must not only comply with zoning regulations and building codes, he must also negotiate directly with small neighborhood merchants angered by the threat of low prices. A college professor assigned to "mediate" may force him to reduce his store's size or hours. This obviously may hurt consumers, but it does protect jobs in small stores.

Japanese small business also benefits from the practice of subcontracting, where smaller firms perform many nonmanufacturing functions in and around the factories of large companies. Unions at the big companies often encourage subcontracting to lower-wage companies because they know subcontracting increases profits, permitting increased wages. And subcontractors can be let go in recessions, increasing job security for workers at the big companies.

All this results in a vast small-business labor market that provides decent jobs for nearly 80 percent of Japan's private labor force. Compared with the US , where small manufacturing businesses benefit from few of the rules that protect small retailers and where the share of small business has declined sharply over the last generation, the share of small business in Japan has risen. All 3,000 manufacturers that Japanese statistics count as "large" have about the same share of Japan's manufacturing as the largest 200 manufacturers alone do in America -- about 45 percent of value added.

The strength of small business means Japanese can find jobs fairly easily. The Rev. Iwao Masu, a Christian minister who works with derelicts in Yokohama, says he could readily find jobs paying perhaps 200,000 yen ($900) a month for any healthy man who wanted one. Japan's unemployment rate rarely rises above 2 percent, and a study by the Organization for Economic Cooperation and Development found that the poorest 20 percent of Japanese received a share of the nation's income about 50 percent larger than the share received by the poorest 20 percent of Americans.

Moreover, the strength of small business is not the only reason Japan has little poverty. Japan has virtually banned immigration, so unskilled Japanese need not compete with new arrivals. Japan's homogeneity means the poor need cope with few cultural differences from mainstream Japanese. And Japan's educational system may still be better at teaching basic skills than America's, which has been prejudiced against rote-learning.

But much of the credit for Japan's having so few poor must go to its strategy of helping small business to aid the lower classes.

Japan's experience suggests the US can help its poor without spending more or making its economy less efficient. The poor's most important need is for jobs to get them out of poverty. Americans -- like Japanese -- probably produce better jobs when their industrial leaders and bureaucrats understand a nd remember the special problems of small business.