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5 STEPS INTO THE ASIAN MILENNIUM
PAGE 4 OF 7

Its citizens, nominally the world's highest paid, endure third-world living standards, comparable to those of Mexico.
hereas Steps 1, 2 and 3 (creation of an East Asian Common Market, reunification of Corea and of China) are virtually certain to occur within five years, the timeframe for the 4th and 5th steps -- the Liberation of Japanese Consumers and the Asianization of California -- may extend longer, perhaps as long as a decade. Nevertheless they are inevitable given the social, economic and technological cycles set in motion 150 years ago.


STEP 4: Liberation of Japanese Consumers

     For the past decade Japan has been the biggest drag on global economic growth. The reason? It sits on the world's biggest hoard of fallow capital -- $8.5 trillion by a recent estimate -- and keeps it in a state of enforced fallowness. As a consequence its citizens, nominally the world's highest paid, endure third-world living standards, comparable to those of Mexico which has a per-capita GNP only one-fifth of Japan's.
     The Japanese people aren't the only ones who suffer from the distortions created by the Japanese government's poorboy policies. Its trading partners -- the United States, China and Corea foremost among them -- lose out on an estimated $400 billion a year of exports as a direct consequence. What that could mean, for example, is 1.5 percentage point of annual growth for the U.S. economy plus2.5 points of growth for Corea plus 2.5 points for China. If Japan were a normal nation in which its people are free to enjoy the fruits of their high productivity, an attack on Asian financial systems could never have been contemplated by the likes of Soros. Why? Let's take a peek at the mechanisms behind the gross social and economic distortions kept in place by the wrinkled tyrants who have ruled Japan with a gnarled but all-powerful fist for the past half century.
     As incongruous as it may seem, at the heart of the LDP machine are Japan's humble rice farmers. These days about 14% of the Japanese population earn a full-time living from farming (versus only about 4% in the U.S. -- some indication of the gross inefficiencies of Japan's over-protected agricultural sector), with another 9% participating on a part-time basis in the operation of family-owned farms. Yet these farmers, who work millions of tiny plots, keep the LDP in power. How is that possible when 75% of Japanese live in cities? The Japanese electoral system provides representation based on districts created forty-five years ago before the mass migration to cities. The system has been modified a bit in the past few years, but remains grossly inequitable, giving a rural voter the clout of 2.5 urban voters. They and other oldline, highly inefficient sectors -- distribution, construction and the yakuza -- keep the LDP in power. In return the LDP showers remote districts with thick slabs of pork like modern roads, trainlines, bridges and tunnels, farm subsidies and tax breaks, and, most importantly, a commitment to defend to the death what amounts to a virtual ban on the import of rice and other food commodities. As a result, Japanese farmers sell their rice for 4-7 times as much as American and Thai rice farmers and can stay in farming to keep the LDP in power.
     The premium on food prices amounts to about $400 a month in unofficial food protection tax for a typical Japanese family, but it's only the most obvious tip of the iceberg in terms of the burden LDP policies have imposed on Japanese consumers. The protection of rice farmers exacts a far bigger protection tax on housing. A typical Japanese family in Tokyo or Osaka pays $1,800 a month to rent an 850-square-foot apartment. For the same money an American family could rent a 2,500-square-foot home in a middle-class suburb of Los Angeles. That amounts to a 190% protection tax arising directly from the fact that the protection of the small farms ringing the cities prevents the kind of suburban expansion that has provided spacious housing for the majority of American families. PAGE 5

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