LIA $FACTS$ for July 1998
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Macro vs. Micro

We have often taken the position that the lifetime employment system (as practiced in Japan) produces a lower cost of labor than the star system (as practiced in the U.S.). Among the reasons for this position is the ability to "pay" employees with other-than-cash; promises, titles and threats among the more popular. We continue to hold this position when dealing with a fixed system and a single entity.

We have also felt that society benefits with the resulting security and stability in the work force.

But we noticed an interesting phenomenon; employment security in the States seems to have gone through the basement - there seems to be little. And it seems to be getting worse (better?).

At the same time, the U.S. is enjoying greater economic growth than it has previously in my lifetime with stable purchasing power and a dynamite stock market. People seem to be getting wealthier, even little people (is "trickle down" alive and well?).

We have pointed to U.S. basketball as our example of the spiralling costs and lower value to the consumer that are part of the star system. We have pointed out that if Michael Jordan were paid the same amount as the other players, he could support 100 guys who couldn't play at all! We believe this is currently occurring in Japan; star employees, paid the same amount as the guys "sitting near the window," are supporting crowds of useless employees who continue to receive paychecks.

Recently, we read about the estimated financial impact Michael Jordan has had on the U.S. economy (actually the world economy). The amount is enormous and the supporting argument believable! Apparently he is supporting thousands of people; some highly paid, some lower, most of whom are actually productive. Not merely 100 other basketball players!

Can the same argument hold true for the captains of industry? Is their impact on the overall economy, and hence society, far greater than what they are paid, despite the enormous sums that make our common heads spin (The powerball lottery in the States is the biggest it has ever been at about $250,000,000 this week. Based on the closing values of his stock, that's about 1% of the increase in Bill Gates' net worth over the last several weeks! Of course his salary is much smaller.)

We suspect the argument holds true. Despite the apparent inequities and anxiety created by the star system, we think society, as a whole, benefits more from the star system than from the lifetime employment system. The pie just gets bigger faster, even though it is pretty horribly unevenly distributed! I think Churchill is attributed with the idea that the good of socialism is the pretty even distribution of wealth and the evil of capitalism is the uneven distribution of a far greater wealth!

\?DAKA

Ha! Anyone remember what "Endaka" means? We do.

We cogently argued it would not go away very quickly. Our arguments centered on two main issues; (i) the inability of the U.S. to get the budget under control and (ii) the catering to the U.S. auto industry that we felt was part of every elected official's concern.

We also argued that Japan's complaints about endaka were roughly equivalent to brer rabbit's entreaties not to be thrown into the briar patch! Oil was just getting cheaper and cheaper when denominated in yen.

The yen was at about 105 in those days and it strengthened to below 80 before it changed. Now it's above 140.

The U.S. budget is showing surpluses thanks to the booming economy and there seems to be less concern about the political clout of U.S. auto manufacturers, especially since a big part of the Japanese market can no longer afford cars and the companies are suffering. Also, we suspect that someone realized that buying oil cheap was not a negative for Japan.

So, where's the yen going? Sorry, we do retirement plan liabilities and try to stay off the asset side of the balance sheet. And we have been wrong once already. We will probably have something to say when it happens, though!


Copyright 1998 Lohmann International Associates

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