Japanese Regulation Hurts Japan, Too

Americans continually warn that the heavy hand of regulation in Japan hinders their business activities there. What is less recognized is how government regulation hurts Japanese companies--and consumers--at least as much as foreign investors.

Take poor Japan Airlines Co. It has lost upwards of $1 billion over the past three years and recently sought to replace some Japanese flight attendants, who are paid $60,000 a year, with Thais and Filipinos, at half the cost. With labor representing nearly a quarter of total operating expenses, it makes plenty of business sense.

But not to the bureaucrats at the Transport and Labor Ministries, who are forcing JAL to reverse policy. Publicly citing safety concerns--such as language barriers between foreign and Japanese attendants--these officials are really protecting jobs in the airline industry.

JAL also suffers from operating out of one of the world's most expensive airports, Narita. Fees and taxes force airlines to pay nearly $10,000 to land a loaded Boeing 747 at Narita, four times the cost at John F. Kennedy International Airport in New York and twice what it costs in Frankfurt. When the new Kansai International Airport opens up, the fees are expected to be even higher.

Consumers also pay dearly for Japanese government regulations. When a recent drought forced Tokyo to import large quantities of Thai and American rice, the private sector was forbidden from buying directly overseas. Only the Food Agency was allowed to import rice. Not only did it set a high price for the foreign rice, it forced stores to mix it with the local variety. It was near impossible for Japanese consumers to taste "American" rice.

In the end, the Food Agency pocketed about $2 billion on the imported rice, the difference between what it paid and what it charged wholesalers. That was $2 billion out of consumers' pockets. The same consumers, by the way, will be paying higher prices for JAL tickets, unless, of course, they decide to fly United Airlines or Singapore Airlines.

Before it's here, it's on the Bloomberg Terminal.