The Myth of the Cautious Consumer: Law, Culture, Economics and Politics in the Rise and Partial Fall of Unsecured Lending in Japan

This is the second paper in our trilogy focusing on persistent expansion in unsecured consumer lending in Japan, leading to increasing over-indebtedness and then major judicial and legislative responses particularly from 2006. The Japanese experience provides important lessons particularly in the wake of the Global Financial Crisis of 2008, as the world reassesses how and why financial markets develop and more appropriate goals and means in regulating them. The rise and partial fall of unsecured consumer lending in Japan seem to challenge two still widely-held views about the Japanese, and especially Japanese consumers: they do not like debt, and they do not like law. In fact, such views - especially about the alleged Japanese aversion to law - are only some among a set of influential and quite distinctive schools of thought that have come to dominate the English language world of Japanese law studies. Part II conducts a thought experiment of how some of these diverse schools of thought might explain not only the growth of consumer credit markets in Japan, in the light of legal and socio-economic institutions, but also the recent re-regulation. Specifically, Part II.A develops caricatures of two culturalist accounts (communitarianism and liberalism); Part II.B, three economic theories (Chicago School, information economics, and behavioural economics); and Part II.C, two more political explanations. Part III argues that the most convincing explanations for the rise of unsecured consumer lending derive mainly from revamped (not particularly 'Confucian') culturalist theory and newer (especially behavioural) economics. But the partial fall around 2006 illustrates the increasingly less 'patterned pluralism' - perhaps even populism - of contemporary Japanese politics. These conclusions should be helpful not only in describing other contemporary developments in Japanese law and its political economy, but also when comparing other countries in fields raising similar issues. (A shorter version of this paper was subsequently published in J Niemi-Kiesilainen et al (eds) Consumer Credit, Debt and Bankruptcy: National and International Dimensions, Hart, 2009.) Our analysis also uncovers possible normative implications, explored more fully in our third paper.