AMPONTAN

Japan from the inside out

Filling the vacuum in Japanese politics

Posted by ampontan on Saturday, January 10, 2009

You may have to fight a battle more than once to win it.

There are still people in my party who believe in consensus politics. I regard them as Quislings, as traitors… I mean it.

– Margaret Thatcher

NATURE ABHORS A VACUUM, they say, and politicians, despite their most unnatural behavior, are an excellent example. Whether creating two plans where none are needed, expelling vast quantities of hot air out of both sides of their mouth simultaneously, or building bridges and highways to nowhere, no professional class is quicker to promote a vacuity as the best way to fill a vacuum.

That’s why it is curious that a virtual vacuum has existed in Japan since the icebreaker of Japanese politics, Koizumi Jun’ichiro, relinquished the post of prime minister in 2006. And it’s downright mystifying that no one in Nagata-cho has seen fit to follow the map he drew of the royal road to popular acclaim and political success. Do you want to win friends and influence the Japanese electorate? Champion privatization, devolution, and sound economic policies while spurning the hacks in your own party and the meddling bureaucrats. The key element in the package was his credibility while presenting a positive vision of the future and railing against the failures of the past. That paid off in stratospheric public approval ratings and the second-highest majority in the Diet’s lower house during the postwar period.

Mr. Congeniality

Mr. Congeniality

Political success usually spawns a swarm of eager imitators, but the politicos in both the ruling coalition and the opposition seem intent on ignoring the obvious lessons and becoming unpopular and unsuccessful instead.

The post-Koizumi parade

It’s apparent now in retrospect that his immediate successor, Abe Shinzo, gave it the old college try, but failed in his effort to combine reform with party unity by pleasing the LDP insects that Mr. Koizumi squashed to the delight of the public. Mr. Abe started his first day on the job with an approval rating of 70%. That predictably plummeted to 40% as soon as he readmitted to the party the hacks Mr. Koizumi threw out for their opposition to reform and privatization.

A year later, the Kasumigaseki bureaucracy nailed shut the coffin lid on his administration by staging a de facto coup. When Mr. Abe proceeded with plans to privatize the Social Insurance Agency, the bureaucrats unleashed a preemptive strike by revealing years of back office mismanagement and blundering that left millions of pension accounts unidentifiable. In Japan, the bureaucracy often acts as a government-within-a-government with a more finely tuned sense of defending its own turf than defending the national interest.

Mr. Abe was succeeded by Fukuda Yasuo, who tended the government farm by watering down reform and letting the bureaucratic foxes back in the henhouse, particularly those from the Ministry of Finance—the ministry housing the most vicious cutthroats with the sharpest knives. Fresh off an election in which they seized control of the upper house of the Diet, the opposition chose to attack by engaging in a series of political back-alley brawls rather than demonstrate the soundness of their policies or their administrative competence. Though they failed to convince the electorate they were a reliable alternative, they did expose Mr. Fukuda as a ditherer incapable of managing a government or rallying the party to deal with the political threats. (One suspects Mr. Koizumi would have relished those battles and emerged the victor.)

After Prime Minister Fukuda was encouraged to throw in the spoon (which the Japanese throw instead of a towel), the party turned its back on Koizumian reform for good by turning to former Foreign Minister and bon vivant Aso Taro, who had long sought the job. Mr. Aso was never a bureaucratic reformer to begin with, opposing the privatization of the Postal Ministry behind the scenes. He ceded fiscal policy to Finance Ministry stalwart Yosano Kaoru, which has produced a hyper-Keynesian budget proposal based on concepts that failed miserably in the lost decade of the 1990s. LDP coalition partners New Komeito prevailed upon the government to include an unpopular stimulus rebate–modeled after the two failed American stimulus rebates offered by the most recent President Bush.

Today, the LDP old guard finds itself sailing in a mudboat on a falling tide. Higashi Junji, second in command of New Komeito, was blunt about the prospects of the Aso administration during a television interview:

“To view opinion polls and the way the public views the ruling party in baseball terms, it is as if we are in the bottom of the ninth with two out and the score 3-0. Coming from behind is of critical importance.”

Being in opposition means we’re opposed

Mr. Vitality

Mr. Vitality

In any other parliamentary democracy, this would be a golden opportunity for the opposition to slide over into the driver’s seat. But the hallmark of the Democrat Party of Japan is to never miss a chance to miss a chance. They long ago squandered the opening presented by their historic 2007 victory in the upper house. The Japanese public soon realized it was a waste of time to view the DPJ as a reliable alternative, much less look for them to deliver the reforms they want. Fewer than four months after the party seized control of the upper house, DPJ leader Ozawa Ichiro turned drama queen by quitting and then resuming party leadership within the space of three days over the issue of forming a grand coalition with the LDP. In fact, he hinted that he would bolt the party altogether, take his ball, and go play somewhere else.

While it’s true the party has finally taken a lead over the LDP in opinion polls, it isn’t because of well-crafted policies or deft political maneuvering. Despite all their splashing around, they’ve just been treading water while the LDP sank and passed them on the way down. A private DPJ poll taken last September reportedly showed that unaffiliated opposition candidates were running 10 percentage points better in some districts than the candidates the DPJ officially backed.

Reform DPJ-style

The DPJ claims they will do a better job of controlling the Kasumigaseki bureaucracy. Rather than demonstrate their readiness to take the civil servants head on, however, they’ve formed an alliance with ex-LDP diehards who oppose postal privatization. They implicitly promise to reconstitute an obsolete ministry whose funds from parallel savings accounts and insurance policies financed the construction industry pork on which the Iron Triangle of the LDP, big business, and the bureaucracy fattened themselves for decades.

Abe Shinzo deserves credit for the courage to pursue the privatization of the Social Insurance Agency and paying for it with his job. In contrast, Ozawa Ichiro promised to keep it alive by merging it with another agency. Not only does he fail to match his words with deeds, he fails to match his words with other words. Cleaning up the Augean stables of the Kasumigaseki bureaucracy seems to mean sweeping out the offices after a government agency moves to a different corner of Tokyo and changes its name.

In fact, Mr. Ozawa is doing an excellent imitation of a 1970s LDP machine pol, but then again, that’s how he got his start in politics. When the LDP tried to reform the agricultural sector by eliminating subsidies to small farmers—a traditional pillar of party support—Mr. Ozawa promised to restore them.

How’ s this for a retro approach? During a recent interview on the Nikoniko Video website in Akihabara, Tokyo, he said:

“Japan’s lifetime employment system is one (type of) safety net. I hope to communicate to the world this Japanese approach to capitalism using that system as the underlying premise.”

This is the political equivalent of declaring bell-bottoms, love beads, and Nehru jackets back in style. People pointed out for decades that the lifetime employment system and salaries based on seniority rather than accomplishment hindered the modernization of the private sector. Now that Japan’s corporations have finally wised up, Mr. Ozawa wants to reform them by making a U-turn.

Sick and tired

Typifying the problem with the DPJ and its boss was the latter’s response to Aso Taro’s New Year message on the 4th. Mr. Aso told the nation that his administration would stress anshin (peace of mind) and katsuryoku (vitality).

Mr. Ozawa appeared before the cameras to rebut the prime minister, but was unable to muster even a hint of a positive vibration. His all-too-typical sour response could be summarized as, “They’re bad and we’re not.”

More shocking, however, was his appearance. Everyone knows that he isn’t a healthy man, but his complexion was particularly sallow and the bags under his eyes were deep enough for a week-long business trip. He was tired and irritable, and his mouth was frozen in the shape of an inverted U. If that was how he looked after the yearend holidays, how will he fare in the year ahead?

To be blunt: Mr. Ozawa and his party’s leadership are sailing on a mudboat of their own. The closer he has come to power, the more he has come to resemble the anti-reformers of the post-Koizumi LDP–profoundly reactionary in the truest sense of the term.

The prime minister and the leader of the opposition are two tired old men surrounded by more tired old men with tired ideas a half-century out of date. The most likely successor today to Aso Taro in the LDP would be Yosano Kaoru—a cancer survivor. And no one in Japan would be surprised if Ozawa Ichiro were to drop dead of a heart attack tomorrow. It is as if the Japanese are being presented with a choice between Yuri Andropov or Konstantin Chernenko.

But taking the first steps into this vacuum are two members of the reform wing of the LDP with credentials, accomplishments, and a coherent, positive message. One is Nakagawa Hidenao, who could be called Mr. Inside for his intention to work within the party, for the time being at least. The other is Watanabe Yoshimi, who is on the verge of becoming Mr. Outside for starting off the New Year with a political bang by threatening to bolt the party unless Prime Minister Aso does what everyone knows he’s never going to do.

Nakagawa Hidenao and the Rising Tide

Mr. Inside

Mr. Inside

Nakagawa Hidenao is very clear about his policy positions. In 2006, he published a book called Ageshio no Jidai (The Rising Tide Era), in which he argues that his policies would boost Japan’s GDP to 1,000 trillion yen while reducing taxes. Last year, he published Kanryo Kokka no Hokai (The Collapse of the Bureaucratic State), in which he calls for the breakup of the Japanese bureaucracy, which he terms a “stealth complex”.

He is a proponent of small government whose “rising tide” platform has five major planks: Ending deflation, reducing government assets, cutting government expenditures, implementing systemic reform, and then–and only then–increasing taxes

The LDP zombies tried to slam the door on the Koizumi reforms by shutting Mr. Nakagawa and his allies out of the Fukuda Cabinet reshuffle on 1 August last year. But rather than stymie the reformers in the party, it seems to have given them a greater sense of urgency.

Some estimate that the LDP reform wing in both houses of the Diet numbers about 100, including the Koizumi Children. This group finds the current leadership and its policies appalling, and they’ve drawn the obvious conclusion that ignoring electoral districts in the urban areas that reflect recent demographic changes will result in the loss of their majority. Said one of these MPs off the record:

“If you look at the last election on postal privatization, even a fool would understand that…Placing all your trust in the people and then calling for a consumption tax increase before an election is not the sane thing to do.”

He added that his group considered the reshuffle a coup d’etat by the reactionaries.

“Some MPs will look at Noda Seiko and Mori Kosuke (opponents of postal privatization thrown out of the party by Mr. Fukuda and allowed to return by Mr. Abe) in the Cabinet and decide they would rather break away to form a new urban party than fight an election under the LDP banner.”

They might have some company in the wilderness. Another postal privatization opponent and political fossil Kamei Shizuka, who formed the Peoples’ New Party rather than return to the LDP, claimed last summer that some DPJ members have a yen for reform even stronger than Mr. Koizumi and his impractical ideas. (The phrase he used in Japanese was “empty desktop theories”.)

Mr. Nakagawa began to significantly raise his profile in the second half of December. Since then, he has shifted from simple criticism of the Aso administration to promoting his own ideas. He’s even developed a slogan: A 21st century New Deal. (Ironic, as his philosophy is 180 degrees away from that of FDR.) He’s become more forthright about the possibility of a pre-election political realignment. He spoke to reporters on 17 December about the Aso program for tax reform, including a boost in the consumption tax:

“I get the feeling they’re just talking about a tax increase without showing us (how to achieve) sustained economic growth. I am extremely disappointed, and I think this is extremely unreliable.”

His condition for raising taxes:

“There is no longer a clear risk of deflation and stable prices can be anticipated.”

On a TV Asahi program on the 21st, he referred to the possibility that the party would remove its support for him:

“Withholding official recognition for discussing the (presentation of a policy position) in the future is not something a political party would do. It would be best for a political party like that to die.”

Nevertheless, during a speech in Oita on the same day he said he would work within the party:

“A new party formed from a grand coalition that puts together numbers for the sake of survival would not gain the understanding of the people. I will present my vision for Japan 30 years in the future within the LDP, and after that act in accordance with my mission.”

He described his vision:

“The Koizumi reforms for revitalizing the market were unavoidable. The policy of Mr. Ozawa and the DPJ is to return to an excessively large government, and some in the ruling party (have) the same (ideas). We will conduct a policy of revitalizing regional areas to act as a third power center beyond the government and the market.”

On the morning of 4 January, Nakagawa spoke at a meeting in Hiroshima and expressed his desire to create a concentrated center for political realignment:

“We should stand together firmly on this great wave that we will create together, raise our new standard, and link that to political restructuring….The rearrangement of a new alliance will break the current political stalemate, and we must proceed to the next stage of structural reform under a new standard.”

He cited four specific areas on which he will concentrate: the environment, information and communications, long-term health care, and education.

He returned to Prime Minister Aso’s measures for the economy and quality of life, including a consumption tax increase, as the point for the next election:

“Tax increases should come after an economic recovery and after bold governmental reform. Now is not the time to talk about a tax increase. With negative economic growth forecast, talk of a tax increase could sink the economy to the rock bottom of a double-dip recession.”

When asked whether a lower house election campaign should focus on recovery or reform:

“I’ve always maintained that we should completely eliminate waste through governmental reforms. I think our priority should be to campaign on economic recovery.”

He went even further on 5 January, the first day of the regular session of the Diet, stating:

“Change must transcend the ruling and the opposition parties.”

Encountering opposition

A previous post described Mr. Nakagawa’s formation of a policy group to discuss social policies, and reports that people from the Machimura faction, particularly Abe Shinzo, joined specifically to prevent it from becoming a Nakagawa vehicle.

Mr. Outside

Mr. Outside

More than 100 people signed up for membership in this policy group, but only 32 attended the first meeting at the end of the year. That created a buzz in some quarters that his support within the party was less than imagined.

On the other hand, the meeting was held at roughly the same time that Watanabe Yoshimi was holding a press conference explaining his electrifying vote against the ruling party in the Diet, and that was the hotter ticket in town. Even close ally Koike Yuriko didn’t show up. But as we just noted, not everyone who signed up was on board to begin with. It’s also common for Japanese political groups to send scouts to meetings of this sort specifically to observe what goes on and report back to the tribal chief.

There is no question that Mr. Nakagawa is causing concern among the party leadership and the Machimura faction, the LDP’s largest. The latter group held a leadership conference on 24 December and neglected to invite him, even though he is a member. Participants at the meeting said that former Prime Minister Mori Yoshiro was adamant about preventing younger party members from being led astray. This was particularly telling coming from Mr. Mori, as the two men were close at one time.

The real sign that the LDP wants to head him off at the pass, however, is the recent report surfacing in the press of a former Nakagawa aide asking the Nagoya Stock Exchange to list a company that the exchange thought didn’t qualify. Those in charge of the exchange assumed the request originated with Nakagawa, though he later fired the aide for making the request without his authorization. The president of the company in question was also arrested for breaking the corporate tax law. The Asahi Shimbun in particular is interested to see if it turns out the company financially contributed to Mr. Nakagawa. This week’s edition of the Shukan Shincho also has a story on an alleged connection between Nakagawa and the company president.

Golly, what a coincidence the story is coming out now!

But here’s the most important aspect of all: The LDP is able to effectively function in the Diet only because it has a lower house supermajority delivered by Prime Minister Koizumi in 2005. If 17 ruling party members were to revolt, the government would be unable to pass its legislation against the wishes of the opposition in the upper house, and would have little choice but to hold an election that it can’t win.

Thirty-two people were serious enough to show up for the first meeting of Mr. Nakagawa’s group. That’s almost double the number required right there. And that doesn’t begin to take into consideration the trouble that Mr. Outside, Watanabe Yoshimi, seems very anxious to stir up.

But we’ll get to him next time!

11 Responses to “Filling the vacuum in Japanese politics”

  1. bender said

    which has produced a hyper-Keynesian budget proposal based on concepts that failed miserably in the lost decade of the 1990s

    Isn’t there something close to a consensus that that it was MoF’s insistence of a balanced budget (tax increase and slash in spending at a bad time) that cancelled out effects of Keynesian policies before it really could take off? What tanked the Japanese economy was bad bureaucratic policy for sure, but not because of pork-barrel projects, is the voice I hear often.

    I think you also know that many agree that monetary policies weren’t working in the 90s because of the mythical “liquidity trap”. Which left the only policy that the Japanese government could take to counter a recession was fiscal- Keynesian. Slashing taxes might have worked, but I’ve read an article in the net written by Mr. Takenaka that in some circumstances, it won’t work. Let me find this.

  2. ampontan said

    Government debt went from 60% of GDP to 120% of GDP during the decade. There 10 stimulus packages between 92 and 00. It’s even higher now.

    Infrastructure outlays were enormous: 6.5% of GDP in 1990 to 8.3% in 1996. Didn’t work. While unemployment was falling in some countries, the rate doubled in Japan and surpassed that in the U.S.

    And it’s not just personal taxes. Japan has the highest corporate tax rate among the OECD companies (and has since 06). That is a de facto tax on individuals, because companies bump up the prices to maintain their margins.

    The problem with the Keynesian idea is that the money doesn’t come from thin air. They’re borrowing it against the future. It is a form of redistribution. The new budget will put aggregate debt at something like nine years’ worth of tax revenue.

    Japan’s annual economic growth went from 4.1% in the 80s to 1% in the ’90s. Industrial output grew only 0.7% 1992-99, compared with close to 40% in the U.S.

    Most of those years in the US there was a GOP Congress, and government spending as a % of GDP fell.

    I’ve read the same thing Takenaka said but from a different source.

    Tax cuts help when they lessen the penalty on productive behavior, such as investment spending, rather than just spurring consumer spending.

    South Korea is cutting their tax rates now, including corporate taxes, which will provide an interesting contrast.

  3. bender said

    Looks like Krugman was arguing that fiscal policies may not be the solution for Japan in the 1990s and should aim for controlled inflation (which Japanese policy-makers strongly opposed). It’s not that Keynes was wrong, but that a prolonged stimulus package might not work. I tend to think certain policies work at certain circumstances while others do not. See how even the Bush administration finally decided to provide bail-outs in face of the failure of its “laissez-faire” approach. They thought it would be OK to let failing banks go, but they dramatically changed course after realizing the grave effects of the Lehman collapse. You don’t have to be a liberal democrat reading the NYT to reach this conclusion.

    Here’s an article how rising taxes might have hurt the Japanese economy. If this be true, a premature judgment that the economy was ready to take a tax increase was wrong. So the argument goes, Japan should have continued the stimulus rather than stop it.

    http://www.economist.com/research/articlesbysubject/displaystory.cfm?subjectid=348969&story_id=3294166&CFID=38354717&CFTOKEN=58250306

    Some other random questions propped up onto my mind:

    Aren’t tax cuts also Keynesian, if they are meant to stimulate demand? Since the problem in Japan always seems to be that people are spending too less (saving too much), something must have been done to rectify that. Government spending was one, and so were tax cuts. I guess the government favors spending because it wants to hold on to power rather than let it go.

    Japan had traditionally taken the “supply-side” approach rather than the “demand-side” approach, hasn’t it? The government has always protected industries, but not consumers. That problem still lingers on today. The fact that I’m forced to pay 10,000 yen for a shirt I can buy for 30 bucks in the States always irritates me. Or I have to pay three times as much for a good bowl of rice.

    Perhaps taxes are high in Japan right now because the economy was recently doing well? Taxes were slashed during the big recession- actually, corporations were not paying any taxes because they weren’t making any money (remember how Tokyo tried to tax banks anyways that led to a rather famous law suit?)

    If I remember right, corporate taxes in Japan are comparable to California’s- Texan tax is cheap and its economy grew, but California was still better (correct me if I’m wrong).

    Anyhow, these are just some random questions that has nothing to do with holding onto certain ideologies or economic theories.

    About South Korea: it is much more export-dependent than Japan. I’m not sure if trying to stimulate domestic demand there will work there. And lowering tax will not invite foreign investment if foreigners have no ability or will to invest anymore. As for Japan, with its 120 million strong population, tax cuts might actually work. I’d also guess that South Korea is also into government spending (not just tax cuts) to wait out the big chill. But then, South Korea’s problem is not excessive saving, so I’m not sure if they can afford to issue government bonds to finance government projects.

    I tend to believe that in the end, it’s consumer spending that helps, not investment. How can people invest in cattle but not eat beef? Might be a chicken-and-the-egg argument, though. I believe that Japan should have liberalized more when the economy was good (until the first half of 2008?). When it comes to Japan, I abandon my “liberal” approach except for things that have to do with freedom of choice.

    All interesting. Dang, I should have taken economics rather than xxx.

  4. ampontan said

    The US has the world’s second highest corporate tax rates, which is causing some consternation in some non-Democrat circles.

    California is like another country. Really. They have regulations in all sectors of the government unlike those anywhere else in the US.

    Its state income tax rate is the highest in the country, more than 10%, yet they still have a huge budget deficit. 15 billion last year. Texas, meanwhile, has no personal income tax and personal income is growing about 50% faster there.

    Some would argue that laissez-faire does not really exist. There are just different degrees of government meddling. You’d probably have to go to Singapore to find laissez-faire.

    There are bailouts and then there are bailouts. There was no need to take de facto government ownership stakes when there were better options.

    Tax cuts to boost consumption are Keynesian.

    Post-bubble prices in Japan are lower than they used to be. Rice is a different thing. Everyone protects agriculture, and then you know how Japan is about rice.

  5. bender said

    I’m worried about Japan’s prosperity slipping away- it ranks 17th or 19th among OECD countries per capita GDP wise, right? It used to be in 2nd place. But maybe those super-rich European mini countries with high per capita GDP are like counting Tokyo as a country. But then again, when comparing cities, Tokyo is not that impressive, either:

    Click to access db-gdp-metro.pdf

    All in all, it’s difficult not to think Japan is in decline. Any ideas to fix the problem?

  6. ampontan said

    上げ潮だよ!

    What the heck, everyone knows that’s where my sympathies lie anyway.

    The basic problem is that people in every country turn into welfare queens instead of taking on the responsibility for themselves. The seniors got upset last spring when it turned out the government thought it couldn’t foot the bill for 90% of their health care anymore. They started with the nonsense about the government hoping they would hurry up and die.

    When gas prices went through the roof last year, the government started paying for 90% of the price above a certain amount for fishermen. They were holding semi-strikes because the cost of gas made it tough for them to make a living.

    I don’t know what happened with that deal now that prices have fallen again. (It’s hard to keep up with everything on my own!)

    But what is needed is a politician who can make the public excited about going out and doing stuff on their own without government help. Not too many of those around!

  7. mac said

    > there are bail out and there are bail outs

    Following the example of the auto-industry and banks, Hustler’s Larry Flynt wants $5 billion from the US government to bail out the American adult entertainment industry. Congress must “rejuvenate the sexual appetite of America,” Flynt said. “With all this economic misery and people losing all that money, sex is the farthest thing from their mind,” he said.

    Talking agriculture subsidies, how come carrots and onions or most fruit are so expensive in Japan?

  8. bender said

    That sounds like a worthwhile thing to do. Subsidizing porn. Give us the link!

  9. mac said

    http://www.google.com/search?&q=Hustler’s+Larry+Flynt+wants+$5+billion

  10. ampontan said

    …how come carrots and onions or most fruit are so expensive in Japan?

    Here’s one possible reason. One foreigner a long time in Japan commented to a friend, who told it to me: The reason things are so expensive is not because of the things themselves, but the land and space they occupy.

  11. Ken said

    As I said before, Asou Tarou is an old-fashioned conservatist, not rationalist like ex-PM Koizumi in my classification.
    He lost the supporters whom ex-PM Koizumi dug up because he is returning to old-fachioned LDP style.
    To use two-thirds rule of lower house for the reviving is not legitimate because the two-thirds is Koizumi reform supporters.

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