AMPONTAN

Japan from the inside out

From the frying pan into the fire

Posted by ampontan on Saturday, October 17, 2009

Politicians are interested in signaling goodness, but not interested in doing good.
– Roger Koppl

SOME WESTERN ACADEMICS and commentators have recently wondered in print why Japan doesn’t “punch above its weight” in international affairs, and then did their readers a favor by answering their own question. While the conclusions resonate nicely inside the Ivory Tower, the inaccurate assumptions or pre-existing biases on which most are based render them useless. They should try a close shave with Occam’s razor instead.

The Japanese political class is incapable of punching above its weight in international—or domestic—affairs, because its members are ignorant of the realities of the world outside Nagata-cho and the world outside Japan, are self-satisfied in that ignorance, and are loathe to learn or do anything that would jeopardize their status.

That description could be worn by the slobbering, snorting, overfed cattle that constitute the political class everywhere, but it fits the average Japanese pol like a bespoke suit from a Ginza haberdasher.

Some have been gushing on the web about how the Japanese election was a mandate for change in the same way Americans voted for change and Barack Obama last November. While it is true that the Japanese voted for change, it wasn’t because they were enthralled by the teleprompter-dependent speechery of a man now shown to be dressed in the Emperor’s new clothes. Rather, their choice was determined by the wish to avoid the black hole of the Liberal Democratic Party’s anti-charisma combined with a national sense of faute de mieux.

Where has that leap of faith landed them? From the frying pan into the fire.

Exhibit A

From the Asahi:

Prime Minister Yukio Hatoyama said he will compile a new supplementary budget centered on economic stimulus and employment measures to prevent the economy from faltering again.

“We have to do everything possible to bolster employment,” Hatoyama told reporters during a trip to Beijing. “We also have to allocate money to improve the safety net and stimulate the economy. We’ll need economic measures that double as job measures.”

Mr. Hatoyama has thus declared to the world that he is a receptacle of received misunderstanding—of the nature of economies, governmental stimulus, and the failure of those policies overseas.

The government is expected to finalize the list of programs to be canceled out of the 14 trillion yen first fiscal 2009 extra budget, compiled by the Aso administration, by the end of this week.

All the better to redistribute the pork in ways that fits the cut of the new administration’s jib. To wit:

On Sunday, Chief Cabinet Secretary Hirofumi Hirano said the government plans to begin handing out a child allowance in June.

Where will that money come from?

Well, Minister of Land, Infrastructure, and Transport Maehara Seiji is cancelling more than just dam projects. In Kyushu alone, he nixed the plan to widen to four lanes the Nagasaki Expressway from Nagasaki to Tarami, eliminated the funds for surveying obstacles at the Fukuoka, Nagasaki, Kumamoto, Oita, and Kagoshima airports, stopped the earthquake proofing of buildings at the Civil Aviation College in Miyazaki City, and cut from JPY 10 billion yen to JPY 4.9 billion the expenditures for land preparation to extend the runway at the Kitakyushu Airport.

There doesn’t seem to be any Bridges to Nowhere on that list. Absent expert testimony, some of those projects seem reasonable.

In addition to the Nagasaki expressway, the Government plans to axe all the projects to widen highways in the supplementary budget. There was no word on how the Government plans to deal with the anticipated extra traffic if they ever deliver on their promise to eliminate highway tolls.

The Government also expects recover about JPY 300 billion by cancelling a fund to promote the integration of farmland, but that won’t reduce outlays. They’re just going to shuffle the money from one pile to another by giving it to inefficient individual farmers instead.

The impact of the recession is such that tax revenue for the current fiscal year is forecast to be far below initial expectations.

So don’t spend money you don’t have!

How much don’t they have? The Government expects about JPY 40 trillion in tax revenue, but admits that it might be even less. Meanwhile, the preliminary budget of the party that was going to cut the waste out of government spending comes in at more than JPY 93 trillion–the highest in Japanese history. And a different Asahi report states that the actual amount will rise to as much as JPY 97 trillion due to “unspecified itemized requests” from each ministry.

Who knew double-talk could be so expensive?

Another way they could pry loose some funds is to live up to their platform plank of reducing civil service expenditures by 20%, and do so in a way that doesn’t force local governments to hire the personnel dumped from the national bureaucracy.

But since local government workers’ unions constitute a large part of the party’s campaign foot soldiers, that’s another promise they’re unlikely to keep.

Were the Government’s priority a sound Japanese economy instead of legal vote-buying schemes, it wouldn’t be shifting the money of the mind dreamt up for the previous administration’s stimulus from its left hand to its right, printing it up at the Treasury, or creating it through government debt instruments.

Moreover, the government faces a daunting challenge in its bid to prop up the economy without adding significantly to the country’s huge debt levels.

Finance Minister Hirohisa Fujii said Friday the amount of new government bonds to be issued this fiscal year will be kept at 44 trillion yen–the sum envisioned by the previous government–or lower. But a large second extra budget would make that pledge difficult to honor.

That pledge lasted as long as the fireflies in summer. Chief Cabinet Secretary Hirano Hirofumi admitted that deficit-financing bonds were a possibility for the 2010 budget if there were revenue shortfalls. He was seconded by the prime minister:

Pre-election Hatoyama

“If we increase (the issue of those bonds) we will not be able to maintain the state.”

Post-election Hatoyama

“I don’t think we should issue (those bonds) to begin with, but it is necessary to determine whether or not an unavoidable situation will emerge, while considering a situation in which tax revenues plunge.”

He was right the first time.

These were the same people who thought it would be easy to shake JPY 20 trillion loose from wasteful government spending. There doesn’t seem to be a whole lotta shaking goin’ on, does there?

Incidentally, until Japan Post is fully privatized, all the money in their savings accounts and insurance policies—20% of the nation’s personal financial assets—can only be invested in government bonds, rather than the other instruments private sector banks can invest in.

Is the opposition to Japan Post privatization by the DPJ and the People’s New Party starting to make sense now?

For all their talk about putting the lives of the people first, the DPJ—as well as the LDP mudboat wing—doesn’t seem to care about economic policies that would enrich the lives of the people over the long term. They would rather signal goodness than do good.

Well, then what?

Those who insist that government spending is as good as private sector spending for sustained economic growth and long-term employment increases fail to understand efficient resource allocation. The government is incapable of determining the best way to use capital goods and other resources. Only the market, consisting of millions of independent actors, works that out, over time.

Rather, it spends to salvage inefficient sectors and prevent politically painful economic adjustments. If the sectors receiving the stimulus funds were producing what the consumers want at prices they were willing to pay, a stimulus wouldn’t be necessary.

A government stimulus will not generate the tax revenue needed to pay down the national debt either, if only because the stimulus is just a money reshuffle. No new wealth will be created. To be blunt, it’s just another form of central economic planning, but some people would rather believe their fantasies than their lying eyes.

What to do instead? That question was answered long ago.

  • During the first two years of his term, U.S. President Warren Harding nearly halved federal spending and cut taxes by one-third. Those policies continued under Calvin Coolidge and unemployment fell to 1.6% by 1926. The resulting economic growth from 1920-1929 was phenomenal.
  • Despite the laissez-faire label, Herbert Hoover was a believer in strong federal intervention. During his four-year term, real per capita federal spending rose 82%, falling to 74% during the Roosevelt administration from 1933 to 1940. Unemployment rose sharply after the 1929 stock market crash, but six months later was nearly back to pre-crash levels. It skyrocketed after Hoover’s interventions, and Roosevelt’s policies kept it at that level, including during the double-dip depression of 1937.
  • U.S. President Ronald Reagan cut taxes, spending, and unnecessary regulation and intervention without reshuffling the money, and created a quarter-century of stout economic growth.

It is as if the DPJ believes that national wealth is created by parthenogenesis.

That would be understandable in the case of Hatoyama Yukio, once you’ve seen the family mansion.

Hatoyama family mansion

But neither he nor his party as a group have given the slightest indication that they’ve spent any time thinking about the creation of national wealth.

Exhibit B

The hard-bitten ex-cop and current Financial Services Minister Kamei Shizuka came of age when no one much cared about the Japanese economy other than the Japanese, and the Japanese only cared about achieving First World levels of prosperity even if it took collusion between big business, government, and the bureaucracy to get there.

Life imitates art

Life imitates art

Mr. Kamei has now bitten hard into a philosophy of debt moratorium that calls for a debt repayment holiday for SMEs and injecting public funds into any financial institutions that would suffer as a result. The minister might have had his arm twisted to come up with that last proviso. He’s already said that any banks requiring financial assistance during a debt repayment moratorium are too weak to survive.

Some speculate this grim nonsense stems from a desire for revenge for the bankruptcies of some of his corporate financial backers after last year’s financial crash. Others think he’s doing it just to raise the profile of his splinter party among small businesses.

When he defends these policies, he comes across as a 3-D version of the cartoon character Yosemite Sam plugging away at a room full of varmints:

“There are few people in the LDP now who sing the praises of market fundamentalism…(if) their thinking doesn’t change, it’s possible that one mega-party will be formed in the future.”

He added that this “might take some time”, perhaps after next summer’s upper house election.

While today’s LDP may now know as little as the DPJ about how to lay the tarmac for future prosperity, that’s not the most interesting part of his statement.

In October 1940, the Japanese government sponsored the creation of the Imperial Rule Assistance Association. Many of the organizers intended that it become—well, a mega-party—and some political organizations voluntarily disbanded to join. The objective was to create a “new political structure”. It included the bureaucracy and the military in addition to political parties. The prime minister was automatically the head of the association, which had a nationwide branch network. From June 1942, it assumed control of local governmental units from the national bureaucracy. Weakened by a lack of autonomy, the association was dissolved in June 1945.

In other words, Mr. Kamei looks forward to a political realignment resembling the configuration in place in Imperial Japan during the height of the Second World War.

The minister is also rather spry for a man in his 70s, which is perhaps due to his sixth-dan ranking in aikido. Watch him stoop to sixth-rate demagoguery in this recent conversation with Keidanren head Mitarai Fujio:

“The increase in murders among family members is because (big business) does not treat people as people.”

He also complained that the heads of big businesses no longer share their earnings with small businesses during good economic times, but retain those funds as internal reserves. When Mr. Mitarai asked if he thought that was their responsibility, the minister replied, “You must feel responsible,” in the same language a primary school teacher would use to scold children for a cafeteria food fight.

For his part, Prime Minister Hatoyama Yukio was nonchalant about his Cabinet minister shooting from the lip. He observed, “That sounds like something Mr. Kamei might say…perhaps he was extreme in has language, and was impolite.”

That also sounds like something a prime minister might say when he realizes he stepped in it by choosing that man as a coalition partner and it’s now stuck to his shoe. Then again, Mr. Kamei has been seated prominently at Mr. Hatoyama’s right hand during Cabinet meeting photo ops.

The rebuttal

People here used to say that the most effective political opposition in Japan was the United States government. Now it seems as if the only people willing to put Mr. Kamei in his place are in the overseas media. For a taste of that, plus a devastating critique of Japan’s political class, try this article in the Wall Street Journal:

(A) proposed loan repayment moratorium for small- and medium-sized businesses…is the brainchild of Shizuka Kamei, the new banking and postal-services minister. Mr. Kamei thinks SMEs, the engine of employment for developed economies, need help in the downturn, but not the tough love of competition or—perish the thought—bankruptcy. So he commissioned Kohei Otsuka, a senior vice minister at the Financial Services Agency, to study how the government might force lenders to forgive SME debts. Financial-sector stocks promptly tanked.

And:

Japan may not have a state-owned financial system like China, but it is still state-directed. Japan runs an essentially circular financial system where savers deposit money at domestic banks, the banks buy ever-more worthless government debt, and then the Diet shovels that money back out to favored political constituencies and export industries. The current Democratic Party of Japan-led government, headed by Yukio Hatoyama, plans to tweak this model, but not fundamentally change it: rather than redistribute the public’s money to business, the DPJ wants to give it to families.

The minister’s political ideas may date from the 1940s, but his economic ideas are more up-to-date: Japan from the mid-1950s

Mr. Kamei said late last month “financial inspections should aim at turning around struggling corporate borrowers instead of leading them to go bankrupt.” That’s a recipe to paper over a problem, not fix it.

Without a financial system that efficiently channels money from lenders who have it to borrowers who need it, Japan will have a hard time growing its moribund economy…The last time Japan tried to paper over a growing pile of bad loans, bail out failing lenders and businesses and pay off political constituencies, the world’s second-largest economy sunk into a lost decade of growth. Then again, maybe it never really escaped.

Except for skipping over the successes of former Prime Minister Koizumi Jun’ichiro and his financial jack-of-all-trades Takenaka Heizo—which the rest of the country’s political class and media are trying to paper over—this brief piece contains more honesty and common sense than anything I’ve run across in the Japanese print media.

Other than Takenaka Heizo’s magazine articles.

Who’s in charge here? (1)

There are enough loose cannons in Fort Kamei to frag an entire platoon of junior officers. The Hatoyama Administration is barely a month old, and already he’s angrily told off the Finance Minister, the Chief Cabinet Secretary, and the Internal Affairs Minister for daring to express opinions about policies he considers to be in his bailiwick. Yet he’s not shy about butting into matters that aren’t part of his portfolios. At a press conference earlier this week, he wondered aloud if all the American military forces in Japan were absolutely necessary. He cited as an example the Yokota air base near Tokyo.

At the same press conference, he sounded off about Justice Minister Chiba Keiko’s proposal to allow Japanese women to keep their maiden names after marriage. Said Mr. Kamei:

“I don’t understand the psychology behind the idea that family names must be different. The husband, wife, and children will have different names. That would turn the home into something like an apartment house. Would it be a good idea for all the nameplates (on the front of the house) to be different?”

That was during the afternoon. At another press conference in the same place on the same morning, Fukushima Mizuho, the Minister in Charge of Womanhood, Motherhood, Shop Till You Drop, and Tossing Her Mini-Party a Lollipop—who kept her own maiden name after marriage—supported the same proposal.

Exhibit C

They are the people who believe all conflict stems from avoidable misunderstanding. Who think that the world’s evils spring from technologies, systems, complexes…and everything else except from the hearts of men, where love abides. Who mistake wishes for possibilities. Who put a higher premium on their own moral intentions than on the efficacy of their actions. Who champion education as the solution, whatever the problem. Above all, the Goodists are the people who like to be seen to be good.
– Bret Stephens

Many Japanese metaphorically slapped their heads when they realized that Prime Minister Hatoyama was serious about his goofy vision of yuai (fraternity), more suitable as a topic for a middle school public speaking contest than the pragmatic business of international statecraft.

But he’s not alone. Foreign Minister Okada Katsuya—like his boss, a boyish-looking bon-bon from a fabulously well-to-do family rich enough to let its scions play at politics—paid a surprise visit to President Hamid Karzai of Afghanistan in Kabul.

They politely avoided talking about Japan’s looming suspension of its refueling mission for NATO forces in the Indian Ocean. What they discussed instead was the Japanese offer to provide job training for the Taliban—you in the back row, stop that snickering!—as well as their living expenses during the training. Mr. Karzai said it would be difficult but possible. Now why would the president blow his chance at free money from overseas by laughing out loud?

Injecting some adulthood into the discussion was Foreign Minister Rangin Spanta, who asked that Japan continue funding Afghani police salaries because maintaining public safety was also important.

It’s a good thing he didn’t ask for help from the Japanese police. Some in the ruling coalition would have thrown a fit because the policemen would have to behave like policemen and carry weapons.

One wonders, however, what job training—I know, it is hard to keep a straight face—Mr. Okada is talking about. For example, when they were in power, the Taliban banned:

…pork, pig, pig oil, anything made from human hair, satellite dishes, cinematography, equipment that produces music, pool tables, chess, masks, alcohol, tapes, computers, VCRs, television, anything that propagates sex, wine, lobster, nail polish, firecrackers, statues, sewing catalogs, Christmas cards, employment, education and sports for women, movies, music, dancing, hanging pictures in homes, clapping during sports events, kite flying, and beard trimming.

Well, that pretty much leaves out any employment that involves electricity. Unless it’s used to wire the dynamite for blowing up the Buddhist statues at Bamiyan.

It doesn’t seem to have occured to either the prime minister or the foreign minister that the Taliban really aren’t interested in the modern world. From the horse’s mouth:

“(E)lections are incompatible with Sharia and therefore we reject them…We want to live a life like the Prophet lived 1400 years ago and jihad is our right. We want to recreate the time of the Prophet.”

But then a Goodist isn’t going to let practical considerations get in the way of demonstrating his Goodism.

Mr. Okada has also said in regard to Afghanistan:

“I don’t think that support means just sending the military.”

Leaving aside the question of what he would know about military support, he’s right, of course.

The other support becomes effective, however, only when the military goals have mostly been achieved. But understanding that requires an understanding of the objectives and the application of military force.

It also requires the knowledge that the Taliban have become a real danger to the government again. Vocational school is unlikely to solve that problem.

Who’s in charge here? (2)

Mr. Okada later chose to expound on the East Asian rhapsody that Mr. Hatoyama is so enthralled with. He said the entity might include Japan, China, South Korea, the ASEAN nations, India, Australia, and New Zealand.

People noticed that the United States was left off the list. True, it isn’t part of East Asia, but then neither is India. But any move away from the U.S., real or imagined, is exaggerated after the brouhaha that erupted following the appearance in the New York Times of Mr. Hatoyama’s translated magazine article.

When asked his opinion, Chief Cabinet Secretary Hirano Hirofumi did some paperhanging of his own:

“I haven’t heard yet from the foreign minister whether the U.S. would be included or excluded.”

Mr. Hirano also added that the bilateral relationship is the basis of Japanese foreign policy.

The Japanese media took this to be backtracking from the foreign minister’s comment, and a statement that the government hasn’t made a decision yet. Considering the range of opinions inside the party and the absence of any pressing need to pursue the issue, that decision might get made on the 12th of Never.

Is it too much to ask of this lot to synchronize their policies?

Exhibit D

Who needs an opposition party when anyone in the Cabinet is happy to serve in that role, depending on the issue, the time of day, and the phase of the moon.

One of the main planks of the DPJ election campaign was the payment of a cash allowance to families with children in lieu of a tax deduction. Their platform called for the national government to make all the payments.

After a month in office, it finally dawned on the Government that what everyone—including their supporters—had been saying for the past two years was right on the money: Namely, they didn’t have the money to do it. (It will require JPY 5.3 trillion every year when fully implemented.)

That’s when Health, Labor, and Welfare Minister Nagatsuma Akira, who is starting to look as if he’s in over his head on any issue that doesn’t involve national pensions, floated the idea of local governments and private-sector companies kicking in some money too.

It seems as if we’ve got another 21st century supporter of the Imperial Rule Assistance Association here.

Local governments in Japan, already pushed to the point of insolvency, are so inflamed over unfunded mandates and the financial liabilities forced on them by the national government that Mr. Nagatsuma’s idea will be enough to cause serious problems with chief executives and assembly delegates in prefectural capitals around the nation.

And requiring companies to pay? That socialism isn’t creeping—it’s galloping. Then again, some Japanese are already suggesting the DPJ is just a socialist party in everything but name.

Mr. Nagatsuma also wanted to save money by freezing the provisions of the Aso Administration’s supplemental budget that would provide financial support to children aged 3-5.

It didn’t take long for the Cabinet to round the wagons into a circle and start firing on themselves instead of the Indians.

Who’s in charge here? (3)

Internal Affairs and Communications Minister Haraguchi Kazuhiro was opposed to ditching the Aso plan because the money was already in the pipeline and local governments had made the preparations to spend it.

“This government must not have desktop (i.e., impractical) debates that ignore conditions on the ground.”

But Mr. Nagatsuma ended the measure anyway. They need the money for their other programs.

The Internal Affairs Minister was even blunter when addressing the funding for the family subsidies:

“If we’re going to change the political platform, which says the national government will pay for everything, then we should call another election and ask the people what they think.”

That comment would be praiseworthy under any circumstances, but it’s a doubleplusgood display of spine coming from Mr. Haraguchi, who is viewed by some as having the principles of a weathervane that ends up pointing in whatever direction the Ozawa breeze is blowing.

Exhibit D

Policy for Ozawa is just like candy (for the people).
– Kamei Shizuka

Some are trying to paper over the growing concerns about the coalition government pulling in several directions at once by reassuring everyone that things will change once the DPJ wins an outright majority in the upper house and no longer needs the excess baggage of the SDPJ and the PNP.

But party Secretary-General and Shadow Shogun Ozawa Ichiro has just punched a hole in their paper. Speaking about the next upper house election at a press conference, he said, “Of course the goal of every party is a majority.”

And added:

“The SDPJ and the PNP worked with us during the lower house election and it turned out well, so I want to maintain that cooperative relationship in the future.”

At a meeting before the press conference, he said:

“The DPJ does not have a majority in the upper house. That does not mean we will reject a coalition with the SDPJ and the PNP. They are our compatriots with whom we worked together, so we will continue to work together in the future.”

It looks like we might be stuck with the marginal Mr. Kamei and Ms. Fukushima in government for longer than we hoped.

It’s also time for an encore from the start of this post:

“The Japanese political class is incapable of punching above its weight in international—or domestic—affairs, because its members are ignorant of the realities of the world outside Nagata-cho and the world outside Japan, are self-satisfied in that ignorance, and are loathe to learn or do anything to jeopardize their status.”

That’s not going to change anytime soon. Mr. Ozawa has given instructions to the party’s first-term MPs that their primary job is to get reelected instead of worrying their heads about the workings of government.

I’ve said it before: this has the potential to get really ugly.

We’re starting to get there.

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