AMPONTAN

Japan from the inside out

The sick man of Northeast Asia

Posted by ampontan on Monday, January 11, 2010

It is terrible to contemplate how few politicians are hanged.
– G.K. Chesterton

THE SICK MAN OF EUROPE was a phrase applied to the Ottoman Empire in the mid-19th century after it had lost most of its territory and fallen under the financial control of the European powers. The description was so apt that it permanently entered the political lexicon. It was later employed to describe Great Britain in the late 1970s, a time of long, unexplained power blackouts, uncollected garbage in the streets, and governments that seemed to have less real power than labor unions.

Journalists and political commentators have recently put the expression to use for Germany, Greece, and Italy. The Economist of Great Britain thought it was a fitting way to characterize business and governmental conditions in Italy in 2005, even while emphasizing that the country still appeared to be quite a pleasant place to live.

Japan hasn’t succumbed to illness yet, but the venality, incompetence, and disregard of the public interest by the government (including the new “reformers”), the bureaucracy, and big business have so weakened the national constitution that it seems the only medicine effective to prevent the country from becoming the Sick Man of Northeast Asia would be large and repeated doses of electoral antibiotics by the public.

The story of last week’s resignation of Fujii Hirohisa from his post as Finance Minister contains the elements of all these bacilli as if they had been cultured in a single Petri dish.

The sick man of the Cabinet

Mr. Fujii said that he resigned his position barely four months after being sworn in because of his health. He is 77 years old and had already retired from politics once in 2005 after losing his lower house seat in the September election that year, though he said at the time his retirement was due to age. Mr. Fujii returned to the Diet as a replacement in 2007 for a proportional representation seat.

Fujii Hirohisa

No one in the country believes for a minute the story about his health. The conventional wisdom is that he was forced out by Democratic Party of Japan Secretary-General Ozawa Ichiro, who it is now clear has the ultimate authority in government. The breaking point, say the pundits, came when Mr. Fujii supported Prime Minister Hatoyama Yukio’s plan to cut the “temporary” surtax on gasoline, which the DPJ had tried to use as a wedge issue against the ruling Liberal Democratic Party when the former were still in the opposition. A veteran of the Finance Ministry, Mr. Fujii might have been inclined to keep the tax to help pay for the promises in the DPJ platform, but he chose to back the prime minister instead.

Mr. Ozawa, as party head, insisted that the tax be maintained despite the platform pledge to eliminate it, and his word is about to become law. Mr. Hatoyama looked every inch the humiliated schoolboy at a press conference last month when he told the public he was reneging on his promise, though he tried to save face by saying the tax would be converted to a different form. At that point, Mr. Fujii threw in the spoon, which is what the Japanese toss instead of towels when they give up.

The background

The real story may be even more disturbing. Before we get to that, however, here’s the background information critical for a clearer view of the picture.

* Mr. Fujii started his career in the Ministry of Finance. He retired after reaching the post of Budget Examiner in the MOF’s Budget Bureau in 1976. The MOF is the most powerful of the Japanese bureaucracies in the country’s government-within-a-government. The Budget Bureau was the entity that oversaw the dog-and-pony show that was billed as the new DPJ government’s review of unnecessary government programs conducted to great media hoopla last fall in a Tokyo gym. (The Budget Bureau chose the programs to be reviewed and issued recommendations to all the participants on the steps to be taken.)

* After leaving the MOF, he joined the LDP and was elected to the upper house. He later switched to the lower house.

* Leaving the LDP in 1993, he helped Ozawa Ichiro form the Japan Renewal Party that same year. Most of his subsequent political activity has been in partnership with Mr. Ozawa. He has been described as one of the latter’s closest advisors and confidantes.

* He served as Finance Minister in the short-lived Hosokawa and Hata governments in 1994, which were also puppetized behind the scenes by an ill-concealed Mr. Ozawa.

* He has since moved through several other parties with Mr. Ozawa, including the Liberal Party, which was part of the ruling coalition in the late 1990s. Mr. Fujii served as the secretary-general of the Liberal Party, as well as that of the DPJ when current Foreign Minister Okada Katsuya was party head.

* When Mr. Ozawa’s chief aide was arrested for a fund-raising scandal last year, eventually forcing his boss’s resignation as party leader, Mr. Fujii was initially one of his comrade’s most ardent defenders. It soon became clear, however, that keeping Mr. Ozawa as party leader would jeopardize the DPJ’s success in the election that had to be held by October. But Mr. Ozawa’s positions on personal loyalty and party discipline closely resemble those of Genghis Khan, and that meant the younger party members who wanted him gone were fearful of speaking out. Finally, Mr. Fujii decided to take the heat on himself and spoke in their place by calling for the party leader to resign. As far as Mr. Ozawa was concerned, that ended their close political alliance of the past two decades.

What really happened?

Political journalist and commentator Itagaki Eiken tells an entirely different story about the Fujii resignation. It is important to know that Mr. Itagaki does not hide his support for the DPJ.

First, claims Mr. Itagaki, the finance minister did have some health problems, but the primary one was not the official story of fatigue and high blood pressure. Rather, it was that Mr. Fujii drinks too much. He is known to have a taste for liquor, and Mr. Itagaki passed along the information that the minister carried a personal stash on his official government car for an occasional snort of Sneakin’ Pete to help him make it through the day. Apparently his consumption rose as the pressure mounted to come up with a workable budget for a heavily indebted country ruled by a new, redistributionist left-wing government under the thumb of Ozawa Ichiro, whose only policy principle is the lavish distribution of pork to achieve and keep political power.

Mr. Itagaki is unsympathetic and thinks that if Mr. Fujii has any health problems, he got what was coming to him.

The point of contention

In an effort to smash the ties between MPs who have long acted as de facto lobbyists for the bureaucracy, Ozawa Ichiro last year created a new organization under the office of the DPJ Secretary-General—in other words, under his control. The organization has become the sole body for receiving and evaluating budgetary requests of the national government from industry groups and sub-national governments. Requests made through the bureaucracy or through national legislators will no longer be honored, at least in theory. In other words, the people who want government money will have to ask the party and not the government.

Mr. Ozawa also made it known that support of the groups or local governments for the DPJ will be an important factor in the determination of whether those requests will be granted.

Here’s an example of what that means. Miyazaki Prefecture Gov. Higashikokubaru Hideo (and his predecessors) have long complained that economic development in his prefecture has been hobbled by the government’s failure to build a local expressway system. Transportation access to the largely rural Miyazaki is difficult. The governor even held a public debate with DPJ heavyweight Kan Naoto (who replaced Mr. Fujii as finance minister) about government public works projects when the DPJ was in the opposition, and the condition of the debate was that Mr. Kan visit Miyazaki to see for himself. He did, and he agreed that Miyazaki needed an expressway. He said it was the LDP’s fault. The debate was later held in Tokyo. Of all the media outlets, only the Sankei Shimbun saw fit to publish a verbatim record of the debate in its entirety on its website.

But Mr. Higashikokubaru nearly ran for the Diet himself last year as part of the LDP’s reform wing before choosing to finish his first term as governor.

As a result, the construction of an expressway to promote economic development in Miyazaki will have to wait a while longer.

Reversion to type?

On 9 December last year, Mr. Fujii met at a Tokyo hotel with Mitarai Fujio, the chairman of Keidanren, or the Japanese Business Federation. Its membership consists largely of companies listed on the First Section of the Tokyo Stock Exchange. Mr. Mitarai himself is a past president of Canon. The federation is known as one the three most important groups in the country that represent the interests of Big Business with Big Government.

During the meeting, Mr. Mitarai asked Mr. Fujii that certain preferential tax breaks for business be maintained, and the finance minister agreed. When Mr. Ozawa heard about the agreement, he hit the roof.

Mr. Itagaki refers to the agreement as “careless stupidity” that “benefitted the enemy”. He asserts that Mr. Fujii should have known better because of his long and close association with Mr. Ozawa. Was Mr. Fujii reverting to the bad old days to maintain the ties between the Finance Ministry and Big Business, he asked. Did age and fatigue impair his judgment? Did he have one too many in the back seat on the ride over to the Tokyo hotel?

Mr. Itagaki is just as livid as Mr. Ozawa. He believes that Mr. Fujii has irreparably stained his entire career in government by this one act. He is also contemptuous of Keidanren for not building closer ties with the DPJ, not donating more money to them, and for not falling into line and taking their marching orders from the New Shogun.

Given the journalist’s close ties to the DPJ, it is entirely possible that sources close to Mr. Ozawa fed him this dirt. Mr. Ozawa seems more than capable of splattering mud on the reputation of a long and reliable ally who in the end put principle above personal loyalty. Indeed, he’s even capable of spreading false rumors to gain his measure of childish revenge. But while Mr. Itagaki left in his text the smallest of escape clauses for the alcohol insinuation, he described the meeting between the finance minister and the Keidanren boss with no qualifiers whatsoever.

The replacement

Mr. Hatoyama spent a day trying to convince Mr. Fujii to stay on before giving up. Perhaps the latter decided that discretion was the better part of valor and a better opportunity to stay at home and have a quiet drink in peace. The new finance minister is Kan Naoto, one of the founding members of the DPJ and the man touted as most likely to replace the prime minister sometime this year. (Some people have said as early as this month, but the more sober types think it will be in May.) Mr. Kan is not known as a closet drinker, though it does sometimes seem as if he is nursing a hangover when he speaks in public.

The Economics Whiz

It is a long tradition in Japanese politics for prospective prime ministers to serve as finance ministers for at least a few months to give them a perfunctory idea of how an economy is supposed to function. This is doubly important for Mr. Kan, who as a de facto socialist/left-leaning social democrat is hazy on these matters.

He first became involved in electoral politics with the Socialist Democratic Federation, a group that existed from 1978 to 1994, when its membership split up to join other parties that eventually became part of the DPJ. The SDF was founded under the leadership of Eda Saburo as a splinter group from the old Socialist Party. His son, Eda Satsuki, was the head of a socialist organization in his youth, later joined the DPJ, and is now the president of the upper house, a position that required him to nominally resign his party affiliation.

College professor, author, and blogger Ikeda Nobuo points out that Mr. Kan’s political thinking is colored by a reddish hue and that his ideas have changed little since his university days. He characterized this philosophy as class warfare based on the concept that “Capitalists exploit the workers.” Prof. Ikeda also wrote of Mr. Kan: “His incomprehensible slogan of ‘From the supply side to the demand side’ is easily understood if read as ‘From the capitalists to the workers’.” He notes that Mr. Kan has never offered anything resembling a growth policy in his life; his interest is in income redistribution.

Mr. Kan, however, thinks he has an excellent grasp of economics, and has been holding public debates with Koizumi Jun’ichiro’s former Finance Minister and privatization guru Takenaka Heizo. On his website, Mr. Kan boasts that most economists agree that he comes out on top in those contests.

First day on the job

Unfortunately, Mr. Kan’s knowledge did not include the reticence of finance ministers the world over from making specific statements about exchange rates. People with his worldview still haven’t grasped the principle that the value of any object, including money, is determined by what people are willing to pay for it and not what the government thinks it should be worth. During a press conference on his first day on the job, Mr. Kan said he thought the yen needed to depreciate further against the dollar and helpfully suggested a range in the mid-90s. He added:

“I will consider the impact of exchange rates on the economy, cooperate with the Bank of Japan, and strive to (bring the yen) to an appropriate level.”

This comes from the same party that insisted on a strict segregation of monetary and fiscal policy when they were in the opposition, and absolutely refused to allow ex-MOF officials to be appointed to positions of authority in the BOJ.

His comments so roiled international currency markets that Prime Minister Hatoyama had to reassure them the next morning that exchange rate levels should be left to the markets:

“Basically, as the government, I, at the least, should not refer to exchange rates (sic). The idea is that basically, those statements should be made by business and financial circles…it is desirable for exchange rates to be stable. Extreme volatility is not desirable.”

He magically got Mr. Kan to change his mind on this question within 24 hours, though Mr. Kan also grumbled the government should be specific about the exchange rates it prefers during periods of emergency.

Few people share Mr. Kan’s view of himself as having a solid grasp of money matters. Commenting on his policies to combat deflation, the weekly Shukan Bunshun in its 10 December 2009 issue said he was “tone deaf in economics”. The Economist magazine called him “shallow”, while some Japanese economists described his statements as “rash”. Commenting by Twitter, former Defense Minister Koike Yuriko of the LDP wrote:

“I hope the new finance minister doesn’t misread the word macroeconomics as microeconomics.”

Said the head of one bank, who chose to remain anonymous:

“Mr. Kan understands nothing about the economy.”

The gathering darkness

It has become obvious by now that the new regime and its leaders will be every bit as bad—if not worse—than the one it replaced. The only real step to reform they’ve taken is to funnel all budgetary requests through the party instead of through legislators with ties to the civil service. It may be a bad idea to leave policy in the hands of a bureaucratic elite unaccountable to the electorate, but current conditions in the United States, to cite just one example, show that it’s just as bad an idea to put it in the hands of third-rate hacks inebriate of power and money who pretend to be progressives automatic for the people.

The basic convictions informing the worldview of the most influential members of the present government and its allies have been shown repeatedly everywhere they’ve been tried to have a tenuous connection to everyday reality. Those ideas have become such a part of their identity over the years, however, that even the most dismal of failures will not force them to face the facts and reconsider their positions.

The only common thread among the overall membership of the ruling party itself is that they are a common receptacle for anyone Not of the LDP. In practice, that makes them a congeries that includes leftists, middle-class seekers of the main chance, and people who think Tojo Hideki was misunderstood. This most motley of crews would never have gained control of the government without blind obedience to Ozawa Ichiro, whose political instincts more closely resemble those of a dictator in a single-party state than a political leader in one of the world’s leading democracies.

As one Japanese journalist wrote on his blog:

“The prime minister is just a decoration. In truth, the government is controlled by the party’s General Secretary (shokicho, the term the Japanese Socialist Party used for its leader). This was the political style of the Soviet Communist Party in the past. Is not Japan in the same circumstance today?”

Watanabe Kozo, another former Ozawa ally and friend, former senior advisor to the DPJ, and former deputy speaker of the lower house, had a different way of putting it. He said in Fukushima on the 8th that he thought Mr. Fujii had been “bullied by a ‘mother-in-law’. Speaking of the political weakness of Prime Minister Hatoyama, he said:

“There’s a frightening ‘mother-in-law’ behind him. He’s become something of a pitiful daughter-in-law who doesn’t quite know what’s going on.”

Mr. Hatoyama’s inability to demonstrate even a minimum of leadership skills either domestically or internationally, combined with the puerile and laughable excuses for his own funding scandals, make it a real possibility that his term in office will be shorter than that of Abe Shinzo, Fukuda Yasuo, or Aso Taro. The financial scandals are becoming even more serious for Ozawa Ichiro, but he has vowed to fight the prosecutors while maintaining an iron grip on the party. As a television commentator put it yesterday, any party that permits someone like Ozawa to retain power is “unhealthy”.

A sick party in charge of governance cannot manage the affairs of a healthy nation that is sound in mind and body. The Japanese voted in desperation for change, and wound up the prisoners of incompetents who will demand more of their money in taxes, tokens who’ll vote however Ozawa Ichiro tells them to vote, and preening political egos thrilled with finally having received the opportunity to prove that socialism works. The sickness extends to treating Big Business as “the enemy” and expecting them to pay financial and political fealty even after their favored candidates lost the election, rather than dealing with them as a powerful group lobbying for its own interests. There is little, if any, awareness that “the enemy” is the group most responsible for generating the national wealth they’re so anxious to redistribute.

Absent a breakup of the DPJ or a conviction of Mr. Ozawa, the party is unlikely to have the nerve—or the integrity—to call another lower house election before they’re legally required to do so in 2013. That could be changed by losses in the upper house election this summer, but the opposition LDP is still down for the count after their losses in last summer’s lower house election.

That means the new bosses will follow the old LDP practice of “passing around the washtub” of the premiership to those waiting in line for it, including Mr. Kan, Okada Katsuya, and perhaps even coalition partner Kamei Shizuka.

The danger is that a largely rudderless ship of state will become so encumbered with left-wing bilge that it will drift into a Sargasso Sea of irrelevance, hallucinatory introspection, and hypocritical paternalism, abandoned by the United States and vampired by the Chinese. Unless they find a way to administer electoral shock therapy, the Japanese might be shocked to find they have become the sick man of Northeast Asia.

It is sobering to contemplate what might happen over the course of this decade.

Afterwords: Japanese political parties receive financial assistance from the public treasury based on their number of elected representatives. Parties that dissolve are required to return those funds to the treasury.

As I explained above, the Liberal Party merged with the Democratic Party, and they disbanded to effect that merger. Mr. Fujii was the secretary-general of the party when it disbanded. The party was supposed to return more than $US one million in public funds, but that never happened. Mr. Fujii is widely thought to have been the man responsible for disbursing those funds to the soon-to-be-ex-Liberal Party members, though the money was never accounted for.

One Response to “The sick man of Northeast Asia”

  1. Eric said

    Excellent article. I hope your prediction that Japan will become the “sick man of Northeast Asia” doesn’t come to pass of course. Japan should have taken on a leadership role in Asia years ago, but the country has instead proved to be a one trick pony that outsources its foreign policy to the U.S. and concentrates on defending its position as a maker of high tech and high quality consumer products–while all it can to keep foreigners from making any serious inroads into its domestic market. But then it’s difficult for a country that’s essentially run by its bureaucracy to change the course it was initially set on.

    I can’t think what Japan can do to improve the quality of its politicians. It seems to me that the problem is at the local level. Almost all the Diet members got where they are because they had the backing of a political machine–there was the ridiculous example of Prime Minister Obuchi’s 20-something daughter getting elected after he suddenly died. Atleast before the last election, about 30% of elected members from all parties were second, third, fourth or even fifth-generation politicians.

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