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A Sea Change in Japanese Politics

9 minute read
Coco masters / Tokyo

Give Yukio Hatoyama, leader of the Democratic Party of Japan (DPJ), points for speed. Within hours of the DPJ’s historic general-election victory on Aug. 30, Hatoyama was conferencing by phone with the leaders of South Korea and Australia, meeting with journalists and otherwise behaving as Japan’s next Prime Minister — which he certainly will become in just a few weeks. “We have finally reached the starting line,” Hatoyama told reporters on Aug. 31, leaving little doubt that he was eager to get on with governing.

(Read “Japan’s Election: Opposition Wins Historic Victory.”)

This sense of urgency is well founded. Japanese voters, frightened by the country’s sinking economy and fed up with years of feckless political leadership, handed power to the DPJ in a landslide victory that Hatoyama called “the first ever proper change in government in the history of our constitutional politics.” Indeed, by electing DPJ members to 308 of 480 seats in the Japanese parliament’s lower house, voters ended a half-century of nearly unbroken rule by the Liberal Democratic Party (LDP) — providing an unprecedented rebuke to the country’s political élite, at the same time issuing a mandate for lawmakers with fresh ideas to address Japan’s protracted economic malaise and growing societal ills.

(Read “Will an Opposition Victory Rescue Japan’s Economy?”)

Hatoyama knows this mandate is provisional. In modern times the Japanese have been wary of radical change, and it’s unclear to what extent the DPJ’s ambitious platform can be implemented by a party criticized for its lack of unity and common ideology, not to mention experience: 46% of the incoming crop of DPJ members are first-time parliamentarians. But public impatience with politics as usual has boiled over; the DPJ’s novices would be well advised to follow Hatoyama’s lead and start hustling. Below, we’ve pinpointed five areas on which the new ruling party should focus to get the nation on track. The clock is running.

1. Get the Budget Under Control
In mid-September, the DPJ will take over officially, with the Diet’s election of Hatoyama as Prime Minister and the appointment of ministers. That leaves 100 days for the new administration to draft a budget for the next fiscal year that doesn’t increase the national deficit — now at 180% of GDP, the highest ratio among developed countries — but still provides funds for costly election-year promises. The deadline is all the more pressing because Japan’s still anemic economic recovery could falter without the steady infusion of government spending.

The DPJ’s stab at stimulus includes annual cash handouts to families with children of $3,350 per child, free high school education, the elimination of highway tolls and a four-year freeze on Japan’s 5% consumption tax. A balanced budget is out of the question for now, but the DPJ says it can help pay for additional programs by cutting $97.8 billion in “wasteful” government outlays.

The DPJ must keep a lid on deficit spending “to demonstrate that they’re fiscally responsible,” says Gerald Curtis, a Japanese-politics expert and professor at Columbia University. Not everyone is convinced they’ll succeed. Masaaki Kanno, chief economist at JPMorgan Securities in Tokyo, is skeptical that cutting wasteful spending will compensate for growing expenditures: Japan’s aging population means social-security spending alone must expand by $10.7 billion annually over the next five years. “The DPJ will have to show people a consistent way to finance additional spending,” Kanno says. “This has nothing to do with political ideologies. It’s the reality of economic equations.”

2. Diversify Japan Inc.
Japan must finally abandon the script it followed to become an industrial superpower. The global economic crisis has exposed the country’s overdependence on its manufacturing-for-export model. GDP in the first quarter plunged a staggering 15.2% as demand evaporated for cars from Toyota, Honda and Nissan and for high-end electronics from Sony and Panasonic. Japan can no longer expect economic growth to be generated almost exclusively by a handful of powerful multinational manufacturers. Increased domestic consumption as well as investment in small- and medium-sized enterprises are needed to help drive economic growth. This will require major change, including regulatory reform that encourages the formation of small businesses that in most countries are the biggest generators of new jobs.

DPJ leaders say they want to boost Japan’s nonindustrial economy by lowering taxes paid by local businesses, developing new environmental technologies and creating jobs in health care and agriculture. Toshihiro Ihori, an economics professor at Tokyo University, adds that offering incentives to attract skilled foreign labor and multinational companies could produce more investment and boost domestic economic activity, helping to revitalize moribund commercial sectors that for too long have been sheltered from competition.

Read about Japan’s economy in “A New Deal.”

The party’s plan to increase disposable household income through direct payments like monthly child allowances could stimulate domestic consumption — but far more must be done to restore public confidence. Japan will not reform its economy unless its people feel secure. That’s why it’s vital for leaders to push ahead with reforms to pension, health-care and unemployment systems. Japan’s current social-security programs hark back to an era of guaranteed jobs for life, which places unsustainable financial burdens on companies and individuals. Until modern safety nets are built, it will be impossible to make Japan more efficient and competitive in the global economy.

3. Balance the Bureaucracy
Tokyo’s bureaucrats have long called the shots on everything from budget formulation to foreign policy. The bureaucracy can be virtually impervious to change partly because its members are not accountable to elected officials — there’s no personnel overhaul with a change in administration. The DPJ has vowed to implement some checks and balances by expanding the power of the Prime Minister’s office and the Cabinet. But it’s a delicate job that could easily go sour.

(See pictures of Japan in 1989 and Japan now.)

The DPJ plans to appoint 100 ruling-party politicians to oversee ministries. In order to transfer more power to the Cabinet — and away from ministry bureaucrats — the DPJ will also replace the Council on Economic and Fiscal Policy, an advisory group to the Prime Minister’s office set up in 2001, with a National Strategy Bureau (NSB) reporting to the Prime Minister. The NSB will be key in budget and diplomatic-policy formulation. The DPJ also wants to improve government transparency and crack down on conflicts of interest by eliminating amakudari, or “descent from heaven,” a system whereby retiring bureaucrats are posted to plush private-sector jobs. “This is a new way of doing business in this country,” says Curtis. “[But you] can’t bash and demoralize [the bureaucrats]. The DPJ has to find a way to enlist them on their behalf.”

4. Cherish Old Allies (and Cultivate New Ones)
It’s no small matter that China, and not the U.S., is now Japan’s largest trading partner. If overleveraged America really is destined to be mired in a postconsumerist funk for the foreseeable future, Japan needs to redouble its efforts to strengthen trade and diplomatic ties with its neighbors — not only to counteract China’s growing influence in Asia, but also to grab a greater share of fast-growing Asian markets. “Japan can benefit from high Asian growth rates even with low domestic demand,” says JPMorgan’s Kanno. Closer relationships with Asian economies, including China, can be facilitated by participating in regional free-trade agreements; in particular, Japan could win more friends by opening up its agricultural sector to cheap food from overseas in exchange for greater access to Asian markets for its higher-margin goods. “If Japan accepts more agricultural imports, then it will have closer relations and trade volume will rise,” Kanno says.

This does not mean that Japan needs to turn away from its old friend, commercial partner and provider of military security, the U.S. Hatoyama’s recent call for a “more equal” relationship with Washington raised concerns that the DPJ might tinker with sensitive issues like the relocation of American military bases in Japan, affecting the two nations’ longstanding security pact. But DPJ leaders, who have little experience in international diplomacy, know they can’t afford to upset the alliance, the cornerstone of Japanese foreign policy.

5. Deal with Demographics
With nearly half of its projected population of 95 million expected to be aged over 60 by 2050, Japan is the world’s most rapidly aging nation. This means its domestic market is getting smaller and its workforce is inevitably becoming less productive.

The word immigration doesn’t appear in the DPJ’s platform — the subject remains a touchy one for insular Japan. But the party has a plan to allow more foreign workers into the country to help offset the shrinking labor pool. DPJ lawmakers also want to improve the lives of younger Japanese workers by curbing the hiring of temporary workers by manufacturers, a widespread practice that over the last decade or so has relegated many youth to second-class-citizen status. While older workers hang on to the best jobs, younger workers stuck in temp positions are denied many company and government benefits. Chronic job insecurity makes it tough to start families — exacerbating the demographics problem.

(see the new activism of Japan’s youth)

Of course, Japan can’t avoid growing older. But it can search for new ways to boost economic growth and maintain the strength of Japanese society. The DPJ won a watershed political victory with the help of a couple of political slogans: “Regime Change” and “Livelihood First.” The former happened almost overnight. Achieving the goals implied by the latter will take years. The Japanese people are patient. They’ve waited decades to raise a new political party to power. Now it’s up to the DPJ to prove the wait was worth it.

— with reporting by Yuki Oda

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