Comparison between Prime Ministers Koizumi and later prime ministers in economic
policies
Prime
Minister Junichiro Koizumi (2001-2006)¨s tenure in office was marked by
reducing spending on public works, cutting government regulation, and
privatizing myriad state enterprises. He also cut bad bank
loans. Excessive bank loans had been the backbone of Japanese
economic development for many years but years into the recession, many
Japanese enterprises still held on to low interest or no interest bank
loans that they had no hope of repaying, and the government hesitated to
write them off because of fear of too many bankruptcies in society and
unemployment. To get at the heart of the political interest
groups, such as the construction companies, Koizumi tried to privatize
the Japanese postal office, which also doubled up as a bank and life
insurance company, holding 28% of Japanese savings and is the largest
bank in the world. Its deep financial pockets made it the most
effective provider of government loans and expenditures, where most of
the construction expenses of the state were paid from.
Consequently it holds 1/5 of Japanese national debt in the form of
bonds. Koizumi¨s agenda to privatize the postal office was
defeated in the upper house of the Japanese diet in 2005.
According to the Japanese constitution, a bill that was passed by the
House of Representatives but defeated in the House of Councilors could
be passed into legislation if it was passed in the House of
Representatives again with a 2/3 majority vote. Koizumi dissolved the
lower house, expelled a dozen LDP members who were opposed to the bill
from there, held a reelection of the lower house where a majority
coalition between the LDP and supporters was voted into office, and had
the postal-reform bill passed with the 2/3 majority vote in the House of
Representatives in August 2005. The first phase of privatization
begins Oct. 1 2007, with break-up into an insurance company, a savings
bank, a mail courier and a post office manager. First under a holding
company, they will be independent by 2017.(3)
Shinzo
Abe (PM 06-07) was not as determined as Koizumi
toward economic structural changes at the cost of alienating the
LDP. In order to get his LDP party win the July 2007 election as
the majority party in the upper house, he tried to reconcile the more
conservative wings of the LDP and the reform wing, with the result that
his popularity fell, and he had to leave office in
Sept.07. He tried to readmit those LDP members who were
against privatizing the postal office back into the party so long as
they pledged obedience, and then made a concession to the road-building
lobby, so that his public approval rating fell from 71% to less than
50%. Abe¨s public approval rating may just reflect the leadership
(style) of a prime minister, it could also be an indicator of how
difficult it is to align so many diverse elements within the same
party. Also, in a country where 1/3 of the work force are temps
and part-timers, Abe was considering raising
consumer taxes and cutting corporate taxes. Tax cuts implemented
in the past few years to encourage economic development were being rescinded, and the government was hiking pension and health-care premiums and
cutting benefits. To get by, Japanese households had to lower their
savings rate from 10 percent in 1996 to 3 percent in 2005. Almost 25
percent of all households now have no savings left, up from 8 percent a
decade ago.(4) Consumer spending is a very important issue in
Japan's economy today.
Also,
Abe did not seem determined on corporate
restructuring and updating/reforming the troubled industries. Although improvements have been made in accounting,
taxation, and auditing departments in many companies, and mergers and
acquisitions have taken place, many of the
mergers and acquisitions are of those in the troubled
industries.(5) It was like a new wave of cartels--of the
malfunctioning industrial and business sectors. Similarly, Abe was not prepared to tackle the "lifetime
employment system" that operates to some extent in some big
companies, even though many companies are reducing the practice through
hiring temporary and contract workers.
Abe,
however, agreed to open up Japan's markets further, pledging to double
incoming direct foreign investment by 2010. Japanese imports of
goods and services increased from 7 percent of real GDP in 1994 to 11
percent in 2006.(6)
Abe's successor, Prime Minister Yasuo Fukuda, lasted exactly
one year (Sept.07-Sept.08). Like Abe, PM Fukuda found it extremely hard
to win a broad coalition supporting his policies. One policy he tried to
implement, on compulsory health plan enrollment for the elderly people
that would raise healthcare costs for the elderly, was extremely
unpopular. Fukuda found it impossible to work with an LDP controlled
lower house and an upper house dominated by the Japan Democratic
Party.
Fukuda's successor, the new LDP chair Taro Aso
(Sept.2008-Sept.2009) faced a similar fate to that of Fukuda and Abe, as
the general Diet election of Sept.2009 (the Diet elections of the lower
house happens biennially) may get him and the LDP majority out of office
(the latter is less likely, but if Aso wants to save the LDP majority in
the lower house, he may resign if his policies prove to be unpopular).
The economic situation works against the Aso administration. PM Aso, as
part of the government stimulus package to revive the economy, wanted to
re-nationalize the Japan Post that PM Koizumi tried to privatize. The
Aso plan was attacked even though many Japanese hesitated about
privatization.
The Aso administration faced a bleaker economic future than
any of his predecessors in the 21st century. Japan's unemployment rate,
at 4.4 % in February 2009, compared well with the unemployment rate in
the US at the same time, but Japan does not have the safety network the
US provides to the unemployed. The economy is not improving any time
soon. For an export-driven economy, Japanese export dropped 50% in February 2009
from the same time last year. SONY, NEC and
Panasonic all plan to slash 15,000 to 20,000 jobs worldwide. Also by
Feb.2009, over 16,000 companies bankrupted, a 12% increase from a
year before.Cost reduction has led to reduction of high level management
in Toyota and Honda. It was not surprising that Aso
lost office in Sept.2009, to a different political party, the Democratic
Party of Japan (DPJ), and its leader Yukio Hatoyama. But how long
Hatoyama will last in his office is an unknown factor. This is
especially true given the fact that Japanese economy contracted around
6% in 2009, and the total government debt of Japan is likely to reach
200% of its GDP in 2011.
2. The future of Japanese economic
reform:(7)
To
gain a fuller economic recovery, the Japanese government needs to act in
the following areas:
-
Suspend covert subsidies of
inefficient sectors by efficient ones, such as when Toyota paid high
prices for inputs such as steel and glass and its workers paid high
prices for food and housing. This process led to bloated staffing in
inefficient sectors. Make-work projects in rural areas also spread
around the nation's riches but hurt efficiency. Replace these
practices with overt government policies on tax and spending
programs.
-
Establish financial
programs to help households become investors.
-
Equalize the working
conditions of regular and irregular (part time, temporary) workers and
expand the social safety net for workers in transition.
-
Continue to cut back on bad
loans.
-
Help the inefficient
economic sectors transition to more efficient ones or help the labor
force in these sectors make a transition to more productive
sectors.
-
Caps on government
borrowing and spending.
-
Continued privatization.
-
Increase premiums for
health and other insurance costs (which is faced with
insurmountable difficulties)
-
Like in
the U.S., economic structural changes may be necessary to bring Japan
out of its quagmire.
The huge deficit the Japanese
government shoulders (around $200 billion a year from its budget is used to fund
its debt, out of an annual budget beween $800 billion and $1trillion) means that much of what needs to be done
cannot be carried out, unless taxes are raised, which
is an impossible issue now.
Economic
structural changes may ultimately help to salvage the Japanese economy,
at least in part. The following is a quotation from an online article
from the Forbes magazine:
"Fundamental restructuring of Japan's economy toward a
more domestic-growth-led model is not part of any plan put forward so
far by the Liberal Democratic Party-led administration. The main
opposition Democratic Party of Japan, should it gain control of
government at this year's election, would implement a U.S.-style "Green
New Deal" in Japan, emphasizing spending on environmental (including
fuel-saving) measures as well as on boosting agricultural output.
However, this in itself is unlikely to compensate for any secular fall
in external demand.
Emphasis may
therefore shift toward exploiting hitherto untapped markets within Asia.
For example, Toyota ( TM
- news
- people )
has indicated its intention to shift from a "vertical to a horizontal"
production model in Asia, whereby it manufactures motor vehicles
designed for and produced in local markets rather than vehicles
assembled in various countries for export to third markets. Nissan ( NSANY
- news
- people
) has indicated its interest in basic models designed for the China
market, along the lines of Tata's Nano car in India.(8)
With the 2010 Toyota scandal with
its mal-functioning gas pedals globally, Toyota's problem may precisely
be because it decentralized production and therefore its quality control
became less effective. But its plan to reduce manufacturing costs has
been copied by many other Japanese companies, such as Sony, which is
trying to extricate itself out of many existent manufacturing sites,
such as one site in Slovakia, and sites within Japan, and move to
cheaper places where overall costs are lower. It is hard to tell if such
a move would help or hurt
Sony.
3. Foreign
policy:
Both Koizumi and Abe tried to
expand Japan's role in international affairs, and heighten Japan's
international statue. They both worked closely with the United
States in foreign policies. Initially, in the wake of the Cold
War, there was concern in Japan that U.S.-Japan military cooperation
will dwindle away. The recent international developments, the
"emergence of North Koreas nuclear threat, and China's robust military
buildup have all underscored the fact that Japan can no longer remain
passive about protecting itself or rely entirely on the United
States,"(9) and the need to balance China, a
growing economic power, has pushed Japan into a closer military
cooperation with the U.S. The end of the
Cold War, the emergence of North Koreas nuclear threat, and China's
robust military buildup have all underscored the fact that Japan can no
longer remain passive about protecting itself or rely entirely on the
United States. There is increasing discussion of revising Article
9 of the Constitution that limits Japan's army to only defensive
purposes. This is becoming more and more a mainstream view.
Both the center-left
Democratic Party of Japan (DPJ) [the second largest party in Japan
next to the LDP] and Abe's center-right LDP now support a bigger
Japanese security role. Both endorse revising the constitution to
fully legitimize Japan's armed forces, and both think Japan should
engage in collective-security operations with other nations. Until
now, successive Japanese governments had concluded that cooperative
military endeavors, except those to defend Japan, would violate
Article 9 of the constitution (which prohibits the use of force to
settle international disputes). In this view, Japan did not even have
the legal right to aid a U.S. naval vessel if it came under attack by
North Korea in international waters. The DPJ now argues that Tokyo
should engage in collective operations when authorized by the United
Nations. The LDP has taken a more assertive stance, supporting joint
operations with the United States with or without UN
authorization.(10)
Japan's international role is
also reflected in its bid for a seat on the Permanent membership in the
UN Security Council, a bid defeated by other permanent members of the UN
Security Council last year. Japan's growing international
involvement can also be seen from its recent involvement with the Iraq
war, to which it sent peacekeeping troops, in comparison with the Gulf
War of 1991, when Japanese contribution was only in the form of cash, $1
billion. Prime Minister Hatoyama started an argument
with the U.S. the moment he stepped into office in Sept.2009, on moving
American military bases from Okinawa to Guam, indicated this attempt to
assert both sovereignty and diplomatic independence of
Japan.
4. History and
Reflections on World War II
One area of constant friction
between Japan and its neighbors such as China and Korea is the Japanese
attitude toward its actions during World War II. Frequently in
recent textbook revisions, the Japanese government has denied Japan's
role in the Nanjing Massacre, the patronizing of the puppet regime of Manchukuo, and the
conscription of "comfort women" into the Japanese army during World War
II. The Yasukuni
Shrine, the largest and foremost Shinto shrines in honor of the war
dead since Meiji Japan, where 14 of the class A war criminals of WWII
were enshrined, has been symbolic of Japan's lack of full admission of
its wrong doings during WWII to China and Korea. Any Japanese
prime minister who visits Yasukuni invariably draws protests from both
these countries. Koizumi, during his tenure as prime minister, made
annual visits to the shrine. Abe, who made regular visits to the
shrine prior to his prime ministership, seems to be sensitive to this
issue and may avoid visits there in his official capacity as prime
minister to calm Chinese and Korean sensibilities. But Abe makes
revisionist remarks of aspects of Japanese conduct during WWII that
infuriate the Chinese and Koreans. To appeal to the
ultra-nationalists in Japan, Abe "has openly questioned the legitimacy
of the Tokyo War Crimes Tribunal that prosecuted Japanese war criminals
at the end of World War II. And in recent LDP leadership debates, he was
the only candidate who refused to use the word "aggression" to describe
Japanese war activities in the Asia Pacific in the last century."(11)
Even though extending his
apology for women who were in sex slavery during WWII, Abe refused to
admit it was coerced, eliciting extensive international criticism,
(12) including testimonies of Korean "comfort
women" in the U.S. congress. And Abe pushed for high school
textbooks to delete acknowledgement that the Imperial Army was
responsible for a major atrocity in Okinawa in 1945.(13)
Abe's penchant for a display
of nationalism combined with his desire to improve relationship with
China and South Korea, though. In April 2007, the Chinese Prime Minister
Wen Jiabao visited Japan and explored China's cooperation on energy,
environmental protection and military matters. The future of
Chinese-Japanese relations, as well as Japanese-Korean relations,
depends on a variety of factors, an important one is how Japan
acknowledges its wartime conduct. As a prime minister, Abe must
balance his need to appeal to the (ultra)nationalist sentiments of his
right wing constituents (especially at a difficult time in Japanese
economy), and international public opinion and Japan's international
standing.
Notes: