Monday, February 16, 2009

A pox on both their houses?

Writing in the Financial Times, Columbia's Gerald Curtis laments the impotence of politicians from both the LDP and the DPJ in the midst of a historic economic crisis.

The LDP, he writes, is "like the proverbial deer staring into the headlights...paralysed by fear rather than energized by it." But the DPJ is little better, as he argues, "the stark reality is that the party has no clue about what to do either in its first 100 days or thereafter."

There is much truth in what Curtis writes, but I think he takes his criticism of the opposition party too far.

The problem is this line: "The DPJ talks about replacing bureaucrats with politicians in key ministerial positions but says virtually nothing about what policies these newly empowered politicians would implement."

Curtis argues that because the DPJ has no plan for dealing with an economic crisis that may ultimately join the ranks of the most significant economic crises to hit Japan, it is to be condemned for having no ideas. If the DPJ is to be condemned for being dumbstruck by the crisis ravaging the Japanese economy today, it should be condemned alongside not just the LDP, but the entire Japanese establishment, which seems to have little idea of how to respond but with textbook economic stimulus measures. The extent of the crisis is the result of the LDP's postponing the day of reckoning for the export-led model; as Noah Smith has argued at this blog, the costs of the government's failure to transform Japan's economic model so that the "Japanese more of the stuff, or make less of it" are dire. Having failed to induce the Japanese people to do the former, the whole country is now suffering the consequences of the latter.

There is little the LDP or the DPJ can do to reverse this, aside from easing the pain in the short term, while setting to work on the overdue task of remaking the Japanese economy over the medium and long term. Pump priming at this point is nothing more than a stopgap. Japanese officials need to find a way to replace foreign demand with domestic demand, a change that will not occur overnight.

Which is where administrative reform comes in. Curtis is mistaken to minimize the value of the administrative reform plans developed by the DPJ. As politicians in both parties recognize, administrative reform is an indispensable first step to remaking Japan, because bureaucratic-cabinet rule — as the LDP system of government has been called — has been a major source of paralysis, preventing the government from establishing clear priorities and adjusting policy in response to structural shifts (demographic change, the intensification of the dual economy and the hollowing out of industry, the decay of the countryside, etc.). Without the creation of cabinet rule, the avowed goal of the DPJ's administrative reform plans, the Japanese government will continue to dither in the face of outright collapse regardless of which party is in charge.

The DPJ, in short, aspires to do what Koizumi Junichiro tried and failed to do: centralize both authority and accountability in the prime minister. DPJ reformists have studied the pathologies of LDP rule closely — in particular the failure to subordinate the party to the cabinet and the failure to unify cabinet ministers around the government's agenda — and have devised remedies to ensure that DPJ rule is cabinet rule. These plans are contained in the DPJ's transition plan, which outlines how a DPJ government will proceed in reforming governance during its first 300 days in power.

Of course, having a plan is different from implementing a plan, as plans never survive first contact with the enemy, in this case the bureaucracy. Should Ozawa Ichiro become prime minister, it will take the whole of his political acumen to inspire, bully, or bribe bureaucrats into accepting the DPJ's reform plans, and clearly the party will not get everything on its wishlist. But that doesn't mean that administrative reform shouldn't be a top priority for a DPJ government. In some sense, administrative reform can have a multiplier effect, freeing the government to establish clear priorities — based on its electoral manifesto — and then proceed with other reforms (and be held accountable for failures in meeting their avowed goals).

Returning to the question of how the DPJ would respond to the economic crisis were it to form a government later this year, like Curtis I too have recently talked with a DPJ member with expertise in fiscal and economic policy, having started his career in the ministry of finance. This member, having seen the Obuchi government's attempts to stimulate the faltering Japanese economy in the late 1990s, was skeptical about the Aso government's stimulus measures, but insisted that the response to the crisis must involve thinking about the structure of the Japanese economy and directing funds to support R & D in sunrise industries. This member also looked back at New Labor's 1997 victory and stressed that the DPJ, like Tony Blair, must stress "education, education, education." (Ikeda Nobuo, the neo-liberal economist, argues that the government is incapable of identifying and supporting growth industries in the manner suggested by this DPJ member, and that the key to promoting growth industries is opening Japan's economy to the world.)

In short, Curtis is wrong to chide the DPJ for not having the answer to the economy's falling off a cliff, with, as suggested by Edward Hugh, the worst still to come. Hugh, like Noah Smith, sees that the answer is not in short-term stimulus but in long-term reform of what he calls the "national mindset," with Japan's fixing its fertility problem and becoming more welcoming of immigrants. Similarly, Smith concludes, "After this crash — the recession Japan should have had in the 90s — Japan will have nowhere to go but up. Leaner, more profit-driven companies will start looking for hires — hopefully something between the full-time and part-time positions of today. Women will find themselves on a more level playing field. There will be room for new industries, new entrepreneurs who are not the first sons of old entrepreneurs."

They key going forward, therefore, is not having the perfect stimulus plan, because, as Yosano Kaoru argued, Japan will not escape the global recession alone. The key is for the government to be ready when the economy begins to recovery, ready with a refurbished social safety net that encourages more risk-taking by Japanese, a reformed education system that prepares Japanese citizens for life in a new economy, higher levels of immigration, and work-life reforms that enable Japanese women to balance having a career and having a family and thus enabling more women to contribute to the economy for longer periods of time. None of these changes will be realized without transforming how Japan is governed.

If the DPJ can make some progress in creating a new relationship between cabinet and bureaucracy while restarting Japan down the road to structural reform (although perhaps not structural reform of the Koizumian kind), it will have gone a long way towards making a brigther future for Japan.

Curtis may be right that there is "no optimistic short-term scenario for Japan," but the likely change from LDP to DPJ should not be viewed as pessimistically as Curtis sees it. Should the DPJ win, it will have a mandate to govern and it will be in control of both houses (although its control of the upper house will be contingent on partners). The party would of course be occupied initially with simply easing the pain of economic adjustment, but it will also be in a position to begin the hard work of administrative reform, for which it already has plans in hand.


Tim said...

You sure have a load of time to blog! Anyway, my students at Kyoto University see the way out to be greening the economy. After all, Kyoto is the home to the only international treaty dealing with climate change and Kyoto has no bicycle lanes. It has plenty of bicycles being pedaled around cars, buses and pedestrians. Now, I know it is a very compact city and an ancient one but at least it was planned, unlike many Japanese cities. That much it has going for it. They have increased the number of city buses with the 'idling engine stop' device but the roads are jammed with taxis and cars. Kyoto is a world city and tourists are pretty disappointed to discover that it is nowhere a world leader as a green city. Japanese technology in the Kansai region is available so what it will take is imagination, initiative, coordination and strong leadership. The new Osaka mayor could be the key person to get this moving. Japanese cities have long been criticized for standard of living and Hashimoto has vowed to make Osaka into a green city. We can only hope that he can manage to include Kyoto and Kobe in these plans to revitalize this area. No Mr. Aso, the Japanese taxpayers do not need 12,000 returned to them, they need a vision of a future Japan. Kinda what the US, Europe and most other places need.

Tobias Harris said...


Not that I have loads of time — more like trading sleeping for writing.

But in any case, your comment points to why decentralization in one form or another is necessary: localities need to be free to experiment, to find the solutions to problems facing their citizens without waiting for Tokyo to act.

David said...

I find the comment from your DPJ contact very scary. As far back as I can remember (and I first lived in Japan in the mid-80s) the government has been trying to identify the "sunrise" industries. What it needs to do is get out of the way. The Japanese have tremendous advantages compared to the US -- well educated workforce, tons of savings, world class manufacturing -- but they need to let companies fail, remove lousy managements, and restructure their economy. I am (once again) hoping that this latest crisis will lead them to address these issues more quickly than usual.