Saturday, January 31, 2009

The elusive Nakagawa Hidenao

Will the Machimura faction live to fight the next election after all?

Nakagawa Hidenao, a member of the triumvirate that leads the faction and a leading critic of Mr. Aso, was defiant in the face of criticism from Mori Yoshiro, don of the faction, seeing no reason for stepping down from the triumvirate. He denied claims that he was "rebelling" against the prime minister, and insisted on unity in faction and party before the forthcoming election.

Despite signs of moving to an irreparable break, however, it seems that the Machimura faction has decided to postpone the debate over the faction's leadership, for fear of damage to government and party.

Yamamoto Ichita, a member of the faction, claims that a majority of the faction's are not loyal to one side or the other but are perfectly capable of accepting different leaders simultaneously. He then reports that the media is to blame for stirring up talk of a split in the faction.

Maybe so, but perhaps the faction really is just a microcosm of the LDP. Just as potential LDP defectors are determined to stay put until a general election is held, so too might the breakup of the Machimura faction be on hold until after a general election. Given the number of seats the party expects to lose, it is not inconceivable that the party's internal balance of power could be completely redrawn by the distribution of losing seats.

For his part, Mr. Nakagawa appears prepared to stay and fight for mastery of the LDP, even after the election. He may be trying to put on a convincing act to justify his staying in the party through an election, which as MTC noted enables him to pocket his share of public political subsidies (and ensures that he would not face an LDP "assassin" in the election). But I wonder whether he might be serious about staying in the LDP when he writes something like this post, in which he claims that he "wants to raise the flag of a new LDP from within the LDP." The LDP, he says, should be remade as the party of "honest politics," compared to the DPJ, honest in its presentation of policies that serve the people, reluctant to engage in the party politics practiced by the DPJ.

While Mr. Nakagawa presents himself as the standard-bearer of economic and political reform, my impression of him is that he is a more committed partisan than he lets on. He did his best to cast the Abe government and its prime minister, under whom he worked as LDP secretary-general, as the natural heir of the Koizumi revolution, its efforts to reform challenged by the Bureaucrats and their allies throughout Japanese society. Similarly, he wrote of Fukuda Yasuo's "silent" reforms, doing his best to present the beleaguered former prime minister as a silent partner of the Koizumi revolution.

At the same time, few LDP members — as far as I can tell — write with as much vitriol about the DPJ as Mr. Nakagawa. His blog is an ongoing litany of the DPJ's faults. One recent post asks whether a DPJ government would be an anti-American government (because it would conduct alliance policy differently from the LDP). Another says that "we have heard nothing about how the DPJ will govern" (the DPJ may have more work to do, but nothing?). In directing his attention to the DPJ's faults, Mr. Nakagawa is in effect making excuses for the LDP. Does he not see the LDP's own faults? Or are its faults largely the faults of the bureaucrats and their allies within the LDP, which will be fixed once Mr. Nakagawa gets control of the party?

None of this inspires hope in me that Mr. Nakagawa is the man to engineer a political realignment and lead Japan to the next wave of great reforms. Maybe his public commitments to the LDP are just an act. But inside the LDP or out, the man will remain the same. And as far as I can tell, the man is a choleric bulldog, more interested attacking enemies than in doing the hard work of governing.

UPDATE: MTC notes that Jun Okumura deserves credit for the theory that the desire to get a cut of the first quarter of FY2009 political funds is keeping LDP members from defecting. Sorry Jun.

Thursday, January 29, 2009


I have returned from Tokyo to Boston.

Normal blogging to resume shortly.

I should also thank all of you because even with another day left in January 2009 more readers have visited Observing Japan this month than in any month since the blog was created. So, thanks for that.

Wednesday, January 28, 2009

Aso calls for a new Japan

Prime Minister Aso Taro, having had his second stimulus package pass the Diet Tuesday, appeared before the Diet on Wednesday to deliver his latest policy address.

Rhetorically, the address contains few surprises. In the opening sections, in which Mr. Aso addressed the principles behind his policies. He spoke of the "once in a century economic crisis" (although he omitted the phrase "emanating from America"). In discussing the work of building a new society and overcome Japan's third major crisis in the past two centuries, he once again stressed the importance of the virtue of industry, of hard work. To ensure Japan's continuing prosperity, he said, "It is necessary to build a society in which hard work is rewarded, a society in which senior citizens, the handicapped, and women find it easy to work." The fact that he needs to group women with the elderly and the handicapped when talking about remaking the Japanese labor force speaks volumes, doesn't it? As before, when Mr. Aso speaks of the elderly working, he speaks of it as a virtue, as opposed to something that should be kept to a minimum. Once again he gives the impression of a coach giving a pep talk to the Japanese people instead of a leader who understands the hardships his people are facing today. And as the Japanese press has noted, Mr. Aso has joined in the anti-capitalism boom, marking an "about-face from the Koizumi structural reforms." (Of course, such talk assumes that the LDP has not already moved away from Mr. Koizumi's agenda, which it clearly has.)

After explaining his principles, Mr. Aso addressed policy specifics, making the case for a three-stage process in making his new Japan. Step one is short-term economic stimulus, as contained in the two 2008 supplementary budgets and the 2009 budget to come. Far from saving Japan, however, the measures come across more as treading water in the midst of a tsunami than as a carefully designed plan to make up for lost foreign consumption. Japan's fate may depend more on what's happening in Washington than on what's happening in Tokyo.

Having explained the government's stimulus plans, Mr. Aso proceeded to the next phase, the medium-term phase in which the Japanese government is to set its fiscal house in order. This phase entails both the introduction of a consumption tax increase from 2011 — depending on the health of the economy — and cutting waste by lowering expenditures on public corporations and cutting the number of bureaucrats. In a single line Mr. Aso also promised to shift all of the road construction special fund into the general fund, a policy question that readers will recall wore down Prime Minister Fukuda's resolve in spring 2008. He also promised to accelerate decentralization.

Finally, the medium- to long-term phase of Mr. Aso's vision calls for a "new growth strategy." At the heart of this plan is the creation of a world-leading "low carbon society." He also calls for Japan's becoming a world leader in medical care for the elderly and rebranding Japan as a country with beautiful countryside, world-famous pop culture and fashion, and delicious, safe food. Connected to this, he promised to introduce a bill during the current Diet session that will trigger the Heisei agricultural reform, with the goal of raising Japan's self-sufficiency in food production. Mr. Aso's plan calls for a shift from "ownership" to "use" of agricultural land. He also wants greater use of rice-based products and more production of wheat and soya.

Mr. Aso also promised to remake the Japanese welfare state, starting with the pensions system. He apologized for the still-unresolved pensions scandal while stating that the government is making steady progress in cleaning up the mess. He addressed concerns about the declining quality of medical care, promising an increase of doctors working in the public service. Near the end of the speech, he actually mentioned education reform, which may be the most important piece of any effort to rejuvenate the Japanese economy and implement a "new growth strategy." Mr. Aso celebrated the introduction from April 2009 of a ten-percent increase in the number of math and science classes and new restrictions on cell phones in schools, but he actually says very little in this section about reform to how Japan educates its children. After mentioning forthcoming changes, he devotes the rest of the education section to discussing the achievements of Japanese scientists and researchers. A serious plan for reforming Japanese economy and society would treat the education system as more than an afterthought.

Mr. Aso concluded the speech by discussing a three-pronged foreign policy based on the US-Japan alliance, relations with Japan's Asian neighbors, and the UN and other international organizations, in short an approach wholly consistent with Japan's foreign policy mainstream and not altogether different from the DPJ. Mr. Aso and Mr. Ozawa might emphasize different legs of the three-legged foreign policy, but the differences are less than meet the eye. Mr. Aso did speak at some length about cooperating internationally to promote freedom and prosperity and combat terror and piracy, but his appeal lacked the same spirit that his calls to promote an arc of freedom and prosperity once had.

Bringing his speech to a close, Mr. Aso took a swipe at the DPJ for slowing down the political process and dismissed the talk of pessismists, who he says ought to look back and see how Japan rebuilt itself after the war into the very model of a high-tech, culturally attractive society.

There is very little of note in this speech. After mentioning the need to make it easier for women to work (see above), Mr. Aso offers few specifics for how to equalize the Japanese workplace. He has no real solutions to reversing demographic decline. Education reform is given a passing mention. While Mr. Aso is right to emphasize the "rebranding" of Japan, starting in stagnant rural areas, he says very little about how this transformation will actually be achieved. As is typical of these policy speeches, the connection between policy inputs and the desired outcomes is more often assumed than explicitly demonstrated.

Mr. Aso seemed more willing to acknowledge the extent of the economic collapse facing Japan today, but he also seemed as defiantly optimistic as ever, convinced of Japan's ability to overcome all challenges.

It is possible, however, that the current crisis may be too much for Mr. Aso and his weary LDP.

Appearance on Seijigiri

I recently recorded an episode of Transpacific Radio's podcast Seijigiri, hosted by Garrett DeOrio and Ken Worsley.

You can listen to it here.

Tuesday, January 27, 2009

Japan looks homeward

Curzon at Coming Anarchy is fed up with the DPJ.

Considering the DPJ's muddled position on the dispatch of JSDF ships to fight pirates alongside the naval forces of eighteen countries, he maintains that by waffling on the Somalia question, the DPJ has shown that it is incapable of governing.

I do not want to appear as a mere DPJ apologist, but I find Curzon's argument a bit too simplistic. The DPJ has one goal — and one goal only — in mind: win the next election. Blocking the dispatch of JSDF ships, if it in anyway moves the DPJ closer to victory, is a small price to pay for political change. The DPJ is doing what an opposition party is supposed to do, keeping the government honest. Given the lack of oversight that has marked the Indian Ocean mission and the MSDF more generally (cf. the Atago Incident), the opposition is not wrong to block the government's actions. (This is reportedly a major reason for DPJ skepticism about the dispatch.) Why should the DPJ be criticized for doing what an opposition party is supposed to do, especially since the LDP-Komeito government has such a poor record in command?

Of course it's frustrating that Japan has been reluctant to commit its forces to a mission consistent with the three fundamental missions of the Self-Defense Forces, according to the revised SDF law. Article 3 of the law states that the JSDF's primary missions are (1) the defense of Japan, defending its peace, independence, and security from invasions direct or indirect, (2) the maintenance of public order, and (3) cooperation with other nations under UN auspices to preserve international peace and prosperity (this last being a recent addition under Prime Minister Abe). Moreover, Article 82 authorizes the defense minister — with the approval of the prime minister — to dispatch MSDF forces to protect lives or property or preserve order at sea. I have a hard time seeing what is stopping the Aso government from going forward with full participation in coalition activities in the Gulf of Aden. The government controls two-thirds of the lower house of the Diet. If it believes that the dispatch is important, it should go ahead and do it, even if it means submitting a bill and waiting up to two months for the upper house to reject it. (That is, if a bill is required...)

The important question, therefore, is not why the DPJ is reluctant, but why the government, despite its supermajority, despite its principles, has dragged its feet. At least one reason for the delay is reluctance on the part of Komeito, the LDP's junior partner in government. The LDP has also made the mistake of connecting the dispatch with the question of Japan's right of collective self-defense, the exercise of which is prohibited by the Cabinet Legislation Bureau's prevailing interpretation. This mission should have nothing to do with collective self-defense and everything to do with Japan's responsibilities to the international community. If Japan's politicians are reluctant to fulfill those responsibilities, then the question is not to pin blame to one party or another but to pull back the curtain on Japanese foreign policy and ask why the Japanese people are so reluctant to approve any mission abroad by the JSDF.

In recent years, it appears that foreign policy has become a luxury for the Japanese people. Of course, given the difficulty of getting Japan to contribute more internationally in the best of times, is it fair to expect a substantial shift in Japan during the worst of times?

Opinion poll after opinion poll has shown that a tiny portion of the public thinks foreign policy is an important priority for the government. Polls show that a plurality favors some contribution to the multinational coalition in Somalia, but on the whole foreign policy achievements promise few gains and much risk for Japanese politicians. The Japanese people are, for the time being, interested in cultivating their own garden. Japan's institutions are broken, the economy is tanking, and the Japanese people are rightly concerned with whether their futures are secure. Arguably ensuring access to energy is essential to the country's economic future, but no leader has explained why events in the Horn of Africa (for example) are intimately connected with Japan's prosperity. No Japanese leader has gone before the Japanese people and said that Japan has been free riding throughout the postwar period, and that it is time to change. The Japanese people, it seems, would rather be Switzerland, at least for the time being, while their elected representatives are torn between the demands of their tired constituents and the demands emanating from foreign capitals, in the case of some the demands from their friends abroad.

The Japanese people have little interest in being a normal nation, at least for now. They want their abductees accounted for, they want their pensions paid, and they want to know that they will have access to quality medical care as they age. This may not be what Washington wants to hear, but for the time being it is what Washington will get. For now Japan is not a global great power, nor was meant to be.

Sooner or later Japan will resolve its foreign policy identity crisis. The Japanese people may eventually decide that they're ready to be a normal nation after all — or they may decide to undo the Meiji Restoration altogether and return to some twenty-first century iteration of sakoku. But ultimately it will be for the Japanese people and their leaders to decide.

Monday, January 26, 2009


Leaving a meeting at Japan's House of Representatives this morning, I happened upon a group of schoolchildren on a field trip at the Diet, who proceeded to greet me by shouting "YES WE CAN!"

Can you feel the change?

An open letter to Ambassador-designate Nye

Dear Professor Nye:

Congratulations on your appointment to the position of United States Ambassador to Japan.

Your arrival comes at an auspicious time. It appears exceedingly likely that during your ambassadorship the Liberal Democratic Party will be bounced from power and replaced most likely by the Democratic Party of Japan, although possibly a ragtag coalition as in 1993-1994.

Between "change you can believe in" in Washington and incipient political change in Japan, now is the perfect time for a new approach for the US-Japan alliance, and I think you may be the perfect agent to deliver change.

To senior politicians in the LDP, you are remembered for your work as assistant secretary of defense for international security affairs, in particular the "Nye Initiative" which resulted in the reaffirmation of the US-Japan alliance after the trade skirmishes of the early 1990s. Nakagawa Hidenao, former LDP secretary-general, calls you a "one of the strongest advocates throughout the Democratic and Republican parties for the US-Japan alliance."

I expect he's right. But as you prepare for your move to Akasaka, it is worth asking what it means to be an advocate for the alliance today.

As Richard Samuels and James Schoff make clear in the International Herald Tribune, the alliance is in desperate need of attention. "We have allowed alliance symbols," they write, "like the nuclear umbrella and common democratic values, to stand as a surrogate for alliance value and a clear division of responsibilities."

But clarifying the goals and roles of the alliance should not involve your telling Japan what to do, although nor should it mean telling Japanese leaders what they want to hear. Japan's lingering reluctance to bear a greater burden is frustrating, particularly when it involves something like fighting pirates in the Gulf of Aden, something so innocuous and so obviously in both Japan's national interest and the interest of the international community. But Japan should not be shamed or pressured into playing a greater global role. No matter how many times your predecessor as ambassador told Japan that it should permit collective self-defense, Japan barely budged in the direction of a new interpretation. If Japan's leaders or the Japanese public are unwilling to do it themselves, no amount of pressure from the US will force their hand — and such pressure could very easily sour America's image in Japan. It is little wonder that the DPJ is criticizing the LDP for being too interested in pleasing the US while ignoring the public; the opposition party has a point.

I hope, Professor, that as ambassador you will say what you mean. The US, in pushing for Japan to be more active globally and more active in the alliance, has without question associated the two ideas in the mind of the Japanese people. These should be two different discussions. The idea of a global alliance was far-fetched and doomed to fail, in part because the Bush administration raised the prospect of entrapment in American wars to unacceptable levels. The transition to the Obama administration will diminish the fears of entrapment somewhat, but Japan's half-hearted contributions to US campaigns in Afghanistan and Iraq show that Japan's tolerance for serious involvement in US military campaigns is limited. The costs of cooperation in terms of expectations (in that Japanese leaders came to expect reciprocity in North Korea) and in heightened fears of entrapment are not worth the marginal benefits of Japanese cooperation (despite the rhetoric heaped upon Japanese contributions in the Indian Ocean and Iraq, it is hard to see them as anything but marginal).

But there is still work to be done in Asia. The US-Japan alliance is an Asian alliance, a pillar of stability in the region, not least because it ensures the US forward presence in East Asia. This role is crucial, both in terms of deterring aggression and in providing public goods, most notably open sea lanes. But can the alliance be more than a hedge against a bad turn in China's development? Can the alliance play a role in reducing the possibility of a bad turn? Better coordination in relation to China is essential, without making such coordination appear as the US and Japan ganging up on China.

In a 2006 article in the Boston Globe, you described Asia policy during your time at the Pentagon as follows:
We knew that hawks who called for containment of China would not be able to rally other countries to that cause. We also knew that if we treated China as an enemy, we were ensuring future enmity. While we could not be sure how China would evolve, it made no sense to foreclose the prospect of a better future. Our response combined balance of power with liberal integration. We reinforced the US-Japan alliance so that China could not play a ''Japan card" against us, while inviting China to join the World Trade Organization. In a rare case of bipartisan comity, the Bush administration has continued that strategy.
That is where we stand today, only more so. Except that it is time to focus less on the balance of power and more on the liberal integration. The US shouldn't neglect the security relationship. It should try to guarantee the timely completion of the realignment of US forces in Japan (and be willing to reconsider portions of that agreement if doing so hastens the process). It should look to improve interoperability between US and Japanese forces.

But it is time to deemphasize the security relationship. By focusing on the security relationship to the exclusion of much else during the past decade, the US finds itself not allied with Japan, but with a narrow, increasingly powerless segment of the Japanese elite. This is not the basis for a durable alliance.

As I've argued previously, "The challenge for the Obama administration is to present a vision for the alliance that does more than prepare for the worst-case scenario with China, a vision focused on more than security cooperation. The security relationship is important, but it cannot be the whole of the U.S.-Japan relationship." The US and Japan need better coordination regarding the future of the Korean Peninsula, which necessarily means better coordination with China. It means getting Japan to focus on matters other than the fate of Japanese abductees in North Korea. It means better coordination on how to incorporate China as a regional power, and better coordination on economic regionalism in East Asia. Japan needs to be more capable of forging an independent leadership role for itself in Asia, a role which it finds difficult to play given the perception of a US veto over Japanese foreign policy.

Japan, in short, needs to be given room to forge an independent role between the US and China. This is the reality of the region: Japan, like other middle-sized powers in the region, finds itself needing to maintain good relations with both the US and China, while ensuring that the US-China relationship is neither too warm nor too hostile. Yes, the alliance could be more reciprocal, with Japan's committing to the defense of the US (in practice, committing to shooting down US missiles). Yes, Japan take on greater responsibilities within the alliance. But those changes will not come overnight, and they will not come about through US cajoling, certainly not if LDP rule gives way to a DPJ-led government.

Japan stands on the brink of an important moment in its political history. Rather than worrying about whether the DPJ will be as good as the LDP on security or whether the DPJ will trash the alliance, the Obama administration — and naturally you as its designated representative in Japan — should be prepared to celebrate the DPJ's victory and find ways to work with a possible DPJ administration along terms acceptable to the Japanese people as whole and not just a narrow segment of Japan's elite. There is no question that Japan needs to have a debate on its foreign policy, and more broadly its place in Asia and the world. But that debate will not occur immediately, and its outcome is intrinsically connected to broader political changes.

I have high hopes for your ability to strike the right tone as the ambassador in Tokyo. I believe that you recognize that there is more to the US-Japan relationship that cooperation between the US Military and Japan's Self-Defense Forces. I believe that you will respect that the Japanese people need to make decisions about their security for themselves, that while you will make the US government's positions known, you will not be overbearing in doing so. And I believe that based on your work as an academic and a government official you are the right man at the right time.

I wish you nothing but the best of luck as you embark on the next phase of your journey as a public intellectual in the service of the United States.

Tobias Harris

Friday, January 23, 2009

Mori wants Nakagawa out

I have chronicled divisions in the Machimura faction since May of last year, and I have written on several occasions of what I think is the impending destruction of the LDP's biggest faction, paraphrasing Monty Python last month to conclude that the faction is in fact an ex-faction.

The destruction of the Machimura faction proceeds apace.

In an interview with the Asahi Shimbun Wednesday, Mori Yoshiro, former prime minister and Machimura faction don, described criticism of the Aso government by Nakagawa Hidenao, a titular head of the faction, as a "total rebellion" and said he wants to see Mr. Nakagawa step down from his leadership post. He also said it doesn't matter whether Mr. Nakagawa leaves the faction. His job, Mori said, "is to protect Aso-san." As the self-appointed defender of the Aso government, Mr. Mori also offered his opinions on the timing of a general election (September if possible, but probably after the passage of the budget), whether Mr. Aso should be replaced before a general election (absolutely not), and the key to Mr. Aso's recovery (cabinet reshuffle). There's also a somewhat resigned tone, as Mr. Mori spoke of the possibility of Mr. Aso's being the LDP's last president.

The Mainichi Shimbun, meanwhile, has reported on the "gradual isolation" of Mr. Nakagawa within the faction. By isolation, I assume Mainichi means his isolation from the faction's leaders, because if they opt to drive Mr. Nakagawa opt, I suspect that he will take a good portion of the faction with him. Mainichi quotes Mr. Mori as accusing Mr. Nakagawa of sabotage, conduct unbecoming a faction chief.

This is an ex-faction.

The foolish crusade against the House of Councillors

In May 2008, I wrote about the creation of an LDP study group with the goal of eliminating the House of Councillors — the Diet's upper house — and moving to a unicameral system, a proposal that I suggested was an anti-democratic temper tantrum in response to DPJ control of the upper chamber.

This proposal and its advocates, however, are still at work trying to undermine Japanese democracy. The study group is working hard to introduce a plank demanding a unicameral system into the LDP's manifesto for the next general election. As Yamamoto Ichita, a member of the study group, explains, the proposal is not just to dissolve the upper house but to dissolve both houses and create a new unicameral legislature with significantly fewer legislators. The plan calls for the number of legislators to be cut by thirty percent and for single-member districts to give way to prefecture-wide multi-member districts. He claims it isn't simply a response to the DPJ's control of the upper house.

As I noted last year, given that such a radical change would require Japan's first ever constitutional amendment (Article 42: "The Diet shall consist of two Houses, namely the House of Representatives and the House of Councillors"), and given that the days of the government's supermajority are almost certainly numbered, this proposal is singularly farfetched. It is doubtful whether this proposal would receive majority support, let alone supermajority support. Prime Minister Aso is circumspect; Komeito is favorably disposed to cutting the number of legislators but opposed to removing the upper house; and the DPJ's Ozawa Ichiro thinks this should not be a subject for discussion at all before a general election.

So why am I writing about this proposal?

Only because it shows how batty some LDP members have gotten as their party has decayed. Not only do this proposal's proponents — including the past four prime ministers — ignore the steep obstacles standing in the way of ever making a unicameral system a reality given present political circumstances, but they are so short-sighted that they fail to realize that given the probability of the LDP's going into opposition, the upper house will be a useful tool for crafting an LDP revival.

The DPJ, the upper house's largest party but not the majority party, needs every vote it can get in order to control the upper chamber. For now, it is dependent on the Social Democrats and the People's New Party. Even if the DPJ wins an absolute majority in the lower house and forms a government, it will still have to cobble together working coalitions in the upper house. In this situation, the LDP will be powerful both as a potential partner and as a potential spoiler of DPJ plans. The same will apply to Komeito. Surely the members of the coalition parties, surrounded by signs of impending collapse, have begun thinking about what life in opposition will be like. Surely they know all too well that the upper house can be a useful platform for disrupting government business.

But the unicameralists not only exhibit a shortsightedness on the part of LDP members, they show how LDP members have looked to attribute policy failures to anyone or anything but their own party. Naturally there are exceptions, most notably Mr. Koizumi and his followers. But the desire to blame structural forces — the electoral system, the parliamentary system, the policymaking system — is persistent, and unconvincing.

How can the same structures that in many ways sustained LDP rule now suddenly be contributing to the LDP's demise? For example, if the much-vilified bureaucracy, Nakagawa Hidenao's bete noire, has misgoverned Japan, the obvious question is why the LDP has allowed the bureaucracy to make such a mess of things. Mr. Nakagawa would answer that the bureaucracy is an all-powerful complex — which Mr. Nakagawa explicitly describes as akin to Eisenhower's "military-industrial complex" — that is capable of manipulating the LDP, the media, the universities, and so on.

Not good enough. At some point the LDP, accountable to the public for policy, must pay the price for failures. No more excuses. No more scapegoats.

Thursday, January 22, 2009

Tax rebellion averted?

The LDP appears to have forged a truce in the incipient war over writing the timing of a consumption tax increase into law.

In the best LDP tradition, the LDP leadership has decided to muddle the message of the bill. The LDP has produced a draft with language that calls for implementing "essential legislative measures by 2011" for fundamental tax reform including the consumption tax, but also adds that the precise timing of said measures will depend on "the state of the process of economic recovery and an examination of trends in the global economy." The draft also calls for a two-stage increase of the consumption tax. Finally, it included language designed to appease the potential rebels by calling for appropriate measures to promote administrative reform and eliminate wasteful spending.

The LDP leadership hopes to secure a cabinet decision on the draft by Friday.

Amazingly, these minor edits appear to be sufficient to quell the discontent among the LDP's reformists. Said Nakagawa Hidenao in response to the additions: "The supplementary provisions cannot be said to be a tax increase bill; they are nothing more than instructional provisions." His fellow malcontent, Yamamoto Ichita, is less impressed with the compromise.

"Anywhere you look in the world," he writes, "there are no governments saying things like, 'Depending on the situation we will raise taxes after three years.'" He believes that far from being "merely instructional," the plan will appear to the public as a solid commitment to a tax increase, a tax increase that Mr. Yamamoto does not deny may one day be necessary but argues that for now is political and economic folly to discuss.

The compromise may be a way for the tax hikers to create a foothold; if the LDP somehow survives this year's general election and if the reformists are diminished by the returns, they now have a basis for going forward with a firmer commitment. Instructions now, substance later.

For the same reason, I wonder whether the Japanese press is declaring a truce in the tax rebellion prematurely. Mr. Yamamoto's response does not sound like someone who is content with the party's compromise — and I'm sure he's not alone. It may be that the rest of the reformists do not share Mr. Nakagawa's desire to accommodate the party.

Meanwhile, I think I am with Kono Taro on this debate. At his blog, Mr. Kono muses on the growing severity of the downturn and wonders why the LDP is wasting its time on whether to hike the consumption tax in 2011 — a time at which, he notes, the LDP may not even be the ruling party — when sales are falling, company debt is growing, credit is freezing, and manufacturing is shrieking to a halt. He assumes that another stimulus package will be unavoidable, and that the LDP should be doing all it can to stop the bleeding instead of debating whether to raise taxes once the economy recovers.

Wednesday, January 21, 2009

Dollars and yen(ts) (Noah Smith)

There's an interesting article in BusinessWeek asking whether Japan will intervene to push down the strengthening yen. The consensus seems to be that it will, even though such a policy is not necessarily optimal from an economic viewpoint, and may not in fact work. But a weak yen seems to still be an important part of Japan's industrial policy. Why?

While "classic" theory holds that currency intervention is always inefficient, a new school of thought holds that it's in fact very useful for developing countries. The reason, as Dani Rodrik explains, is that domestic exporters engage in "cost discovery" — holding down your currency gives your domestic companies the chance to find out what they're best at, which is good for long-term economic strength.

But Japan is manifestly not a developing country. And Japanese companies have by now had plenty of time to find out what they're good at. So at this point, an artificially weakened currency serves mainly to boost employment in Japan's export industries at the expense of (a) efficiency (what is Sanyo's core competency again?), (b) Japanese consumers, and (c) industries that serve the Japanese market.

Fine, you may say, that's a fair trade. After all, employment gets a boost. But does it? Employment levels are different from employment volatility, and exports are notoriously volatile (because terms of trade can change quickly). Even if a weak yen increases Japanese employment — which is far from obvious — it may actually make Japanese jobs less secure. A global downturn, or a rapid increase in terms of trade — both of which we are seeing now in Japan — can force companies to either default on their debts or fire workers. In the 90s, Japanese companies did the former; they are now doing the latter.

In other words, this is a pretty clear example where Japan's reflexive (and politically motivated) adherence to "developing country policies" has probably backfired. Just another way that reforming the country's sclerotic political system could yield real benefits for the economy and people of Japan.

— Noah Smith

Tuesday, January 20, 2009

The conservatives humbled

Perhaps one of the positive consequences of Japan's economic crisis is that it has silenced Japan's conservatives.

By silenced I do not mean literally silenced — they're still fulminating. What I mean is that they have been rendered irrelevant by events. Despite their media power, their ability to churn out a seemingly infinite amount of books, magazine articles, and op-eds, it turns out that they have remarkably little to say about Japan's economic problems. Former Prime Minister Abe Shinzo is indeed the conservative poster child in this respect: eager to flaunt a rising Japan and its newfound powers, he was almost completely indifferent to the hard work of remaking the Japanese system.

But it is not just the economic crisis that has silenced the conservatives. It is the marriage of the LDP and Aso Taro, one of their own, that has been responsible for quieting the conservatives. The conservatives, with Mr. Aso as prime minister, Nakagawa Shoichi as finance minister, Amari Akira as administrative reform minister, and Hatoyama Kunio as general affairs minister, are now responsible for what happens to Japan in the coming months and years. The fate of the modern conservative movement — which has enjoyed a meteoric rise over the past two decades — is now tied to the LDP and the Aso government. Of course, it is for this reason that Hiranuma Takeo's quixotic quest to create a new conservative party (yes, he's still at it, although now the plan is to create a party after the general election) is so foolish. Japan already has a conservative party, and it is drowning as (in Mr. Aso's words) the "tsunami" of the global financial crisis washes over Japan.

What I am not saying is that the conservatives are vanquished evermore. They still have considerable power and their ideas appeal to a sizable minority. What I'm saying is simply that events have rendered the conservative movement irrelevant to the policy debate. It is little surprise that Mr. Abe has attempted to carve out a middle ground in the LDP's tax debate — Mr. Abe and his compatriots barely have a position on the issue to advance.

All of this is a way to introduce this stemwinder by Sakurai Yoshiko.

Published in the January 15th issue of Shukan Shincho, the title says it all: "In the Sino-Japanese War, China had more fighting spirit than Japan."

The essay is the latest attempt to rewrite the history of World War II along terms that exculpate Japan and pin blame for the war on China (and communism). Actually, not only does she pin the second Sino-Japanese war on the Cominform, she finds a new, somewhat surprisingly culprit in the widening war: the Nazi Party, which she blames for providing military assistance to Chiang Kai-shek during the 1930s. In other words, Ms. Sakurai blames any outside power that enhanced the ability of Chinese forces to resist Japan for widening the Sino-Japanese war, instead of blaming the military that was invading China, as if the Chinese people were just supposed to accept the advance of the Imperial Military passively.

I don't want to get bogged down in the history, because the conservative obsession with history is precisely the problem. The conservatives are so obsessed with making the case for the Pacific/Great East Asian War as a just war that they have nothing relevant to say about the many problems facing the Japanese people today.

As such, the more the conservatives are ignored, the better. Japan and the world have too many problems to be consumed with fighting old wars and nursing old hatreds, while looking to stir up new ones. This is, to some extent, the message of President Obama's inaugural address: " end to the petty grievances and false promises, the recriminations and worn out dogmas, that for far too long have strangled our politics." He was talking about American politics, but he might as well have been talking about the history problem in East Asia.

Obama says what Aso can't

The impression I got from watching President Barack Obama's inaugural address is that he is acutely aware of the burden that has now fallen upon his shoulders.

But I also think that in this address he accomplishes what Prime Minister Aso Taro has thus far failed to do. He does not hesitate to state his appreciation of the darkness of the hour, but that does not stop him from maintaining that the United States can and will overcome its problems and emerge stronger for it. In his remarks Mr. Aso hurries through the first part to give vague assurances of a speedy recovery.

As President Obama said:

Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age. Homes have been lost; jobs shed; businesses shuttered. Our health care is too costly; our schools fail too many; and each day brings further evidence that the ways we use energy strengthen our adversaries and threaten our planet.

These are the indicators of crisis, subject to data and statistics. Less measurable but no less profound is a sapping of confidence across our land - a nagging fear that America's decline is inevitable, and that the next generation must lower its sights.

Today I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time. But know this, America - they will be met.

The LDP's tax revolt

The upper house has begun debating the Aso government's second stimulus package and its controversial proposal to distribute roughly two trillion yen to Japanese citizens, 12,000 yen (US$132) per person in the hope of restarting the Japanese economy.

At the same time, the LDP is in the midst what could be the climactic battle in a long civil war over whether to raise the consumption tax.

The two policies are linked, the product of a bargain between the government and the finance ministry whereby the finance ministry agreed to release the stimulus funds in exchange for a commitment from the government to raise the consumption tax at the earliest possible date. Accordingly, the battle raging around these policies involves the same protagonists: on one side, bureaucrat bashers Nakagawa Hidenao, Yamamoto Ichita, and other Koizumian reformists (with Watanabe Yoshimi now sniping from the sidelines), and on the other, Aso Taro, Nakagawa Shoichi, his finance minister, Yosano Kaoru, the economy minister and longtime advocate of consumption tax increase as indispensable for sound public finance, and the Japanese bureaucracy.

The debate is over whether the government should include a commitment to phase in a consumption tax increase from 5% to 10% starting 2011 in the government's mid-term tax program. In making the case for the increase, it appears that Mr. Aso and his ministers will emphasize the importance of the tax for providing economic security for all citizens. Asked about the planned increase in Diet proceedings Monday, Mr. Aso stressed the importance of restoring the country's finances for providing pensions, health care, and welfare for Japanese citizens and insisted that Japan must wait no longer than the time it takes for the economy to recover to set about fixing its fiscal situation. In a sop to the reformers, Mr. Aso has also promised that any tax increase will be accompanied by efforts to cut waste and reform the bureaucracy.

Mr. Aso will likely spell out his thinking on the consumption tax question in his policy speech, which will not be delivered before January 26. Yomiuri reports that his address will spell out his economic philosophy and emphasize the need to put social security on surer footing — and also suggests that Mr. Aso will join in the capitalism bashing, criticizing "market fundamentalism" and distancing the LDP ever further from Koizumi Junichiro's structural reform agenda.

Despite indications to the contrary, the government does not appear to be backing down from its commitment to either half of the stimulus package/consumption tax increase program, despite opposition from within the party, opposition parties, business leaders, and an overwhelming majority of the public. If anything, the government is doubling down on its commitment, despite taking a beating in the court of public opinion — and the prime minister is convinced he will get his way. Asked Monday evening whether he expects rebellion within the party over the bill to revise the tax system for the 2009 fiscal year, which will contain the promised consumption tax increase, Mr. Aso dismissed the idea. His finance minister rejected an appeal from a ministry shingikai to withdraw the stimulus package with an outright "no." Jun Okumura thinks there might be more to it, but it seems possible that the Aso government is so far gone down this path that to abandon this course of action could mean the end of the government, the final push that brings the government's approval rating into the single digits and results in a vote of no confidence.

In any case, in Monday's deliberations Mr. Aso reiterated his government's decision to push forward with the stimulus package

Of course, pushing ahead with the scheme could mean the end of the government as well. While Mr. Aso dismissed the chances of a rebellion should the government need a supermajority to reapprove its bills in the Diet during the current session, the possibility is all too real. The Koizumians, having become the LDP's anti-mainstream since Mr. Koizumi left office in 2006, may finally have been pushed too far. As the Tokyo Shimbun reminds us, it will take only sixteen rebels to defeat the bill should the lower house have to pass it again over upper house opposition. Will sixteen emerge? Even without considering the Koizumians, the Aso government could be in trouble. Even Tsushima Yuji, head of the LDP's tax commission and head of the Tsushima faction, has voiced his opposition to explicitly setting a date for the introduction of a consumption tax increase. One does not need to be a Koizumian to wonder whether it is politically sensible to commit to a consumption tax increase when it appears that Japan still has not reached bottom in the current economic crisis.

But should Mr. Aso get his way in party deliberations and succeeds at introducing a consumption tax commitment into Diet deliberations, the LDP's reformists may finally stand up and say no to the government after two years of being pushed to the side, with Nakagawa Hidenao and Yamamoto Ichita the two leading figures in the campaign against both sides of the government's bargain with the finance ministry. Mr. Nakagawa's fight is as much against the bureaucracy as it is with Mr. Aso. In this post at his blog, for example, Mr. Nakagawa argues that the bureaucrats are insensitive to the lives of the Japanese people, that their planning on the consumption tax question is based solely on economic statistics instead of on the reality of daily life. Mr. Yamamoto writes at greater length on the reasoning behind the opposition of the reformists. Mr. Yamamoto, like Mr. Nakagawa, claims to not be opposed to the consumption tax increase in principle but believes that other steps must be taken first before introducing the tax: steps to eliminate waste, cut the number of Diet members (an intriguing idea, seeing as how Japan has nearly two hundred more national legislators than the United States for a country with just over a third the population), and combat amakudari. He also rejects the arguments floated to defend the idea that a consumption tax increase is political suicide for the LDP — Mr. Yamamoto finds the notions that the public will praise Mr. Aso for tackling the consumption tax issue and for showing how the LDP will pay for its proposals (unlike the DPJ) laughable.

Messrs. Nakagawa and Yamamoto have now been joined by the maestro himself, Mr. Koizumi. The former prime minister met with Mr. Nakagawa and Takebe Tsutomu Monday evening and declared that the idea of setting a date for the introduction of a consumption tax increase is mistaken. Mr. Koizumi's guidance might not influence the government, but it may steel the resolve of the LDP's reformists. I wonder too whether Watanabe Yoshimi's now constant presence on television will give courage to his former compatriots, providing a reminder that they have a place to go should they decide to rebel against the government. Mr. Watanabe's decision to act as an advance guard may yet prove to be a wise decision.

In any case, as this debate unfolds it is worth noting that the tax debate captures everything that is wrong with the LDP today and illustrates why prime minister after prime minister has failed to govern.

The tax issue encompasses everything: Kasumigaseki-Nagatacho relations, the size and role of the state, the future of economic governance (neo-liberalism versus something else), control of the LDP and the government, and the LDP's prospects beyond the 2009 general election. It shows that the LDP is several parties traveling under one label, several parties that increasingly see the political system in fundamentally irreconciliable ways. Mr. Aso and his predecessors have failed because the LDP is beyond the command of any one politician. Japan is ungovernable because the LDP is ungovernable, meaning that the loser in all of this is, of course, the Japanese people, who are no closer to having a government capable of fixing the government's finances and providing the protection they desire.

Is such a government waiting in the wings? The DPJ has been sniping on the sidelines of the LDP debate, presenting an argument similar to the LDP's reformists — the DPJ will oppose any bill stating a date for a consumption tax increase because efforts to reform the bureaucracy should precede any increase in the tax burden for the Japanese people. The DPJ, however, should tread carefully. It is easier to bash the bureaucracy than to offer a plan to fix the budget that does not include a consumption tax increase in some form. And if and when the DPJ forms a government, it will need that selfsame bureaucracy in order to govern.

Finally, as an aside, it is worth asking whether the current Diet, nearing the end of its term, should be allowed to vote on such weighty matters as whether to provide a stimulus package of dubious effectiveness or to commit to a consumption tax increase. While in a purely technical sense the current Diet is, of course, legitimate, it is in some sense a lame duck Diet, given the likelihood that the government will call an election as soon as it has the 2009 budget in hand. Why should a collection of parliamentarians, many of whom will no longer hold their seats at year's end, be allowed to decide Japan's fate at this critical turning point? It is clear why Mr. Watanabe wants an election to be held immediately.

Sunday, January 18, 2009

The LDP and the DPJ face the future

The LDP and the DPJ had their annual conventions in Tokyo over the weekend, steeling their resolve for the Diet session already underway and the general election that will occur within the year.

For the second straight year, the incumbent LDP president and prime minister told the party faithful that the "responsible governing party" (how the LDP now refers to itself) faces the worst crisis it has ever faced — at the same time that Japan confronts (to use what has now become a mantra from Aso Taro and his cabinet ministers) "the worst economic crisis in one hundred years, which has emanated from America." Mr. Aso told the convention that "only the LDP" can overcome the economic crisis, which would presumably be enough to save the party from what looks like certain electoral defeat later this year. (Interestingly, Hosoda Hiroyuki, LDP secretary-general, has criticized Mr. Aso's frequent use of this exculpatory expression because it is too negative, arguing that it dampens consumer confidence and undermines the government's own policies. And here I thought the problem was that by using this expression Mr. Aso was more or less ignoring discussing the crisis and therefore ignoring a serious effort to diagnose its cause and offer an appropriate and effective response...)

On that note, Mr. Aso used his address to repeat his pledge that Japan will be the first to escape the crisis and once again express his belief in the ability of the Japanese people to overcome any challenge. He also made sure to note that the nejire kokkai (read: DPJ obstructionism) is to blame for any lack of progress in moving the government's agenda in recent years.

None of this was particularly new or particularly inspiring; the 2009 LDP convention may be about as exciting a party as the 2009 World Economic Forum, another gathering that Mr. Aso may address.

The mood at the DPJ convention, held at a former postal meeting hall in Tokyo's Minato ward (as opposed to the luxury hotel that hosted the LDP gathering), was different, and not only because of the relatively spare meeting hall, a reflection of the party's need to conserve funds for the general election campaign. If Mr. Aso's speech had a pugnaciousness reflecting his party's and government's dire circumstances, Mr. Ozawa's was characterized by what looks like an attempt to strike an Obamanian note, full of talk of building a new Japan. In fact, Mr. Ozawa's leitmotif appears to have been borrowed from Abraham Lincoln's Gettysburg Address: he declared that the DPJ's fundamental purpose is a "politics of the people, by the people, and for the people," and then offered policies to create an economy "of human beings, by human beings, and for human beings" (contrasted with "a market economy of capital, by capital, and for capital") and finally a society "of citizens, by citizens, and for citizens." Rhetorically, this construction is clumsy and actually cheapens the phrase.

Meanwhile, does Mr. Ozawa have to copy Shii Kazuo and the JCP? I am sympathetic to his point about building a safety net and counteracting the "dehumanization" caused by capitalism — score one for Karl Polanyi — but Mr. Ozawa would do well not to get too carried away in the anti-capitalist rhetoric sweeping the Japanese political system.

This election year is turning into a fight over who can be the most energetic in criticizing "market fundamentalism;" even the LDP's reformists, the vanguard of the Koizumi revolution, have shifted their emphasis from pushing for economic deregulation to attacking the bureaucracy and fighting the consumption tax. But sooner or later, one party or another will have to govern, at which point it will discover that the market is still there — and that the Japan will have to find a way to be more competitive while providing an appropriate and politically desired level of social assistance. I recognize that in criticizing "market fundamentalism" Japanese politicians are specifically criticizing neo-liberalism and the ideology that fueled the US financial crisis, but at times their rhetoric strays into more radical terrain. There needs to be less focus on pointing fingers and assigning labels and more focus on providing answers to the questions of how Japan can provide greater opportunity for its citizens and greater protection for the aged and infirm — in particular, how it can pay for it. My hunch is that the Japanese people are more interested in these answers than in learning who among their leaders are card-carrying members of the neo-liberal party.

In the latter half of the speech, Mr. Ozawa does turn his attention to these matters. He calls for two New Deals, an "environmental" New Deal and a "safety" New Deal. The former basically appends to the party's standing promise of subsidies for farmers a pledge to promote the "greenification" of rural Japan through the widespread use of solar panels and the "greening" of roofs and walls of homes and offices. The latter calls for making schools and hospitals earthquake-resistant, basically an overt pledge of support to small- and medium-sized enterprises that would benefit from these contracts. As Mr. Ozawa said himself, the goal is to promote job creation in rural Japan.

All in all, Mr. Ozawa's proposals are less ambitious than his rhetoric would suggest. And there's still no indication of how a DPJ government will pay for the two new deals. Once again, Mr. Ozawa has borrowed a phrase from American political history only to drain it off its evocative power. The New Deal was an ambitious experiment in American governance; it is still unclear how a DPJ government will be a dramatic departure from the past, other than the fact of its existence.

That's not to say it's impossible for a DPJ government to break decisively with the status quo, but for now the DPJ has a lot of work to do to determine precisely how it intends not just to jump start the Japanese economy, but to put it on a more viable footing. As an article by Waseda's Noguchi Yukio in Shukan Diamond argues, the decimation of the past several months may mark nothing short of the end of Japan as "skilled manufacturing, exporting nation."

While time will tell whether this is hyperbolic, the DPJ ought to have a better answer to this transformation than two feeble "new deals."

Thursday, January 15, 2009

Ambassador Schieffer's farewell

J. Thomas Schieffer, US ambassador to Japan since 2005, left Japan Thursday.

To mark his departure, Ambassador Schieffer gave a farewell address at the National Press Club in Tokyo Wednesday, followed by a long press conference that ranged over a host of topics, not all of them having to do with Japan and US-Japan relations.

The central message of the address — and the Schieffer ambassadorship — is that Japan should do more internationally.

"Now, more than ever," he said, "Japan needs to focus on what it can do in the world. In a few days Barack Obama will be sworn in as the 44th President of the United States. He electrified America and the world with a simple slogan – 'Yes, we can!' Japan's first response to this new administration must not be, 'No, we can't.'"

Press coverage focused on Ambassador Schieffer's latest appeal for Japan to reinterpret the use of the right of collective self-defense, although in the ambassador's defense, his call for collective self-defense was but one portion of his call for a more active Japan, and he demurred from calling for constitution revision: "There is much more that needs to be done by the international community in trouble spots like Afghanistan and the horn of Africa. And Japan can do it...Some people will argue that Japan is prohibited from doing those sorts of things by its constitution but I would argue that Japan can fulfill the promise of its constitution by doing those things."

Nevertheless, as the Bush administration passes the baton to the Obama administration next week, it is worth asking whether the Bush administration should also pass on this method of conducting US-Japan relations by urging Japan to do more internationally.

Does calling publicly on the Japanese government to do more actually make any difference? Gaiatsu emanating from the embassy might give encouragement to certain Japanese politicians and bureaucrats, as gaiatsu always has, but in January 2009 Japan is probably further from revising the constitution or changing the collective self-defense interpretation than it was in April 2005, when Mr. Schieffer arrived in Tokyo. Japan is in the grips of a painful recession growing worse by the months, and the goal of a balanced budget is receding into the distance. Meanwhile, the Japanese establishment has been burned by the Bush administration over North Korea, despite Mr. Schieffer's best efforts to make the abductions issue a priority for the US. (He devotes a good portion of the introduction of his address to the plight of the abductees.) Japanese troops have returned from Iraq, proposals to play a greater role in Afghanistan have been scuttled, and the government is proceeding gingerly regarding the dispatch of JSDF vessels to fight pirates by the Horn of Africa. Despite Mr. Schieffer's best efforts, Japan is no closer to becoming the partner desired by many in Washington.

The problem is not political gridlock in Tokyo, which has become a convenient scapegoat for a number of deferred goals. Rather the problem may be that while Ambassador Schieffer talks of contributions to the international community, what many Japanese see are contributions to the US-Japan alliance, with Japan's serving as a spear carrier in US campaigns but receiving little in return for its contributions other than expressions of gratitude from US officials. Mr. Schieffer claims to desire an "alliance of equals," but in practice his ambassadorship and the administration under which he served did little to make an equal partnership a reality. An equal partnership appears to be the prize awaiting Japan after it has made the changes desired by Washington.

But to paraphrase Donald Rumsfeld, you go to war with the ally you have, not the ally you want.

All too often under the outgoing administration pushing for a new (or "beautiful") Japan substituted for working with the Japan that exists, accepting its limitations and acting accordingly. While the Bush administration pushed for a new security relationship, little changed in the economic relationship, with, it seems to me, the greatest economic accomplishment being the avoidance of the "destructive aspects of trade disputes that plagued our relationship in the ‘80s and ‘90s." Moreover, the ambassador had little to say about China or the region more generally. This last point is revealing: while naturally as ambassador to Japan Mr. Schieffer's remarks were concerned with developments in the US-Japan relationship, it is unfortunate that so few of those developments concerned the alliance's role in the broader region.

This is the picture of an underperforming relationship. It is not underperforming solely or largely because of Japan's reluctance to bear a greater burden. It is underperforming because neither Washington nor Tokyo has put too much effort into building a relationship that acknowledges Japan's limitations and sought to find a bilateral approach to constructive engagement with China. The US government needs to stop pushing so hard for Japan to become a "normal" nation and let Japan find its own way. By pushing Japan, the Bush administration has created the unmistakable impression that contributing more to the international community means in practice contributing more to the US-Japan alliance. The Obama administration must work to undo this impression — and by doing so, it may find that Japan may be willing to contribute to alliance cooperation. A less "close" alliance could be a more productive alliance.

To that end, I strongly reject a recommendation included in AEI's new report, "An American Strategy for Asia," that the next administration should "press Japan, albeit quietly and with the requisite delicacy, to move forward in addressing the legal restrictions that still encumber and inhibit its security policy." If the US government is serious about Japan's contributing more to the international community, it should stop telling Japan's leaders how to do it.

Barring a miracle for the LDP, the US may be dealing with a DPJ-led government by year's end. Seeing as how a DPJ victory will likely depend in part on its skepticism towards the alliance as it has been managed under the LDP-Komeito coalition, the Obama administration should start thinking now how it will manage the relationship with a DPJ government. The Bush era methods of pushing for Japan to do more — quietly or loudly — will not do. Washington will have to be serious about treating Japan as an equal, which means leaving it to Tokyo to figure out how it will contribute to the international community and what role it wants the alliance to play internationally. Under a Prime Minister Ozawa, Japan might be surprisingly willing to play a greater international role, but it will not do so if it appears that Washington is issuing Japan's marching orders.

Wednesday, January 14, 2009


Watanabe Yoshimi is on his own.

As Jun Okumura makes exceedingly clear, there is little chance that Mr. Watanabe will be joined by other LDP defectors in his effort to build a national movement to take down the old guard. (Although, surprisingly, Mr. Watanabe was joined by an LDP abstainer — Matsunami Kenta — in Tuesday's vote on the second stimulus, an act of rebellion for which Mr. Matsunami has already been punished by being stripped of his title as parliamentary secretary for the Cabinet Office.) Mr. Watanabe has indicated that he wants to build a "popular movement," not a new party.

The basis for this popular movement is anger at the bureaucratic conservatism that Mr. Watanabe believes lies at the heart of the "old, old LDP." For Mr. Watanabe, bureaucratic rule — to which the LDP is wedded — lies at the heart of the country's inability to cope with the once-in-a-century crisis facing Japan.

In a recent issue of Voice he wrote of the shift to a "postmodern" moment, arguing that Japan is in the midst of one of several great transformations, in the mold of the transitions to the Heian, Kamakura, and Edo periods. Arguing that a "once-a-century storm" requires a "once-a-century response," Mr. Watanabe advocates the wholesale transformation of the Japanese state, starting with administrative reform and the eradiction of amakudari. He further advocates decentralization and the consolidation of prefectures into states as a means of depriving Kasumigaseki of power — and with the reorganization of local governance, he suggests that the capital should be moved, as in earlier great transformations. (This is hardly a new idea.)

He offered an expedited version of this article in both his statement of secession and his Tuesday press conference.

The LDP may yet offer further confirmation of Mr. Watanabe's argument that the LDP is incapable of implementing the reforms Mr. Watanabe believes necessary to save Japan from ruin. As Uesugi Takashi argues in the February issue of Voice, the LDP may once again fight over the future of the road construction fund during the ordinary Diet session. For Mr. Uesugi, the road construction debate lies at the heart of the LDP's downfall. The road construction tribe has persistently blocked efforts not only to shift funds from road construction to other, less particularistic ends, it has blocked reform more generally. Surely behind obstruction to Mr. Watanabe's efforts to promote administrative reform lies the hand of the road tribe, for any serious attempt to uproot amakudari would be a blow to the construction companies, the bureaucrats responsible for the contracts, and road tribe members themselves. Aso Taro may become only the latest in a series of LDP prime ministers forced to back down in the face of resistance from the road tribe. Naturally while the media and the public busy themselves with the possibility of rebellion by reformists when the 2009 budget comes to a vote, the road tribe will be quietly looking for ways to water down Mr. Aso's promise to suspend the special fund and redirect the newly created "fund for the creation of a foundation of rural vitality" towards road construction funding.

Of course, it does not do to simply demonize the LDP's longtime reliance on public works spending (which some Americans have begun to do in anticipation of the Obama administration's stimulus plan). The LDP came to rely on public works as what Margarita Estévez-Abe has called a "functional equivalent" of welfare and unemployment assistance, a method of public support that also produced public goods for rural areas while conveniently solidifying the LDP's political position in rural electoral districts. As Estévez-Abe argues, the LDP essentially farmed out welfare provision to small companies, enabling Japan to create a welfare state without a large public sector or an unsustainable public debt for much of the postwar period:
Instead of aiding firms to shed their redundant workforce, the Japanese welfare state subsidized employment of excess labor — in both large and small firms. Rather than creating a large public sector — which would have benefited the opposition parties — or an extensive active labor market to pool and train redundant workers, Japan subsidized private sector employment instead. Japan's 'socialization' of capital was a crucial piece that made the system work. It allowed the state to invest in public works beyond its tax revenue. It also permitted private firms to function as primary welfare providers by shielding them from financial pressures. In short, Japan's small social welfare spending and its weak organized labor did not yield a form of laissez-faire capitalism. On the contrary, postwar Japan pursued a brand of capitalism, where economic units — that is, firms — were very much treated as units of welfare provision as if under a socialist regime. Furthermore, state intervention to protect businesses in Japan perpetuated the presence of a large number of inefficient firms. (Welfare and Capitalism in Postwar Japan, 198.)
The problem therefore is not that the road tribe is the mastermind behind a sinister conspiracy to wreck Japan. It's that this form of social protection — targeted at both firms and individuals located in rural Japan — is antiquated, and that continued efforts to perpetuate this system delay the construction of a more conventional welfare state and make life worse for the Japanese people.

The "redundant" worker who might at one point have worked in small construction company somewhere far from Tokyo is now a temporary worker struggling to find work in urban Japan and living without benefits. The Japanese state, having broken the bank in the 1990s, is no longer able to protect the small firms and their host communities with public works. Little wonder that Japanese firms, deprived of government support, are failing in the face of the global financial crisis. Bit by bit the old system is crumbling, but efforts to prolong its life have unfortunately made it difficult for the government to build a new system in its place.

But the road tribe, their local politician allies, the construction companies, the bureaucrats: they have all been doing what they can to preserve a system that played an important social role for decades. They might be acting out of self-interest, but it is hard to expect them to do otherwise. The time has come, however, for a new system that ensures that public funds are directed to those most in need of it, that public funds are used to create a new safety net that ensures that failing to secure a permanent position in a major corporation is not a sentence to a lifetime of penury and economic insecurity. Japan is in urban country — it needs to a universalistic system that reflects its demographics. Creating a universalistic system should not mean tossing rural areas on the rubbish heap, but Japan must discard a welfare system that now provides support to an increasingly narrow segment of the population.

The LDP, torn between advocates of a new system and defenders of the old, has been singularly incapable of doing what must be done to develop both new sources of wealth and new means of protecting the public. It is for this reason that Mr. Watanabe left, and why Mr. Watanabe is right to argue that questions of public welfare are inseparable from the question of administrative reform. Defenders of the old system, unwilling to surrender voluntarily, must be defeated if a new system is to be created. Of course, it is for this reason why the LDP must be defeated in the 2009 general election.

Tuesday, January 13, 2009

Omission vs. commission (Noah Smith)

There's been some discussion on this blog about how much responsibility the LDP bears for Japan's current economic woes. Has Japan been helplessly swept up in a crisis of America's making? Or did LDP policies leave Japan more vulnerable than necessary to the storms sweeping the global economy?

The answer, as I see it, is "both." To understand exactly where the LDP's faults lie, it's important to understand the multiple channels through which global economic crises spread.

One channel of contagion is the financial channel; falling demand for assets in one part of the world reduces the price of those assets, which causes capital losses to financial institutions in other parts of the world. In the current crisis, those assets are U.S. mortgages, mortgage-backed securities, CDOs, CDSs, asset-backed commercial paper, and other various debt-related securitized products. And, remarkably, Japan's financial institutions have relatively little exposure to these products — much less exposure, in fact, than any other large rich country.

In other words, Japan dodged a huge bullet. If Japanese banks, hungry for profits after years of capital rebuilding, had jumped into US debt and derivatives markets as European banks did, Japan would now be facing a financial meltdown to rival 1990. The fact that Japanese banks didn't jump on the bandwagon is a huge coup. It's unclear how much, if any, of the credit for this goes to the LDP. A lot of it is simple luck and timing.

The Japanese economy, however, has still been hit hard, through the second channel of contagion: exports. Japan remains an export-dependent economy, one that is still structurally weak in many ways. How much of the blame does the LDP take for that? A lot, I would argue.

Many have noted that Japan's export dependence is a result of sluggish consumption growth during the Koizumi years, a weakness that continues today; the reason for that sluggish growth is less discussed. One reason is the demographic transition; Japan's market size relative to the world economy has shrunk. Whether the LDP deserves the blame for that is the subject of the ongoing debate about fertility.

A second reason for sluggish consumption growth is stagnant wages. Globalization takes part of the blame for that, but much of the effect is due to shifts in the labor market. As Japan's baby boomer men retire, many have been replaced not by full-time workers with lifetime employment guarantees and seniority-based wages, but by low-paid, insecure temporary workers. That helped Japan's companies cut costs, but it put a huge damper on consumption, because generational turnover has made mean wages fall automatically.

I blame the LDP not for allowing the rise of temp workers, but for encouraging the creation of a two-tiered employment system in the first place. Baby boomer salarymen, with their secure jobs and non-performance-based wages, were and are getting paid more en masse than their productivity justified. Which means younger generations are getting paid less than their productivity justifies. That's made Japan less efficient, and left it more exposed to an export slump than it might have been.

The LDP has done other things over the years that had the effect of suppressing Japanese consumption — nontariff trade barriers, restrictions on FDI, inadequate antitrust enforcement, etc. And of course, there were all the mistakes of the Bubble Era, which have left Japan's companies (and therefore domestic investment) in a weak position to this very day. The LDP should have been banished in 1993, giving opposition parties the chance to reform the bureaucracy and other broken institutions. Fifteen years of reform could have left Japan stronger in 2008, but that ship has sailed.

To sum up: Japan's lack of direct exposure to America's financial crisis offered it a golden opportunity to come out of the world recession with a head start on every other economy in the world. But because of decades of LDP failure to address other problems in the economy — sins of omission and commission — Japan missed that opportunity, and must suffer alongside everybody else.

The next key question is: Would the DPJ do better? Going by Ozawa's promises, I'd conclude that in the short term it would not. Japan's best hope now is for the long term - embarking now on a path of institutional reforms will make Japan much stronger ten or fifteen years in the future. Better late than never, I say.

— Noah Smith

Monday, January 12, 2009

LDP members respond to Watanabe

Yamauchi Koichi, a first-term LDP member from Kanagawa's ninth district, making him a Koizumi child, has offered his response to Watanabe Yoshimi's leaving the LDP at his blog, a response that I think is typical of the Koizumi children as a whole.

Mr. Yamauchi shares Mr. Watanabe's ideas of political and economic reform and is thus does not quite know what to do about Mr. Watanabe. He offers a feeble explanation that political parties should be able to accommodate a variety of perspectives.

"In the matters of economic policy and the way of implementing adminstrative reform," he writes, "I think it is good that there is some breadth in ways of thinking." He maintains that "balanced" policy is the result of differing viewpoints within the same party. This vision of a political party sounds nice enough, but Mr. Yamauchi is not describing the LDP — at least not the experience of Koizumian reformists in the LDP over the past two years.

Mr. Watanabe's departure explodes the myth that the LDP has become a reformist party. He has forced members like Mr. Yamauchi to confront the reality of their position in the LDP: barely tolerated, excluded from the center of power within the party, marginalized when it comes to setting the party's agenda. As administrative reform minister, Mr. Watanabe had to struggle more against his fellow cabinet ministers than against a willing opposition. Mr. Watanabe has, in short, decided to stop the charade.

Criticism of Mr. Watanabe from members of the cabinet have similarly criticized him for undermining the idea of a harmonious LDP. Ishiba Shigeru, MAFF minister, claimed that one's opinions being ignored is no excuse for leaving a political party. Kaneko Kazuyoshi, transport minister, refused to believe that Mr. Watanabe is acting in good faith, accusing Mr. Watanabe of acting like a rat fleeing a sinking ship. Hatoyama Kunio, who has left political parties on more than one occasion, emphasized the Mr. Watanabe's foolhardyness for leaving by himself.

Mr. Watanabe is fortunately in a position where none of this criticism matters. If anything it may help make the case for why he had no business remaining in the party. He certainly has more important things to worry about than the bitter words of LDP members. Following up on his promise to create a popular movement, Mr. Watanabe has indicated that he will convene a "People's Congress" within the month that will include policy experts and the leaders of cities and towns.

At this point, he has no alternative but to build a grassroots movement, as long as his LDP compatriots remain mired in cognitive dissonance.

Aso the impervious?

The bad news keeps coming for Prime Minister Aso Taro.

He has been hit with another wave of negative poll results. In Yomiuri, his approval rating is a hair over 20%, while his disapproval has broken 70%, rising to 72.3%. In the same poll, Ozawa Ichiro remains gained another three points in the question of who would be better as prime minister, while Mr. Aso lost two more points — giving Mr. Ozawa a 39% to 27% advantage. It may not be an overwhelming lead, but considering that the LDP has long hoped to make Mr. Ozawa a liability for the DPJ, Mr. Ozawa's now persistent lead is enough to suggest that the LDP will have a hard time making the general election about Mr. Ozawa (as opposed to the LDP's numerous mistakes). Mr. Aso's numbers were just as bad in the Fuji-Sankei poll, 18.2% in favor compared with 71.4% unfavorable. Reportedly Mr. Aso received comparatively high marks for his personality, but receives little support for his foreign and economic policies, and his leadership capabilities. Moreover, Mr. Ozawa enjoys a 41% to 25.2% advantage over Mr. Aso, and receives higher marks in a variety of categories.

It is hard to put a positive spin on these results, although Mr. Aso did his best on Monday night in a live appearance on Fuji TV. He maintained that his unpopularity is a function of the economy, which implies that if he manages to fix the economy, the Aso LDP (recall that the LDP is using this phrase on its recent publicity material) will be fine. I suspect there are at least two things wrong with his response. First, if by economy he simply means the recession, Mr. Aso is overly optimistic. Clearly the LDP's spectacular unpopularity among Japanese voters predates the recession and the global financial crisis; its causes are numerous, with the recession being the latest black mark. Accordingly, if the LDP somehow manages to revive the economy in the next nine months — a feat that at this point would be miraculous — the Aso government's numbers will not magically elevate to new heights.

But such talk of recovery, at least before an election, is fanciful. Japan's economy shows no signs of becoming any less dependent on the US economy, and with no signs of a US recovery in 2009, Mr. Aso will be waiting in vain. Nevertheless, he is doing all he can to appear cool, impervious to the signs of his government's demise. (Indeed, I watched his Fuji TV appearance, which was a calculated effort to show just how calm the prime minister is. One segment showed Mr. Aso in his office, dressed casually and surrounded by piles of books — continuing to sell this image. He turned on the stereo and proceeded to belt out Simon and Garfunkel's "Bridge over Troubled Water." Mr. Aso may be in need of one of those. Perhaps his singing the song was a cry for help.)

Meanwhile, at the same time that Mr. Aso is facing ever greater disapproval, Watanabe Yoshimi, former administrative reform minister and prominent critic of Aso Taro, announced Monday that he will in fact by leaving the LDP on Tuesday, following through on his remarks of last week.

Mr. Watanabe told reporters Monday that before the lower house votes on the government's second supplementary budget, he will deliver his declaration of secession to LDP headquarters. He insisted that he will begin building a popular movement outside of the LDP in the hope of attracting discontent LDP members in Nagata-cho and in local chapters. In other words, Mr. Watanabe hopes that if he builds it — it being a new reformist party — they will come.

There is reason to be skeptical that this approach will work. As Jun Okumura suggests, Ozawa Ichiro's overt appeals for LDP defections will likely have the opposite effect, leading disgruntled LDP members to hang Mr. Watanabe out to dry so as not to give comfort to Mr. Ozawa. There remain precious few signs that Mr. Watanabe will have company in his new venture. I still give him tremendous credit for taking this step into the unknown, but thus far it is not the kind of move to shake the foundations of the Aso government any more than they have been shaken by wider events.

Indeed, in his Monday TV appearance, Mr. Aso shrugged off Mr. Watanabe's decision as an "individual matter," saying that he had no fear that Mr. Watanabe will be only the first of a series of defections.

Mr. Aso was similarly cool to Mr. Ozawa's appeal for a negotiated dissolution of the lower house, in which the DPJ would trade support for the FY 2009 budget for an agreed timetable for a general election, insisting that policy remains his top priority.

Mr. Aso's cool demeanor, however, should not distract observers from the extent of the crisis facing the prime minister and the LDP. It is too early to gauge the impact of Mr. Watanabe's defection, but I suspect that beyond numbers (which may or may not be forthcoming) Mr. Watanabe may undermine the government by exposing the illusion of the LDP as anything but an exhausted party resistant to structural change. Despite the tendency of some intellectuals to blame Japan's problems on Mr. Koizumi, the former prime minister's popularity has lingered. Whatever their thoughts about his specific policies, his message of a drastic break with the LDP's old way of conducting government undoubtedly continues to resonate. By leaving the LDP, Mr. Watanabe has made clear the extent to which Mr. Koizumi failed to change the LDP. Other reformists may remain in the party, but it is entirely possible that they will go down to defeat, while Mr. Watanabe, standing alone and for now without the prospect of a DPJ challenger, may survive to fight on after the general election.

And while Mr. Koizumi may have failed to change the LDP, it increasingly appears that he successfully delivered on his promise to destroy the LDP.

Saturday, January 10, 2009

Work equals force times distance (Noah Smith)

I am waiting in the departure lounge at JFK in New York for my flight to Tokyo. In the mean time, here is another contribution from Noah Smith. - TSH

Taro Aso, speaking before a parliamentary committee, recently said that "Japan's belief in hard work contrasted with that of the Judeo-Christian tradition," and that world religions could learn from Japan's work ethic. Interesting. Apparently he hasn't read Max Weber's The Protestant Ethic and the Spirit of Capitalism.

In any case, it's undeniable that Japan's workers work a lot of hours (though Australians work more, and the third, fourth, and fifth spots go to the U.S. Canada, and the UK - Weber gets the last laugh). And Japanese companies are famous for requiring unpaid overtime. But how much of that "work" is really "hard"? As software engineer Peter Gibbons points out in the film Office Space, it's easily possible to show up and punch the time card without getting anything done or even exerting serious effort. Twiddling your thumbs and surfing sports news while you wait for the boss to go home does not count as "work ethic."

Now, I'm in no position to know how much time Japanese workers spend twiddling their thumbs. But I am in a position to know that Japanese white-collar labor productivity is substantially lower than most other rich nations (including Asian nations such as Taiwan and Singapore). That means that whatever is getting done in all those long hours Japanese people spend in the office, it's not as much as it could be. Any physics student will tell you that work equals force times distance*; Japanese workers put in a lot of force without getting enough distance.

Japan's leaders should recognize this distinction. We all know the story of how government protection of Japan's domestic service sector has left it inefficient, but it's important to realize the real impact this has on the lives of Japanese people - parents who can't go home to be with their children, salaries that are lower than they could be, exhausting hours of work put in with not enough to show for it at the end of the day. Maybe Aso should take a clue from King Solomon in Ecclesiastes 4:14, and help the Japanese people to work smarter, not harder.

- Noah Smith