Friday, June 21, 2013

The Japanese public weighs structural reform

In my last post I discussed public opinion regarding fiscal stimulus, fiscal reconstruction, and the role of the state. In this post, I'll look at public opinion concerning the behavior of Japanese companies, labor market practices, and the role of the government in promoting microeconomic or supply-side changes in the Japanese economy as a means of promoting growth (i.e. structural reform).

Policymakers and the media were already discussing structural reform before Japan's asset bubble burst in 1991, most notably in the Maekawa Report, produced by an advisory council to Prime Minister Nakasone Yasuhiro headed by Maekawa Haruo, former president of the Bank of Japan, in 1986. But it was only after the bubble burst that the idea of significant reforms to the Japanese economy gained political traction, especially under the leadership of Prime Minister Hashimoto Ryutarō.

At a basic level, the Japanese public appeared to accept the idea that some type of structural reform is necessary if Japan is to remain prosperous in the future. In March 1997, before the wave of bankruptcies that would rock Japan's financial sector later that year, 72% of respondents said they thought "bold reform" was necessary, with only 19% disagreeing (and 9% not responding).

The public had largely embraced the arguments being made by Hashimoto and other political leaders: the Japanese economy needed to change. Japanese citizens did not just embrace the need for reform, they accepted that the government should take the lead in promoting reform. When asked by Asahi in May 1998 whether structural reform should be a government effort or a private-sector effort, 54% said government, with only 25% opting for the private sector (and another 21% not answering).

However, once the details of structural reform became apparent the Japanese public was more ambivalent. On the one hand, survey respondents accepted that structural reform should make Japan more liberal. Asked in a May 1998 poll which direction they thought Japan should head, 51% said it should aim for a "free competition" society that encourages ambition and talent, compared with 37% who said it should aim for an equal society with few disparities of wealth. When asked in the same poll whether decisions about pay should emphasize age and time of service or abilities and achievements, 70% said abilities and achievements and only 19% said seniority. On the other hand, the same poll find the public was divided over significant reforms to Japan's labor practices. Asked whether they supported hastening the pace of structural reform even if it meant job losses through corporate restructuring, respondents were evenly divided with 42% in favor and 41% opposed. Similarly, when asked whether they favored a society with lifetime employment or a society in which people change jobs, 53% favored lifetime employment, compared to 33% who favored job switching. In short, it seems as if the idea of a society in which individuals succeed or fail based on merit appealed to the Japanese public but not the steps the Japanese state would have to take in order to create such a society.

The public was no less divided when Koizumi Junichirō became prime minister in 2001, declaring there would be "no growth without structural reform" and that he would pursue "structural reform without sanctuary." As before, the public accepted the idea of structural reform in the abstract, with support over 70% throughout Koizumi's first year in office. (Although at the outset of the Koizumi government, the public was unclear what exactly Koizumi meant by reform: in late May 2001, only 23% were clear about what reforms Koizumi intended to implement, with 68% were unclear.)

However, from August 2001 the Japanese public soured on Koizumi's version of structural reform. Asked whether they were confident in structural reform, 52% felt uneasy about it, compared with 37% who felt confident. Asked whether they felt structural reform should continue, 44% favored it compared with 40% opposed, but when asked whether structural reform should take precedence over policies aimed at bolstering the economy, 56% said economic policies should take precedence compared with only 35% who felt structural reform should be the first priority. Similarly, for the first time a plurality (44% over 40%) opposed the Koizumi government’s program for disposing of bad loans.

At no point during the Koizumi government did the public support structural reform’s taking precedence over policies to revitalize the Japanese economy and create jobs. At the same time, when asked to name what was good and bad about the Koizumi government, the government’s economic policies were consistently rated as its worst feature. By late 2002, 50% of respondents cited macroeconomic policies as the worst feature of the Koizumi government for three straight months. It was not until April 2006, during Koizumi’s victory lap, that another policy area (foreign and security policy) passed macroeconomic policies as the least favored feature of the Koizumi government.

As noted in my previous post, the Japanese public was favorably disposed to structural reform directed at the public sector, since public-sector reforms were aimed at wasteful spending and corrupt practices. But during the Koizumi era, the Japanese public did not appear to have much appetite for labor market reforms or other reforms to promote more flexibility or competition in the private sector.

One can in fact argue that Koizumi exhausted public support for reforms that would create a more liberal Japanese economy. By the end of his tenure, the public began to express fears of growing inequality, and a majority believed, as a February 2006 Asahi poll found, that Japanese society was dividing into winners and losers based on whether or not one had money. At first, Japanese citizens did not hold Koizumi responsible for growing inequality, but by August 2006, Koizumi's last full month in office, 62% believed his policies were responsible, with only 30% saying that they were not.

Accordingly, as voters looked to the post-Koizumi period they hoped Koizumi’s successors would act differently. A June 2006 poll asked respondents whether they thought structural reform should continue: only 17% said it should continue unchanged, while 54% said it should continue but with different methods and 23% said the government should change directions entirely, a sentiment confirmed by a July 2006 poll that found that voters wanted the next prime minister to be a leader who listens to the opinions of others (67%) instead of making decisions based on his own thinking alone (28%). The same poll said the top priorities for the next prime minister should be addressing Japan’s aging, shrinking population problem (24%) and economic inequality (23%), followed by economic policy (18%) and fiscal reconstruction (16%).

One gets the distinct sense that by the end of the Koizumi period the Japanese people wanted a kinder, gentler politics and a more equitable, caring society. However much they supported Koizumi personally, they were not won over to his brand of Anglo-American neo-liberalism.

Polls in the post-Koizumi era show a reluctance on the part of the Japanese public to support significant changes to the surviving institutions of postwar capitalism. At the same time, the public was not eager to reverse changes wrought by Koizumi and his predecessors. For example, perhaps the biggest change in the Japanese labor market during the late 1990s and 2000s was the growing dependence of Japanese industry on non-regular and temporary workers who enjoyed little to no job security and few benefits. Many of these employees are women: at least half of women in the workforce are in non-regular positions, as suggested by this report (jp).

However, the Japanese public did not express a desire to change the laws that made the rise of non-regular employment possible. For example, when asked in January 2009 whether the use of temporary workers in manufacturing should be banned — a proposal that was included in the DPJ's manifesto later that year — only 30% of respondents supported such a ban, while 46% opposed one. Instead, the Japanese public wanted to protect the status of core workers, even if it meant the seemingly irreversible rise of non-regular employment, especially among Japan's young. A poll in February 2009 found that when asked whether the status of regular workers should be lowered in order to close the gap between regular and non-regular workers, only 32% agreed, 51% opposed. As in other industrial democracies that have seen the emergence of a dual labor force, privileged workers would prefer to retain their privileges (and jobs) even at the expense of non-regular workers. Protecting the status of secure jobs took precedence over other factors. For instance, when asked in a February 2009 poll whether firms should focus on protecting profits versus protecting employment, 69% said employment and only 20% said profits. The same poll found respondents willing to embrace work sharing — working fewer hours (with reduced pay), so that their employers could retain workers — by a margin of 68% to 19%.

Perhaps we should not be surprised that the Abe government's structural reforms — the third arrow of Abenomics — announced earlier this month proved to be so timid, especially when it comes to Japan's labor market. Whatever desire the Japanese people once had for structural reform appears to have dissipated. The prevailing sentiment now seems to be protecting the privileged status of regular workers, even if it means a growing population of non-regular workers with poor career prospects. If Prime Minister Abe were to propose bolder labor market reforms, one should expect considerable public opposition.

The next post will shift to attitudes about Japan's social safety net, looking especially at public dissatisfaction with the stability of the social security system.

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