The meaning of the Upper House election

On Thursday campaigning for the House of Councillors election scheduled for 11 July begins, as 440 candidates vie for 121 seats. (Michael Cucek has the breakdown here.)

The significance of this election has been thrown into clear relief since Kan Naoto took over from Hatoyama Yukio as prime minister and head of the DPJ. What once looked to be a referendum on the leadership of Hatoyama and DPJ secretary-general Ozawa Ichirō — a referendum that polls suggested that the DPJ would not win — is now an election on the future of Japan, perhaps to an even greater extent than last summer's historic House of Representatives election. If the DPJ can retain control of the upper chamber, it will have three years before it will have to face the voters again in an election, provided that no snap election is called in the meantime. Those are three years that the government can use to make tough political decisions that a government with a shorter time horizon might be less inclined to make, like, say, a consumption tax increase.

And so this election is critical for Japan's future. For the Japanese people, there's not much of a choice. Under the DPJ Japan now has a prime minister who is everything that his predecessor was not: Kan is clearly willing to take a position, stick to it, and make his government follow along. He is devoted to clean politics and dynamic political leadership, and under his watch the DPJ once again looks like a party capable of bringing substantial change to how Japan is governed.

Much of the discussion during the campaign will focus on the government's plans related to the consumption tax and deficit reduction more broadly. But once again this election is less about the competing policies offered by the DPJ, the LDP, and the smaller parties than about how Japan is governed. The choice is between unified DPJ government that will face few institutional checks as it attempts to introduce sustainable growth, sustainable government finances, and sustainable social security and a divided system in which the government will have to cobble together working coalitions in order to pass legislation in the upper house (or use its lower house majority to pass legislation over the upper house's objections).

In other words, voters have to decide whether they're willing to tolerate an "elective dictatorship" for the next three years as the Kan government sets to work implementing the DPJ's modified but still ambitious political program or whether they would prefer that the LDP, Your Party, Komeitō, and the other parties retain a perch from which to challenge the government and retard its progress.

Mr. Kan's Third Way

The Third Way has, belatedly, arrived in Japan.

The style of politics popular in advanced industrial democracies during the 1990s among center-left leaders keen to reconcile their left-wing parties to the rise of neo-liberalism and the onset of austerity after the 1970s had heretofore failed to surface in Tokyo. But with the ascendancy of Kan Naoto, Third Way politics may get another lease on life in Japan.

In his maiden policy speech as prime minister on 11 June, Kan explicitly spoke of a "third way" to the reconstruction of the Japanese economy. Rejecting the first way, what he identifies as the ideology of the construction state (shared prosperity through public works), and the second way, "extreme market fundamentalism" focused on supply side reform at the expense of public welfare, Kan proposed a third way that would target the budget deficits that he says have produced ongoing stagnation and eroded confidence in the social security system. In short, he is trying to break what I've described elsewhere as an impossible trinity of deficit reduction, renewed, balanced, and low-carbon-emitting growth, and robust welfare provision.

What follows is a set of policies intended to create a "Strong Economy," "Strong Government Finances," and "Strong Social Security." 

His proposals on the first point are a reiteration of the DPJ's prevailing position on the economy: the need to balance external and domestic demand, to be realized through a combination of intra-Asian trade, tourism, Green technology, and support for families and the elderly.

On the second point, Kan alluded to the specter of Greece — an allusion that will be repeated in other times and places in the coming years — to make the case for aggressively attacking Japan's bloated national debt with efforts to cut wasteful spending and fundamental tax reform, which would undoubtedly include a consumption tax increase. Naturally he appealed to the LDP to cooperate with the government on this issue.

Finally he turned to social security, identifying a secure social security system as critical for economic growth. Effectively he argued that a shaky social security system in an aging society triggers hoarding on the part of middle-aged and senior citizens concerned about their well-being in retirement.

The similarities with the Third Way politics of Blair and Clinton are not accidental. Kan, a veteran of Japan's reformist, pragmatic left, is at once trying to unleash and humanize Japanese capitalism. He praises Koizumi's supply-side reforms for promoting the restructuring of Japanese businesses, but despairs of their impact upon Japanese society in the form of unemployment and persistent deflation.

While Kan arguably speaks more fluently about economic policy than any prime minister since Koizumi — his speech was largely free of the airy fairy rhetoric that characterized Hatoyama's pronouncements — it is difficult to see Kan's Third Way having any more success than the Anglo-American Third Way, which in retrospect seemed to do little more than promote the Casino Capitalism that produced the financial crisis that has arguably wiped out whatever gains were made to the state's role in welfare provision and plunged both countries ever deeper into debt. The point is not that Kan is foolish for trying to reconcile what appear to me at least as irreconcilable political goals: the political environment demands that the government addresses all three, not least the problems in the social security system. Instead, it seems likely that over time Kan will be forced to focus on one goal at the expense of the others — and that the privileged goal will be deficit reduction.

Even without Kan's embrace, it is likely that deficit reduction would become the government's primary goal with Greece serving as "focusing event," with Kan's government full of deficit hawks, and with the finance ministry still a potent force in policymaking. But with Kan himself having embraced the issue in strong terms, there appears to be little doubt that his government will prioritize deficit reduction above all else, to the point of the DPJ's including a pledge to increase the consumption tax in its manifesto for next month's upper house election (perhaps not a bad move politically with a Yomiuri poll showing sixty-six percent support for a consumption tax increase). Kan has also stated that within the month his government will establish 2020 as a goal for restoring the government's primary balance to surplus.

The question, however, is whether deficit reduction will lead to sustainable growth and secure social security spending. For example, I find it difficult to believe that the government will able to promote greater domestic demand, let alone sustain existing domestic demand while taxing consumption at higher levels. Deficit reduction is undoubtedly valuable in its own right, it's just difficult to see how the Kan government will be able to make good on the totality of its economic program. Can the government really cut enough waste and raise enough tax revenue to shrink its deficits while expanding programs to promote economic growth?

I think that the pursuit of deficit reduction will have implications for Japan's foreign and security policies. The first challenge, however, is figuring out exactly what has changed: Yomuiri sees a new realism in the DPJ's latest manifesto (discussed here at Twisting Flowers), but the reality is that apart from the new government's emphasis on rebuilding relations with the US and the call for defense transparency in China, the DPJ is putting in words what it has already been doing since taking power, especially in its focus on stronger bilateral ties with South Korea, Australia, and India. And really, the Hatoyama government was not nearly as soft on China — or as opposed to the US-Japan alliance — as the contemporary wisdom in Washington held.

Moreover, the Kan government's overtures to the US can be overstated: even the formulation of support for the alliance voiced in Kan's address last week was more like former LDP Prime Minister Fukuda Yasuo's, in which the alliance is viewed largely in terms of its role in providing stability in Asia, than the vision of the alliance as resting on a foundation of shared values and dedicated to the promotion of democracy in the region. Like Fukuda, Kan recognizes that stable, constructive relations with Japan's neighbors, China most of all, are essential, and that the US-Japan alliance is valuable insofar as it contributes to Japan's Asia policy aims.

But in the Kan government's unflinching support for last month's agreement on Futenma, the new government is clearly interested in bolstering the US pillar of Japan's foreign policy. What I wonder is whether the DPJ's renewed interest in the security relationship is a function of its focus on deficit reduction. As the government looks to reduce spending, DPJ officials may increasingly be coming to the realization that austerity combined with regional uncertainty means that for the foreseeable future Japan will be dependent on US deterrent power. While the new government is quietly hedging against the possibility that the US commitment to Asia might weaken through its focus on bilateral cooperation with regional powers and its growing acceptance of the need to loosen restrictions on arms exports (which would lower the cost of bolstering Japanese's own conventional capabilities), the DPJ clearly accepts that for the foreseeable future it will be necessary to maintain a constructive security partnership with the US, even if the party continues to hope for an "equal" partnership.

It is open to debate whether austerity is leading the Kan government into a more enthusiastic embrace of the US (or even whether the embrace is more or less enthusiastic than the Hatoyama government's or any LDP government's for that matter). The DPJ may simply be free or cheap riding irrespective of concerns about austerity in the future. Or it may sincerely believe that the status quo is more or less the best option for Japan when it comes to coping with the rise of China.

However, I think the proposal to relax the three arms-exporting principles is a sign that the DPJ is sensitive to the costs of defending Japan and, therefore, that while the alliance may provide the most cost-effective means of national defense (provided measures are introduced to lessen the domestic political costs of US bases on Japanese soil), the government should look for ways to reduce the costs of Japan's providing its own defense in due time.

In short, at home and abroad the DPJ is performing balancing acts, pursuing multiple and at times conflicting goals that require flexibility on the part of the government — precisely the reason why Ozawa and other politicians have called for a stronger Westminster-style executive over the past two decades. Whether the government will be up to these challenges even with reform remains to be seen.

The Kan system

The Kan government has formed, having retained eleven ministers from the Hatoyama government (as expected). Among the new faces in Kan's cabinet of "irregular forces" are Noda Yoshihko (finance), Yamada Masahiko (agriculture), Arai Satoshi (national strategy), Genba Kōichirō (administrative reform), and, perhaps most prominently, Renhō (government revitalization).

Looking at the transition from the Hatoyama-Ozawa regime to the new DPJ cabinet, Michael Cucek reviews the history of the DPJ's coming to power and the nature of the Ozawa's strategy and concludes that under Kan, "the DPJ, the classical DPJ, is back."

It is hard to disagree. Indeed, the haste with which Kan Naoto and his "Seven Magistrate" deputies have tried to break with Ozawa — Kan's telling the former secretary-general to keep quiet, new DPJ election chief Azumi Jun's decision to review Ozawa's strategy of running two candidates in three-seat districts — are surely just the beginning of what will be weeks and months of distancing the party from Ozawa. More than that, Kan's emphasis on grassroots politics, the basis for Kan's calling his cabinet a "cabinet of irregulars" (or commandos), stands in marked contrast to Ozawa's courtship of the same interest groups that had long sustained the LDP in power.

What does this "classic" approach mean for the DPJ's plans to build a top-down policymaking process?

Perhaps the biggest change is that under Kan and DPJ secretary-general Edano Yukio the party will undo the concentration of power in the office of the secretary-general that occurred under Ozawa. Most notably the party has accepted the restoration of the policy research council, the primary demand of the reform movement that emerged earlier this year.

The new PRC, however, will look nothing like the LDP's PRC, not least because there is no indication that Kan will roll back the restrictions on contact between backbenchers and bureaucrats that the Hatoyama government promulgated upon taking power. Genba, the minister for public service reform, will serve simultaneously in the cabinet and as the PRC chair. Genba himself said in his first press conference that the "former PRC" is not being restored, that the new PRC will not pose a threat to the government's plans to unify policymaking in the cabinet. Instead it appears, at least based on Genba's remarks, that the PRC will serve as a forum for two-way communication between cabinet and party. As a member of the cabinet, Genba's responsibilities will include explaining the government's policies to backbenchers in addition to facilitating debates about new policies among MPs. The principle of collective responsibility ought to restrain Genba from using his post to challenge the government: as a cabinet minister he is obligated to defend the government's decisions once they have been made.

The new PRC will enable backbenchers, especially first-term backbenchers, to participate in policy debates and perhaps generate new policy ideas — but there is no sense that it marks a return to bottom-up policymaking in which party members wield a veto over every government decision.

In addition to creating a new PRC that is directly linked to the cabinet, the Kan government will keep the new secretary-general closer to the government — literally. Edano may occupy an office within the Kantei. The result would be that the secretary-general would act more like a political adviser to the prime minister than the autonomous strategist that Ozawa had become, and, as Edano said in his initial remarks, would be responsible for defending the government's decision before the voting public. (The Kan-Edano relationship will invariably differ than the Hatoyama-Ozawa relationship not least because Kan will not be overshadowed by his secretary-general in the public's eye.)

The result is that under Kan the DPJ will try to replace a government in which the ruling party had fewer veto players but in which the party's one veto player was at least as powerful as the prime minister with a government in which the party may have more veto player but in which the prime minister is more powerful, more visible to the public, and more capable of controlling party officials. There will be more players involved in policy debates, but my sense is that Kan, with the help of Sengoku Yoshito, the new chief cabinet secretary, will not be reluctant to remind his subordinates of who is in charge of the government.

Of course, the question hanging over this new "un-Ozawa" system is whether Ozawa himself will accept it. Freed of formal responsibilities, Ozawa will now have the time to forge his political loyalists into an Ozawa faction should he want to, which would of course make life difficult for the Kan government. Inevitably the new regime will have to make its peace with Ozawa — or Ozawa will have to restrain himself from intervening in policymaking and political strategy.

Nevertheless, under Kan the DPJ has a prime minister who may be even more devoted to building a Westminster-style system than his predecessor. The DPJ may  have made some necessary concessions to the party's MPs, but the goal remains strengthening the role of the prime minister and the cabinet at the expense of bureaucrats and backbenchers.

It's Kan!

Kan Naoto has been elected head of the DPJ and is line to become Japan's ninety-fourth prime minister this afternoon. He received 291 votes to Tarutoko Shinji's 129.

(Image by Kenji-Baptiste OIKAWA and used under a Creative Commons license)

Meet the new cabinet, (mostly the) same as the old cabinet?

As Japan waits for the DPJ's Diet members to choose a new party leader and then for the Diet to confirm the new prime minister, the media is speculating about the new lineup for the cabinet and the party leadership.

Among other items of speculation, Sengoku Yoshito is supposedly the front runner to succeed Ozawa as secretary-general, and Noda Yoshihiko, now the vice finance minister, is said to be the front runner to replace Kan as finance minister.

I would expect, however, that if elected, Kan Naoto will make very few changes to the Hatoyama cabinet, not least because the DPJ has stressed the importance of continuity in office for political appointees (and the prime minister, although it has obviously failed at that). Beyond this principle, one wonders whether the new prime minister will actually need a new cabinet, given that the one task Hatoyama actually succeeded at was selecting a cabinet composed of heavyweights representative of the DPJ's various groups and perspectives. There might be more changes to subcabinet positions, but even there, the DPJ has stressed the importance of cooperation among the political appointees within the ministries.

Hatoyama did not fail because of his cabinet, although Kamei Shizuka and some other cabinet ministers undoubtedly made his life more difficult. It was difficult to see how a reshuffle could have helped Hatoyama, and it is difficult to see how a dramatic overhaul of the cabinet will help Kan.

Obviously Hirano Hirofumi, appointed largely as a Hatoyama confidante, will be out as chief cabinet secretary — he might be the one cabinet member truly deserving of the ax. Otherwise it is far from obvious who should be replaced. And I for one hope that Okada stays on as foreign minister.

UPDATE: After initial indications that the new cabinet would form today, it appears that Kan — with Sengoku Yoshito emerging as the likely chief cabinet secretary — will not form a cabinet before Tuesday. That may be for the best, but I will still be surprised if it looks drastically different from the Hatoyama cabinet.

Talking about Kan on CNBC

The virtues of Kan

Kan Naoto, Hatoyama Yukio's second finance minister, was the first DPJ member to declare his intention to run in the party election scheduled for Friday — and it seems unlikely, for reasons outlined by Michael Cucek here, that he will be denied the job.

What would be the significance of Kan's replacing Hatoyama?

I think that what I wrote when Kan became finance minister is even more apropos for Kan's becoming prime minister: "While it is common to point to DPJ politicians like Hatoyama and Ozawa and conclude that the DPJ is a pale imitation of the LDP, Kan's career shows that the DPJ's victory has brought new politicians with different backgrounds and different concerns from LDP politicians to the fore." Should Kan become prime minister, he will be the first prime minister since Koizumi not directly related (son or grandson) to another prime minister, and the first non-hereditary politician since Mori. He began his career toiling on the margins of Japan's reformist left, a follower of Eda Saburō, who tried and failed to modernize the JSP, and lost three elections before finally winning a seat as a representative of the Social Democratic Federation (SDF) in 1980.

Indeed, the political origins of Hatoyama and Kan could not be more different. Not only is Hatoyama the scion of a political dynasty, he seemingly entered politics on a whim — the family thought his brother Kunio would be the politician while Yukio would pursue his academic career. Kan, however, became involved in politics purely out of his convictions, starting as a student activist. Had Kan been interested in pursuing personal ambitions, he could have found better ways to do it than by following a marginal center-left politician.

Accordingly, unlike Hatoyama, he has a core set of beliefs that may in fact be best called social democratic or liberal in the American sense. He is egalitarian, a believer in transparent, clean, and accountable government. He became famous as minister of health during the mid-1990s for taking on his ministry's bureaucrats over an AIDS-tainted blood scandal, which may be an easy position for a politician to take (especially during the "bureaucrat-bashing" 1990s), but nevertheless conformed with the focus of Kan's career in politics. During the months leading up to the election, he became the DPJ's point man on administrative reform, a role he continued to play when the Hatoyama government formed. 

Perhaps it would not be inappropriate to say that his beliefs are something like Eda's, who in 1962 stressed that he wanted Japan to have "the American standard of living, Soviet levels of social protection, British parliamentary democracy, and Japanese pacifism." While these days one would not think to look to the Soviet Union as a model for social protection — Scandinavia would probably be the model today — this mix of policies might best capture Kan's politics, perhaps with the exception of Japanese-style pacifism (more on this momentarily). He certainly made clear last summer that he believes strongly in the necessity of Westminster-style parliamentary democracy in Japan, and as finance minister

Kan has said fairly little over the years about foreign policy and Japan's relations with the US and its neighbors. To the extent that he has talked about foreign policy, for instance on previous occasions that he led the DPJ, his views have been virtually at the center in terms of the spectrum of opinion within the DPJ. He as acknowledged the importance of the alliance and the US forward presence on multiple occasions, but when Koizumi was prime minister, he criticized the government for its slavish subservience to the US and for not balancing the US-Japan relationship with the other "pillars" of Japanese foreign policy, multilateral cooperation at the UN and bilateral and multilateral relations within Asia. He isn't exactly dovish, but he's no hawk either. Accordingly, I would not be surprised if Okada Katsuya either stays on as foreign minister or continues to play an important foreign policy role in another capacity.

However, the details of Kan's policy beliefs may be less important at this juncture than his biography. Given that he is a conviction politician, given his ministerial experience (something that Hatoyama lacked), and given his emphasis on open politics, Kan may be the right man to restore public trust in the DPJ-led government and lead his party to a respectable showing in next month's upper house election. The central task for the Hatoyama government was the restore public faith in government after years of LDP misrule. The central task for a Kan government would be to restore public faith in government after years of LDP misrule — and nine months of Hatoyama misrule. If the public does not trust the government, it is difficult to see how Japan will escape its economic stagnation. As I've said before, if the public cannot trust the government to be honest about its intentions and forthright about how public money is spent, no government will be in a position to ask for something like a consumption tax increase.

Kan certainly has the right biography for this purpose — and having been a cabinet minister before, he should be more capable of managing the cabinet than Hatoyama was, avoiding the self-inflicted wounds that ultimately destroyed the Hatoyama government.

What about that other task facing the new government, the Futenma problem? Kan has said little about it, refusing, it seems, to stray beyond his brief as finance minister. However, it seems unlikely that Kan — or any other DPJ politician — will rush to embrace a plan that is now being written off as unimplementable. Perhaps he will have the backbone to scrap the thing entirely. One way or another, the demise of Hatoyama following his shift on Futenma and the collapse of the coalition with the SDPJ has undoubtedly poisoned the issue. If the Obama administration were smart, it might learn from the mistakes it made last year when the Hatoyama government took office and give the new government time to find its bearings and plan a course of action, whether that course of action is trying to soften up public opinion on some relocation option within Okinawa or searching again for an option outside of Okinawa. If the US is actually serious about resolving the problem, it is not enough to say that Japanese public opinion is simply a problem for the Japanese government to deal with: to insist once again on a plan that cannot win the support of the Japanese public and expect another prime minister to fall on his sword for it would be sheer folly.

Ultimately if Kan is the next prime minister and if the Ozawa regime is truly uprooted, the DPJ will have an opportunity to reclaim some of the goodwill that has been squandered since September.

(Image courtesy of Curzon from Mutantfrog/The Coming Anarchy, based on a whimsical Facebook status update of mine from earlier today)

Ennis on the resignation

Peter Ennis, formerly of The Oriental Economist, has picked the perfect time to start blogging.

His take on the resignation can be found here.

Discussing the resignation

I will be on Asia Squawkbox on CNBC Asia at 8:30am Japan time Thursday to discuss the implications of the resignation.

Regime change?

It seems that in addition to Hatoyama's resigning from the premiership, Ozawa Ichirō will resign as secretary-general of the DPJ.

If Ozawa does resign — together with his lieutenants in various leadership positions within the DPJ with him — and actually manages to retire from politics and not try to run the party from the shadows, the twin resignations of Hatoyama and Ozawa may actually provide the DPJ with an opportunity to reclaim the hope that accompanied the party's victory last year.

That Hatoyama and Ozawa were at the head of the new regime when the DPJ took power was a bit strange. Of course they were among the party's most senior and experienced politicians. There really was no alternative, and no other candidate — aside from Okada — was capable of challenging last year's passing of the torch from Ozawa and Hatoyama (thanks to Maehara Seiji's disastrous tenure as party leader). But these two hereditary politicians whose careers began in the LDP wound up at the head of a parliamentary majority composed largely of newcomers to politics, very few of whom had relatives in politics. The DPJ's promise was less in its policy program, aside from its institutional reforms, than in the new blood it injected into the Japanese political system. But between their corruption scandals and the fact that no one could tell just what Ozawa's role was in policymaking, the DPJ diarchy managed to squander its new majority.

More than Hatoyama's, Ozawa's departure provides the DPJ with a chance to reclaim some of the energy. It will enable a party leadership to abandon Ozawa's courtship of fading interest groups and focus once again on speaking to floating voters. Inevitably the next secretary-general will not overshadow the prime minister, meaning that the secretary-general might actually help the prime minister sell his policies to the public while corralling the party's backbenchers.

At the same time, however, the new secretary-general will not inspire the same fear in the party's backbenchers. The result could be more give and take between the leadership and the rank-and-file — or it could be complete chaos.

Ultimately it will depend on the prime minister, whether Kan, Okada, or someone else entirely. With decisive leadership at the top the policymaking system the DPJ tried to put in place when it took power might work better than it did under Hatoyama.

Hatoyama departs

It appears that the inevitable has happened: NHK reports that Prime Minister Hatoyama Yukio has informed the DPJ leadership that he intends to step down.

Hatoyama, of course, has no one to blame but himself. In the nine months since he took office, he has failed as a manager of his cabinet, as the head of the DPJ, and as the leader of his country. Unable to make up his mind, he groped from blunder to blunder, before finally making a controversial decision on Futenma without doing any of the work to convince a skeptical public of its merits.

The good news is that his successor should, to a certain extent, have an opportunity to press the reset button, seeing just how much dissatisfaction with the prime minister was behind growing dissatisfaction with the DPJ. The bad news is that Hatoyama will leave his successor the poison pill of the latest agreement over Futenma, which the public overwhelmingly opposes and which appears to be more or less unimplementable, and with an uphill battle for the House of Councillors next month. And that's without mentioning lingering problems concerning the long-term future of the Japanese economy.

And so the US gets its wish: the "loopy" Hatoyama is gone, having overstayed his welcome and squandered whatever goodwill last year's election earned him. His successor — whoever he is (given that in all likelihood the DPJ will plan for a smooth transition to Kan or Okada) — will have to set to work immediately fixing the DPJ's standing with the public, starting with yet another attempt to fix Futenma in a way that satisfies Okinawans and the general public.  He'll also have to do what Hatoyama failed to do: make Ozawa serve the prime minister, another failure that ultimately doomed Hatoyama. The US, meanwhile, would be wise to give the new prime minister plenty of space this time around.