Slouching towards irrelevance?

Prime Minister Aso Taro, faced with dismal poll numbers, a potential rebellion within the LDP, and an economy galloping into recession, sought to stem the tide against him by announcing a second stimulus package at a press conference on Friday.

The government's purpose is to ease the insecurities of the Japanese people, but also to make Japan "the fastest among the developed countries to escape the current recession." To that end, Mr. Aso promised ten trillion yen (around $109.7 billion) in countermeasures for employment and business finances, including one trillion yen in residence and capital investment taxes. He promised thirteen trillion yen (around $142.7 billion) for shorimg up the financial system.

On employment, he focused particular attention on the plight of irregular and part-time employees, promising to create employment opportunities in rural areas. He pledged that the forthcoming budget will offer assistance to these workers in finding new employment, and will increase subsidies to local governments by one trillion yen in order to promote job creation.

The new plan's assistance for financial institutions adds an additional ten trillion yen to the two trillion included in the assistance bill that just passed the Diet, with an eye toward encouraging banks — particularly banks in rural areas — to resume lending to firms, especially small- and medium-sized enterprises.

But the impression one gets is that Mr. Aso's latest plan is lots of trees, no forest. Coverage has focused on the sheer scale of the package, although it's not clear just how much the second stimulus package will total, because the prime minister was unclear which figures are totaled in other figures and which constitute separate categories of spending. If other governments are improvising their responses to their respective economic crises (as argued by John Gapper in the Financial Times), Mr. Aso's approach seems to amount mostly to throwing ideas against the wall in the hope that something sticks. For all the pieces of the new plan, it amounts mostly to hope: hope that the government's subsidies for local governments will create more jobs, hope that banks will start lending upon being shored up by government funds, hope that tax cuts can get businesses and homeowners investing again. It is unclear how the government plans to stimulate consumer demand to replace slack demand from abroad — demand that is unlikely to return anytime soon if the yen stays as strong as it is for any considerable length of time.

It's all well and good that Mr. Aso appreciates the importance of saving rural Japan and preventing the emergence of yet another lost decade, but perhaps the time to do that was in the "longest postwar expansion." Now, in the midst of what government officials repeatedly call "the worst crisis in a century," it is uncertain whether fiscal policy will have any effect whatsoever. It certainly won't in time to reverse the downturn before the LDP has to face the voters. The government faces the monumental task of solving Keynes's paradox of thrift, getting the public to spend at the same time that it is bombarded with bad economic news that has the effect of discouraging consumption.

There's also the question of how the government will pay for its new commitments. The prime minister insisted that the government will not depend on bonds to cover the new stimulus, turning instead to the unemployment insurance special account and the Fiscal Investment and Loan program (FILP). But the tax question will not go away. This is hardly the time for the LDP to increase taxes, and it's understandable that Mr. Aso is reluctant to commit to a date for comprehensive tax reform and a consumption tax increase. Doing so can only worsen his political prospects. Why should he commit to a tax increase in 2011 when he may not even be prime minister, considering that he could suffer political consequences in 2009 as a result of his pledge? (Yosano Kaoru, his economy minister, is reportedly outraged at the prime minister's inability to commit.)

The government has little choice but to throw caution to the wind in the hope that somehow, miracuously, the economy recovers. Not to reopen the debate about whether Japan or the US is in worse straits, but Japan truly appears to be teetering on the brink of disaster. I don't mean merely another lost decade or a depression. I mean slouching to irrelevance. Another prolonged downturn could mean another lost generation, with questionable job prospects and correspondingly low ambition. Another lost generation will only compound Japan's demographic crisis. Fewer steady jobs presumably means fewer Japanese getting married and having children. Hokkaido University's Yamaguchi Jiro, writing about the employment crisis, argues that it's essential for Japanese to reconsider the meaning of work. True, but will that reconsideration happen in time to rescue Japan?

This is the great failure of the Aso government. Faced with a widespread and deepening crisis, the government has offered a cobbled-together plan that may only entail suffering firms to limp on until the next crisis. Mr. Aso has not, however, offered a compelling intellectual framework for a post-crisis Japanese economy. Rural Japan is in desperate need for some scheme to ensure future prosperity — public works and agriculture will no longer suffice. Perhaps it's too difficult a question to ask of the government when it is simply trying to stanch the bleeding, but at some point the government (or a government) will have to answer it.

The curtain comes down on the ordinary Diet session — and Fukuda and the LDP?

The 169th ordinary session of the Diet comes to an end Saturday, with the comprehensive economic partnership agreement with ASEAN passing naturally. The session ends with the prime minister's having been censured by the upper house and three opposition parties' boycotting proceedings (with a handful of exceptions). Mainichi reports that of eighty bills submitted by the government, only sixty-three passed for a success rate of 78.8%. Not only that, the eighty bills submitted was lower than the usual 100-120 bills per session.

It's not clear to me why this should be surprising. The government doesn't control the upper house. The opposition can and has held up legislation it opposes. If anything, it's remarkable that the government was able to achieve a 78.8% success rate — and that it was able to do so having only used its lower house supermajority on a handful of occasions.

There will be much wailing and rending of garments about the gridlock of the nejire kokkai, but I am not convinced that divided government has been an unmitigated disaster for Japan. The DPJ has managed to balance, however unsteadily, its roles as leading opposition party and master of the upper house.

The biggest problem, the leading obstacle standing in the way of the major changes Japan needs is not the divided Diet but the divided LDP. The toughest policy battles the prime minister has had to wage have not been across party lines but within the LDP (with the exception of the anti-terror law). Mr. Fukuda's battles against his own party will only intensify in the autumn as he attempts to force the party to follow him in phasing out the road construction fund and raising the consumption tax rate. The LDP remains the leading opponent of reform, regardless of what its leaders say.

As a result of tension within the LDP (and the DPJ), talk of a political realignment, most likely after the next general election, remains common. While his popularity has improved slightly in the final weeks of the session, Mr. Fukuda may still end up presiding over the destruction of his party — unless someone forces him out first.

It is possible that after playing host to his fellow G8 leaders in two weeks, Mr. Fukuda will opt to reshuffle his cabinet. Yomiuri reports that he is "groping towards" a post-summit reshuffle that will revitalize the government in advance of what will be a busy extraordinary session — and a long extraordinary session, as it will likely begin at the end of August to leave the government enough time to pass the refueling mission extension by Article 59 if necessary. A reshuffle, however, will not save his government. It might in fact hasten his demise, should the reshuffle free senior LDP politicians now serving in the cabinet to speak against the government. As Mainichi reports, a reshuffle could just as easily lead to disorder within the party. (And there's still the question of whether the prime minister would bring Mr. Aso and/or Mr. Yosano, the leading contenders to replace him, into a new cabinet.)

Some LDP members are looking for a savior — see this post — but no one person can save the LDP. Something appears to have snapped in the Japanese people. Or more accurately, something appears to have snapped in rural voters, who have continued to vote for the LDP in large numbers even as their city cousins abandoned the LDP to become DPJ voters (or floating voters). The number one task for Mr. Fukuda was and is healing the rift between the LDP and its rural supporters that opened under Mr. Abe and played an important role in the party's defeat in the upper house election last July. There is no indication that Mr. Fukuda has made any progress in repairing the LDP's prospects in rural areas. Indeed, after the over-75 eldercare system rollout, the situation is even worse.

This is the reality facing the LDP. There seems to be little Mr. Fukuda can do to change it. The question now is whether the LDP will give someone else a chance to try to save the LDP before the next general election.

"Perhaps not"

Fukuda Yasuo was asked whether he would visit Yasukuni Shrine as prime minister. His answer: "Perhaps not."

It's certainly better than committing to visit, and considering that China was content with Mr. Abe's "neither confirm nor deny" approach to the Yasukuni problem, undoubtedly Beijing is preparing a little party to celebrate if and when Mr. Fukuda is chosen as the next LDP president.

It is still too early to coronate Mr. Fukuda, but there are few obstacles standing in his way. A potential obstacle is the decision by thirty-seven prefectural chapters to hold elections among party members to choose which candidate will receive the chapter's votes (a kind of electoral college system). This means, of course, that Mr. Aso is not guaranteed to receive the support for twelve prefectural chapters. But it also raises the possibility of an awkward scenario. What if Mr. Aso were to somehow win a resounding victory in the vote among the prefectural chapters? While it seems that such a victory would be mathematically insufficient to best Mr. Fukuda, it would create an awkward situation whereby the parliamentary party would be seen as arrogantly dismissing the interests of the regional party members — who already feel slighted and disaffected, as the Upper House election made clear. What would that mean for Mr. Fukuda's efforts to unite a broken party? How would Mr. Aso react?

If Mr. Fukuda talks too frequently and enthusiastically about structural reform — as much as it pleases some of us, myself included — this scenario could become that much more plausible.

Then again, voters could fall into line behind the consensus forged in Tokyo behind Mr. Fukuda's candidacy.

I cannot speak to the probability of these scenarios, but I think it's worthwhile to consider the possibility that the prefectural chapters could throw a spanner into the works.

Rural Japan, elections, and political change

Over at the Social Science Japan forum maintained by the Institute of Social Science at the University of Tokyo — the subdued, scholarly alternative to NBR's US-Japan forum — Paul Midford of the Norwegian University of Science and Technology has sparked an interesting discussion, subsequently contributed to by Ethan Scheiner of UC-Davis (and author of Democracy Without Competition in Japan, a book in my to-read pile that may move up the list depending on this month's returns) and Chris Winkle, a PhD candidate at Munich University, and hopefully others to come.

Midford, looking at the same chart in Yomiuri that prompted Matt over at Liberal Japan to call the election a landslide for the DPJ, outlines recent political changes in rural Japan that give the DPJ hope that its rural strategy will yield results not just in the short term, but over the longer term. To Midford, the combination of shrinking budgets at the national level, municipal combinations and shrinking revenues at the local level, and postal privatization have combined to loosen the affection of rural voters for the LDP.

Scheiner and Winkle, meanwhile, ask good questions about the impact of this election on internal party structure in the DPJ and the LDP. Scheiner wonders whether a big DPJ win could increase the attractiveness of the DPJ to those who seek to enter politics; Winkle speculates about the impact of the election on the factional balance in the LDP.

I find Scheiner's point interesting, because the DPJ does indeed have a problem attracting quality, experienced candidates to contest the LDP across the board. To date the LDP remains more attractive to future politicians because it remains where the power lies; if one is entering politics to achieve a certain policy change, it does no good to join an opposition party whose prospects for power remain distant. The LDP also benefits from its "farm system" of local and prefectural assembly members, providing a ready supply of election-tested politicians who have developed their own local organizations from which to launch a campaign for national office. That is the significance of April's local election returns: even though the DPJ picked up a significant number of prefectural assembly seats nationwide relative to its previous seats, the LDP still holds 1212 prefectural assembly seats around the country. That is a deep pool of talent to draw upon for candidates for years to come, and it may be years before the DPJ is able to draw upon a similar pool of experienced candidates, if ever.

Scheiner is right to note that the flow of potential candidates will shift from the LDP to the DPJ only if the DPJ can follow up an Upper House election win with a significant gain in the Lower House — and whether that is likely depends on how long the government waits to call one.

Enter Jun Okumura, who went out on a limb today and called the next Lower House election for spring 2008 (and described the chain of events that will lead to it). His sequence is logical enough, and plausible, but it seems that the one unchanging reality of the timing of the next Lower House election is that the LDP knows that it will see its two-thirds majority cut. Opposition obstructionism in the Upper House and media outrage about the government's "ramming" legislation will have to be pretty intense before the LDP surrenders.

But first the Upper House election, ten days away, with the gap between the parties narrowing by the day.