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.

Japan the model?

Joseph Stiglitz has a piece at the New York Times praising Abenomics as "a huge step in the right direction." At the same time, however, he also argues that Japan's malaise was never as bad as the popular narrative suggested. In fact, Japan, Stiglitz writes, should be viewed as a model for the United States as it struggles with its own sluggish economy and mounting inequality.

However, there are a few problems with Stiglitz's account of Japan's recent history and the extent to which it can serve as a model for the US.

First, Stiglitz uses static measurements of inequality in Japan and the US, both in terms of the Gini coefficient after taxes and redistribution and in terms of the average income of the top 10% of earners relative to the average income of the bottom 10% of earners. However, the OECD's data shows that while Japan is more equal than the US, it is significantly less equal than it was in the 1980s. The trend looks the same even if one looks at working age population instead of total population.

When one looks at Japan compared with countries other than the US or with the OECD average, Japan looks considerably less impressive. Here's Japan compared with the G7 countries in terms of its Gini coefficient after taxes and transfers:

Japan's performance is not quite as bad as the US and the UK, but it's not substantially better either.

In short, it's a bit puzzling for Stiglitz to praise Japan as a model for the US on equality grounds, especially since concerns over inequality have been strong over the past decade in Japanese politics.

That brings me to the second question I have about this article. Stiglitz wants to reexamine the "popular narrative" of Japan's stagnation but he doesn't indicate with whom exactly he is arguing. By now, the idea that in per-capita terms Japan's "lost decades" haven't been quite so gloomy seems to have at least made inroads in non-Western discourse about Japan. However, as noted above, arguably the Japanese people themselves still believe that the "lost decades" were in fact lost. How else can one explain the broad public support for the Abe government's economic program? Without a popular narrative of stagnation in Japan there is no Abenomics.

Third, Stiglitz is too quick to praise the Abe government for taking on structural reform. The "third arrow" of structural reform remains nothing more than rhetoric — and will continue to be nothing more than rhetoric at least until the fall's special session of the Diet. Given that Japanese governments have been seeking to promote the "structural transformation" of the Japanese economy since at least the 1980s and given the LDP's historical ambivalence towards structural reform, one has reason to be skeptical, at least for now.

So is Stiglitz right to present Japan as a model for the US to follow? Both in terms of Japan's past performance and the current performance of the Abe government there are reasons to refrain from putting Japan on a pedestal. Even if Japan's economy is not quite as bad as is sometimes argued, it is far from being a shining example of coping with stagnation. The quality of life for many Japanese has worsened, particularly for those living outside of Tokyo. Young Japanese still enter a workforce in which they have limited career opportunities if they fail to secure regular employment upon graduation. As Stiglitz himself acknowledges, poverty among the elderly is not inconsiderable. The US shares many of these problems, of course, but given how much Japan has struggled, not entirely successfully, to preserve the quality of life its citizens once enjoyed Japan is still more a cautionary tale than a model. For now, coming after years of halfway measures or inactivity by the Japanese government Abenomics is perhaps best described as a last-ditch effort to revitalize the Japanese economy rather than as a decisive program to overcome stagnation. 

The LDP's disorder deepens, but it remains one party — for now

Asō Tarō's decision to dissolve the Diet on 21 July and hold a general election on 30 August rippled through the LDP on Tuesday, as the prime minister's critics increasingly recognized that with the political system shifting into election mode, the window of opportunity to replace Asō is closing.

Tokyo Governor Ishihara Shintarō, whose position was directly undermined by Sunday's Tokyo assembly election results, was bitterly dismissive of the prime minister, labeling the decision as intended solely to shield Asō from criticism within the LDP, criticism that he added to by reminding reporters of the prime minister's struggles with kanji and his indecisiveness.

But while Ishihara's comments can be dismissed as bitterness from one unpopular leader trying to shift his share of the blame for Sunday's defeat to another unpopular leader, Asō faced more severe criticism from within the LDP on Tuesday. The conference of LDP members of both houses of the Diet met Tuesday, giving Asō's rivals an opportunity to criticize him to his face.

The man of the afternoon was Nakagawa Hidenao, the leader of the LDP's reformists and who at this moment has considerable power over the LDP's future.

Not surprisingly Nakagawa was angry about Asō's decision to react to the Tokyo election by calling an "early" election instead resigning. He wrote at his blog on Monday that the Japanese people had already rendered their judgment on Asō's leadership in local and prefectural elections in Shizuoka, Tokyo, Chiba, and Nara, and reiterated his argument that the only "honorable" course of action for the prime minister is resignation. In short, Nakagawa's argument is the polar opposite of the government's argument that local elections have no bearing whatsoever on national elections — local elections are explicitly judgments about the government.

On Tuesday Nakagawa rejected Asō's appeal for unity and once again demanded the prime minister's resignation, arguing that only the DPJ will benefit from an early election with Asō as the LDP leader.

Nakagawa was not alone in his criticism of Asō. Takebe Tsutomu, former LDP secretary general and Koizumi lieutenant, suggested that the prime minister acted "arbitrarily" in scheduling the election from 30 August instead of some date following the 10 September end of the Diet term.

The bitterness of the criticism from the senior reformists is an admission that they were outmaneuvered by Asō, who acted decisively for perhaps the first time since becoming prime minister, securing his position and placating his backers by scheduling an "early" dissolution followed by a long period before the election campaign officially begins on 18 August. [Readers will notice the quotes around early throughout this article, by which I am simply suggesting that early is relative: as far as I'm concerned this election should have been held months ago.] It is now highly unlikely that the LDP will oust Asō before the general election, despite Nakagawa's calls for his resignation.

It is beginning to occur to some LDP reformists just how isolated they are within the party. Yamauchi Koichi, a first-termer from Kanagawa, writes at his blog: "In the LDP, the structural reform group, which wants to build smart government that entrusts to the private sector that which the private sector can do, demolish the administrative corporations, cut the number of bureaucrats, and eliminate government waste, has become the minority group before we were even aware of it." (Why exactly did it take them so long to notice that they had become the LDP's new anti-mainstream? There were plenty of warning signs well before Asō set foot in the Kantei as prime minister, although for the first year after Koizumi Nakagawa Hidenao was too busy claiming that the Abe government was reforming "faster than in Koizumi-san's time" to notice that the LDP was reverting to form before their very eyes.)

Yamauchi's post is interesting as it shows a Koizumi child waking up to the predicament facing the reformists: "I'm afraid to say that it appears that both the LDP and the DPJ are at the point of 'Anti-Koizumi Structural Reform' and their thinking is converging in a similar way(?)." What's a reformist to do? Risk electoral defeat as a candidate for a party that has marginalized you and your peers? Join the DPJ, a party that rhetoric has it is no different from the LDP? Join with Watanabe Yoshimi in the hope that his nascent party might become the beginning of a powerful neo-liberal party?

In his futile campaign against the prime minister, Nakagawa Hidenao has been a poor leader for his fellow reformists. After all, as Nakagawa should himself recognize, the LDP's problems are more than skin deep. Why does he think that simply changing the face of the party will be adequate to revive the LDP's fortunes? Obviously he wants more than a change of leaders, but in the time to an election a change of leaders will be merely cosmetic and will ask voters to excuse the LDP's past and look to a brighter future under the new leader, assuming that the new leader can make the changes desired by Nakagawa. But the Koizumi experience suggests that changing leaders only takes the LDP so far. And does anyone see another Koizumi waiting in the LDP's wings anyway? (Yamamoto Ichita, another leading reformist, offers more criticism of Nakagawa's position here.)

The result is that it looks like it will be every reformist for him or herself: it appears unlikely that the reformists will leave the party en masse. Some will probably leave and join with Watanabe; perhaps others will stay and fight for the soul of the LDP; still others may soften their views. But I have a hard time seeing a repeat of 1993 when Ozawa Ichiro pulled his reformist faction out of the party as a group. It is wholly unclear which option Nakagawa will choose, which speaks volumes about Nakagawa as a leader of the reformists. The longer Nakagawa waits to make his intentions clear the more it looks like the same indecision that Asō is criticized for instead of wily gamesmanship.

Nakagawa's predicament comes through in this post at his blog Tuesday, in which he writes hysterically of his "mission to strive to the bitter end to prevent the birth of a DPJ government," a government he believes will utterly betray Japan's national interests. Rarely have I read something as unhinged as Nakagawa's anti-DPJ screed. He is convinced that the DPJ will ruin Japan (presumably more than it has already been ruined by the LDP?) — if this post does not rule out the possibility of Nakagawa's leading reformists into the DPJ, I don't know what does. Nakagawa is equally devastated by the LDP's failure to realize that it is imperative for to do whatever it takes to prevent the DPJ from taking power. But he offers no clue as to what he will do to "work vigorously on behalf of nation and people."

With the LDP's having successfully warned off reformists who might have been tempted to use the opposition's no-confidence motion to tweak the government — the LDP informed members that the party would withdraw its endorsement if they voted for the motion — but the day of reckoning is approaching. Or, given the confusion among the reformists, the days of reckoning.

Reaping the whirlwind

How can the LDP govern Japan when it can barely govern itself?

The war of attrition that has been waged between the Koizumian remnant in the LDP and the rest of the party since Koizumi stepped down as prime minister in 2006 has entered a particularly bloody phase as the Koizumians have decided to launch a final offensive in the hope of toppling Asō Tarō before he can call a general election.

Yamamoto Taku, the lower house member collecting signatures to "recall" Asō by forcing an early party election, has stepped up his effort in the hope of collecting the requisite 216 signatures (half the total number of LDP members of both houses and the chairs of the prefectural party chapters) by 13 July, the date of the general meeting of LDP members from both houses. Beyond Yamamoto's signature drive, on Tuesday afternoon a new study group — the Manifesto Association — held its first meeting. The association is a collection of nine different Diet members' leagues of the reformist stripe and plans to draft proposals for inclusion in the party's election manifesto. The association wants the party's manifesto drafted before the Diet is dissolved and an election called. Not surprisingly, many in the party suspect that this group has a not-so-ulterior motive of toppling Asō.

There is a certain symmetry to this explosion of open opposition to the Asō government and, by extension, the LDP establishment, which continues to back the prime minister. Four years ago it was the reformists who were in control of the party and the agenda. During the summer of postal reform, it was the reformists who were advancing, with the LDP establishment doing everything in its power to slow Koizumi's agenda — with the small band of postal rebels eventually emerging to challenge Koizumi openly. Indeed, it was around this time four years ago that the LDP establishment delivered a blow to Koizumi when the LDP's general council broke with precedent to hold a majority vote on proposed revisions to the government's postal privatization bills.

Since then of course the reformists have been in steady retreat against a resurgent party establishment, bringing us to this latest round of infighting, a last-ditch attempt by the reformists to steer the LDP in a new direction.

Whether by design or not, Koizumi appears to have destroyed the LDP. The reformist remnant that was supposed to be the vanguard of a new LDP appears to be better at destruction than creation, skilled at undermining governments deemed insufficiently committed to their reform plans but incapable of putting forward their own candidate for the party leadership or convincing other members of the party to embrace the reformist agenda as being beneficial for the party as a whole.

I am not questioning their policy ideas, which, after all are not altogether different from ideas being floated by the DPJ. The difference, however, is that the DPJ lacks the pathologies of LDP rule. The LDP has become ungovernable. No authority can bring recalcitrant members to heel. No leader can impose a unifying vision on a party home to fundamentally incompatible visions for what the LDP should be.

In some sense the decline of the factions is responsible for the anarchy within the LDP, in that conflict within the LDP used to be conducted among organized groups that obeyed certain basic rules and were fighting less over policy visions than they were fighting for control over party resources. Which is not to say that factional conflict was tame (cf. the Kaku-Fuku sensō), but that it lacked the ideological fervor that the Koizumians have brought to the LDP. Like the international system, a once orderly balance of power has given way to a unipolar factional system (with the Machimura faction playing the role of the US) sitting atop an unruly party in which factions exist alongside a myriad of study groups, non-partisan groups, policy zoku, and other smaller, less organized groups (much as nation-states and U.S. unipolarity exist alongside international organizations, terrorist groups and gangs, multinational corporations and the like).

Anarchy within the LDP has had severe consequences for Japan, having paralyzed the Japanese government just when Japan needed a government capable of assessing problems clearly and responding decisively.

And so we have the Asō government, which is fighting to the death for the privilege to lead the LDP to defeat. To save himself, Asō will say or do anything. The reformists, supposedly eager to save the LDP, will do anything to push their agenda and elevate another party leader, despite the obvious contempt such an act would show for the Japanese public. Asō still enjoys the upper hand in this fight, in that the reformists, while a vocal minority, are still a minority. They are making life difficult for the prime minister (while making life easier for the DPJ, which will face an LDP whose members have spent months fighting amongst themselves), but they cannot dictate terms to the LDP. Shiozaki Yasuhisa and company are deluding themselves if they think that the rest of the LDP will allow the reformists to dictate the party's manifesto, making this round of fighting especially futile. If the LDP were capable of drafting a manifesto that the whole party could accept — no matter how watered down its proposals — and agreeing to stand behind Asō, the party would at least make the DPJ fight for every seat and perhaps deprive it of a majority. As matters stand now, the DPJ stands a good chance of taking a simple majority on its own.

The question remains what will happen following an LDP electoral defeat. Will the reformists use the occasion to break from the LDP and form their own party? Will they continue the internecine fight for control of the LDP? With each act of rebellion against the Asō government, the reformists make it less likely that they will be a welcome part of a post-defeat LDP.

None of this is to say that Asō is an ideal leader or that there is a right side and a wrong side in the battle between the reformists and the party establishment. Rather, the problem is the LDP itself, that LDP government has meant brutal and ceaseless infighting within the ruling party, which has made for irregular and more often than not deeply ineffective government. That is reason enough for the LDP to be removed from power.

The vision thing

On Tuesday the Council on Economic and Fiscal Policy (CEFP) released the 2009 Basic Plan for Economic and Fiscal Reform (known colloquially as the honebuto), available here along with other documents from the Tuesday meeting.

The plan is controversial because the Asō government appears to have sidestepped an existing agreement — originating in the 2006 honebuto — that social security spending would be capped at 220 billion yen, a figure that the general account budget is rapidly nearing. Social security spending is by far the largest portion of the budget and a major contributor to the government's deficits, hardly surprising given Japan's demographics. Needless to say, central to the fiscal crisis of the Japanese state is figuring out how to bear the burden of providing for Japan's elderly without bankrupting the state or wrecking the economy. At the same time, the LDP has struggled to undo the damage done to the party by the Abe government's mishandling of the 2007 pensions scandal — and so, as with many other recent government and LDP documents, the 2009 honebuto stresses economic security alongside economic vitality as a goal of reform. Years of polling show that the state of social security is the Japanese public's top policy priority. The LDP cannot afford to look weak on social security as it did in 2007 if it is to have the slightest chance of winning this year's general election.

How did the Asō government resolve this tension? It punted, withdrawing the clause limiting social security spending to 220 billion yen but insisting that the government still views solving the fiscal crisis as a top medium- and long-term priority priority for the Japanese state. The new plan, for example, retains a provision that calls for annual three percent cuts in public works spending. The government will also continue to economize in other areas (which will undoubtedly undermine the effort by LDP conservatives to ratchet up Japan's defense spending).

This single episode says much about the decay of LDP rule.

Press coverage of the Asō government's decision has focused on the role played by members of the LDP's education, and health and welfare policy tribes (zoku) in pressuring the government to abandon the social security ceiling and other spending limits. "A free for all for zoku," an anonymous source told Sankei. Mainichi noted the role played by the zoku and added that Prime Minister Asō was missing in action in this debate. Naturally both of these factors are important in explaining why the Asō government softened its approach to the fiscal restraint. But it is useful to step back from the interplay of personalities: this episode shows the irreconciliable forces tugging at Asō and the LDP more generally. Asō, like Fukuda before him, is struggling to weave his way between economic reformists and traditionalists, between fiscal hawks and spendthrifts, between budget cutters and tax hikers. While at various points Asō has attempted to distance himself from Koizumi and "neo-liberal" reformism, he has stopped short of committing to an approach that is anything more than a balancing act between the competing pressures present within the LDP. The LDP cannot make up its mind what kind of party it wants to be — and unfortunately for Japan, that schizophrenic party has an outsized role in shaping government policy.

Notice that this failure of vision on the part of the LDP has nothing to do with the bureaucracy, the favorite scapegoat of the structural reformers. If the LDP had a vision for governing — or if ruling politicians could impose a vision on the LDP — the bureaucracy would not have nearly as many opportunities for mischief and malfeasance.

In other words, just as the DPJ intensifies its plans for a possible power transition, the LDP has provided an excellent demonstration of how not to govern.

These are the hollow men

"Shape without form, shade without colour,/Paralysed force, gesture without motion" — T.S. Eliot, "The Hollow Men"

The belabored departure of Hatoyama Kunio — captured well with a quote from a more contemporary poet at Shisaku — and now the third straight defeat of an LDP candidate in a prominent mayoral election suggest that what little remained of the LDP's 2005 mandate is in tatters. Kumagai Toshihito, the thirty-one-year-old DPJ-backed candidate, won the Chiba City mayoral election Sunday, making him Japan's youngest mayor. Kawamura Takeo, the chief cabinet secretary, dismissed the election as having no influence on national politics, which may be true in a technical sense, but the DPJ's third straight mayoral campaign victory reinforces the image that the DPJ has recovered from the Ozawa scandal and that the LDP is in disarray and hemorrhaging electoral support.

Public opinion polls, after briefly recording an uptick in the LDP's fortunes, once again show that the public has grown weary of the Asō government and the LDP-Komeitō coalition. In a Mainichi poll conducted over the weekend, the cabinet's approval rating fell five points to 19%. When asked which party they want to win in this year's general election, respondents overwhelmingly favored the DPJ, 53% to 27%. And Hatoyama Yukio, while trailing "none of the above," which received 46% support, is the favored candidate for prime minister for 32% of respondents compared to Asō's 15%: the prime minister's support fell six points since last month.

The LDP is once again in full-blown panic mode — hence the Eliot quote above. As the LDP scrambles to respond to its latest setbacks while simultaneously preparing for a general election, "paralysed force" strikes me as a particularly apt description of the Asō LDP. Anti-Asō murmurings from within the LDP are growing louder, prompted by his mishandling of the Japan Post debate and Hatoyama's dismissal. (In the Mainichi poll, only 22% of respondents approved the government's dismissal of Hatoyama.) But in all the scrambling and the maneuvering against Asō, it is unclear how the LDP can present itself to the public in the months so to reverse the shift towards the DPJ. The LDP is struggling once again for the same reasons it has struggled throughout the four years since the last general election. As MTC argued in the post linked to above, the LDP has spent four years retreating from the Koizumi platform that helped the ruling coalition secure a record supermajority, with the result that the party's image is more muddled than usual. The fight over the reappointment of Nishikawa Yoshifumi as head of Japan Post is the natural consequence of the creation of a Koizumian reformist remnant within the LDP that has been marginalized within the party but retains considerable clout through its association with Koizumi, their ties with the media, and (for now) their numbers among the LDP's backbenchers. In forcing the prime minister to dismiss Hatoyama, the reformists scored a rare victory, but on the whole they have been in retreat for at least three years.

But it is not entirely clear what the reformists and the "old guard" are fighting over. Of course on paper they have two different visions for how the LDP should govern — although the old guard seems to put less on paper than the reformists, many of them being prolific bloggers and authors, wannabe public intellectuals of one sort or another. Nakagawa Hidenao, much like Koizumi, has no shortage of slogans about how to change Japan, but it is sometimes difficult to see how his slogans ("from government to the people," etc.) would translate into policies. For all the vitriol directed at the old LDP by Koizumi, Nakagawa, and others, the differences are less on policy and more on political style and tactics, the timing of reform, and the government's priorities. Few, after all, oppose "reform" outrightly. Indeed, there is no shortage of ideas in all issue areas and across the political spectrum. The problem is that plans and schemes are rarely matched by realistic approaches to implementation. To take one example, postal privatization obviously didn't end with the passage of legislation; it is a complicated process that has required more than sloganeering. Would the radical decentralization plans proposed by the leaders of both the LDP and the DPJ be any less tortuous in their implementation?

Structural reform may be necessary, but its advocates would do well to focus more on building stable, enduring coalition that can manage both the passage and the implementation of reforms than on devising clever slogans to rally support for their ideas while antagonizing other political actors. As Koizumi found, unrelenting war against the "opposition forces" was easier said than done: even he had to compromise with rivals within the LDP, and, more significantly, the finance ministry.

The result is that the LDP may be more amorphous than ever, saddled with Koizumi's legacy, torn between partisans of the Koizumi way and conservatives who want the minimal amount of change necessary to stay in power, and powerless to resolve these internal conflicts and consequently to make progress tackling the problems facing Japan. Yamamoto Ichita, one of the LDP's most outspoken reformists, has voiced his support for Asō, but it is half-hearted support, in that he supports Asō's leading the LDP into the general election because he thinks it would hurt the LDP to change leaders yet again. And it is telling that when he lists the government's accomplishments, he does not even attempt to spin Asō as a reformist, citing instead the economic stimulus packages and his foreign policy initiatives.

In other words, it is remarkable how little the LDP has to offer voters this year. Despite having the ultimate trump card in the form of the lower house supermajority, which ensured that it could overrule the DPJ-controlled upper house at will, the LDP and Komeitō have done remarkably little with their authority over the past three years. Work is proceeding on the party's manifesto, which promises to focus on the "livelihood of the people." (Sounds familiar, doesn't it?) But by following the DPJ in promising to listen to the economic insecurities of the public, doesn't the LDP raise the question of what it has been doing to ease economic insecurity since the 2005 election and before? And by questioning the DPJ's ability to govern, won't the LDP invite questions about its own ability to govern? The narrative of this year's election campaign appears to favor the DPJ, as the public may once again be asking what the LDP has done with its mandate, instead of asking whether the DPJ will be able to deliver on its promises if given a mandate.

In short, LDP rule appears set to end in cacaphonous turmoil, as the party's warring schools squabble over whether the party is for "reform," "public wellbeing," or, like the DPJ, some combination of the two. And it seems that delaying the general election will only ensure that the combatants have more time to battle for the soul of the party, ensuring electoral defeat.

April is the cruelest month

April is here, the new fiscal year has begun, and Prime Minister Aso Taro is in London for the G20 summit.

For once, he leaves behind a favorable domestic situation. After months of bad news, with his approval ratings skirting single digits, the press is full of reports about how Aso and DPJ President Ozawa Ichiro have traded places; Ozawa's leadership under threat from members of his own party, at the same time that LDP members have all but conceded that Aso will lead the LDP into the next election.

The prime minister should not be too cheerful, despite the early arrival of cherry blossoms and the bump in the polls.

First, as Claus Vistesen notes at considerable length, the best one can say about the Japanese economy is "while indicators are still on the decline they are now declining less rapidly." The great adjustment is under way. The pain continues to be felt among Japan's irregular workers, as 192,061 have already been laid off in the period beginning in October 2008 and continuing until June, compared with 12,502 regular employees who were laid off by April. The unemployment rate rose to 4.4%, and not surprisingly the number of new hires has dropped off substantially. 4.4%, then, is only the beginning. Is Japan facing its second lost generation in as many decades, another generation with all too many members unable to access the regular labor force? Presumably there will be more opportunities for mid-career hires when the economy recovers — surely Japan learned something from the lost decade — but in the meantime I wonder whether there will be political consequences for the burden carried by irregular employees. Can the LDP really win reelection under such circumstances?

The economic collapse is dire enough, but the malaise in which the public is mired may have even more lasting consequences. I was going to say crisis of confidence, but I think it's bigger than that: the public appears to be exhausted, fed up with leaders who appear to be powerless to stop the deterioration of the Japanese economy and indifferent to public concerns. The latest indication of the public's wearyness comes in a new cabinet office poll concerning "social consciousness." Reflecting the recent Asahi poll on political attitudes, 80.7% of respondents said national policy either does not really reflect the popular will or does not reflect the popular will at all, a five-point increase on the previous cabinet poll on this matter. The responses when asked how to fix this problem were mixed, with a plurality of 27.5% blaming the politicians for not listening sufficiently to the voice of the people, 18.8% suggesting that the people need to take a greater interest in policy. When asked what they think is going well in contemporary Japan, only technology (28.1%) ranked higher than the "nothing/don't know" response "(25.4%), although the 28.1% for technology marked an increase from 21.2%. Meanwhile, the negatives were consistent with the state of the economy: 68.6% of respondents saw economic growth as a problem, up from 43.4%; 57.5% saw employment and working conditions as a problem, up from 31.1%; and 42.9% saw national finances as a problem, up from 37.5%.

Perhaps the public is overreacting to the economic crisis, their imaginations stirred by bleak media coverage. But I suspect that might be optimistic. Something tells me Japanese households know precisely how bad things are. As the above figures suggest, the economic crisis has only deepened preexisting malaise and a sense of detachment felt by the governed regarding their government. Maybe Jesper Koll, borrowing the prime minister's message about Japan's latent power, is right to be bullish on Japan. Koll presents a range of statistics about Japanese R & D spending and patents to suggest that Japan is poised to emerge from the global financial crisis a technology superpower, that its people — again, channeling Prime Minister Aso — "possess a basic power and discipline that build a strong foundation for future recovery." He is convinced that the crisis is accelerating generational change in Japan and that it "thrives in times of hardship and global turmoil."

But for all the technological developments praised by Koll, Japanese households — "balance sheets are very strong, since Japan's deleveraging already happened during the 1990s" — still remain reluctant to invest their hoard (which recently took a sizeable blow). Koll assumes that generational change will be enough to solve the paradox of thrift, but he has little to support this assertion other than an intangible sense that companies are looking to the future. Notably absent from Koll's account is any mention of demographics, which, incidentally, are central to Vistesen's treatment of the economic crisis. "Japan," Vistesen argues, "does suffer from a a chronic lack of domestic demand and consumption and it does so exactly because relying on consumption with the current demographic profile is not viable." If anything, the demographics will only worsen as a result of the latest economic crisis, as more Japanese decide to postpone, perhaps indefinitely, marriage and childrearing.

Indeed, given the findings of the March Tankan, the worst on record, it is hard to see the basis for Koll's optimism. The survey did find large manufacturers optimistic about conditions three years ahead, but that is surely overwhelmed by short- to medium-term pessism in nearly every other category, and by the deepening gloom felt by the Japanese people. Far from "rediscovering...capitalist roots," the Japanese people appear to want nothing more than to be shielded from capitalism through more robust job protection and social security. They appear no more eager to risk their savings than at any point during the past twenty years. It is too early to say what precisely the intellectual consequences of the global financial crisis will be, but in Japan it seems that what public support existed for "neo-liberal" reforms has dried up. It might return with economic recovery, but it is unclear how that will happen — if the Japanese people cannot be convinced of the necessity of reform during a "once-in-a-century" crisis, how will they be convinced once times are good again?

The one category of reforms that enjoys public approval continues to be administrative reform, because the bureaucrats remain about as popular as the politicians. Little wonder that this year's election is shaping up to be an administrative reform election. The DPJ has, for obvious reasons, made the case that regime change will be the basis for sweeping changes in how Japan is governed. Now the Aso government has answered with its own administrative reform plans.

On Tuesday, after a prolonged battle the cabinet approved the government's plan for administrative reform, which includes the creation of a cabinet personnel agency that will be responsible for appointing the top officials in ministries and agencies in the hope of combating administrative stovepiping.

The cabinet decision, however, by no means guarantees that the government will get its way: Ozawa has dismissed the plan as mere windowdressing on an administration that will be left fundamentally unchanged, while Jiji quotes an LDP member "with experience as administrative reform minister" as warning of dissatisfaction within the LDP over the bill, not to mention opposition from the bureaucracy itself, especially the National Personnel Authority. Given the government's focus on another stimulus package, will it fight for this bill? DPJ opposition might be useful for the government, if it can paint the DPJ with the dubious label of being opposed to reform outright, but plenty of LDP members might be happy to see the bill die.

And thus while I understand Jesper Koll's desire to question the conventional wisdom, the unpleasant reality is that things are set to get worse in Japan before they get better. There is a degree of unpredictability going forward, not least in the political situation, but even the best-case scenarios suggest that Japan will be struggling with domestic problems for years to come. Even the election of a DPJ government — should it occur — will only be the beginning of the process of addressing the many challenges facing Japan.

How can Japan be saved?

With the sudden departure of Nakagawa Shoichi from twin posts of finance minister and state minister responsible for the financial services agency (FSA), Yosano Kaoru has been elevated from state minister for economic and fiscal policy and now holds all three positions simultaneously, making him, to borrow a term from American politics, the Aso government's economy czar.

It is most likely a temporary arrangement; the government has indicated that he will stay in place until the budget is enacted, but thereafter the posts will be divided, either with Yosano being bumped back down to his state minister's post or with Yosano's becoming a "permanent" (insofar as anything about the Aso government can be described as permanent) replacement for Nakagawa.

Nevertheless, until that happens, Yosano bears a heavy burden — it is not for nothing that Ozawa Ichiro wished his go partner good luck, not least because Ozawa and his party will do all they can to make his life more difficult.

While he has a fairly straightforward task for the first month of his tenure, it is worth considering Yosano's views and speculate as to what might have been. Arguably, if Aso was sensible and chose his ministers — or at the very least his finance minister — on the basis of merit, Yosano would have been a fine first choice for the post he now occupies. While Yosano was perhaps denied the post due to his long advocacy of a consumption tax increase as the means to set Japan's finances right (and to Aso's need to reward Nakagawa for his loyalty), he has been nothing if not pragmatic, as he stressed at his inaugural press conference Tuesday. He has also, unlike the prime minister, been unflinchingly realistic.

While Aso has done everything in his power to play down the severity of the crisis and the responsibility of LDP governments for its severity, while repeatedly making the fanciful promise to make Japan the first country out of recession even as its economy declines faster than other developed countries, Yosano has served as the bearer of bad news. His speech at the start of the current Diet session is a good illustration of his thinking. The underlying idea is that if the government is going to ask for the people's forbearance, it must be straight with them. It must be forthright about crisis and the broader structural changes underway in the global economy, and must have a clear vision about how Japan should change over the long term in response to the crisis and broader trends.

This is consistent with his approach to politics as outlined in his 2008 book Dodotaru seiji / 堂々たる政治, which can be translated as Open Politics, in the sense of straightforwardness. It is telling that Yosano says, in the closing pages of the book, that his favorite word is "decency" (he uses the English), arguing that decency is a "weapon sustaining Japan" as it struggles to adapt. Yosano's vision of politics is not unlike Barack Obama's, in that he wants to deescalate conflict within the political system — he is a uniter, not a divider. He is opposed to "market fundamentalism," although not, he notes, opening Japan's economy more to the global economy. He wants to ensure, however, that the weak are protected. He also does what few in Japanese politics seem willing to do today: he defends the bureaucracy, suggesting that the failings of some should not condemn the good work done by most. Yosano stresses that there needs to be a clearer division of labor between bureaucrats and politicians, with the latter taking clear responsibility for big decisions about the direction of the state. (I heard Furukawa Motohisa, a finance ministry bureaucrat-turned-DPJ member, make the same argument in Tokyo last month.) It does no good for governance to demonize the bureaucrats and shift the blame for Japan's problems on their shoulders. He takes a nuanced view to the common reformist theme of "cutting waste," suggesting that while there are some wasteful expenditures that can be easily cut, other expenditures require more careful consideration as they can have tremendous impact on the life of citizens in forgotten corners of Japan. Similarly, he does not dismiss Nakagawa Hidenao's "Rising Tide" school offhand, but rather suggests that it is unrealistic to expect the automatic reconstruction of Japan's finances that Nakagawa believes will result if Japan simply gets its economy growing fast enough. With Japan's sinking deeper into recession, Yosano may not see his desired consumption tax increase any time soon, but the recession suggests that it might be a long time before Japan sees the kind of growth needed for a rising tide to lift all boats.

Yosano's thinking is strongly reminiscent of the LDP's old mainstream, a view that could be called "politics as administration." In another era, he might have been a successful prime minister governing in the "low posture" style, abjuring ideology while solving national problems.

The question, however, is whether Yosano's politics are appropriate for an era of faltering institutions, mounting economic insecurity, and the need for drastic change.

More than the debate over economic policy, this is the major difference between Yosano and Nakagawa Hidenao. Nakagawa's political vision is rooted in conflict. Arguably he subscribes to Carl Schmitt's view of the political, in which the political sphere is separated from other spheres of life by its divisions of the world into friends and enemies. As Schmitt wrote, "The political is the most intense and extreme antagonism becomes that much more political the closer it approaches the most extreme point, that of the friend-enemy grouping." [NB: I am not citing the controversial Schmitt to discredit Nakagawa.

Reading Nakagawa's Kanryo kokka no hokai 官僚国家の崩壊 (The destruction of the bureaucratic state), which was published around the same time as Yosano's book, I got the impression of Nakagawa as a politician in search of monsters to destroy. His bete noire, introduced in the introduction, is what he calls the "stealth complex:" a network comprised of the universities, the bureaucracy, the Bank of Japan, the financial world, and the media that works to retard reform and protect their vested interests. (He explicitly cites Eisenhower's military-industrial complex as his model.) He explores the way in which bureaucrats undercut political rivals by leaking information, how they dominate the policymaking process as "Japan's biggest think tank," and how through government by informal networks they have hollowed out the policymaking process so that no one is accountable. Japan, he argues, is ruled by a void. And in order to transform Japan, this stealth complex must be destroyed and politicians given firm control of policymaking, to which end he more or less endorses the Watanabe Yoshimi-Takahashi Yoichi-Eda Kenji administrative reform agenda, based on the notion that in hard times, bureaucratic rule must give way to political rule (a theme with deep roots in Japanese politics). The remainder of the book contains Nakagawa's countless ideas for Japan: a kinder, gentler market capitalism in which the Japanese people help each other without the government's intervention, a decentralized government and a bureaucracy reined in and accountable to the people, and a full embrace of the IT and green technology revolutions to revitalize the economy.

But running through it all — and through his writing at his blog — is the need for someone to blame for Japan's problems; someone other than the LDP, that is. His politics clearly require an enemy against which to direct political efforts, much like Koizumi Junichiro's emphasis on the "opposition forces" within the LDP who stood in the way of reform.

In short, between Yosano and Nakagawa there are two very different approaches to politics, two very different ways of tackling the problems facing Japan. With the implosion of the conservatives, it may in fact be these two men who are left fighting over the wreakage of the LDP after the next general election. MTC wonders what exactly Nakagawa is planning (i.e., whether he intends to bolt the party at an opportune time), but it may be the case that he is prepared to fight it out within the ranks of the LDP, that he's convinced that Japan's system is a two-party system and since one party is unacceptable to him — if his writings about the DPJ are to be believed — he has no choice but to fight on to remake the LDP.

And while Yosano himself is an unlikely prime minister, his worldview could provide the right mix of concern for Japan's downtrodden and an emphasis on (as Ozawa says) change so that things can stay the same.

The question, however, is which approach to politics is most likely to get things done. That, after all, is what the public has been waiting for for years: a government that will move deliberately to tackle the problems that both Yosano and Nakagawa believe ail Japan. I think Koizumi's enduring popularity has less to do with the content of his policies than that for the first time the public saw a government in action. Perhaps at times it was only the appearance of action, but it was a significant enough departure that I think voters still appreciate the former prime minister, much to the chagrin of writers like Morita Minoru. Which suggests that Nakagawa may be right that a confrontational approach is the only way to break the establishment and set Japan on a new course. Yosano's "softly, softly" approach simply expects too much goodwill from all actors, probably more goodwill than is possible in the midst of economic collapse.

But at the same time Nakagawa is far too forgiving of the LDP: the bureaucracy is as powerful as it is because it has governed hand in hand with the help of an LDP unable to govern itself. And I'm not convinced that the LDP can reform itself to become the party Nakagawa envisions without a cataclysmic defeat that forces the party into opposition.

Ultimately the picture that emerges from both books, however, is that the range of policy ideas in Japanese politics today is fairly limited. There is a general consensus that some form of decentralization is necessary, with varying degrees of scope. There is a general consensus in a broad swath of the political class of the need to reform the bureaucracy drastically and forge a new relationship in which the bureaucracy is an instrument of the cabinet. There is a growing sense of the need to develop and draw upon the skills and expertise of Japanese outside the bureaucracy. There is an acknowledgment of the need to fix the government's finances, with the debate focusing on the extent to which trimming waste from the budget will solve the problem. (and it is unclear where exactly the DPJ falls in this debate, seeing as how they've done everything they can to avoid talking about a consumption tax increase).

(Of course, what's missing from this consensus is the most pressing problem of all: how to replace foreign demand for Japanese goods with domestic demand for Japanese and foreign goods as the basis for Japanese economic growth.)

Given that an agenda has more or less coalesced, the overriding question in Japanese politics then is who can get the government moving. After watching three consecutive LDP prime ministers crash and burn, the public seems unconvinced that LDP is up to the task, no matter how passionately Nakagawa fulminates against the bureaucracy and castigates the DPJ as an enemy of reform. Nakagawa's diagnosis may be right, to an extent, but his cure has been tried, and it has failed. The LDP is too dependent on the bureaucracy for policymaking and its members too free to manipulate policy and undermine the prime minister to make the policies both Nakagawa and Yosano see as necessary.

It is entirely possible that the DPJ, should it form a government, will be no more successful — Japan may languish for years to come. If it does, it won't be for lack of recognition of what's wrong with Japan but rather due to an inability to reshape the system of government wholesale.

Good luck, Mr. Yosano (and Mr. Nakagawa).

Shop for Japan? (Noah Smith)

It has often been said, by this writer and others that Japan needs to "raise domestic consumption" in light of the current economic crisis. In actuality, this is a murky concept. There are a number of different reasons for this, and a number of ways it can be done.

Reason 1: Correcting international imbalances. "Surplus" countries (Japan, Germany, and especially China) produce more than they consume, "deficit" countries (the US and UK) consume more than they produce. This is unsustainable (obviously), and fuels dangerous bubbles. If Japan and the Surplus Gang consume more, the US can safely consume less without wrecking the world economy. Of course, it's too late to save the world economy this year, but if the imbalances persist, this will all just happen again.

So raising consumption is considered the safest way for Japan to help fix the international financial system.

Reason 2: Avoiding a steep drop in output. If Japan sells less to the world — as is now inevitable — it can either make less or consume more. Making less means Japanese companies must either go out of business, lay off workers, or cut wages; or, more likely, all three. It means Japan will be a less wealthy place.

So raising consumption is considered the least painful way to weather the global recession.

Reason 3: Reducing export dependence. Exports are dependent on external demand, and therefore subject to big, abrupt swings. It is difficult for the government to either predict or prevent these swings. Consumption in Japan represents only 55% of GDP, compared to almost 70% in the U.S. If Japanese people are really as risk averse as they are rumored to be, they would naturally like an economy that is less vulnerable to the wild storms of global demand.

So raising consumption as a percentage of output is considered a way to reduce future risk for Japan's economy.

There are other reasons, but these are the big three. Now the question becomes: How does Japan accomplish this feat? I am guessing that telling people to "get out there and shop," as Bush did after 9/11, will go over like a lead balloon.

The classic way of boosting consumption is to lower interest rates, which discourages saving. However, Japan's interest rates have been at or near zero for a long time, so there is no more ammo in that gun.

As I and others have noted, Japan's aging and shrinking population bodes ill for future consumption. It also makes it harder to strengthen the social safety net (since young workers are needed to pay for the pensions of old retirees). Immigration will not increase enough to compensate for this decline. Even the U.S., with over a million new immigrants a year, is aging. That leaves the much-discussed fertility rate.

Finally, there is trade. Increasing imports doesn't seem like it will raise Japanese output, but as I noted in an earlier post, it does. Output is measured in real terms. If you lower import barriers, you can get 20,000 apples per Prius instead of 7,000. That means you are richer, even if some domestic apple-growers go out of business. And it also helps reduce global financial imbalances and bias the economy toward consumption, as well. Of course, this is tricky. If you open up your country to trade with protectionist countries, as the US did with China, you can find yourself on the receiving end of a disruptive flood of cheap money. But free trade with relatively open, rich countries like the US and Europe, as well as with poorer countries like Southeast Asia and Latin America would be a great idea.

And then there's my own idea: harness wealth effects. Most Americans are homeowners. Far fewer Japanese people are. Changing regulations, especially taxes and land-use regulations, could increase that rate. The economic security afforded by homeownership could conceivably raise consumption rates, and the extra living space might encourage larger families.

In any case, "Shop for Japan" is not nearly as foolish a motto as "Shop for America" proved to be in the earliest part of this decade. Balance, in economics as in so many things, is the goal. And a more comfortable lifestyle for the hard-working, long-suffering people of Japan would not exactly hurt the electoral prospects of the party that could deliver it.

- Noah Smith

The long and short of it (Noah Smith)

Gerald Curtis's article in the Financial Times deserves a response from me as well. The short version of my response is that I agree with Tobias: the fact that the DPJ will not be able to avert a depression is not sufficient reason to write them off.

The longer version is this: Curtis is right when he says that "whatever the political goings-on, there is no optimistic short-term scenario for Japan." But he is wrong to blame that fact on Japan's current political mess. With international demand collapsing and public debt at well over 100% of GDP, Japan's government is essentially unarmed. Were Japan led by a triumvirate of FDR, the Meiji emperor, and Yoda, there would still be next to nothing the government could do to stave off a steep drop in exports, and thus investment, and thus GDP.

This does not mean, however, government action is unimportant. Keynes may have said that "In the long run, we are all dead," but we should be thankful that leaders in his day did not take that to heart. I may be a short-run pessimist on Japan, but I'm a long-run optimist and a medium-run agnostic. In the medium and long run, government will be the key to Japan's performance.

What can be done to boost Japan's performance three or four years from now? By my count, at least two big things. The first is free trade. As soon as worldwide demand begins to recover, Japan could get the jump on rivals like South Korea and Taiwan by signing real — not cosmetic — free trade agreements with Asia, Europe, and the US. And a lowering of food prices would instantly boost Japan's real per-capita GDP without Toyota having to sell one more Prius.

The second is to get more women into the workforce - and fast. Ken Worsley notes that women, who make up half of the labor force in the West, comprise only 40% in Japan. This means that Japan's labor force participation rate is much lower than America's. Although not measured in the low official unemployment rate — stay-at-home women are more likely to say they "don't want to work" than that they "can't find a job" — Japanese women's de facto status as a quiet economic underclass represents a huge loss in national output. A big push by METI to encourage companies to hire more women, coupled with an expansion of day care, could work wonders when the depresion runs out of steam.

Will the DPJ do these things if it is elected? Your guess is as good as mine. But then there is the long run.

Economists believe that national crises — wars and depressions — represent opportunities in disguise, for it is only during these fluid times that nations can change their basic institutions. This is evident when we look at America in the Great Depression. FDR's stimulus spending may or may not have made things better — the debate continues to this day — but few would deny the long-term importance of Social Security and the FDIC. Japan's next group of leaders will be offered a similar chance.

The three institutions that must urgently need changing are, of course, the bureaucracy, corporate governance, and fiscal mechanisms. The DPJ proposes to shake up the cozy, stifling relationship that has turned all three of these institutions into pipelines for waste, pork, protection and inefficiency.

Imagine if this had been done a decade ago. If Japan had not thrown trillions upon trillions of yen at constuction companies, it might have the fiscal ammunition to fight today's slump. If inefficient companies had not been sheltered from harm, Japan might not have built up the overcapacity that is making its current depression even deeper. Women would be working more and labor markets would be more flexible. Yet nothing was done, two decades passed, and, pace Keynes, most of us are still alive to face the consequences.

This is why I agree with Tobias. If the DPJ did nothing except reform Japan's central institutions — if it utterly ignored the medium-term — that would still lead to an incalculable improvement ten or fifteen years down the road. To throw up one's hands, as Gerald Curtis does, is to encourage a false sense of helplessness. Which, in a sense, is the only thing we have to fear.

- Noah Smith

A pox on both their houses?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

Recommended book: Curing Japan's America Addiction, Morita Minoru

For Morita Minoru, a longtime political commentator, something is rotten in the state of Japan.

"Japanese politicians," he writes, "have made serving the American government a priority when they should be focused on serving the Japanese people. Japan has lost its sovereignty to the United States. Our nation has been invaded and occupied by invisible forces."

The above comes from Mr. Morita's first English-language publication, Curing Japan's America Addiction, a beautifully designed book published by Chin Music Press, a small Seattle-based press that "[believes] in giving voice to writers who have new ideas, new thoughts."

In what is a fundamentally conservative book — contrary to what co-translator Bruce Rutledge calls "the left's response to...Shintaro Ishihara's The Japan That Can Say No" — Mr. Morita laments the demise of postwar Japan at the hands of Japanese "neo-conservatives" like Koizumi Junichiro, Abe Shinzo, and their allies in the Japanese media. He believes that the Japanese establishment, including politicians, bureaucrats, and journalists, have betrayed their country by placing the interests of the United States before the interests of the Japanese people. Mr. Morita's attack on Mr. Koizumi is not a left-wing attack. Mr. Morita is in fact an unabashed supporter of the LDP's old conservative mainstream, an argument he makes at length in his 2007 book 自民党の終焉 (The end of the LDP). He believes that the old conservative mainstream — the "true conservatism," he calls it — created an egalitarian, middle-class society, and prevented Japan from remilitarizing while maintaining a healthy distance from the U.S.

For Mr. Morita, however, over the past three decades the LDP has gradually been remade in the image of the U.S. Republican Party, which in turn has resulted in the introduction of neo-liberal reforms that have served to create growing income disparities in Japan, destroy public services, and channel Japan's wealth to the U.S. While he criticizes Nakasone Yasuhiro, prime minister from 1982-1987, for moving Japan down the path of excessive dependence on the US, he reserves the bulk of his anger for Mr. Koizumi, perhaps because Mr. Koizumi has been blanketed with praise by the domestic and foreign press.

There is much to recommend in Mr. Morita's book. He writes with genuine feeling about the decay of Japan's rural regions and the growing income gaps. His critique of Japanese foreign policy is even more effective. He is particulary incensed by the effort by Japanese and American conservatives to provoke China and drum up confrontation with North Korea: as in the case of economic reforms, Mr. Morita believes that the hawkish foreign policies of Prime Ministers Nakasone, Koizumi, and Abe were more in the interests of American conservatives than the Japanese public. He writes: "The US-Japan alliance is strengthened as tensions between Japan and China rise. If the Asian region becomes unstable, American influence rises." He also deftly explores the corrosive impact of the alliance on Japanese domestic politics, chronicling how the LDP used threats to withdraw subsidies to Iwakuni to influence Iwakuni's 2008 mayoral election (discussed in this post). Mr. Morita's arguments are all the more powerful considering that his might be the only such book that has been translated into English.

But I cannot recommend this book without some reservations. This book is ultimately undone by Mr. Morita's anger at the state of his nation. Much like the American left during the darkest days of the Bush administration was desperate to pin every failing on George W. Bush, so too is Mr. Morita keen to blame Mr. Koizumi and, to a lesser extent, Mr. Abe for the problems facing Japan today. In this he overreaches, giving Mr. Koizumi far too much credit for transforming Japan. Clearly the structural changes that horrify Mr. Morita did not emerge overnight under Mr. Koizumi's watch. Income inequality may be more a function of Japan's demographics than any reforms implemented by Mr. Koizumi at Washington's behest. The education system was broken long before Mr. Abe made patriotic education a priority. The Japanese economy has been impacted more by companies departing Japanese shores than by successful regulatory reform (although as Len Schoppa argues, it is not entirely clear that the former is a result of the lack of the latter). Indeed, Mr. Morita completely skips over the post-bubble decade in order to lambaste Mr. Koizumi for his treachery.

This is a major failing of Mr. Morita's account of contemporary Japan. In his desire to defend the postwar system from its neo-conservative enemies, Mr. Morita blithely ignores the question of whether the postwar system was still intact by the time Mr. Koizumi took office in 2001. Arguably Mr. Koizumi — far from acting as an American stooge, implementing a US wishlist of regulatory reforms — was doing the best he could to rescue something from the wreakage. One could argue that Mr. Koizumi was mistaken in his priorities as he tried to build a new system, but Mr. Morita unfairly insists that Mr. Koizumi was not even acting in good faith in pushing for reform without sanctuary.

It is in this sense that Mr. Morita's conservatism comes through. Mr. Morita, for example, explicitly sides with the People's New Party in their fight against postal privatization, arguing that postal privatization has deprived small villages of service while leaving the privatized postal system ripe for the picking by American corporations. (How exactly US corporations would get at the newly created postal bank when an American hedge fund could not even manage to take over a sauce manufacturer is beyond me.) Mr. Morita ignores the role played by small post offices in perpetuating LDP rule and therefore stifling Japanese democracy, which Mr. Morita desperately wants to see strengthened. In this sense he wants to see the old LDP order restored; he supports Ozawa Ichiro's Democratic Party of Japan — Jiminto no shuen is a long argument on behalf of a change of ruling party — because he believes that it is the proper heir of the LDP's old conservative mainstream, now that the LDP has been "republicanized."

This is ultimately my problem with Mr. Morita. Despite his passionate account of the problems of contemporary Japan, he is woefully short on ideas for how to make Japan better. Like a good conservative, Mr. Morita's answers often involve appeals to the postwar past. But as admirable as the achievements of postwar Japan were, it is quixotic to long for their return. Indeed, was the golden age really a golden age? Japan may have been more equal and Japanese workers more secure, but as Schoppa argues, this social safety net was the result of the state's offloading welfare roles to companies and wives.Were rural areas that much better off, or were they facing the beginning of a long decline that continues to the present day?

It is little good looking back to postwar era for guidance. The postwar system is out of place in a globalized world, in which companies can move offshore or obtain capital from abroad with considerable ease. The idea of providing welfare indirectly — including through public works programs for rural areas — has grown too costly socially and fiscally. (Japan's fiscal situation also goes unmentioned in this book.) Providing a social safety net without swelling the national debt is a challenge that demands considerable creativity from Japan's politicians, creativity that has thus far been lacking.

Ultimately that is the problem: in the face of the new global economy, Japan has suffered debiliating intellectual paralysis that has prevented it from coherently negotiating the terms of its engagement with the global order. Mr. Koizumi and the neo-liberals have provided one approach, an approach that appears to have been eclipsed thanks to the global financial crisis. Mr. Morita and the remnants of the LDP mainstream have strived to provide another, but all too often it amounts to pining for a bygone era, the very essence of conservatism. In the debate between the two extremes — the Koizumian neo-liberals and the "paleo" conservatives who rail against "market fundamentalism" — there is a desperate need for a middle ground that can reconcile demands for higher levels of social protection with greater levels of economic openness. Japan may ultimately grope its way to a new grand bargain, especially as the neo-liberal alternative loses its glamour, but in the meantime it is struggling to find a set of ideas that offer the elusive blend of growth and protection.

Nevertheless, Mr. Morita deserves credit for fearlessly trying to diagnose Japan's problems, and Chin Music Press deserves credit for introducing his ideas to a foreign audience.