Departures

Watanabe Yoshimi is on his own.

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

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

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

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

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

Of course, it does not do to simply demonize the LDP's longtime reliance on public works spending (which some Americans have begun to do in anticipation of the Obama administration's stimulus plan). The LDP came to rely on public works as what Margarita Estévez-Abe has called a "functional equivalent" of welfare and unemployment assistance, a method of public support that also produced public goods for rural areas while conveniently solidifying the LDP's political position in rural electoral districts. As Estévez-Abe argues, the LDP essentially farmed out welfare provision to small companies, enabling Japan to create a welfare state without a large public sector or an unsustainable public debt for much of the postwar period:

Instead of aiding firms to shed their redundant workforce, the Japanese welfare state subsidized employment of excess labor — in both large and small firms. Rather than creating a large public sector — which would have benefited the opposition parties — or an extensive active labor market to pool and train redundant workers, Japan subsidized private sector employment instead. Japan's 'socialization' of capital was a crucial piece that made the system work. It allowed the state to invest in public works beyond its tax revenue. It also permitted private firms to function as primary welfare providers by shielding them from financial pressures. In short, Japan's small social welfare spending and its weak organized labor did not yield a form of laissez-faire capitalism. On the contrary, postwar Japan pursued a brand of capitalism, where economic units — that is, firms — were very much treated as units of welfare provision as if under a socialist regime. Furthermore, state intervention to protect businesses in Japan perpetuated the presence of a large number of inefficient firms. (Welfare and Capitalism in Postwar Japan, 198.)

The problem therefore is not that the road tribe is the mastermind behind a sinister conspiracy to wreck Japan. It's that this form of social protection — targeted at both firms and individuals located in rural Japan — is antiquated, and that continued efforts to perpetuate this system delay the construction of a more conventional welfare state and make life worse for the Japanese people.

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

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

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

Recommended book: Race for The Exits, Leonard Schoppa

Japan's pensions and health care systems may be the rocks against which the LDP smashes to pieces.

Last year, Abe Shinzo's failure to respond quickly and decisively to reports of missing pensions records doomed his faltering government. Now, under Fukuda Yasuo, the government is still struggling to account for missing pensions records and is reeling from public criticism of its new health care system for citizens over 75 years old. The LDP, meanwhile, stands at the brink of a brutal, potentially irreconcilable debate over whether to raise consumption taxes to finance the pensions system.

As a result of this struggle to decide how Japan will provide for its burgeoning elderly population as the population shrinks as it ages, Japan will find its regional and global influence limited as governments are forced to focus on "livelihood" issues and devote the government's scarce resources to fixing the health and pensions systems.

How did it come to this?

Leonard Schoppa, a political science professor at the University of Virginia, provides a useful explanation in Race for The Exits: The Unraveling of Japan's System of Social Protection (Cornell University Press, 2006).

Professor Schoppa's thesis starts from Albert Hirschman's concepts of exit and voice. Hirschman argued that members of a social organization, if dissatisfied with the organization, have two choices in responding to their dissatisfaction: exit, whereby they leave the organization entirely, or voice, whereby they make their grievances known and work within the organization to fix the problem. Exit, however, can play an important role in bringing about change by signaling to decisionmakers that they have a serious problem on their hands. In looking at Japan's contemporary economic problems, Schoppa suggests that Japan's problem is that citizens and businesses have a moderate amount of exit options, enough to encourage some who are frustrated to exit but not enough (until recently) to signal to Japan's leaders that there is a problem. Moderate exit options also diminish the power of voice, by shrinking the number of dissatisifed members of society who might otherwise have exercised voice and mobilized for change.

Schoppa looks in particular at the decisions made by two actors in Japanese society: women and companies. He argues that the postwar "convoy capitalism" system's welfare provisions rested on sacrifices made by these actors. Firms agreed to protect their core workers and offer them generous benefits upon retirement. Women left the workforce to marry, raise children, and eventually care for aging parents and in-laws. Both sacrifices enabled Japan to emerge as a "welfare superpower" without busting the government's budget.

As Schoppa wrote:

The role of the state in providing social protection was kept deliberately small, with a primary focus on providing pensions and health care insurance for the elderly. Government aid to the unemployed, single mothers, and children remained minimal in comparison with social provision in European welfare states, leaving the task of providing for these groups primarily in the hands of firms and women. Employers were not alone, however, in their efforts to live up to the lifetime employment commitments that were at the heart of the Japanese social contract. Banks and elaborate "relational networks" gave firms the economic security they needed to provide security for their employees, and the state stood ready to back up these networks by guaranteeing banks against failure and other regulatory interventions. Likewise, women were channeled into their prescribed roles through policies that tolerated gender discrimination in the workplace and through tax and benefit policies that discouraged full-time work and subsidized full-time housewives. (65)

(This section is from the conclusion of chapter 3, "Productive and Protective Elements of Convoy Capitalism." For an introduction to the Japanese welfare state, read the whole chapter.)

The system worked so long as Japan was kept in its postwar homeostasis, its economy relatively closed to the world, its firms restricted in their exit options and women pushed into and confined to household roles. It could not survive the transition to a globalized economy in which success depended more on openness. Accordingly, the task facing Japan's leaders is less the refurbishment of existing welfare institutions than the wholesale construction of news ones in which the Japanese state plays a much larger role than before, because firms and women are less willing to bear the bulk of the responsibility for welfare.

The problem, however, is that neither firms nor women have so many exit options that they can make a statement by leaving. The "hollowing out" problem is now well acknowledged, but the relocation of manufacturing facilities may or may not have been a response to high costs in Japan, as some FDI (such as to the US) may have been a hedge against protectionism; it is difficult to know precisely the basis for firms' location decisions. And it was years before outflows of FDI came to be seen as a problem by Japanese leaders. In the meantime, Japanese firms have not mobilized on behalf of deregulation to lower labor costs

In the case of women, the shrinking population problem, considered a consequence of decisions by Japanese women to not get married and to not have children, was similarly difficult to detect, and the government's response was similarly handicapped by limited exit options. What's needed are new measures that enable women to both remain in the workforce and have children. Working mothers, however, have exit options in the form of giving up work to become full time mothers or giving up motherhood to work fulltime. The result, argues Schoppa, is an insufficient number of working mothers to exercise voice and demand more support from the government.

To fortify his argument, Schoppa points to two cases in which the government was quick to reform, cases in which there were either plentiful or no exit options: the LDP's decision in the early 1990s to create a new eldercare system and the big bang financial reforms introduced in the 1980s and 1990s. In the former case, Schoppa argues that women in particular mobilized in support of more eldercare provisions because "with elderly relatives...women have no way out." Accordingly, they appealed to the government for help with providing for the elderly. On financial reform, firms became able to raise cheaper capital in other financial centers, diminishing the power of banks and the Ministry of Finance. The extent to which Japanese firms opted to exit made clear to both the banks and MOF that the firms were fleeing to escape the high cost of capital domestically, and both shifted accordingly in response.

But how long can this situation of moderate exit options persist? How much longer are Japanese firms willing to tolerate the high domestic costs that come with preserving the remnants of convoy capitalism? Is there a limit to their forbearance? Are Japanese firms silently abandoning the Japanese system by embracing ever increasing numbers of non-regular employees (part-time, temporary, or dispatched workers)? There is no doubt that this shift is underway. The report on the composition of the Japanese workforce by type of employment compiled by the statistics bureau of the ministry of internal affairs and communication — available here (Excel file) — shows the inexorable rise of the non-regular Japanese worker. In February 1988, regular employees constituted more than 80% of the labor force. Temporary workers provided by haken gaisha didn't exist. The number dipped downward during the 1990s, falling just below 75% in 1999. From the 1999, the decline hastened, falling below 70% by the end of 2002. The average figure for January-March 2008 is 66% regular staff, 34% non-regular staff. There are now reportedly 1.45 million dispatch workers and more than 10 million part-time workers (the number has fluctuated above 10 million since 1999). With this shift well underway, it is little wonder that Japanese politicians and citizens alike are concerned about the growth in inequality.

So why aren't these new permanently temporary workers using voice to demand the government's help, given that they have few or no exit options? This points to a deficiency in Schoppa's book, namely, voice is comparatively underexplored. Is the weakness of voice simply the result of some choosing to exit, thereby limiting the political clout of those who remain? Or do actors find voice options less attractive than exit options for other reasons? Do actors opt for exit because they convince themselves that you can't fight city hall (or Nagata-cho, or Kasumigaseki)? Is it a matter of lack of organizational skills or resources on the part of those who want the system changed, as opposed to those who want to protect their privileges under the existing system? Alternatively, could actors have opted for the wrong voice options, choosing for example to work with the LDP instead of exercising voice by working to see the LDP defeated by an opposition party more sensitive to their needs?

Schoppa suggests that politics is not to blame. "For the first time in the country's history," he writes, "individuals and firms have the wealth and freedom necessary to pursue private solutions to their economic problems — solutions that make perfect sense from an individual or corporate perspective but actually aggravate economic problems at the national level...the passion and energy that women and firms might have devoted to political campaigns to transform the system of convoy capitalism have evaporated." (204)

I find this unsatisfying and suspect that the problem may not just be the strength of reactionary elements — cited by Schoppa as an argument made by some political scientists — but a sense of resignation and powerlessness, even among corporate elites.

Accordingly, Schoppa's account is an important contribution to the discussion of why the Japanese government has struggled with reform over the past two decades, but it leaves a number of unanswered questions.

Nevertheless, I share Schoppa's bleak assessment for Japan's future if it fails to act now. The danger, he suggests, is that if these negative trends are not addressed now, they will lead to a downward spiral – a "race for the exits crisis" — that will result in "a steeper fall in fertility rates, high levels of emigration, a collapse of confidence in government bond markets, and capital flight." (206) At the center of Japan's problems is the central government's massive debt; the longer it persists, the greater the likelihood that the government will be handicapped in its efforts to provide a system of social protection desired by Japanese citizens. In order to save Japan from this crisis, he looks to its political leaders — and finds them wanting. He spoke of the promise of Koizumi Junichiro, but ultimately writes his government off as disappointing, having failed to provide a compelling vision of a new system.

"What Japan needs," he says, "is a political entrepreneur who can sell the public on the attractions of an alternative system that can provide social protection as well as growth, one that is clearly superior to a system of convoy capitalism that is headed toward collapse."

Surveying the contemporary political landscape, it is still difficult to see how this political entrepreneur might be.

The post-Koizumi LDP and the search for a new Japanese model

Yamaguchi Jiro, a specialist in Japanese and British politics at Hokkaido University, had an article in the November Ronza that has been published in translation at Japan Focus.

Yamaguchi competently explains the reasons for Mr. Abe's demise, and in the final portions of the essay, places Mr. Abe's decline and fall squarely in the larger narrative of the LDP's struggle to find its way in the aftermath of the Koizumi mini-revolution.

Koizumi’s structural reforms smashed the ‘vested rights’ of politicians and bureaucrats and promoted policy efficiency; but they also had a serious impact on people and regions that had enjoyed protection under the policies in place until then. Resistance to this continues to threaten the LDP. The opposition is gathering popular support by persistently questioning the harmful effects of the structural reforms. Faced with the contradictory vectors of inheriting the Koizumi government’s success or correcting its evils, the LDP is irresolute. There is no clear-cut course for post-Koizumi politics.

While Mr. Fukuda has stabilized the LDP's situation, he has made no progress whatsoever on tackling the fundamental dilemma at the heart of the LDP's troubles.

The LDP is still no closer to committing firmly to a future as an urban party. It has still not figured out how to split the difference between defending the interests of its traditional rural supporters and advancing a vision of globalized, liberalized Japan. Professor Yamaguchi suggests that the solution is policy shift: "If any sanity remains in the LDP, the natural thing to do is to change policy. In that event, the competition between the two major parties will be not just a clash of slogans but will have to evolve into concrete policy competition...It is no matter if policy differences are to some extent reducible to differences of degree. Concrete debate over differences in degree should be able to clarify alternatives."

The field of debate will be over the terms of Japan's new economic model (and will probably feature considerably less striking than the debates over the creation of new economic models in France and Germany). As the Economist's recent survey on business in Japan suggested, Japan is moving in the direction of a new Japanese model that borrows features from "Anglo-Saxon" capitalism. But the Japanese model will end up including more social provisions (once the government figures out how to pay for them, of course) and probably a great deal more government investment in encouraging development in blighted regions, even as Japan opens to more FDI and liberalizes its labor market.

The question is which party will devise the superior formula and the best way to sell it, together with the best messenger. On this point, Professor Yamaguchi also calls for a new way of Japanese politics that rejects the "telecharisma" of the Koizumi years. He calls for new thinking about selecting leaders — "What is called for is to evaluate leadership in terms of the ability to reflect seriously on issues and the existence of an ability to explain issues to the public" — and a new way of considering issues — "What is called for is concrete debate over problems faced by the people such as inequality, poverty, worries over social security and job insecurity, their recognition as policy issues, and the search for ways to resolve them." In this, he echoes Masuzoe Yoichi's argument in Naikaku soridaijin about the "wideshowization" of Japanese politics. But for all the laments of the policy intellectuals, it's unclear to me how Japan will escape the trivialization of its politics. The electorate still seems to move more according to whims and half-baked impressions than reasoned ideas about how Japan is and should be governed.

And as for a debate rooted in concrete discussions of policy, this seems unlikely for the time being. At present, the leaders of both the LDP and the DPJ are more tacticians than strategists. Neither has moved beyond reacting to the moment to formulate an agenda upon which to contest a general election, let alone an agenda upon which to legislate (and both parties remain mired in the war of attrition on the refueling mission, which has forestalled any effort to refocus on domestic policy).