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Why Tokyo Can't Get the Economy Going: One-Party Rule

May 07, 2000|Frank Gibney | Frank Gibney, president of the Pacific Basin Institute and professor of politics at Pomona College, is the author of "The Pacific Century: America and Asia in a Changing World."

SANTA BARBARA — Whatever the final margins in Japan's June elections, it is highly probable that voters will keep the ruling party in power, thus perpetuating, for all practical purposes, one-party rule since the 1950s. This is not necessarily an Asian phenomenon. Other Asian countries have done away with one-party domination. Thai voters have a choice. Even in post-Suharto Indonesia, recent elections were hotly contested. But Japan's leadership has continued to play intraparty musical chairs for a full decade while the economy stagnated.

By the beginning of the 1990s, the export-heavy locomotive of Japan Inc. had run out of steam. The country's protective bureaucracy was no longer able to insulate weak banks and businesses from the harsher realities of globalization. Faced with a need for drastic economic restructuring, Japan's economic managers either ignored it or watered down reform. Instead, they relied on injections of government funding, mostly in the form of costly construction programs, to keep the economy chugging along.

While such pump priming can produce temporary results, its long-term effects can be harmful. Japan's current national debt is huge, nearly 130% of gross domestic product and about half the country's savings. It's sustainable only because of Japan's huge personal savings, of which more than $2 trillion is invested in low-interest postal-savings accounts. Nonetheless, the debt continues to mount.

But 10 years of fiscal stimulants haven't solved the problem. Overprotected domestic industries remain appallingly uncompetitive. Banks that once spear-headed the economic miracle still suffer from deflated assets and loan portfolios. Warehouses are filled with unsold inventories. Record unemployment rates (March's 4.9% would have been almost twice as large if reckoned by U.S standards) signal the end of the old job-security era. Underlying it all is a nervous and largely passive consumer.

Japan remains trapped in the ruins of its "old economy" successes. For once the winds of globalization began blowing through its financial sector and then its burgeoning information-technology industry, the cozy alliance of bureaucracy and business could no longer protect Japan's fragile two-tier economy from international competition.

Yet, the country's problems are by no means insoluble. Political economists, journalists and businessmen believe that Japan must have a "third opening," as sweeping as the Meiji cultural revolution of 1868 or the MacArthur "democratization" of post-1945, to end intrusive bureaucratic regulation, revitalize the education system and weed out inefficient banks and corporations. The trouble is, to deregulate and restructure the economy, with all the temporary pains that would cause, would strike at the heart of most of the ruling Liberal Democratic Party's special-interest constituencies.

For almost half a century, this party has dominated Japanese politics. It has justly been credited for the successes of the old economic miracle, and the two generations of voters who have grown up under Liberal Democrats are understandably grateful. But the memory of good times is wearing thin.

Things are happening in Japanese business. It is internationalizing as never before. Information technology is moving ahead. People are putting more money in the stock market, encouraged by heavy foreign investment. Entrepreneurs are starting up new businesses. Yet, the restructuring efforts of companies often founder because of political foot-dragging.

The principal barrier to Japan's recovery is lack of leadership and political will. As they try to understand diminishing incomes, mass layoffs and a rapidly graying society with insufficient pension funds to support it, the Japanese people look in vain for someone in authority to explain the muddle and offer hope for the future.

Over the past 12 years, Japan has had 10 prime ministers, all but one of them products of the Liberal Democratic Party. (Tomiichi Murayama, professedly a Socialist, was little more than a puppet for a Liberal Democrat-led coalition.) Only one of them, Ryutaro Hashimoto, actually tried to bring about some structural reforms, but his hopes for financial liberalization, the "big bang," foundered in the murky waters of party politics and bureaucratic errors.

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