Japan's Economic Ills and the Power over Truth
John de Boer (University of Tokyo & GLOCOM Platform)
Over the past month and a half we have witnessed Heizo Takenaka (economy minister and chief financial regulator) battle with banks and LDP 'old guards' over the issue of non-performing loans and banking reform in general. Back in September, Takenaka shook the economy and scared politicians and banks alike with his 'hard-landing' scenario, which indicated a willingness to let weak banks fail. Today, Takenaka has changed his tone completely and now states he wants to "strengthen weak banks" (Ken Belson, NYT, 23 November). Despite the stock market at 19 year lows, national debt at record highs and accumulative banking capital losses of hundreds of billions of US dollars, the government and LDP power brokers continue to refute statements that the Japanese economy is in crisis.
Rather than getting to work and fixing the banking sector, key stakeholders (banks, cabinet and LDP politicians), can't even agree as to how sick banks in Japan actually are. According to David Ibison of the Financial Times there is a $106 billion discrepancy between the banking industry's and the Financial Service Agency's estimates of non-performing loans ("Japanese banks set to unveil cost cut plans", 24 November). Judging from most estimates the "truth" will not come out before the end of the fiscal year, if it does at all.
This week's media review has surveyed the reaction of the international press over the past seven days towards the continuing refusal of Japanese policy makers and business elite to admit to and start clearing up the financial and structural mess that characterizes Japan's economic and political system today.
The most pertinent article in this respect came from Ken Belson of the New York Times who described Takenaka as having "transformed himself from a crusader into a comforter" ("Top Minister in Japan Tames Talk on Banks", 23 November). He underscored the economy and financial services minister's radical position change from that of September by quoting him as saying that, "the banks are basically healthy but need help to regain vigor".
However, most news media have difficulty supporting this statement. Dow Jones released a piece on 19 November claiming that major banks have underestimated their bad loans and backed this up with a Bank of Japan statement that found a 30% gap between the BOJ's audit results and those of the banks. David Ibison featured an article on the cost cutting plans of four major banks (Mizuho, SMBC, MTFG, UFJ) expected this week, which are thought to be a must if they are to stave off nationalization. Quoting a HSBC analyst, he further highlighted that banks have chronically underestimated their non-performing loans and predicted that banks would report losses for the fall term if a stricter assessment of loans were implemented by the FSA.
As to whether the economy is in a crisis, both David Ibison and Ken Belson reported Takenaka's refusal to voice the 'c' word. According to Belson, Takenaka shied away from such terminology stating that, "if I use the word 'crisis' that means there is a critical situation. I'm not saying Japanese banks are in crisis. But if I'm asked, I cannot say the Japanese banks are completely healthy either". To Ibison, Takenaka said that, "banks don't have capital problems" ("Japan bank nationalization threat recedes", FT, 24 November). However, statistics record the fact that Mizuho's capitalization has dropped from $22.2 bn to $7.8 bn; UFJ's from $13bn to $3.6 bn; SMBC's from $32.4 bn to $15.9 bn and MTFG's from $43 bn to $31 bn, all in a span of seven weeks (Ibison, "Japanese banks set to unveil cost cut plans", FT, 24 November). Furthermore, Fitch and other agencies have continued to downgrade Japan's credit and currency ratings.
The conclusion put forward by Andrew Zilouf of The Independent was that there would be no turnaround in Japan until the pain threshold is reached (20 November). Ken Belson indicated that the key question concerned "how to overhaul a banking system thickly enmeshed in the fortunes of the ruling party?" Which brings us back to a piece written by David Ignatius of the Washington Post over one year ago where he stated that, "what outsiders often don't realize is that modern Japan has really been a one-party state, much like Mexico under the PRI or even the Soviet Union under the Communist Party" (8 July 2001, "A Jump Start for Japan"). His analysis was that this situation has led to what Karel van Wolferen has called a government "run by its business elite where the politicians are just along for the ride".
For 12 years Japanese key stakeholders have failed to act and have continued to deny the severity of Japan's economic malaise. In a sense this is comparable to the US government's decade long claim that they were winning the Vietnam War despite knowing that they were getting pummeled. As Daniel Ellsberg, the former US Department of Defense official who in 1971 leaked classified documents known as the "Pentagon Papers" to the New York Times, stated in his recently published memoirs, "the most intelligent of individuals, such as McNamara, can adopt destructive policies if their wisdom is undermined by stronger forces" (Akiva Eldar, Ha'aretz, 25 November). These forces determine political survival, which was in threat in the case of Takenaka (and potentially Koizumi) if he continued to promote a 'hard-landing' approach. The consequences of the US government's denial was the death of 58,000 US soldiers, 2 million Asians and an untold number of illnesses, suffering and destruction (almost incalculable). In the case of Japan, the consequences are still to come.
The problem is as Michel Foucault describes on pages 131-133 of his book Power/Knowledge. "There is a battle 'for truth', or at least 'around truth' … its not a matter of a battle on behalf of the truth, but of a battle about the status of truth and the economic, political role it plays". As he indicates, the problem that Japan faces is that there is no democracy to truth. There are no alternatives in Japan to the political, economic and institutional regime that produces "truth". Over the past 12 years Japan has been unable to break the hegemony over the power of truth and as a result no significant challenges to the old power brokers have succeeded. Until the monopoly over power in Japan ends, I'm afraid that the truth about its economy will never be admitted and its state will continue to deteriorate ultimately making it worse for everyone.
- David Ibison, "Japanese banks set to unveil cost cut plans", The Financial Times, 24 November 2002
- David Ibison, "Japan bank nationalization threat recedes", The Financial Times, 24 November 2002
- Ken Belson, "Top Minister in Japan Tames Talk on Banks", The New York Times, 23 November 2002
- "Bank of Japan says major banks are underestimating loans by 30%", Dow Jones, 19 November 2002
- Andrew Zilouf, "Japan recovery? Not on your Nagele", The Independent, 20 November 2002
- David Ignatius, "A Jump Start for Japan", 8 July 2001
- Akiva Eldar, "Where is Israel's David Ellsberg?", Ha'aretz, 25 November 2002
- Michel Foucault, Power/Knowledge (New York: Pantheon Books, 1980), pp. 131-3.