In these Dark Days, Japan Requires Real Policy Innovation

With falling stock market, rapidly declining global prominence, nation's leaders must provide pick-me-up in form of fresh, tangible solutions

Masahiko ISHIZUKA (Councilor for the Foreign Press Center Japan and a Lecturer at Waseda University)

The mood in Japan has been deteriorating at an alarming pace since the turn of the year, in line with the precipitous drop in the nation's stock market. Customary New Year's editorials and special features of major newspapers have added to the sense of crisis, raising fears about Japan's evaporating prominence in the world.

Of course, such doom and gloom is nothing unfamiliar in this country. But what is new this time around is the deepening sense of real danger that this may be the start of a long downward trend. There is no shortage of evidence to this effect: the nation's shrinking and aging population; its drop in the international ranking of per capita gross domestic product; its shrinking aid to the developing world; the dropping number of Japanese corporations among the world's major multinationals; worsening public debt, and so on.

The worrying came to a head as a result of, among other things, the plunge of Tokyo share prices in the closing days of 2007 and into 2008. Of concern to many is that the Tokyo market's decline is steeper than any of the other markets in the world that have been affected by the U.S. subprime meltdown.

Some argue that Japan's market has unique vulnerabilities, and as analysts see it, the plunge reflects to a large extent foreign investors' desertion of a Japan that now appears to have poor prospects for growth and prosperity in the future. In their eyes, the outlook especially pales in comparison to fast-growing economies like China and India.

Foreign investors' loss of interest in Japan is also said to be due to the apparent halt of reform initiatives, in addition to Japanese businesses' overly defensive attitudes toward takeovers by foreign funds and companies. This is backed by the Japanese judiciary's old-fashioned, archaic thinking about the dynamics of capitalism, as well as an unattractive taxation system.

Disappearing act

It is interesting to recall that only two years ago, the public's euphoric mood about then Prime Minister Junichiro Koizumi's reform agenda gave the Liberal Democratic Party-led ruling parties a landslide election victory, resulting in their two-thirds majority in the lower chamber of the Diet. Where has that optimism gone? Today's political leaders are instead criticized for their failure to provide vision and direction.

The common view is that last July's upper house election - won convincingly by the opposition parties - was a backlash against Koizumi's reform policy, widely considered to have widened the gap between the rich and the poor. On the other hand, there is not yet a consensus about whether Koizumi's reform agenda was really responsible for the polarization, and other factors are suspected. Koizumi and his allies rebut that the gap widened precisely because reform was not pushed to the fullest extent.

Still, the truth is that Koizumi's reform slogan might in actually have been more rhetoric than substance. His political genius worked the electorate - and, indirectly, foreign investors - into a frenzy that culminated in the election triumph virtually on the single platform of postal privatization as a symbol of reform.

Now, a tug of war is under way between forces demanding more attention to the poor and the weaker segment of the economy, while others advocate relentless pursuit of reform. In the aftermath of its crushing defeat in the upper house election, the ruling camp is apparently leaning toward the former course of action.

In his first policy speech before the Diet on Jan.18, Prime Minister Yasuo Fukuda took pains to emphasize that his government gives priority to the well-being of the public and consumers. This in itself sounds all fine and well, but the problem is that too much emphasis on public well-being could carry the price of compromises on reform. Sympathy for the weak should not be a mere disguise for the protection of vested interests. Even The Asahi Shimbun newspaper- a self-admitted liberal champion of standing by the poor, wondered "where has reform gone?" after Fukuda's address.

Finding a balance

Japan simply cannot afford division of this sort. It must grow and maintain prosperity. Otherwise, it will not be able to solve the problem of the widening income gap. The kinds of policies we should be seeking ought to be geared to reform that will ensure growth and prosperity in the face of globalization, but that will not push undue strain on the weaker sector.

The Fukuda government must come up with such a policy and convince the nation of its validity. As a Nikkei editorial recently argued, people will accept reform that they find well-founded and persuasive enough from the perspective of the nation's future well-being. What is crucial is how innovative and impassioned the government, or the prime minister himself, can be informing policy ideas and convincing the nation of their necessity.

If people are to be persuaded to accept change, it requires politics in a matured two-party system that accommodates such change without futile showdowns for the sake of confrontation. At the moment, the main opposition Democratic Party of Japan looks obsessed with such political skirmishes, as it hopes to grab power when a general election is held sometime soon. What the electorate should demand of the party, however, is in fact maturity and policy-making capability.

Economic and Fiscal Policy Minister Hiroko Ota said in her parliamentary speech that "Japan is no longer a first-rate economic power," in reference to the country's drop to 18th place in the international comparison of per capita GDP among the 30 member nations of the Organization for Economic Cooperation and Development. The blunt manner in which she admitted Japan's declining economic clout caught many lawmakers by surprise.

Still, her remark must have been intended as a wake-up call to galvanize the nation to turn itself around. And so it is important that her warning does not just pile on top of the growing heap of pessimism. Somehow, Japan needs to look for a glimmer of hope at a time when things are looking all too gloomy.

(Originally appeared in the January 28, 2008 issue of The Nikkei Weekly, reproduced here with permission.)