Japan Election: Will an Opposition Victory Save Economy?

Japan Election: Will an Opposition Victory Save Economy?

The central theme marking this weekend’s general election in Japan is much like the one that dominated the U.S. presidential contest a year ago: change. Yukio Hatoyama, president of the opposition Democratic Party of Japan , is striving to paint his party as the party of change on the campaign trail, much like U.S. President Barack Obama positioned his Democrats. And if the election goes as expected — the DPJ commands a comfortable lead in polls over the ruling Liberal Democratic Party — change is exactly what Japanese voters will want. The LDP has governed Japan almost uninterrupted since 1955, but the nation’s endemic malaise seems to have pushed an often politically complacent public to finally boot it out of power.

The election could prove to be a seminal moment in Japan’s modern political history, bringing about a dramatic transformation of the country’s politics and government. Yet with the most pressing area of policy — the struggling Japanese economy — voters may not get the change they so desperately desire, and badly need. Japan watchers don’t expect a new DPJ government to come in with guns blazing, like the Obama Administration, and overhaul existing economic policy. The DPJ’s platform is similar to the LDP’s and doesn’t go far enough in addressing the economy’s fundamental structural problems. Kirby Daley, senior strategist at financial-services firm Newedge Group in Hong Kong, believes the DPJ has yet to clearly outline a road map to return Japan to long-term, robust growth. “The revolution of kicking the LDP out of office is hardly worthy of that term,” he says. “There is very little change afoot.”
More of the same is exactly what Japan doesn’t need. Though Japan pulled out of recession in the quarter ending in June, posting 0.9% GDP growth from the quarter before, it is unlikely that Japan has overcome the paralyzing economic conditions that have stymied progress for two decades. From the 1950s to the ’80s, Japan was one of the world’s best performing economies, and it seemed poised to rival the U.S. for the title of premier international economy. But ever since a stock-and-property price bubble burst in the early 1990s, gutting the Japanese financial system much as the U.S.’s subprime crisis undermined American banks, Japan’s economy has limped along at an anemic pace. Economists believe Japan needs to take drastic steps to get its national finances under control, such as corporate tax reform or instating targets for deficit reduction. A healthier fiscal position would convince the Japanese public that the government is capable of financing social services in the future, which would help turn them from savers to spenders. Most important, experts insist that Japan needs to lessen its dependence on exports for growth, a position that has served the economy badly during the current recession, by better developing its domestic economy. That would entail a program of deregulation to reform policies that hinder competition and to foster entrepreneurship and domestic-service industries, among other things.
The DPJ is proposing some measures that address these serious problems. The party talks of overhauling the national budget by, for example, reviewing public-works projects and slashing civil-service costs. It would also support small enterprises, weaken the power of the entrenched government bureaucracy and alleviate costs on the middle class. Some proposals border on populist. The DPJ is promising an annual $3,300 stipend for families for each of their young children, free education, income support for farmers and the elimination of highway tolls. “We will realize a new economy for human beings,” proclaims a DPJ manifesto.

Such proposals could have a short-term positive impact on growth, but they probably wouldn’t go far enough to tackle Japan’s deeper problems. Though the DPJ says it would find funds for its social programs by eliminating waste in the budget, the proposed spending has opened the party to LDP criticism that the DPJ would be irresponsible with taxpayer money. “They promise spending and programs that will cost money, but they do not explain how to pay for these things,” Prime Minister Taro Aso of the LDP said during a recent debate with Hatoyama. Nor does the DPJ seem prepared to undertake a meaningful campaign to liberalize the domestic economy. For example, the party seeks to ban the use of temporary workers in manufacturing jobs, which could reduce flexibility in the labor market.
The DPJ has been critical of the type of pro-market reforms instituted by former LDP Prime Minister Junichiro Koizumi. In an August magazine article, Hatoyama, very likely the country’s next Prime Minister, attacked “U.S.-led market fundamentalism” for bringing about the current recession and damaging Japan’s economy. “We will not implement policies that leave economic activities in areas relating to human lives and safety … at the mercy of the tides of globalism,” Hatoyama wrote. “Rather, we need to strengthen rules governing the safety of human lives and stability of people’s livelihoods.”
The DPJ, if it takes power, could face hurdles implementing its policies. Party leaders have little experience in governing or managing the stubborn bureaucracy. With the election only days away, it is still unclear, for example, who would be the Finance Minister in a DPJ administration. DPJ leaders “are not coming in with a grand scheme with what policy should look like in the future,” says Martin Schulz, senior economist at the Fujitsu Research Institute in Tokyo. “They are coming in with a bunch of promises.” The long-suffering Japanese economy deserves much more.

— With reporting by Yuki Oda / Tokyo

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