Japan: Reformism without Liberalism edit

Sept. 24, 2006

Koizumi 's five and half years in office were marked by significant reforms. Japanese banks were purged of most of their bad loans, the post office savings bank will be privatised as will some other public entities. The reforms follow the liberalization of foreign investment and financial markets which had taken place in the years following Koizumi's election to the premiership.

-->There were two components of Koizumi's reform drive. One, symbolized by Takenaka Heizo, who served in several cabinet positions under Koizumi, was inspired by economic liberalism. The other one was more a function of the internal rivalries of the ruling Liberal Democratic Party (LDP) than of the Prime Minister's attachment to a particular ideology. For example the postal savings corporation was part of the funding mechanisms of anti-Koizumi factions. By privatizing it, and by cutting funding for corrupt public works projects, Koizumi hoped to undermine his enemies within the LDP.

Liberalism symbolized by Takenaka was always politically weak, even at the height of Koizumi power; The Prime Minister convinced Takenaka to run, successfully, for the Upper House of the Diet but there was never a real constituency for liberal reform in Japan. Takenaka's decision to resign from parliament following Koizumi's departure is symbolic of this state of affairs.

There are several reasons for this situation. First, liberalism has always been weak in Japan. There is not liberal tradition in Japan comparable to the one that, in the West, can be traced to the Middle Ages. Post-war Japanese politics from 1945 to the 1980s pitted the conservatives, who accepted some aspects of liberalism but did not embrace it, against the left. In the past two decades, following the collapse of the left, factional disputes within the conservative camp have dominated Japanese politics. The largest opposition party, the Democratic Party of Japan, is headed by Ozawa, a former senior LDP figure.

Second, the Japanese paradigm which emerged in the 1960s was a form of "capitalism with Japanese characteristics." These characteristics, found in some European states, included a dose of dirigisme, restrictions on imports and a quasi ban on foreign investment in Japan, and corporate governance under the control of managers rather than shareholders. There was a strong welfare state, but unlike the social democratic model of high taxes and transfer payments, it was based on regulations to protect economically inefficient sectors, such as small shopkeepers, construction, and farming. These insured a certain level of equality by protecting the livelihood of tens of millions of Japanese.

The stagnation of the 1990 convinced most Japanese of the need to reform the system. For example, foreign investors were allowed to acquire Japanese banks and manufacturers to save them from bankruptcy. In some cases imports were liberalized. Other measures inspired by liberal reforms in the West were also implemented. But there was never a strong political movement, compared to Thatcherism in the UK, ideologically dedicated to drastic reforms. In most cases Japanese reformers were reacting to specific problems rather than applying an intellectual program to the entire political economy of the nation.

Third, Japan, like continental Europe but unlike the US and UK, experienced violent domestic political upheavals in the century which preceded 1945. The political and social stability which Japan has enjoyed since the 1960s is new to the country. It is in sharp contrast with the past. Therefore Japanese value stability because it is a fairly recent development. Reform, almost by definition, caries with it the risk of destabilizing society. Britons and Americans accept it more easily since they believe that their polities are built on strong foundations that can withstand conflict. Japanese and continental Europeans are more cautious. For example, when the air traffic controllers went on an illegal strike, Ronald Reagan fired all of them and banned them from life from the profession. One does not imagine a Japanese, German, or French premier taking such drastic action.

Fourth, for reformists to succeed two conditions must be present. First, there must be a strong reservoir of support for reform. This was the case in the UK when Margaret Thatcher defeated James Callahan. A large segment of the British middle classes wanted change, believed that Labour had failed the country, and were ready to support a tough reformer. In Japan, the middle class is anxious. It knows that Japan's collapsing demography puts its pensions and state-funded health care at risk. It knows the the old system of lifetime employment for employees of large corporations and banks is slowly being dismantled. But whereas the British middle class had an enemy to destroy, that is the left-wing unions and the Labour Party, Japan's middle is unsure of what it wants.

The other condition which is necessary for reformists to prevail is that the opposition must be weak. Margaret Thatcher faced strong adversaries, and avoided reforming areas, such as the National Health Service, where the correlation of forces was not in her favor. But overall the her opponents were weaker than she was, as demonstrated by Labor's victory in 1997; Tony Blair rescued the Left's fortunes by promising to protect Thatcher's achievements. In Japan, however, the forces of conservative opposition to reform remain strong. They include farmers, small retailers, but also many ordinary Japanese who fear that reforms will bring too much pain and unacceptable levels of inequality.

It is too early to predict what Abe Shinzo's economic policies will be. His commitments are to revising the American-drafted constitution and making Japanese education more "patriotic." He will, of course, have to devote most of his energies to the economy since this is the issue which most Japanese voters care about. But there is no indication that Abe, like most politicians in Japan and other nations, has a coherent reform agenda for Japan. He will probably continue some of Koizimi's reforms. Others may follow but it is also possible that he will slow the the - partial- liberalization drive of past administrations. The economy is doing better, thus the pressure for drastic change is slowing. The perceptions that inequality is on the rise as a result of economic liberalization may create a backlash against policies associated with the Koizumi-Takenaka era.