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Japan's murky election
manifestos
By Hussain Khan
TOKYO - Japan's voters aren't really going to
learn very much from the first published political
manifestos by political parties outlining their economic
reform plans since democracy was forced on Japan after
World War II. Both the ruling Liberal Democratic Party
(LDP) and the Democratic Party of Japan (DPJ), the
biggest opposition party, have resorted to
carefully-couched euphemisms.
The manifestos are
thus probably more important for their mere appearance
prior to national elections on November 9 than for what
they say. They arose because Prime Minister Junichiro
Koizumi, in the flush of public esteem at the beginning
of his reign in 2001, demanded them as "structural
reforms". At the outset, his phenomenal popularity
brought about a Koizumi boom among the young as
Koizumi-brand shirts are other goods sold like hotcakes.
Eventually, however, the boom began to fade as he was
unable to make any tangible headway in implementing his
reforms in the face of anti-reform elements among the
LDP.
Koizumi is almost certain to retain power.
He holds a sizable lead over the opposition DPJ, which
increased its size through a merger with the smaller
Liberal Party and which is also expected to increase its
number of parliamentary seats at the expense of a flock
of smaller parties. Koizumi himself has been buoyed by a
moderately recovering economy, a strong party election
showing in October and the appointment of ministers to
his cabinet after that, which the general public
perceived as reform-minded.
In the latest survey
by the Nihon Keizai Shimbun, 52 percent of respondents
picked Koizumi as most suitable to continue as prime
minister. Another 28 percent chose Naoto Kan, the leader
of the DPJ. Kan has narrowed Koizumi's 39-point lead
somewhat from 61 percent versus 22 percent in the
previous survey.
How important the manifestos
are is open to question. As many as 45 percent of
respondents said they would give importance to
candidates' personalities and policies in making their
voting decisions, while 34 percent said that the
manifestos, or policy platforms, of each political party
are important. Only 12 percent cited the appeal of party
leaders.
Regardless of which political parties
they supported, many survey respondents share the view
that the government that will be formed after the
general election should give priority to pension and
welfare issues. A total of 64 percent of respondents
expressed concerns about social security. Another 57
percent called for economic stimulus measures, followed
by 36 percent placing importance on job creation
measures.
Koizumi has promised that the postal
services will be privatized by April 2007. However, the
LDP's party manifesto delivers the following vague
statement: "On the basis of a government policy of
privatization, while watching progress in the management
reform of Japan Post and following a national debate, we
will reach a conclusion by the autumn of 2004."
The statement appears to be a compromise between
the pro-reform and anti-reform groups within the ruling
coalition. Koizumi's reform initiatives have met stiff
opposition within his own party in the past. For
instance, lawmakers who count rural postal interests as
their key power bases have strongly protested
privatization. It seems due to continuous internal
wrangling that the LDP failed to state a clear direction
of the postal privatization plan in its manifesto.
The Democratic Party of Japan manifesto in turn
calls for "reforms that help improve national services
and invigorate regional economies", but it avoids,
intentionally or not, the word mineika (privatization).
The Japan Communist Party is explicitly opposed to
privatization, saying that the current publicly managed
system should be maintained to "protect ordinary
people's savings". The Communist Party statement aside,
the overall impression is one of ambiguity. There is no
specific blueprint for reform.
The DPJ,
meanwhile, makes a few more specific promises. First,
the mail market would be opened wider to private
interests, provided postage is fixed at flat rates
throughout the country. Second, post offices would
provide a wider range of services, including issuance of
passports. Third, but not last, postal savings and
insurance funds would be used to help finance regional
and small-business projects.
Still, commenting on
the DPJ's position, The Japan Times writes, "its
manifesto leaves a number of critical questions
unanswered. To begin with, it is unclear whether
proposed 'postal reforms' would lead to privatization.
Using part of the postal savings and insurance funds,
estimated at 350 trillion yen, for regional industry and
small business is not a bad idea, but how this would
affect current uses is unclear. The money is now used
largely to buy government and municipal bonds and to
finance the investment and loan projects of numerous
public corporations."
Some economists believe
privatization of the postal system should go hand in
hand with reform of the fiscal investment and loan
program that funded many public projects with postal
savings and insurance premiums. Any attempt to reform
the postal system also needs to consider how to enable
the government to continue issuing a large amount of
government bonds because after privatization, the postal
corporation could be less obliged to purchase as many
government securities as it currently does.
The
existing postal system has its merits and demerits, real
or perceived. For example, savings and insurance
services, which enjoy tax and other privileges, have
long been criticized by private financial institutions
and insurance companies as an impediment to fair
competition. But the existence of post offices
throughout the country, particularly those in remote
areas, is widely accepted as an indispensable condition
of consumer life.
Admittedly, if it were pushed
too far, privatization would drive unprofitable post
offices - most of them in depopulated villages - out of
business. Preferably, that should be prevented one way
or another. Postal reform, whether or not it means
privatization, involves many questions that transcend
profitability. Regrettably, the campaign statements of
both the ruling and opposition parties stop short of
addressing these essential questions.
The fate
of the privatization of four public highway entities
also remains unclear. The Japan Highway Public Corp and
three other entities are scheduled to be privatized next
year, but LDP lawmakers determined to proceed with
existing highway construction projects have introduced a
new formula in which the government will directly
oversee such construction projects.
The initial
purpose of the privatization was to slash spending on
public works projects. But lawmakers with strong ties to
the construction sector seem determined to proceed with
the projects, regardless of the outcome of the
privatization.
The DPJ greatly increased is
numbers in the Diet by merging with the Liberal Party
led by Ichiro Ozawa. Naoto Kan hopes to use this
momentum to expand his party's support leading up to the
election. In its newly-crafted manifesto, the DPJ made
several pledges that it hopes will differentiate it from
the LDP, such as a possible hike in consumption taxes to
finance an increase in the government's public pension
burden. By listing policies that will cause pain for
taxpayers, it hopes to show voters that it is not just a
party adept at criticizing the government, but one that
is actually capable of governing the nation.
The
DPJ manifesto also calls for slashing public works
projects by 10 percent and making some Japanese
expressways toll free. Kan has called the LDP
"irresponsible" for failing to state how it plans to
finance the planned pension reform.
However,
some economists have expressed their concern that the
manifestos could lead to parties becoming obsessed with
details and failing to communicate a broader vision. All
the parties have failed to confront the issue of
deflation head-on.
The LDP vows to achieve
nominal economic growth of at least 2 percent by fiscal
2006 and the DPJ says it will lower the unemployment
rate to below 4.5 percent. But neither party gives any
specifics about how it intends to go about achieving
these goals.
A fight against deflation seems to
be a mission the Japanese government has to undertake
regardless of which party wins the election. In Japan,
which until recently faced a particularly severe bout of
deflation, the economy has failed to post nominal growth
even when it has begun to improve in real terms.
The Bank of Japan expects deflationary pressure
to continue. Deflation threatens to blight
entrepreneurial initiative and against this backdrop,
public anxiety over the health of the banking system
will likely persist. The government in turn can expect
little increase in tax revenues, as a result of which
budget deficits could continue to snowball.
The
recent appreciation of the yen might also aggravate the
ongoing deflation. Although the US economy has grown
impressively recently, the country's current-account
deficit is as high as 5 percent of gross domestic
product. An excessive current-account deficit gives rise
to protectionist pressures in the deficit country and
the process of adjusting such a large deficit could
prove disorderly.
Meanwhile, US Treasury
Secretary John Snow has reiterated his government's
policy to keep the dollar strong but calls for a weaker
dollar will likely mount within the US as the
presidential election approaches next year. A weak
dollar inevitably results in a strong yen, which will
lower the prices of foreign goods imported into Japan,
thereby exerting downward pressure on overall domestic
prices.
In a fight against deflation, the
government will have to devise a number of steps
resulting in the creation of fresh demand. Reform of the
tax system including a cut in the corporate tax rate
should play a crucial role and should have spearheaded
each party's manifesto. Tax incentives should also be
used to encourage banks' disposal of nonperforming
loans.
Many LDP elders, who have long controlled
government tax policy, are retiring and reformist
politicians have a golden opportunity to take the
initiative in revamping the tax code. They also will be
called upon to act on further deregulation, another tool
for demand creation.
On the other hand, if the
postal corporation remains public and expands its
activities into sales of investment trusts and other
fields, it could hurt private financial institutions,
thereby delaying the revival of the financial sector.
Economists believe that deflation also needs to be
addressed in a global context by creating a free trade
zone in East Asia with a view to expanding markets and
creating more jobs.
Hussain Khan holds a
master's degree in economics from Tokyo University and
has worked in Japan as an equities analyst. He is an
independent Tokyo-based analyst on current affairs and
economic issues for various newspapers and magazines.
Email:hk@ourquran.com.
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