This is a guest post by Charlie Wagner, a research intern at the New America Foundation/American Strategy Program.
When Japan’s asset bubble burst in 1990, Japan’s real estate market – once the world’s most expensive – collapsed. Trillions of dollars were wiped out with the fall of the stock and real estate markets; the Japanese economy has been stagnant ever since.
In a private meeting hosted by the Eurasia Group in Washington, D.C. this week, Tadao Yanase, the Director of the Industrial Revitalization Economy and Industry Policy Bureau of Japan presented Japan’s proposed multi-pronged effort to revitalize its industrial competitiveness.
Yanase proposed a diverse approach to combat Japan’s economic woes that included ending deflation, lowering corporate tax rates from their world high of 39.54%, drastically reforming childcare to increase Japan’s stagnant birth rates, and a commitment to open up Japan’s economy. This reformation of Japan’s economy is predicated on domestic reform to promote free trade agreements, altering immigration policy to recruit foreigners to the work force, relaxing visa policies to attract tourists, securing greater foreign direct investment, and improving access to Japan by transforming the nation’s airports to meet demand. Yanase thus wants to ensure Japan’s future prosperity by not only addressing macro economic trends, but also diagnosing industry specific initiatives.
To the outside observer however, the road ahead looks unnerving: unfavorable demographics, a lack of skilled foreign immigrants, a clogged and bogged down banking system saddled with debt, an export-led economy over exposed to consumerism in America and Europe, and an astonishingly high debt to GDP ratio of 200%, all combine to paint a bleak image for Japan’s economic outlook.
It is clear Japan desperately needs economic reform, but does the Democratic Party of Japan (DPJ) have the political capital to push through the necessary reforms to revitalize the economy? Jeff Kingston wrote an interesting piece on the topic for Foreign Policy magazine. An excerpt from his article “Can Anyone Run Japan?” illustrates the daunting political situation in Japan. He writes:
What’s happening to Japan is bigger than [Japanese Prime Minister Naoto] Kan the man. After a series of short-lived, ineffectual leaders, many are wondering if the country itself has become, in essence, ungovernable. Kan is an astute politician with considerable skills, and voters seem to like his tough-love message for kick-starting the economy. Many agree with him that the old policies of vast public-works spending and deregulation have not worked and have instead left the country saddled with debt amounting to a whopping 200 percent of the country’s annual GDP. But voters are still skeptical that Kan can make real change. And what it boils down to is a loss of faith in political leaders after two decades of recession and growing social malaise. In an atmosphere where leaders are expected to fail, can anyone run Japan?
Superficial economic measures and political posturing cannot fix Japan’s woes. The nation is in need of a concrete economic restructuring and opening that will take a great deal of political capital, which as TWN publisher Steve Clemons has pointed out, has been made more complicated by Japan’s recent political upheaval. Unfortunately, despite the potential and desperate need for reform in Japan, it seems that Japan’s domestic political quandaries will continue to limit the opportunities for a real restructuring of its economy.
— Charlie Wagner