Guest Post by Daniel Mandel: Japan’s Electoral and Economic Sea Change

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Daniel Mandel is a Program Associate at the New America Foundation/Economic Growth Program.
The Democratic Party of Japan’s (DPJ) historic landslide victory over the long-ruling Liberal Democratic Party (LDP) in Sunday’s election will have important consequences for that country’s domestic politics, as well as its strategic relationship with the United States. Just as important, however, is what regime change will mean for Japan’s economic outlook and the fitful process of reform.
As likely future prime minister Yukio Hatoyama begins assembling his new government, Japan finds itself at a crossroads: the global economic crisis has rocked its faith in export-led growth; rising inequality threatens its cherished shared prosperity; and demographic change strains social order and the public coffers.
The DPJ’s list of priorities includes taking on the powerful central bureaucracy, implementing ambitious new social programs targeted at families and consumers, and overhauling the national budget. But as London School of Economics scholar Ronald Dore argues in a new New American Contract paper, “Japan Rethinks Reform”, what’s really at stake is the future of the “Koizumi reforms” – the neo-liberal deregulation and privatization policies carried out during Junichiro Koizumi’s 2001-2006 stint as LDP prime minister.
The DPJ is notably less enthusiastic about American-style globalization than its LDP predecessors: in a recent op-ed that ran in The New York Times and elsewhere, Hatoyama criticized “unrestrained market fundamentalism and financial capitalism.”
Although the election results do not threaten the U.S.-Japan strategic alliance, many commentators expect the DPJ to move away from Japan’s longtime U.S.-centric economic strategy and instead focus on the economic community of its Asian neighbors. The party’s emphasis on domestic welfare programs – aimed at combating unemployment, assisting agriculture and small business, raising the birthrate, and alleviating poverty – also signals a turning-away from the neo-liberal agenda.
Japan’s sclerotic economic performance since its “Lost Decade” of the 1990s suggests that a reversal for the LDP and its policies was long overdue. Yet even as the small government, structural reform project loses steam, Dore believes that Japan’s corporate governance and management reforms of the last decade are not going anywhere.
The “shareholder revolution,” in which cozy management arrangements gave way to increased market discipline and stock price replaced market share as the crucial metric of economic performance, seems firmly entrenched despite the political and economic upheaval of the past year. Even as the DPJ rejects American economic ideologies, the “Anglo-Saxonization” of the Japanese corporation continues.
Going forward, the country faces a crucial choice: continue its export-led, current account surplus model of economic growth, or move in the consumer-oriented direction of other developed economies. Japan will retain its emphasis on “making things,” its tradition of lifetime employment with a single firm, and its collegiate management style. But as the untested DPJ’s ambitious domestic agenda confronts a changed corporate culture, no one can say with certainty how things will shake out.
— Daniel Mandel

Comments

4 comments on “Guest Post by Daniel Mandel: Japan’s Electoral and Economic Sea Change

  1. joe mcdermott says:

    Demography is destiny. Forget all the other stuff. 1 child per woman? Can the Japanese relearn to count up to 2?
    Unless there is a surprising baby boom, Japan is doomed to senesence.

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  2. WigWag says:

    As an indication of how difficult it will be for the new government to get the Japanese to give up their savings habit and increase their consumption, it is important to remember that major disincentive to savings have been present in Japan for a long time.
    It’s true that when Japan was experiencing deflationary pressures that it made good sense to put off spending today while waiting for cheaper prices tomorrow, but actual deflation has been absent from Japan for several years.
    The return on savings in Japan has been negligible. Japanese corporate and government bonds pay next to no interest and unless I’m wrong there has been very little appreciation in bond prices.
    Interest rates on money held in bank and postal accounts have been close to zero and until very recently the Japanese stock market has been a dog.
    Despite these disincentives the Japanese continue to save and save and save and save.
    It’s not like the LDP Government did nothing; to counteract the unwillingness to the Japanese to consume, government spending skyrocketed. The aggregate demand not provided by Japanese consumers was instead provided by the Japanese government. The government ran up massive deficits that morphed into one the highest governmental debts of any nation in the world.
    The problem appears intractable.
    It will be interesting to see what (if anything) the new government has in its bag of tricks to solve the problem.

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  3. WigWag says:

    The propensity of the Japanese to save rather than consume is at the root of Japan’s export driven strategy. Is this propensity malleable enough that it can modified by policies instituted by the new government or is it so deeply ingrained in Japan’s Confucian influenced culture that the new government will be powerless to effect change?

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  4. brigid says:

    Japan is still an economic giant. And its collective rejection of unrestrained, unregulated corporate globalism is a sea-change indeed. One that will hopefully continue.

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