31 August 2009

Japanese voters create history

Japan has spent almost all of its post war history governed by the Liberal Democrat Party (LDP). For many year it ensured stability and importantly, during the Cold War, resisted the early communism of post-war Japan. The almost continuous improvement in prosperity and living standards, including environmental clean ups in the 1960s-1980s, were under the LDP. The then Socialist Party frightened some, because of Japan's proximity to the USSR and North Korea, besides why change when everything was going so well?

Don't forget Japan has the world's second largest economy, with China only now rivalling that.

However, the LDP has long been beholden to many special interests. Japan's agricultural sector has long been the most heavily subsidised and protected. The construction sector in particular has benefited from ongoing massive state spending on roads, bridges, dams and other infrastructure, so much so that Japan has many grossly underused roads and railways. In addition, the state sector has remained immune from restructuring, and a regulatory environment that is supportive of incumbents, putting significant barriers in the way of new entrepreneurs who seek to challenge.

There was a brief period of 11 months in 1993 when the LDP lost power, as two factions brokeaway from the party and formed a short lived coalition. However, beyond that it has held on. Junichiro Koizumi helped revitalise the party briefly, and ensured the party's re-election in 2005, but since then it has gone through 3 leaders and so its reputation is in tatters. Constantly borrowing and spending money on infrastructure has failed to revitalise the stagnant Japanese economy. Japanese voters know they have not had it so bad for decades.

So now the former socialists, the Democratic Party have won 308 out of 440 seats in the House of Representatives. It will likely form a coalition with the leftwing SDP and the liberal centrist People's New Party. It's policy agenda is mixed, including cuts to the public sector, increases in some subsidies, cuts in fuel and sales taxes, hiking the minimum wage. However, I suspect it will be able to confront some of Japan's big economic demons - and will have little choice but to slash spending and confront the massive state debt.

Japan's economic is tied up in all sorts of regulation and discriminatory treatment of businesses based on favours and preferences. For example, Japan is one of the few countries left which Air NZ needs explicit approval for any new airfares it wants to set for flights from it.

Some on the left are encouraged by the socialist origins of the DP, as it talks of being less beholden to US foreign policy, and international capitalism, but I am not convinced it will make a material difference in those areas. It will learn very quickly how little it can change, how little room there is to move.

Japan is a country that is always difficult for outsiders to read, being one of the most insular societies in the world - but it is one of the economic powerhouses, and has long needed to break away from the monopoly of political power the LDP has increasingly mishandled.

Let's hope the DP takes a chance to be brave and make some tough decisions - Japan badly needs it.



I have heard much about Japan having all these unwanted motorways.
But they certainly need them in Tokyo.
I was there in 2000 or so and was shocked to see these few dual-two expressways always choked with traffic.
Even Bangkok has a better road system.

But back to politics, yes, hopefully the lefties will carry out the reforms the LDP was too scared and beholden to to achieve.

derek demos said...

Wow, I can't believe it, is it possible???

TechSlice said...

It seems it's a good year for democrats world wide.

Joy Reed said...

I hope this makes things better for Japan.