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Reduced pork would pit DPJ against builders

Bloomberg

The opposition vows to slash public works spending if it wins the election. Keeping that promise may be tough in a nation where construction is the No. 5 employer and a political fundraiser.

Government outlays on dams, roads and bridges have been a source of stimulus since the bubble economy burst two decades ago. Infrastructure spending amounted to 4.4 percent of gross domestic product last year, extending a binge that has driven public debt to almost twice GDP, or ¥16.4 million for every household.

The Democratic Party of Japan says much of that money cements ties between builders, bureaucrats and government officials and it pledges to spend less on construction. Yasuo Tanaka, a DPJ-supported candidate in Sunday’s election who canceled public projects as governor of Nagano Prefecture, says the population isn’t well served.

“Japan creates huge public projects, huge highways, huge dams, huge tunnels and huge cranes,” Tanaka, 53, said at a rally Aug. 13 while campaigning in Amagasaki, Hyogo Prefecture. “Politicians who leave responsibility to the bureaucrats ensure policies that squander money and serve vested interests. We need to change all these things.”

Just three of Japan’s 113 major rivers flow uninterrupted, the result of damming that provides construction jobs regardless of the need for flood control or the creation of reservoirs. The ¥1.44 trillion Tokyo Bay Aqualine tunnel and bridge attracts only two-thirds of the 33,000 vehicles a day originally forecast.

The DPJ says many projects are built and financed on the basis of inflated estimates, a practice known as “enpitsu o nameru” or “licking the pencil.”

“Japan has turned its agricultural lands and countryside into construction sites,” said Martin Schulz, a senior economist at Fujitsu Research Institute. “What they’ve been doing is pouring concrete on mountains.”

The party, which has never run the government, promises to cut ¥1.3 trillion from ¥7.9 trillion in public works spending earmarked in this year’s budget by canceling what it calls “anachronistic” projects, including dams, and diverting those funds to child care benefits and education subsidies.

That has drawn complaints from industry critics such as Tetsuya Nomura, chairman of the Japan Federation of Construction Contractors, and chairman of Shimizu Corp., the nation’s third-largest building company.

“My particular concern is the potential of Japan falling deeper into recession,” Nomura said July 22. The DPJ “mustn’t stop the economic recovery.”

Shares of Shimizu have fallen 25 percent this year compared with a 20 percent gain for the benchmark Nikkei 225 stock average, as the DPJ overtook the long-ruling Liberal Democratic Party in opinion polls. The 100-member Topix Construction Index gained 5.7 percent during the same period.

Building projects often have little residual economic benefit in rural areas, where the population is both aging and shrinking, Schulz said.

The DPJ, headed by Yukio Hatoyama, promises to keep bureaucrats from moving after retirement to construction companies and other industries they have regulated, a corruption-prone practice known as “amakudari,” or “descent from heaven.”

Ichiro Ozawa resigned as DPJ leader in June over a campaign fundraising scandal involving Nishimatsu Construction Co. Ozawa’s aide was charged in March with concealing ¥35 million in donations. Nishimatsu apologized in June after former President Mikio Kunisawa was convicted of making illegal contributions.

Taking on builders carries risks as Japan emerges from recession. The industry employs one in 12 workers, twice the ratio in the U.S. The jobless rate is set to climb to an unprecedented 5.9 percent by next year, many economists say.

In Amagasaki, Tanaka’s opponent is 73-year-old incumbent Tetsuzo Fuyushiba, a former land minister with LDP coalition partner New Komeito. Fuyushiba boasts on his Web site of past projects he championed, including hospitals, schools and parks in the city.

“We never build something just because we want to build it,” Fuyushiba aide Shigeyuki Hirata said in an Aug. 14 interview. “It’s always based on people’s requests. I basically think we should build what people need.”

Hirata said Tanaka’s history as Nagano governor serves as a warning for Amagasaki’s voters. A total of 334 construction companies in the prefecture went bankrupt in Tanaka’s six years in office as he slashed public spending, according to Hirata.