According to some Western pundits, the recent Lower House election was going to be a big yawn, with little debate over real issues. In fact, from the start there was a very real debate between the coalition, which argued that the economy still needed pump priming, and the opposition, which claimed that priority should go to something called structural reform.
We were told that Japan’s main newspapers were equally boring and saw their role as supporting the government. In fact the postelection headlines in two of Japan’s main national newspapers — Asahi and Mainichi — exulted in the government’s electoral setback. “Haiboku,” or defeat, was the word they used, even though the coalition did retain a comfortable majority.
But defeat or no defeat, the coalition economic argument did have its merits. It said that continuing weak domestic demand means that for the time being there is no alternative to more government borrowing and spending, mainly for expanded public works.
The opposition and other critics point to the rising mountain of official debt, now well over 600 trillion yen, and to the waste in public-works spending. But just four years ago when the economy seemed headed for a solid recovery, the critics had their way and persuaded the government to cut spending and embark on a range of so-called reforms.
The result was a sudden and dangerous economic downturn. But for the urgent and massive expansion in government spending over the past three years Japan would have gone into a deflationary spiral similar to the U.S. Great Depression of the 1930s, dragging down the rest of Asia and possibly much of the world economy as well.
Today the opposition and other critics are at it again, insisting on spending cuts even though the current recovery seems much weaker than in 1996. These people show little remorse for getting it wrong four years ago.
Here too the role of the main media is also much more important and interesting than the Western pundits seem to realize. In 1996-97, the influential Nihon Keizai (Japan Economy) newspaper was running a strongly ideological line that said expanded government spending to counter recessions was an outdated, leftwing Keynesianism that already had been repudiated by the enlightened Reaganite/Thatcherite policies of the West.
Like many others, Nihon Keizai had also swallowed the Ministry of Finance line that increased government debt would put Japan into bankruptcy. Subsequent MOF scandals and mistakes have fortunately led most to realize just how little that ministry knows about the real state of the economy and how much it is motivated by its own interests.
Today, Nihon Keizai accepts some need for demand creation policies, including public works. But it sensibly urges spending for projects like urban road widening that promise returns rather than waste.
The opposition has ignored such subtleties, and its constant hammering on the debt problem and public works as some kind of continuing evil clearly struck home in the recent election. Few seemed to note that it was the same opposition parties, the Democratic Party of Japan especially, that had added to the debt problem with their insistent demands for tax cuts before the 1998 Upper House election.
The critics have also pushed through the fashionable idea that more government spending should go to the information-technology area rather than wasteful public works. One result is that the Transport Ministry has decided to spend some of its IT budget on an advanced wireless system that will allow people at bus stops to know exactly when their bus will arrive!
More spending on the roads needed to get the buses to arrive on time would seem far less wasteful.
In any case, no one, not even Nihon Kezai, seems to want to tackle the key issue facing the economy for the past 30 years, namely identifying and dealing with the complex reasons for high personal savings and weak consumer demand.
With national population in decline, the demand problem can only get worse and the economy more parlous.
Fortunately, the politics do show some sign of improving. Urban voters have been weaned from any past knee-jerk attachment they may have had to Japan’s feudalistic Liberal Democratic Party.
And while the move to the single-seat electorate system has unfairly hurt the smaller opposition parties and consolidated the Democrats as the dominant opposition party, even the much-maligned Japan Communist Party managed to attract a greater share of the uncommitted vote (14 percent) than the LDP (13 percent).
The trend to a genuine two-party, conservative vs. progressive, political system can only get stronger. In the process let’s hope that the opposition parties get to understand their nation’s economy a bit better.
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