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Foreign reaction to the election results and the formation of Prime Minister Yoshiro Mori’s new government can be summed up in one word: “disappointing.” Once again it seemed that Japan was missing an opportunity to move forward on the reforms so urgently needed in government and the economy.

Mori’s so-called election victory was, of course, nothing of the sort. The Liberal Democratic Party managed to lose a few less seats than might have been expected and with their “allies” in New Komeito and the New Conservative Party they have been able to retain a small majority in both Houses. The opposition Democratic Party of Japan muffed it by its lack of unity and inability to articulate persuasive policies.

Of course they were not helped by bad weather that no doubt discouraged some voters from going to the polls. I hope that few voters heeded Mori’s outrageous suggestion that they should stay in bed and not upset the ruling party’s hold on power. Some, however, it would seem, were so disillusioned with Japanese party politics that they decided to abstain. This bodes ill for the development of parliamentary democracy in Japan.

Few foreign observers think that Mori, with his ability to say the wrong thing at the wrong time, has come out of the election at all well. It seems doubtful whether he will impress his fellow heads of government at the Okinawa summit of G8 nations with political sagacity, knowledge of international affairs or his ability in foreign languages (reputed to be very limited, if not nonexistent). Let us hope that the Japanese “gods” in which he appears to believe will help him to avoid further gaffes.

Mori’s “new” government is not really new. He has wisely kept the foreign and finance ministers who have experience and a good track record, as well as the Economic Planning Agency chief, who seems to have done his best in difficult circumstances.

But Finance Minister Kiichi Miyazawa is now 80 and must surely be feeling the strain. The rest of the new Cabinet appear to have been appointed as usual on the “Buggins turn principle,” which is similar to that adopted by children in the playground who shout out “it’s my turn now!” There was once a Cabinet formed in Britain in the first half of the 19th century when the Duke of Wellington was very old and deaf. When someone read out the names to him he kept asking “Who?” It came to be called the “The Who Who Cabinet.” Perhaps the new Japanese Cabinet is another such case.

It seems that to satisfy the farming and construction lobbies, the government will continue to pour public funds into public works that can never be economically justified. To satisfy other interest groups, deregulation will be delayed or regulations so manipulated that deregulation will in effect be nullified. The government has shilly-shallied for so long about NTT and access charges that they have lost credibility.

Foreign observers have been particularly shocked by the government’s willingness to bail out the Sogo department store chain that overexpanded on borrowed money without proper market research and without any real strategy. The impression created is that some banks, particularly the Industrial Bank of Japan, were so deeply implicated that if Sogo was allowed to go bankrupt it would drag down some important banks that had provided the LDP with funds. The people who really suffer from this largesse are the Japanese taxpayers. One wonders what will be the next private institution to be rescued with their money.

Many observers have reckoned that a number of elections will be needed before Japan achieves a mature democratic parliamentary system. One major defect with the present system is the lack of adequate policy debate, but the main defect lies in the electoral system.

Japan urgently needs an independent commission to redraw electoral boundaries so that each constituency has roughly the same number of voters. The system is currently still skewed in favor of rural over urban votes. Why? Because the farmers who have been protected and featherbedded for half a century support the LDP. The current system is undemocratic and a serious blot on Japan’s international reputation.

So much more needs to be done to improve the banks’ ability to assess risks and enforce a more competitive financial system. Japanese management systems have been much admired in other developed countries and the best Japanese practices have been copied and adapted. This has reduced the Japanese edge. Now it is apparent that some of these practices, in particular the bloated white-collar management, are a strain on Japanese resources and are holding back essential changes. Japanese companies need to be more responsive to shareholder interests and to think through their overall strategy.

Where do bosses want their companies to be, in say 10 years time? In a slow-growing economy, such as likely to be in Japan during the next few years, the going will be much more difficult. Entrepreneurs rather than consensus builders will be needed. The government needs to concentrate on the supply side and in particular to do away with the educational bureaucracy that stifles individuality. This government shows no sign that it is ready to tackle these problems: Indeed it seems hardly aware of their existence.

Another major problem that must be tackled is the declining population. It was recently reported that Japan’s net reproduction rate had fallen to a record low of under 1.4. The fault can to some extent be traced to Japan’s male-dominated society. But that should focus the government’s attention on the need to attract foreign workers by much more immigrant friendly policies. Here again I doubt if the government has begun to think these problems through.

I do not want to be pessimistic about the future, but it is hard not to be following the last election and the formation of Mori’s “new” government.

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