The question of politics and money remains very much alive in Japan. It was the subject of intensive debate at Thursday’s special session of the Lower House Budget Committee. Central to the debate was the legality of corporate donations to political parties, a question that has taken on new meaning in light of two recent fundraising scandals.

One involves the Liberal Democratic Party’s chapter in Nagasaki Prefecture, which collected donations from local public works contractors ahead of a prefectural governorship election. Two officials running the branch at the time have been indicted for violation of the Public Offices Election Law, which bans donations designed to finance a specific election.

The other scandal concerns donations made by Kumagai Gumi, a major construction contractor, to an LDP fundraising group. The company contributed the funds even though it was operating at a huge deficit that prevented it from paying dividends. The Fukui District Court ruled the contributions illegal and ordered the firm’s former president to pay damages.

Both cases have revealed, once again, the cozy relationship between the LDP and business, particularly public works contractors. Much has been said about the need to sever the ties and establish clean politics, but politicians have been slow to act. At the very least, donations from companies competing for or receiving public works orders must be completely banned.

The Fukui court said the Kumagai Gumi contribution violated “the duty of a bona fide corporate manager to pay attention” to the company’s financial problems, noting that Kumagai Gumi has suffered deficits since 1998. The Campaign Finance Law prohibits donations from companies that have run deficits for three or more consecutive years. The LDP rightly rejects donations from companies receiving debt relief from creditor banks.

The ruling went a step further and said companies running deficits should exercise “cautious judgment” even if they have been in the red for less than three years. Indeed, it is unreasonable, as an opposition legislator pointed out, for a company unable to pay dividends to their shareholders to donate — in effect, their dividends — to a political party. In a similar vein, Prime Minister Junichiro Koizumi has voiced opposition to donations from companies that withhold dividend payments.

Significantly, the Fukui court declared that corporate donations could shake the foundation of the electoral system if they were allowed to affect a political party’s policies. Such donations, it added, could also lead to “collusion” between political circles and private companies. The statement constitutes an open challenge to the conventional view that lends legitimacy to corporate contributions. Back in 1970 the Supreme Court ruled in favor of business donations. With the Cold War continuing, such contributions were justified as a way of protecting the free-enterprise system. During the trial, Kumagai Gumi made a similar case, but to no avail. Times have changed.

The Nagasaki case represents a new judgment on political campaign contributions. The money collected from constructors had been duly processed under the Campaign Finance Law, but investigators concluded that it violated the Public Offices Election Law. The LDP appears confused about this decision, but there is no mistaking the message: Contributions from public works builders at election time have strings attached.

It is clear, as evidenced by numerous pork-barrel scandals of the past, that there exists a shady relationship between politicians and constructors. A squeeze on public works projects leads to intensified competition among prospective bidders. Donations are made in exchange for contracts. As a result, some of the taxpayer money invested in public projects goes to the LDP in the form of kickbacks.

This cycle must be broken once and for all by plugging any loopholes in fundraising regulations. In 2000 corporate donations to individual politicians were banned, but the flow of money has continued in the form of contributions to LDP chapters. Politicians should remember that public grants to political parties, introduced in 1994, are designed to eventually abolish corporate donations. In 2002, these subsidies totaled 31.7 billion yen, with the LDP taking the lion’s share of 15 billion yen. As if this were not enough, the party continues to solicit donations. Recently Nippon Keidanren, the nation’s most powerful business lobby, decided to resume collecting contributions from member corporations.

It may be difficult, even undesirable, to put a blanket prohibition on corporate donations, but a selected ban can and should be placed on donations from companies receiving public works orders from the central and local governments. That is one way for the Diet to regain the public’s trust as the nation’s highest deliberative body.

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