The Recent Political and Economic Situation in Japan
December 18, 2007 (Tuesday)
In the previous column, I touched on Ichiro Ozawa’s sudden announcement to resign as head of the Democratic Party of Japan. The concept of a grand coalition was proposed at the meeting of party heads between Prime Minister Fukuda and Ozawa. However, the idea was opposed by DPJ leadership, and as such Ozawa declared his intent to resign as party leader.
Ozawa withdrew his resignation after being persuaded by the DPJ caucus to stay. As a result, the state of a “twisted Diet” continues where debate has stagnated or gone in circles making it impossible for most major laws to pass.
It seems that the government and ruling parties’ greatest objective is to enact legislation that would make it possible to provide fuel as normal international contribution activity of the Self-Defense Forces. This would replace the Anti-Terrorism Special Measures Law for fuel supply to friendly ships in the Indian Ocean that expired on November 1. To this end, the government and ruling parties have significantly extended the Diet session and, based on a constitutional provision, will aim to pass the bill again in the Lower House in mid-January by waiting 60 days after the bill was voted down in the Upper House.
In this way, Japanese politics have fallen into a state of confusion and stagnation, and it is of particular concern that recently the economic reforms advanced under the Koizumi Administration seem to be frustrated if not in a state of regression. Prime Minister Fukuda’s approval ratings have dipped substantially, and many point to the pension problem as the direct cause.
As a result of years of sloppy pension management by the Social Insurance Agency, the problem of not being able to identify roughly 50 million records of qualified pension recipients came to light over a year ago. The Fukuda cabinet struggled to find a solution, but these efforts have not been recognized by the public. Former Prime Minister Abe publicly promised to take care of every last citizen, but government officials have recently begun to make it clear that it will be difficult to determine close to 20 million cases because the basic records have disappeared. This is seen as the root of widespread disappointment in the Fukuda cabinet. In addition, the fact that Prime Minister Fukuda has not introduced policy for uniform compensation for the more than 200,000 sufferers of Hepatitis C, contracted through tainted blood products, has been widely considered a symbol of weak leadership. This also has contributed to the feelings of disappointment.
In my opinion, however, there are issues of greater importance. The inability of the Fukuda Administration’s to transmit a clear signal of reform regarding the problem of road resources and civil servant reform. The fact that the drafting of the budget has been unable to curb pork-barrel politics among the various ministries. The fact that reform of the corporate tax and consumption tax has not been carried out. These issues have begun to give the impression, both domestically and abroad, that economic reform as a whole is beginning to stagnate if not regress.
Roads in Japan have long been funded entirely by a temporary and high special tax rate taken out of the gasoline excise. There has thus been criticism that useless roads are being constructed, and Prime Minister Abe endeavored to incorporate this funding into the general budget. In the end, however, this policy has been rendered ambiguous under the Fukuda Administration. There is also no major action regarding civil servant reform. Regarding the organization of independent administrative corporations, which are considered to be a cover for the public sector, there is no evident of support for the individual efforts of Yoshimi Watanabe, minister in charge of administrative and regulatory reforms, from the Cabinet as a whole. In the midst of intensifying global competition, cries for corporate tax reductions went unheeded in this round of tax revisions. The need for a hike in the consumption tax rate has long been advised, yet it was also not given consideration. The “hometown tax system”, which I have written about a number of times in this column and whose committee I chaired, should imminently be adopted by the ruling party’s research commission on the tax system. There are, however, no other significant reforms. As intense global structural change advances, and in the midst of economic competition that demands further efficiency and reform, there is the danger that Japan is giving the impression of being relatively behind both domestically and internationally.
Prime Minister Fukuda has established a reputation for being a politician who makes unerring judgments based on large amounts of collected information. It is my hope that he will steadfastly communicate the reality and impression that the Japanese economy is one that will realize necessary reforms for a new age.