Continuing her regular column, top economic commentator and What’s Next? author Lyric Hale discusses political instability in Japan, looking specifically at the country’s lack of coherent political leadership, and what this means for the future of the global economic crisis.
Article by Lyric Hughes Hale
Although markets have seemingly stopped their tumble, it seems that everyone is waiting for the other shoe to drop. But who is in charge, and where can we find the leadership that has always been necessary to end a period of crisis? What kind of leaders do we really need, and which countries and regions in the world will fare best?
Earlier this week, we were invited along with What’s Next? contributor Richard Katz to discuss the future of the world economy at the Japan Society in New York. It was a lively discussion. Katz has written quite critically about the failure of political leadership in Japan. Our book went to press before the triple disasters of 3.11 and so this was a chance for him to update his chapter. Katz made the point that Japan cannot get its economic house in order unless it fixes its political system, which is currently broken. It is amazing that the disaster did not lead to more political cooperation, as I believe it would have in the US.
Japan had certainly faced a leadership crisis before the Tohoku quake. In the past five years, this country, which many forget is still the third largest economy in the world, has had six prime ministers. The newest PM, Yoshihiko Noda, came into office last month. Already some are writing his political obituary after an 8-point drop in the opinion polls in his first month in office. Elections would not usually be held until 2013, a respectable tenure, but this might be foreshortened. One member of his cabinet, Yoshio Hachiro, lasted only eight days after calling Fukushima a ghost town and joking about radiation during a visit there.
But Noda shouldn’t be taken lightly. He is the former finance minister, good training for the issues at hand, and is young for a Japanese politician, just 54. He is self- effacing about his looks, famously comparing himself to a bottom-eating fish, and if he is, it is because he is a heavyweight. He is not a rock star like Koizumi, and comes from a modest background, but he was the youngest delegate ever elected in Chiba prefecture. He is a fiscal hawk, and there is talk of government asset sales, and new taxes. Currently, Japanese VAT is just a fourth of what Briton’s pay.
Japan’s public debt is twice its annual GDP, which is the highest in the developed world, and so something has to give. He might be the man to convince the Japanese public to make some necessary changes.
Today the trial of one of Noda’s detractors, 69-year old Ichiro Ozawa, known as Japan’s shadow shogun, began in Tokyo. Ozawa pled not guilty to a charge of misusing campaign funds. Ozawa is known to say what he thinks, calling Americans “monocellular” and saying whilst in London on an official tour, “I don’t like the British”. He is an example of a non-diplomatic and sometimes outrageous brand of politician made in Japan.
Gruff, but a political visionary who wrote a best seller called Blueprint for Japan Ozawa successfully challenged the established order. His Democratic Party of Japan (DPJ) party ended the reign of the Liberal Democrat Party (LDP) that had ruled Japan for fifty unbroken years. Some speculate that getting Ozawa out of the way could lead to less infighting, allowing Noda to operate more freely.
Why can’t Japan, which is the most mathematically literate nation on earth, get its political system stabilized? Perhaps in the US we are going the way of Japan, not just in terms of stagnant economic growth, but also gridlocked politics. The key difference seems to be that in the US politics in highly ideological; in Japan, it is purely partisan.
In the May 2009 issue of Foreign Affairs Richard Katz went head to head with another What’s Next commentator, Robert Madsen on the question of the US following in Japan’s financial footsteps. Katz posited that the US would rebuild quickly after the financial crisis, but Madsen was less optimistic:
Although Katz is right that Washington’s response has been faster than Tokyo’s was in the 1990s, it would be a mistake to conclude that strong GDP growth will resume anytime soon. The ad hoc policymaking and official vacillation displayed by the Bush and Obama administrations resemble nothing so much as the behavior of Japan’s leaders in the early 1990s, even as the scope of this tragedy and the nascent protectionism it has engendered invite comparisons with the early stages of the Great Depression. With its arsenal of modern fiscal and monetary weaponry, today’s world should be able to avoid a reprise of that debacle. Nothing done so far, however, inspires much confidence.
As the financial crisis drags on, one has to think that Madsen’s fears are correct. He worries that low demand coupled with poor leadership will be the culprits. In fact, Japanese exporters face an additional challenge. One anomaly of the recent crisis is the strength of the Japanese yen. It would have been expected that its value would fall, but Japan’s relative stability has made the yen a safe-haven currency. In the land of the blind, the one-eyed man is king.
It is possible that Noda will be an effective prime minister, that the Japanese bureaucracy and public is tired of constant political change that is globally embarrassing at a time when consistent leadership is critical. It is possible that we are on the verge of a generational change. Japan was ahead of us on the downside– maybe Japan will also be ahead of us on the upside.
What’s Next? Unconventional Wisdom on the Future of the World Economy by David Hale and Lyric Hale is available now from Yale University Press.