A TALK WITH JAPAN'S NAOTO KAN: BREAKING "A SYSTEM OF COLLUSION"

Edited by Douglas Harbrecht

Japan's political landscape will change with the merger of four political groups under the banner of the Democratic Party of Japan (DPJ). On Mar. 31, the leaders of the different groups agreed to merge in mid-April and to appoint Naoto Kan, Japan's most popular politician and a tireless proponent of reform, as head of the new DPJ.

The new center-left party, with 139 seats in both houses of parliament, will become Japan's second-largest party after the ruling Liberal Democratic Party (LDP), which holds 370 seats. That's sufficient strength to propose legislation and to hold up passage of the national budget, a tactic that the LDP dreads.

If the new DPJ manages to persuade voters that it's a viable alternative to the LDP, it could increase its strength in the upcoming July Upper House election and the general election, which must be held within the next two years. Since the LDP has fumbled miserably on the economy, voters may be looking for a better alternative. Kan, who has topped every opinion poll asking voters who they would choose for Prime Minister, wants to offer them a choice. Business Week's Tokyo correspondent Irene Kunii recently sat down for a chat with Kan. Here are excerpts from the interview:

Q: What is happening in Japanese politics, and what are you trying to do?
A: Right now we're halfway through the political reconfiguration that began four-and-a-half years ago, when the ruling LDP lost the election and was replaced by a ruling coalition [that later fizzled out]. The turning point was last December with the breakup of Ichiro Ozawa's New Frontier Party, the group that overthrew the LDP in 1993.

Because of the breakup, we were able to form a democratic coalition of like-minded parties, and now we've decided to merge into a new DPJ next month. Nothing like this has ever happened before. We finally have the makings of the first real opposition party in Japan. We're not merging simply to oppose the LDP but because we all agree on a common platform.

Q: What is your platform?
A: Basically, we are center-left like the parties of [British] Prime Minister [Tony] Blair and President Clinton. In Japan, many people are allergic to the word "left," so we are describing ourselves as democratic centrists.

Our immediate aim is to increase our strength in the Upper House election [this July] and to take power by the next Lower House election. I think we can achieve our goal if we adopt Italy's Olive Tree coalition plan. We can field either our own candidate or support a like-minded independent or member of a small party. The idea is to have a candidate in every constituency.

Q: Japanese voters appear to be disillusioned with all political parties, judging by the low turnout rate in recent elections. Do you think you can attract their support?
A: Many new political parties have emerged over the last few years, and so voters are suspicious when they hear about yet another "new party." But recently, a poll in the Nikkei financial daily showed that 19% would support the new DPJ, compared with 30% for the LDP. So I think if we can form a solid party, we will be able to gain the support of voters.

Q: How do you view Japan's economic situation?
A: Japan's economic situation, as well as Asia's, is in danger. We need to implement a number of emergency measures. Most important is to switch from a deflation-orientated policy to one encouraging inflation. We [the new DPJ] are proposing a $45 billion tax cut and $30 billion in public-works spending. When I say public works, you probably assume I'm talking about the same thing as the LDP, but I'm not. The LDP's idea of public works is to build roads in mountainous areas where no one lives, or to pave over the seashore. The reason they promote public-works projects in sparsely populated areas is because the land is cheap and construction companies can reap bigger profits.

One of the pillars of our public-works plan is to invest in the social welfare infrastructure. I think we should get rid of utility poles and place the power lines underground, and improve roads and sidewalks with the handicapped and elderly in mind. Our society is rapidly aging, so it's important for us to invest in our social welfare infrastructure.

Q: What should be done about the banking crisis?
A: I think we should form a Japanese-style Resolution Trust Corp. (RTC) and have it purchase the bad loans of the banks. The RTC should then approach the borrowers and deal with them stringently if they are unable to pay up. That would enable the sound banks to restructure and stay in business, while the weak ones would fail. The problem with the government's bailout plan is that it is not targeting those who were responsible for the problem, nor is it concerned about trying to collect those bad loans. It's like trying to treat a cancer patient with injections of nutrients.

Q: Is there a lot of corruption in government?
A: There is a great deal of collusion between bureaucrats, politicians, and business that is not necessarily illegal. The most conspicuous place where this takes place is in public works. Japan has an annual public-works budget of about $385 billion. Every LDP politician aims to take a piece of the public-works pie back to his constituency in order to create work for local construction companies. The companies return an average 3% to the politician in the form of a kickback. They also provide him with campaign workers during election time. This arrangement is evident all over the country, and the idea is to make the public-works projects as expensive as possible. That way there is more money for all involved. This type of structural corruption is rampant, but it's outside the limits of Japanese law.

Q: What do you think of Prime Minister Ryutaro Hashimoto?
A: There was a time when I thought that Hashimoto would be able to carry out reforms, but no longer. It's obvious that the LDP is incapable of reforming itself or the system. It's a party that is based on a system of collusion between bureaucrats, politicians, and business, and it will not change.

Q: What will you do if the DPJ manages to take over the government?
A: The situation in Japan today is much worse than it was two or three years ago. Even if we manage to take over the government, it'll be very difficult to remedy all the problems, much more difficult than it would have been several years ago. So I'm very concerned about what should be done to reform the country.