Why China Won't Be Impressed by Japan's Election

The DPJ's victory is not going to make China feel that democracy can solve its problems, writes Dan Slater

By Dan Slater

At the time of going to press, it wasn't yet clear if Japan's opposition party, the Democratic Party of Japan (DPJ) was going to win a remarkable two-thirds majority, or a simple majority in the electoral contest against the incumbent Liberal Democratic Party (LDP), which finished Sunday. But two things were clear: the DPJ had secured a thumping victory after a half-century of almost unbroken rule by the LDP, and Japan's greatest advantage—its 50-year experience of democracy—is not being effectively deployed, in particular against its greatest rival, China.

Japan should have one massive advantage over China, namely the fact that it combines a first-world economy with the longest experience of democracy in the region. However, Japan shows few signs of reaping a 'democratic dividend'.

Over the past 50 years, it is not democracy that has driven the country's economic success. Rather, it is a system where a bureaucracy has dominated the economy through its understanding of the levers of power, while elected politicians have distributed the fruits of economic growth across the country. The business sector has both acquiesced to this system, and benefited from it; it took on the welfare role for its workers, and received state protection and subsidies in return.

The irony is that in the early years, the system worked very well in ensuring high standards of prosperity and equality. Despite the regular elections, it was not democratic in the Western sense of the word. It was more like the German system of worker protection, which was created by Germany's conservative and nationalistic 19th century chancellor, Otto von Bismarck. The aim was to outflank the rising workers' movement of the time. In Japan, the LDP ensured money was redistributed in a feudal way—as handouts from above, rather than through a competitive system rewarding better ideas in both politics and business. In return for the handouts, politicians could rely on the slavish loyalty of their constituents.

The post-war system, although led by many pre-war personalities, had some important differences. The post-1945 communist threat was extremely real in Japan, as in the rest of the world, and forced politicians to focus on redistribution. The pre-war alternative, fascism (which also focused on financial redistribution), was of course utterly discredited. So Japan's rulers decided that a posture avoiding foreign conflicts through the US alliance, and buying off the opposition domestically, was the best way to retain power. An important difference to pre-war times was that the bureaucracy was no longer limited by the power of the Japanese military. This put it firmly in the driving seat.

The system worked beautifully until one ingredient ran out—economic growth. Growth collapsed after the popping of the bubble in 1990, and Japan has staggered from one crisis to another ever since.

Former Prime Minister Koizumi of the LDP tried to restructure the system by introducing Western-style supply-side measures from 2002 to 2006. He unleashed big business by reducing their social welfare role. Big business enjoyed an export burst to the US and China in 2002, and either kept the profits or redistributed them to foreign shareholders, who at their peak owned almost half the Japanese stock market. Japanese workers missed out on the best of the boom, since activist investors insisted Japanese companies raise their dividends instead of their salaries.

Koizumi's legacy is mixed. On the one hand, voters are furious at the LDP for no longer supplying them with the largesse they have become accustomed to (partly because of Koizumi's stricter controls on money politics and partly because of slower economic growth since the end of the boom in 2006). On the other hand, the DPJ has picked up Koizumi's baton by intensifying his call for change. This time, the DPJ is no longer attacking money politics but the bureaucracy. It's a subtle but important shift in emphasis. Koizumi, although a political reformer in some respects, had a close relationship with the bureaucrats at the Ministry of Finance, who supported his financial retrenchment measures.

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