Democratic Party Win Could Revitalize Japan

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Special taxes financed road building programmes, which are frequently highly indebted despite the high tolls they charge motorists. (Traffic volumes are too low). The taxes, such as the petrol tax, are ring-fenced for road construction—meaning that parliament rarely exercises control or oversight over the process, which is in the hands of the Ministry for Land, Infrastructure, Tourism and Transport. Koizumi tried to privatise the government-owned companies which build the roads, but opposition is fierce and progress has been slow.

Koizumi capitalised on the public's discomfort with the gigantic government deficits to intensify his attack on wasteful government spending. His solution was to apply "supply side" theories to the government. He believed this would have the dual advantage of keeping the government out of the economy (thus making the government less corrupt) and increasing private sector efficiency (thus galvanising economic growth).

However, on the economic side his legacy has been mixed. Although it worked for a while—his moves to free up the labour market were especially profitable for the corporate sector—the outcome since the financial crisis hit Japan's most important trading partners has been terrible. Japan's exports have collapsed, along with earnings from the country's elite exporter companies. GDP is contracting at a rate Standard and Poor's estimates to be 6.5% for calendar year 2009, and no other growth drivers have emerged.

It's clear that Japan needs to tweak its growth model and the DPJ, despite its lack of experience and the colourful background of many of its leaders, may have found the solution.

The problem for the DPJ is that although its policies may be economically right, they could be politically wrong. Polls show Japanese voters believe the DPJ is trying to buy them off with such policies. Similarly, current LDP Prime Minister Taro Aso's cash handouts to citizens earlier this year were treated with suspicion. As mentioned, the Japanese find increased expenditure hard to reconcile with the country's increasingly large government debt.

That goes back to an unfortunate and long-standing public distrust of politics. Even right after the Meiji Restoration in the 19^th century, the establishment tried to discredit the very democratic system it had just introduced. Politicians were described as corrupt and selfish by state propaganda—in contrast to the upstanding bureaucrats and honourable soldiers. Citizens were encouraged to stay away from politics.

The results of that policy are well known. Democrats were discredited and in the 1930s the Japanese military moved into the vacuum. What needs to happen in today's Japan is for clean, intellectually vigorous and democratic politics to be acknowledged as the country's best hope. That, rather than economics, could be the DPJ's greatest challenge.

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