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In Japan, The Ldp Wins And The Economy Loses


International Outlook

IN JAPAN, THE LDP WINS--AND THE ECONOMY LOSES

This Japanese election certainly had its surreal moments. Among the blue-suited candidates seeking office were a sumo wrestler, a former boxing champion, and a well-known master of the Japanese tea ceremony. Then there were the eerie parallels to the U.S. campaign. Incumbent Prime Minister Ryutaro Hashimoto, a la President Bill Clinton, swiped a key opposition issue by backing bureaucratic reform--though not until 2010. Long-shot rival Ichiro Ozawa of the New Frontier Party offered a budget-busting, Dolesque pitch to halve corporate and income taxes.

None of the pledges seemed to matter to an apathetic electorate. On Oct. 20, only 59% of Japanese voters bothered to show up at poll booths, a postwar low. Those who did delivered the Liberal Democratic Party and its leader, Hashimoto, a resounding victory. The LDP, which held power for 38 years through 1993, locked up 239 seats in Japan's 500-member lower house of parliament. Now, Hashimoto will be far less beholden to junior coalition partners. The stage is set for an LDP-anchored government focused on fiscal prudence, modest deregulation, and a strong security relationship with the U.S. The three-year drive for serious change by Ozawa and other would-be reformers seems to have petered out.

A DRUBBING FOR REFORMERS. Yet this victory for the status quo is also a setback for a $5 trillion economy weighed down by structural woes. Bizarre land-use laws, while fine for Tokyo catfish farmers, drive up costs for everyone else. Heavy regulation has Japanese companies fleeing for cheaper digs elsewhere. A graying workforce is compounding the country's fiscal mess. And Japan lags behind in high-growth fields such as software, high-end computer chips, and the Internet. "Our educational system almost curbs creativity," laments Mitsubishi President Minoru Makihara.

Hashimoto certainly knows of his country's structural problems, but so far, his LDP has been bereft of solutions. One reason: The ties that bind LDP power brokers to farmers and construction companies, staunch defenders of the status quo, run deep. Days before the election, the LDP pitched a $44 billion public-works package that will enrich construction companies but do little to turbocharge Japan's economy over the long haul. That's hardly surprising from a party so inbred. Some 80 of its winning candidates come from long-running political families.

What's more, the LDP's calls for shrinking the number and size of Japan's ministries and agencies by early next century seem hollow. Few expect to see a serious reduction in the ranks of Japan's paper-shuffling bureaucracy, which has swelled 15%, to 2.1 million workers, since 1989. The government may shutter minor players such as the Hokkaido Development Agency. Yet few see Hashimoto taking a machete to the all-powerful Finance or International Trade & Industry ministries that really micromanage Japan.

The LDP, for instance, balked at calls to bust up Finance earlier this year during the public outrage over a $6 billion bailout of corrupt housing-loan corporations. And why bother when voters delivered a drubbing to Japan's most serious reformers? Ozawa's New Frontier Party fell below its preelection strength, and the much heralded New Democratic Party hardly registered with voters.

With the yen having fallen some 40% against the dollar and Japan showing at least some signs of recovery, Hashimoto can probably discredit calls for serious change. And apart from the chieftains running Japan Inc., there's little pressure from ordinary salaried workers to shake things up. Some 66% of Japanese voters are more than 40 years old. They have experienced Japan's stunning accumulation of wealth since the war, and they have trouble seeing the need for a wrenching overhaul of the system, which would at first increase economic turmoil at home before it yielded benefits.

Selling economic shock therapy to an aging populace is never easy. Yet even Hashimoto's government concedes that unless there's serious deregulation in such areas as housing, financial services, and telecommunications, Japan will consign itself to long-term growth rates of 1.75%. Investors figured that out the day after the election, driving the Nikkei stock index down sharply.

At least investors can sell out. Japanese voters have to live with their actions, which guarantee slow growth and even stagnation. Too bad no credible alternatives have appeared to spur the Japanese electorate to action.EDITED BY CHRISTOPHER POWER By Brian Bremner in Tokyo


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