Abe can't revive Japan

Reuters

Japan's main opposition Liberal Democratic Party's (LDP) lawmaker and former prime minister Shinzo Abe delivers a speech after he was chosen as the party president during the party presidential election at the party headquarters in Tokyo September 26, 2012.

Article Highlights

  • During the DPJ's tenure, the country's economic fundamentals worsened, though they were weakened by years of LDP policy failures and an over-reliance on export-led growth.

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  • Failing to join the only significant global trade movement [the TPP] would make Japan appear more irrelevant than ever.

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  • Without a clear electoral mandate, or a compelling and forceful policy platform, it is hard to see how Mr. Abe can successfully govern, let alone revive Japan.

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This month, the Liberal Democratic Party (LDP) is poised to return to power in Japan for the first time since 2009. That result would put Shinzo Abe back in the premiership starting next year, giving him a second chance after his failed term as prime minister from 2006-07. Mr. Abe promises tough reform to get Japan finally going again, but history suggests he won't succeed.

For one thing, Japan remains in the midst of a generation-long political transformation. The LDP ruled Japan almost without interruption from 1955 through 2009, solidifying itself through a system of patronage. It took the bursting of Japan's bubble in 1991 for the LDP's long rule to start unraveling.

The alternative party didn't prove any better. In 2009, the Democratic Party of Japan (DPJ) seized the Lower House on a platform of transforming the country. Yet it wasted its mandate with a succession of lackluster leaders and too much focus on hiking the sales tax. Having lost public support and left Japan no better off than his predecessors, current Prime Minister Yoshihiko Noda dissolved parliament on Nov. 16.

During the DPJ's tenure, the country's economic fundamentals worsened, though they were weakened by years of LDP policy failures and an over-reliance on export-led growth. Japan's public debt now exceeds 220% of GDP. Japanese brands that formerly set world standards for innovation, like Sony and Toshiba are fast losing market share at home and abroad.

Japan thought it could fall back on a major role in global supply chains: providing high-quality components for semiconductors and automotive processors, among others. Yet the aftermath of the March 2011 tsunami showed that Japan was less important to global producers than China, the United States and others. The natural disaster would have been an opportune time for the DPJ government to push reform, but instead it hurt the economy by shutting down nuclear reactors and also threatening to tax carbon emissions.

Mr. Abe now enters this mess, claiming to have a plan to stanch the bleeding. He would counter the strong yen with an easy-money policy and likely gear up for more public-works projects of the kind Tokyo tried in the mid-1990s. In fact, most of what Mr. Abe has to offer is a replay of the LDP's Keynesian experiments from the 1990s, which failed to deliver growth. Only Japan's relatively strict monetary policy prevented that blowout from sparking inflation, which the LDP vows to now undercut.

Meanwhile, Mr. Abe remains vague on whether he will push for Japan to join the Trans-Pacific Partnership trade negotiations, which Mr. Noda has so far gone back and forth on. Given the LDP's traditional support from the agricultural industry, it is unlikely that Mr. Abe will be able to overcome rural opposition to the plan to enter the proposed tariff-free zone. Failing to join the only significant global trade movement would make Japan appear more irrelevant than ever.

Yet the greatest challenge Mr. Abe faces is pushing policy—any policy—through the fractured Japanese political system. The Japanese Diet, so long dominated by the LDP and the now-defunct Socialists, increasingly resembles a political kaleidoscope, with parties forming, breaking up and merging at a dizzying pace.

New parties dot the parliament, including former DPJ leader Ichiro Ozawa's People's Life First party, which itself has just joined the Japan First Party, headed by Shiga governor Yukiko Kada. Also waiting in the wings is the Japan Restoration Party, led by two conservative mavericks, Osaka mayor Toru Hashimoto and former Tokyo mayor Shintaro Ishihara.

The Dec. 16 elections for the lower house of the Diet are unlikely to help consolidate the voting blocks. Close to half of Japan's voters favor no party, and the LDP doesn't even reach 25% in polling. So Mr. Abe will have to pull together a coalition.

Its junior ally, New Komeito Party, will loyally stick with the LDP, but Mr. Abe will also need to spread the pork among the numerous smaller parties that have cropped up as the DPJ lost public support. Rumors are floating that the DPJ itself may break up if it loses the election. Its more conservative elements could form a party allied with the LDP, or could join the party directly.

Without a clear electoral mandate, or a compelling and forceful policy platform, it is hard to see how Mr. Abe can successfully govern, let alone revive Japan. He will need to convince a cynical public that he has ideas that will actually work. He will also need to form a coalition of the willing among numerous smaller parties that have their sights set only on gaining more seats. And he will have to deal with the DPJ back in its old role as an obstructionist opposition party.

To be fair to Japan, someone in the LDP has done this before. In 2001, the maverick Junichiro Koizumi unleashed a series of reforms aimed at reducing debt and privatizing state companies. He earned rockstar-like popularity and stayed in power for half a decade, the third-longest serving premier in Japanese history. The economy even grew 2.7% in 2004, at that time the highest among the G7 countries.

In 2006, Mr. Abe succeeded Mr. Koizumi, but failed to capitalize on Mr. Koizumi's reformist policies. This rang the death-knell for the old LDP and the traditional party system, and ensured Japan's second "lost decade."

Such a lackluster first term makes it hard to have confidence in Mr. Abe's second shot. But if he wants to recapture the trust of the voters and deliver that desperately needed growth, he needs only to embrace reform and revive Japan's animal spirits.

Mr. Auslin is a scholar at the American Enterprise Institute in Washington and a columnist for wsj.com. Follow him on Twitter @michaelauslin

 

 

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