There's No Looking Back For Japan's Economy
The Old Guard May Slow Pace Of Reform, But They Can't Stop It
By Hiromi Murakami
14 March 2000
WASHINGTON--News that Japan's economy contracted by 1.4 percent during
the final three months of 1999 has dashed hopes that the Japanese
economy has awakened from its long hibernation.
Despite massive fiscal deficits and rock-bottom interest rates, the
government of Prime Minister Keizo Obuchi has failed to engineer a
sustained economic recovery.
More unsettling than the lackluster performance of the world's second
largest economy, however, is the emergence of a coalition within the
Liberal Democratic Party, Japan's most powerful political party,
opposed to economic reform. With elections expected as early as June,
the guardians of the old Japan are clinging to the status quo.
But after eight years of economic doldrums, many Japanese are convinced
that reform is necessary to realize the promise of a new Japan. In
fact, the evolution of Japan's social and economic institutions
suggests the old guard can only slow the pace of reform, not stop it.
Make no mistake, opponents of deregulation have a captive audience in
notoriously over-regulated industries. Upset by rising competition, the
taxi industry is asking the LDP to re-institute re gulation that had
limited the granting of permits to new entrants. Liquor stores are
demanding that the LDP protect their exclusive right to sell alcohol.
Small and mid-sized banks have asked the LDP to delay implementation of
a deposit insurance provision that would accelerate the onset of
In previous years, such interest groups may have been able to grind
deregulation to a halt. However, the ongoing changes in the Japanese
marketplace suggest that industry can no longer count on politicians to
protect them in an increasingly competitive global economy.
The public's expectations have also changed. Many Japanese are
complaining about tedious regulations and high prices. Although the yen
has more than doubled in value over the past 15 years, prices for many
goods and services in the Japanese marketplace remain exorbitant.
Even the commitment to lifetime employment, a trademark of Japanese
corporate values, is fading. Companies are reluctant to hire too many
college graduates, and instead are relying on more flexible employment
arrangements. In turn, Japan's twentysomethings are more open to
job-hopping than their predecessors.
The benefits of deregulation and the spread of information technology
are bearing fruit in some sectors, generating public momentum for
For example, deregulation and price competition over the past decade
have led to inexpensive airfares and affordable cellular phone rates
for Japanese consumers. In fact, Japanese households saved $700 per
capita during 1989-1999 through reduced telecommunication and utility
fees. As a result, young Japanese have doubled their spending on
telecommunications services during the past five years.
Further evidence of Japan's evolving capitalist model is offered by the
ubiquitous 7-Eleven chain, which is planning to provide electronic
banking services. While the convenience of electronic banking will be a
boon to consumers, its broader significance is a potential anathema to
financial regulators. The new banking chain will bypass the existing
financial framework, and may revolutionize the competitive dynamics of
the banking sector.
Japan's political landscape is also being altered by the forces of
change. As in the United States, the growing number of independent
voters is rapidly wielding greater political influence, even in rural
areas. Increased civic participation and the diffusion of political
support threaten to erode the LDP's core constituency of farmers.
Takuya Tasso, a young politician without ties to the political elite,
credited independent voters for his 1996 victory over a powerful LDP
incumbent in a rural district. Aware of the shifting political winds,
the LDP has recently reached out to include several pro-reform
politicians in its governing majority. Seiroku Kajiyama, a former LDP
presidential candidate, harshly critiqued Obuchi's economic policies by
writing, ''I will try hard to destroy the current system rather than to
pursue incomplete reform.''
The coming national election will serve as a referendum on public
support for economic reform. Recent opinion polls show that anti-LDP
sentiment is growing among independent voters, and the latest economic
data are reason for greater anxiety among Japan's political
Contrary to their instincts, those politicians who are using the
recession as an excuse to backslide on reforms are misguided. The
dramatic changes in Japan's civic, business and political institutions
ensure that the option of returning to the good old days is off the
Rather than try to turn back the clock, the guardians of the old Japan
would be better off to endorse a platform of reform. Or they should
make a graceful exit from the stage.