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Manufacturing is still critical to the economy United States. Clyde Prestowitz, says it's time to start realizing the positive spillovers that manufacturing creates... Read more  

Events & Activities

Stephen Olson at Chinese Development Institute Conference


 Clyde Prestowitz giving presentation to CDI...


Steve Olson teaching trade negotiations at the Mekong Institute...


Stephen Olson to speak at upcoming workshop organized by the International Institute for Trade and Development on 

"Economics of GMS Agricultural trade in goods and services towards the world market"

Chiangmai, Thailand Sep 8-12.


(09/26/00 - Murakami) The Sogo Affair: The Party's Over, LDP

The Sogo Affair: The Party's Over, LDP
By Hiromi Murakami
26 September 2000
The Daily Japan Digest

When Japan's governing coalition recently agreed to pass an anti-influence-peddling bill, the Liberal Democratic Party-- seeking alternate ways to maintain its financial base-- immediately began demanding a relaxation of restrictions on campaign contributions from corporations. In other words, it appears that not much has changed in the house of the rising sun. Alongside repeated revelations of ongoing political corruption in Tokyo, this new round of maneuvering might lead observers to conclude that the Japanese are genetically incapable of political reform.

To the contrary, however, significant movement toward positive political change has already begun, and is being propelled by two powerful forces that will take the initiative out of LDP hands--growing public anger over business as usual, and the emerging realities of economic globalization. In postwar Japan, the LDP dominated Japanese politics largely because it presided over an economic "miracle" that made continuous growth seem to be a Japanese birthright. One much-loved benefit of that seemingly endless prosperity was not only lifetime employment for Japanese citizens, but also for LDP members.

Political Monopoly: With few rivals, the LDP held a political monopoly that enabled it to do business as it saw fit. Especially during the Cold War, with the U.S. backing the LDP, there was little danger of a serious Socialist or Communist challenge. So long as the economic joyride continued and serious political competition was nonexistent, the LDP could perpetuate a seniority-based system that relied on closed-door policymaking and pork barrel politics. It also curried a fuzzy relationship with the bureaucracy, which effectively took over the legislative and governing machinery.

In 1993, the party was ousted from power after 38 years, if only briefly, after the economic bubble burst. In what may foretoken the LDP's political future, a major pillar of its support was beginning to crumble. Since then, the rules of the game have been changing. In 1994, the coalition that replaced the LDP introduced a system combining proportional representation with single-seat districts that makes it more difficult for Diet members to keep their seats.

It also began the process of re-balancing voting weights between city and rural districts, so as to achieve a system more reflective of the electorate. Not surprisingly, therefore, a number of LDP heavyweights recently suffered defeat at the hands of city voters who rejected the notion that LDP's pork barrel politics will remedy Japan's economic malaise.

Other positive developments have been a clearer division of labor between bureaucrats and politicians, and a greater emphasis on public debate. Last year, Liberals leader Ichiro Ozawa lobbied through a bill making politicians, rather than bureaucrats, responsible for answering policy questions in the Diet. In the most recent election, 147 public debates gave voters a chance, for the first time in years, to evaluate the candidates' political visions for themselves.

Despite the new rules, the LDP has been striving to continue business as usual. But that may become increasingly difficult. If the coalition follows through on its agreement to pass the anti-influence-peddling bill in the next Diet, the LDP's core fund-raising method will become just a bit more difficult.

Demand for Transparency: More important, perhaps, the LDP seems oblivious to the powerful economic pressures that are now starting to drive Japanese politics. An illustration was provided by the Sogo bankruptcy, in which a government decision to bail out the department store chain was soundly rebuffed. Through boycotts and other means, the Japanese served notice that they now demand transparency and market-based policymaking.

Of additional interest is the catalytic role played by a foreign bank in the Sogo affair. While other Japanese banks en- dorsed Tokyo's bailout plan, Shinsei Bank--owned by Ripplewood Holdings--broke ranks and challenged the plan. Why? Like more and more Japanese companies whose shares are being bought by foreign investors, Shinsei has to adapt to global norms of transparency, competition, and market-driven decisions in its corporate governance. Thus, Shinsei's President Masaki Yashiro was using language foreign to many Japanese ears when he said of the Sogo bailout: "For the sake of our shareholders, such an enormous debt forgiveness could not be explained by economic rationale."

Globalization: It's time for the LDP either to heed the demands of economic globalization or get out of power. Japanese consumers and corporations alike will increasingly be demanding transparency, market-based policymaking, and competition--not just in the board rooms, but also in the Diet. Given the dynamics of the global economy, if the LDP is not willing to move in those directions, some other party will.

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