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

Chiangmai, Thailand Sep 8-12.


(03/14/00 - Murakami) There's No Looking Back For Japan's Economy

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
Bridge News

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 competition.

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 further reforms.

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 establishment.

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 table.

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.

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