Elections in Japan: Koizumi's $3 trillion gamble

Posted in Japan , Asia | 30-Aug-05 | Author: Jeff Kingston| Source: International Herald Tribune

Japan's Prime Minister Junichiro Koizumi speaks to the crowd during the first official utterance in the campaign for his Liberal Democratic Party in the parliament's lower house election near Kichijoji railroad station in Tokyo Tuesday morning, Aug. 30, 2005.
TOKYO Japanese citizens keep $3 trillion in postal savings and insurance, but for decades politicians serving vested interests have been able to siphon off these public funds. Prime Minister Junichiro Koizumi sees postal reform as crucial to stemming Japan's endemic corruption. So when his reform legislation was blocked in Parliament, Koizumi took a gamble and decided to take the issue to the people.

Postal reform legislation had squeaked by in the lower house of the Diet, Japan's Parliament, in July, but was convincingly defeated in the upper house on Aug. 8, in no small part because of defections from within Koizumi's own Liberal Democratic Party. So Koizumi promptly dissolved the lower house and called for elections on Sept. 11.

In this political game of chicken, Koizumi didn't blink. He wasted no time in ousting the dissidents from the LDP and is backing pro-postal reform candidates to unseat them. This intra-party family feud has dominated the election coverage, with three small new parties emerging that include ousted LDP members.

Koizumi is serious about postal privatization, but the defeat of his legislation provided a good excuse to get rid of colleagues he has dubbed "the forces of resistance." Koizumi's term as party president ends in September 2006 and he wants to be remembered as the man who smashed the factions that have dominated the LDP since its inception in 1955. He sees the factions as representing the vested interests that have long had their snouts in the public trough, drawing off funds for roads and bridges to nowhere.

Japan has a supplementary budget called the Fiscal Investment and Loan Program, or FILP, which dwarfs the official budget. In addition to dubious sand and gravel contracts, this opaque budget subsidizes many state-owned enterprises that are awash in red ink. FILP spends money that the government borrows from the $3 trillion in postal savings and insurance, helping explain why Japan's public debt as a percentage of gross domestic product is more than 150 percent. Privatizing the postal system is about fiscal discipline and who decides how this $3 trillion is invested, loaned and spent.

Koizumi has deftly managed the news media so that he is contesting the election on his own terms. Koizumi has been able to assume the reform mantle, a major asset in a country where polls indicate that more than half the people say they favor reform.

But the devil is in the details. People on the street and in the rice paddies seem confused about the implications of postal reform. The news media have been content to focus on the theater of politics orchestrated by Koizumi. Those who initially claimed that this election would lead to a significant political realignment and a system where principles trumped expediency have sensibly gone silent.

Koizumi benefits from the lack of clarity concerning postal privatization, since his plan has been so watered down that it is uncertain whether much will actually change. As with the 1985 privatization of Japan National Railways, NTT and Japan Tobacco, the process will be gradual. Privatization à la Japonaise minimizes disruptions and allows time for adjustment. Economists and business people want more dramatic measures, but they don't have to face elections.

The good news is that postal privatization is already under way and postal savings are no longer invested at the whim of the Ministry of Finance. Habits and inclinations persist, but postal czars in the future will grow less inclined to fund white elephant projects that show little prospect of plausible returns.

Koizumi is frequently criticized for presiding over a Japan where there are growing gaps between "haves" and "have nots" and for introducing a sharp-elbowed version of enterprise capitalism based on the U.S. model. Advocates of maintaining the status quo argue that public spending is beneficial, generating jobs, improving infrastructure and lessening rural-urban income disparities. Naturally they skirt the issues of wasteful spending and endemic corruption that have left this status quo irredeemably tarnished.

But the ready-mix politics of the LDP's "construction state" are giving way to new priorities and needs. In Japan's rapidly aging society, voters are increasingly interested in improving medical care, pensions and social welfare services for the elderly and working mothers. Koizumi is draining the trough for pork-barrel projects and patronage while repositioning the LDP, whose capacity for reinventing itself is legendary.

For now it looks like the voters are behind Koizumi, if for no other reason than that the economy is recovering. In response to Koizumi's gamble of dissolving Parliament and calling elections, they are gambling that the consequences of reform are preferable to the discredited ways and means of the status quo.

(Jeff Kingston, director of Asian studies at Temple University Japan, is the author of 'Japan's Quiet Transformation.')