"Outlook Grim: A Few More Years of Confusion"
By Amy McCreedy
Asia Program Associate
Professor, Keio University
Former Vice Minister of Finance for International Affairs, Ministry of Finance, Japan
Eisuke Sakakibara shared his thoughts on the future of the Japanese government and economy at an Asia Program lunch meeting on January 10. Drawing on 30 years' experience with Japan's Ministry of Finance, he expressed pessimism for the short term but optimism for the long term. He presented a bleak picture of the ruling Liberal Democratic Party (LDP), describing it as rigid, short-sighted and utterly ruled by special interests. He predicted a few more years of "confused transition," but emphasized that frustration is mounting--pressure for structural change will eventually bring new ideas and leaders into the political process.
New leadership is necessary to continue deregulation and spur efficiency. Japan is experiencing an IT investment boom, but only in regard to big, export-oriented corporations. By some accounts, these corporations are now more productive than their United States counterparts, but they employ only 10 percent of the workforce. Most of Japanese companies (the "second tier") remain sluggish as a result of government protection and assistance. In fact, industries such as farming, food processing, construction, and real estate are even more protected and politicized than 10 years ago.
As the economy continues to stagger, the ruling party loses support. But this very weakness prompts the politicians to engage in more pork-barrel spending, to preserve their traditional power base. The opposition Democratic Party cannot mount a successful takeover because of lack of organization. Sakakibara expressed fears that the Nikkei stock exchange may go as low as 12,000 and the yen as low as 120 to the dollar.
However, he predicted that the situation will improve in about three years. When change comes, "it will be quick." The Japanese people have realized that organizational change is imperative, although they find it difficult to let go of a system that worked so well for so many decades. Sakakibara noted that LDP politicians are losing gubernatorial races even in rural, typically conservative prefectures.
"As always, success is failure." The Japanese people have achieved prosperity and a remarkable level of egalitarianism. But the distribution of income has succeeded too much: a farm worker makes as much as a white-collar employee, as a result of protection of the agricultural industry. Japan has a way to go before it will be sufficiently market-driven to join the "new economy."