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Koizumi for President

This article is more than 10 years old.

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I am not serious, of course.  The point I want to make is that the ideology and policies pursued by Prime Minister Koizumi during his long (by Japan standards) 2001 to 2006 tenure in office--during which he boldly proclaimed “no pain, no gain”--are precisely what the U.S. needs now.

There are many parallels in the contexts on Japan in 2000 and the U.S. today.  Japan—and the rest of Asia—had been hit by the Asian financial crisis.  The government had responded to the crisis by doubling up on deficit-financed “stimulus” spending that had become an addiction for politicians and favored interest groups.  The result was a huge increase in government debt but little sustained growth.

Koizumi, a “maverick” within the government Liberal Democratic Party (LDP) had a different policy prescription for promoting economic growth:  freer markets, de-regulation, privatization, and trade liberalization.  The boldness and clarity of Koizumi’s agenda was something new for Japan, at least in the post-war period.  Where it was fully implemented (which, unfortunately for Japan, was in but a few areas), the impact was big and highly positive.

Since Koizumi left office, his policies and (usually incomplete) reforms have been blamed by conservative and interest group-tied politicians in the currently governing Democratic Party of Japan (DPJ)—as well as apostates and opportunists in the LDP and other splinter parties--for the slowdown in Japanese growth, for increased income inequality, for higher unemployment and exploitation of labor (particularly part-time and contract workers).

In almost all cases, the criticism is the opposite of the truth.  Explaining why this is so, and justifying what Koizumi tried to do and why free market reforms are still the only hope for Japan, are the themes in an outstanding new book by an academic and policy player during and after the Koizumi years, Yashiro Naohiro(八代尚宏).  The book’s title “ 新自由主義の復権―日本経済はなぜ停滞しているのか”translates as “The Restoration of Neo-Liberalism—Why Japan’s Economy is Stagnating.”

Yashiro deftly describes Japan’s economic stagnation as resulting from decades of increasingly rigid and intrusive government, and particularly central government, interference in economic activities at all levels and in almost all sectors, but particularly in agriculture and services.  He is fascinating in relating how the great statist central planning, regulation, and national infrastructure construction schemes launched during the 1972-74 premiership of Tanaka Kakuei were the beginning of the end of Japan’s “miracle growth” years.

Features of “Tanaka Kakuei” political economy were 1. the “convoy system” of innovation and competition-stifling regulation of the financial sector, plus expansion of the postal savings system as a way to channel more savings into central government building programs; 2. restrictions on competition with “small and medium sized” enterprises in a host of sectors, particularly distribution and wholesale/retail; 3. tightening of anti-competitive regulations in electric power, telecommunications, aviation and  public works sectors (encouraging cartelization and prohibiting private sector entry); 4. huge increases in the protection and price supports for rice and other restrictions on entry to increase the transfer of income from cities to the countryside.

One central tenant of Tanaka Kakuei grand scheme was “uniform development throughout Japan.”   What this essentially meant was tapping the income of cities in the more developed parts of Japan to support building infrastructure and other projects in Japan’s poorer, more remote, areas.  This tenet was enthusiastically embraced by politicians from Japan’s regions, for whom it was a way to dole out money and jobs to local residents (especially local construction companies), as well as by the central government bureaucracy which was able to expand throughout the country down to the village level as it disbursed funds and monitored usage.

Does anyone recognize the Obama jobs plan?

This system was hugely wasteful—helping to slow Japan’s growth from the level of about 10 percent during the 50s and 60s, to only 5 percent during the 70s and 80s, but politically popular, and was largely in tact when Koizumi assumed office.   His reform proposals included deregulation and privatization—most notably of the post savings system—as well as devolution of authority and financial resources to the local level.

The Tanaka Kakuei system had imbedded and institutionalized a Napoleonic centrally-directed, uniform national governing model.  This model was fundamentally de-empowering of the prefecture and lower level government units.  Yashiro observes that devolution of administrative authority is equivalent to deregulation and freer markets; they are, in fact, two sides of the same political economic coin.

The Koizumi government sought both greater local level autonomy and authority—i.e., greater scope for experimentation and innovation—as well as deregulation and privatizations, as the only way to revive Japan’s economic dynamism and growth.   To a tragic degree, his reforms fell short or were successfully rolled back by successor governments.

Still, as Yashiro points out, it is now clearer than ever that the way forward for Japan, if it is to revive its economy, is the way plotted by Koizumi and his reformer in 2001-2006.  After the missteps and back steps of the DPJ government, there are probably few objective people who can doubt this.   There are many lessons in the Koizumi experience for the U.S. as well.