DonÆt expect Japan to change under DPJ rule

Don't get me wrong: should the Democratic Party of Japan (DPJ) win the national election scheduled for the end of August, it would be a healthy tonic for Japan. But my colleague Dan Slater overestimates the impact of this changing of the guard on the fortunes of the Japanese economy.

He argued on July 24 ("DPJ win could revitalise Japan") that the insurgents' economic programme largely consists of measures that would rein in growing inequality and hand more money back to labourers and consumers, at the expense of big exporting companies.

Such moves include scrapping highway tolls, slashing petrol taxes, boosting pension provisions and raising the minimum wage. Slater calls this a partial solution to Japan's problems, which include export dependence, low standards of living and an increase in downward mobility.

This grab-bag of policies may be desirable, but given Japan's awful fiscal deficit, anything that reduces the power of the public purse is going to be resisted by the tax authorities. There already exist plenty of things that could do with a tax break. As editor of AsianInvestor, for years I have followed developments in Japan's pension industry, and its inability to support its young defined-contribution regulation with tax policy. This is but one example, one that I happen to understand.

It would be pleasing to see a newly installed prime minister Yukio Hatoyama drive the Diet to legislate such changes, but is it realistic? Even if the DPJ is gung-ho for such a move, could it actually get the measure implemented?

The reason for my scepticism regarding how much change the DPJ represents in the short run is that such matters are generally not left to politicians. What most commentators seem to miss is that unelected bureaucrats play a huge role in government policy. The nexus between bureaucrats, the incumbent Liberal Democratic Party (LDP) and big business goes back to the post-war recovery.

It would take a full generation of DPJ influence, pursuing the same old policies such as amakaduri (slotting in LDP grandees into corporate or ministerial sinecures), to develop the kind of cooperation between politicians and bureaucrats. An unreformed bureaucracy won't get its way under a DPJ administration, but it could form a powerful, if silent, resistance to novelty.

Slater suggests that some modest pro-consumer policies could be just enough to give the economy a boost; that it needs a nudge to get going, and from there it can pick up speed. Maybe. This is certainly an outcome to be welcomed. I'd argue, however, that any such boost will come from exports to China, and will be temporary; it could happen on the DPJ's watch, but that's a matter of coincidence. (Funny how the stock market is booming today, under the dying gasp of LDP rule.)

The Japanese malaise is rooted in its demographics. Even if DPJ rule turns out to be vigorous and full of bright ideas -- which would be a surprise -- it is increasingly difficult to motivate a nation of sexagenarians to get reform fever. The unwritten consensus of Japanese policy for the past several years has been to manage this decline rather than confront it. Rich old people like to be left alone.

The main reason to be hopeful about the DPJ's winning next month's election is that it could lead the LDP, in opposition, to develop something like policy ideas to win back power; which in turn could transform the DPJ into a meaningful alternative. Right now both parties are multi-faction vehicles, but there's a good chance they can evolve into something that serves the citizenry. That process would involve quite a lot of debate about the economy, immigration, and so on -- enough of a debate, perhaps, to prod society from its slumber. But that is an evolutionary process, and not something that suggests immediate economic cures.