What do Japan’s parties think?Editorial 2009-05-22
Japan’s economic model is broken. Output fell in the first quarter by 4 per cent; a record decline. Its economic structure, however, is only one facet of Japan’s problems. The country is approaching an election when a change in government seems likely. This is a chance for the country to debate what it would like to be. It must be seized.
Japan is the world’s second largest economy. Its export-led strategy, however, has beached the country, leaving it at the mercy of others’ appetites. The largest contributor to the first-quarter dive was the decline in exports which, in turn, drove down private investment.
Japan is suffering because demand has fallen in the deficit consumer nations, hobbling it along with much of east Asia. But Japan’s exporters were also knocked back by the strengthening of the yen; at its January 2009 zenith, the currency was 50 per cent stronger than during its summer 2007 nadir.
Even with a strong currency, household consumption fell in the first quarter. Indeed, the only sector which expanded in the three months was the state; current government spending rose enough to offset falls in public infrastructure investment.
When robust growth re-emerges, whether it comes from China or the US, Japan will benefit. But simply awaiting the return of appetites elsewhere is a route to relative decline. Like Germany, another structurally mercantilist powerhouse, Japan must generate demand at home.
The future of the Japanese economy, however, is just one part of the debate that the country needs to have. It is struggling with a greying population, and the country’s low-income workers have struggled with stagnant wages for decades. This is a time for ideas.
In this regard, Japan’s politicians are failing. The ruling Liberal Democratic party looks set to lose the next election – due by the autumn – to the Democratic party of Japan. The LDP fits Japan’s broadly conservative tendencies but is faction-riven. The DPJ, meanwhile, is a coalition of social democrats and disgruntled LDP ex-members. Neither has a coherent philosophy.
Both parties have certain, specific pledges and have targeted narrow interest groups. Neither, however, has told voters enough to let them predict how the parties would respond to the country’s grand challenges or to unforeseen events. Rather than being asked to engage in microdetail, electors need to know in which direction the parties face. But, to achieve that, the parties will need to work out what they think themselves.