Japan at the Crossroads

GERALD L. CURTIS

ISSUES

Analysis from the East-West Center SUMMARY Japan, whose modern history includes revolutionary change during No. 41 September 1999 the Meiji Restoration and after WWII, is again facing the prospect of remaking The U.S. Congress established the East-West Center in 1960 to itself. This time the impetus is a decade of stagnant economic growth and the foster mutual understanding and cooperation among the govern- resulting pressures from an uneasy electorate and from worried Asian neighbors ments and peoples of the Asia Pacific region, including the United and the U.S. In response, the Japanese government is now promising extensive, States. Funding for the Center comes from the U.S. government even radical, reform. But such rhetoric must be viewed with caution. For Japan’s with additional support provided by private agencies, individuals, postwar economic success has made its citizens leery of fundamental change while corporations, and Asian and Pacific governments. simultaneously undermining the four major pillars of the modern political system: The AsiaPacific Issues series contributes to the Center’s role as a public consensus on national goals; the presence of large, integrative interest a neutral forum for discussion of issues of regional concern. The groups; a powerful and high-prestige bureaucracy; and one-party dominance. views expressed are those of the author and not necessarily those Meanwhile, a fifth pillar of modern Japan still stands: the U.S.–Japan alliance. of the Center. Though often buffeted by trade disputes, it is misunderstandings about regional

Published with the support of the political and security issues that really threaten the relationship. If it were to col- Hawaii Pacific Rim Society lapse, so might expectations for incremental and constructive change in Japan. 2 Analysis from the East-West Center

Japan faces problems today more serious than at any From Denial to Calls for Radical Reform time since the early 1950s. Indeed, many Japanese The response of Japan’s political leaders to the eco- consider the challenges that now face their nation to nomic fallout generated by the bursting of the bub- be as momentous as those it confronted at the time ble economy has cycled through three distinct phas- of the Meiji Restoration in 1868 and in the imme- es. First was the phase of denial in which Japanese diate aftermath of World War II. Threatened by leaders refused to admit the need for a basic course western imperialism in the mid-19th century, the correction in the nation’s macroeconomic policy reformers that rallied around the Meiji Emperor mix. Instead, the government in the mid-1990s embarked on a crash program to create a “rich raised the consumption tax from 3 to 5 percent country, strong army” and to catch up with the and passed legislation that committed Japan to West in order to avoid being overrun by it. Under move quickly toward a balanced budget. This only occupation by allied forces after World War II, succeeded in aborting economic recovery and mak- Japan remade itself again. Shigeru Yoshida, the ing things worse. prime minister through most of this formative post- This gave way to a second phase of grudging war period, laid down a policy line that was to acceptance of the need for fundamental changes in become the cornerstone for domestic and foreign key aspects of economic policy. The government policy for the subsequent half-century. It called for saved the banking system with a huge infusion of alliance with the United States, democracy, and an funds. Prime Minister Keizo Obuchi, as soon as he unswerving commitment to economic development. came into office in July 1998, quickly adopted an Japan is again at a major crossroads. Following aggressively expansionary fiscal policy. the bursting of the so-called bubble economy in the Now Japan has entered a third phase in which early 1990s, it has confronted low or no economic political leaders, beginning with the prime minister, growth, rising unemployment, and the near collapse have embraced a rhetoric of radical reform. Talk of its banking system. The institutional arrange- about the need for greater transparency and account- ments it devised to carry out the developmental ability, for greater political control over the bureau- strategies that resulted in Japan becoming the cracy, for less job security and greater labor mobility, world’s second largest economy are now widely and for more deregulation and openness to foreign thought to be an impediment to needed change. investment is now part of the mainstream discourse While groping, so far without success, for a policy in Japan. mix that would get Japan back on a track of sus- One must be cautious about accepting this Some Americans tained growth, the government has had to face an rhetoric at face value. Some of the same Americans electorate at home that is nervous about the future who just a few who just a few years ago insisted that Japan would and dissatisfied with its leaders, as well as neighbors years ago believed never change are now convinced by their Japanese in Asia and the United States who fear that Japan’s that Japan would interlocutors that a veritable revolution is underway failure to recover quickly will inhibit Asia’s rebound and that Japan is remaking itself in the image of the never change from the financial crisis. American political economy. These excessive expec- are now convinced Pressures abound for change, and how Japan tations are bound to be disappointed. a revolution is responds to them will be largely determined by a Hyperbole, no doubt, serves an important func- struggle among domestic interests competing within under way tion in Japanese political discourse by helping to a democratic political system. There are certain to generate the consensus needed for even modest be important changes in the Japanese political econ- change. All of the candidates, for example, in the omy, but they are likely to be less extensive than was Liberal Democratic Party presidential election that true for the two previous critical turning points in followed the 1998 resignation of Prime Minister modern Japanese history. Ryutaro Hashimoto engaged in it. Challenger 3 Analysis from the East-West Center

Seiroku Kajiyama repeatedly argued that Japan The Pillars of Success would “sink” unless it changed its economic struc- The problems that Japan faces today are compounded ture in fundamental ways. The favorite expression by the fact that they have been created in large part of the successful candidate, Keizo Obuchi, was that by Japanese success itself. It is not simply that this Change in Japan Japan “had no tomorrow” unless it changed its eco- success has rendered obsolete patterns of behavior nomic and political system. Japan, of course, has will occur in an and institutional arrangements that were appropri- been changing and it will continue to do so. Dereg- evolutionary, not ate to a developing rather than an advanced econo- ulation of the financial sector, the so-called “Big revolutionary, my. Even more important is that Japanese economic Bang,” is creating major changes in the organization success has weakened or caused the collapse of four fashion of the Japanese financial industry and is opening of the major pillars supporting the political system that industry to foreign investment to a degree un- of the postwar period. Japan now confronts the imagined even a few years ago. There has been a far- challenge of repairing, replacing, or doing without reaching liberalization of the distribution sector. these key supports of the Japanese political system Changes in other industries, including telecommu- as we have come to know it. nications, are gathering steam as international com- petition forces industries to restructure. The unraveling consensus. The single most impor- Nevertheless, change in Japan is going to occur tant such pillar was a public consensus on national incrementally, in an evolutionary rather than revolu- goals. Japan in the postwar years was deeply divided tionary fashion. In this sense, one cannot draw too over issues of foreign and defense policy and over facile an analogy between present-day Japan and the the constitutional order imposed by the United Japan of the Imperial Meiji period or the post- States. But there was a consensus that Japanese World War II period when, as a shattered country should dedicate their energies to bringing about the under Occupation, it could be forced to accept a recovery of an economy devastated by war and to program of radical political, economic, and social resume the long-term objective of catching up with change. Japan today is a democracy in which gov- the West, this time by peaceful means. Partly because ernment policy reflects the push and pull among the society was so deeply divided over other issues, voters and interest groups pursuing their own par- the ruling Liberal Democratic Party put great empha- ticular interests. Moreover, Japanese public opinion sis on the unifying themes of economic recovery, is ambivalent, and the political leadership all too rapid industrial growth, and what amounted to a accurately reflects that ambivalence. People seem to virtual ideology of “GNPism.” recognize that things have to change if Japan is to The pervasiveness of a consensus to concentrate overcome its problems. At the same time, they are the nation’s energies on rapidly growing the econo- loath to scuttle institutions and ways of doing things my made possible many of the well-known features that have brought them a level of economic pros- of postwar Japan. It meant that consumers were perity and peace that few imagined possible even a willing to defer consumption in order to fund invest- few short decades ago. ment and willing to put up with high consumer It is also sobering to remember that even in the prices and low interest rates on their bank accounts. Meiji period it took a good quarter of a century for It meant that the bureaucracy was given great lati- Japan to settle on a new governmental structure and tude to implement policies to achieve rapid eco- that now, half a century after the end of the Occu- nomic development. It meant that the LDP would pation, scholars increasingly tend to the view that seek to retain power by downplaying divisive issues, reforms during that period brought about less fun- such as military policy, and assuring that its key damental change than the reformers anticipated. bloc of rural supporters would be the recipients 4 Analysis from the East-West Center

of agricultural subsidies and other forms of govern- The result is an ambivalence about change and ment largesse. The public consensus on growth was an absence of consensus. Many Americans do not also sustained by the government’s commitment to hesitate to lecture the Japanese about how they pursue both rapid economic development and rela- must change, just as Japanese lectured a decade ago Japanese do not tively equitable income distribution. The “miracle” when their economy was booming and the U.S. one compare their of postwar Japan is not that it grew fast but that it was not. But Americans, and especially American lives to those of did so while redistributing income more equitably officials, would be well advised to back away from than almost all other OECD countries. publicly berating Japanese for not doing what Americans but to Economic success and the social changes that it Americans think they should do to manage their those of their generated have undermined this public consensus own economic affairs. Building political support for parents on goals. Japanese, of course, want their nation to new policy departures in Japan will take time and prosper, but it is not as clear as it once was what the results will not remake Japan in the image of the prosperity means or what the appropriate policies United States. To expect otherwise is to invite disap- are to achieve it. Japan has become a pluralistic pointment. To demand otherwise is to sow the seeds society and, under even the best of circumstances, a of unnecessary and counter-productive friction in low-growth economy. The competition for limited U.S.–Japan relations. government resources is far more intense than dur- ing the period of rapid growth. And there is broad From interest groups to special interests. Another agreement that the Japan model that helped bring pillar of the postwar system was the existence of about rapid economic growth is not a suitable large interest groups that exerted a strong influence model for managing a developed economy. over political parties and government and that played It is much more difficult to generate a public an important role in setting the national policy consensus on national goals in this environment. agenda. Organizations representing big business, This is particularly the case because Japanese, quite labor, and farmers were cohesive and powerful. to the surprise of many foreigners who think of During the period of rapid economic growth, people in urban Japan living in “rabbit hutches,” roughly from 1955 to 1970, the nature of the commuting to work on over-crowded trains, and demands they pressed on the government—whether paying exorbitant prices for the goods they buy, with regard to industrial policy, the government- exhibit high levels of life satisfaction. The basic guaranteed rice price, or labor wages and condi- reason is that Japanese do not compare their lives tions—were national in scope. These organizations to what they hear is the lifestyle of middle-class aggregated the interests of thousands of groups and Americans. They compare them to what they have millions of people into a limited set of coherent and experienced in the past or what they have been told competing policy demands. In so doing they played by their parents about the difficulties they faced a crucial role in defining the nation’s policy agenda only a few decades ago. There is a consequent reluc- and in structuring political competition among its tance to part with practices that have been associat- political parties. ed with the successful economic policies of the post- As Japan’s economy matured, the interests of war period and a fear of flying into a future of business, labor, farmers, and other groups became reduced job security, greater social inequality, and more diverse and the earlier cohesion of organizations no guarantee of economic success. And despite the such as the big business community’s Keidanren, or United States’ spectacular economic performance in the national federations of labor unions, or the recent years, the American model of unfettered cap- farmer’s agricultural cooperative association weak- italism holds much less appeal for the mass of ened. It became increasingly difficult for any of Japanese than the American dream of freedom, them to speak with a single, clear voice on policy democracy, and welfare state capitalism did in the matters because their members had developed dif- early postwar years. ferent and conflicting interests. 5 Analysis from the East-West Center

The decline in cohesion and power of large, inte- The failure of the best and the brightest. A third grative interest groups is evident to a greater or lesser pillar of the postwar political system was Japan’s degree in all advanced, “post-industrial” democracies. administrative bureaucracy. For over a century Industrialization encourages a pattern of interest Japan’s elite bureaucrats have manned key positions aggregation among workers, farmers, and business of state authority and power, and they possessed people. Post-industrial affluent, educated, media- high morale, a sense of mission, and a reputation saturated, middle-class societies like Japan or the for competence and integrity. Bureaucrats might United States, where the majority of the labor force have been haughty and arrogant, as exemplified by is employed in services rather than in the manufac- the prewar expression “bureaucrats exalted, common turing sector, encourage a pattern of interest disag- people despised” (kanson minpi), but the image of the gregation, of a politics of “special interests” rather Japanese bureaucrat was one of a man of ability and than interest group politics. Through their political dedication who had foregone opportunities for activities, large, integrative interest groups helped material gain in order to serve the nation. determine the overall policy agenda of parties and Events in the 1990s profoundly damaged the of government. The politics of the special interests bureaucracy’s reputation and weakened bureaucratic encourages competition within as well as between morale. Japanese are accustomed to corruption political parties, as individual politicians energetically among their politicians, but the public was stunned lobby on behalf of “their” special interests. by revelations in the 1990s of corruption among The shift from interest group politics to the poli- professional bureaucrats, including elite bureaucrats tics of the special interests does not mean a decline in the Ministry of Finance. When it became clear in in the influence and power of social groups in the the mid-1990s that the nation’s best and brightest political system, but rather the fragmentation of that staffed the upper reaches of the bureaucracy that power and influence. In some ways special were not only not above the temptations of corrup- interests are more powerful because they tend to tion but also were responsible for policy mistakes pursue their goals through individual politicians that exacerbated Japan’s economic problems, a spate who are dependent for their very political survival of bureaucracy bashing ensued that is unprecedent- on their continuing support. In industrial societies ed in Japan’s modern history. interest groups provided cues to political leaders The damage done to the bureaucracy’s image of that helped define broad policy goals. The politics competence and integrity in the 1990s cannot be The weakening of the special interests, almost by definition, eschews undone. Japan’s elite bureaucrats will continue to be of bureaucratic concern with overarching issues in favor of “special” major players in the decision-making process, but authority is objectives. they cannot regain the confidence of the public or These developments in the fragmentation of of the political leadership that they once enjoyed. irreversible interests further inhibit a process of rapid change. Politicians are insisting on exercising greater control Those who are threatened by change are more likely over the policy process and on weakening the for- to work hard to prevent it than are people who mal powers of the bureaucrats. The bureaucracy has stand to gain from change but are less well orga- been thrown on the defensive and it has no choice nized than “vested interests” to bring it about. Japan but to compromise with these political pressures. is in the process of developing a more vibrant civil The short-term consequence of this weakening of society, characterized in part by a proliferation of bureaucratic authority has been to create something voluntaristic organizations, but this is bound to of a policymaking vacuum. The decline in bureau- make the policy process more rather than less cum- cratic authority has not been accompanied by the bersome and contentious. strengthening of alternative mechanisms for formu- 6 Analysis from the East-West Center

lating policy. There is a dearth of think tanks, and they can convince the electorate that they are capa- politicians and parties have weak staff support. This ble of dealing with the nation’s problems. Parties situation not only complicates processes of policy- that fail in this task will be replaced in power. The making, but appears to have reinforced public cyni- dynamics of democratic governance in Japan severe- cism about government in general and a lack of ly constrain political leaders in their policy choices, confidence in politicians and parties. but they also push those leaders to make important policy changes. The changing party system. The fourth pillar that supported the Japanese political system is LDP one- Sustaining the U.S.–Japan Alliance party dominance. This pillar collapsed in 1993 when There is a fifth pillar that has provided the founda- the LDP lost power for the first time since its found- tion for the Japan the world has come to know over ing 38 years earlier in 1955. The LDP came back to the past half-century. This pillar—the U.S.–Japan power a year after losing it as part of a coalition alliance—still stands. If it were to collapse, there government. But its hold on power is tenuous, and would be a need to fundamentally reassess the prog- predictions about whether it will survive as a gov- nosis offered here for incremental, evolutionary, and erning party or is forced back into opposition are fundamentally constructive change. hazardous at best. Japanese voting behavior is unpre- It goes without saying that the world that existed cedentedly volatile. Most Japanese support no par- when the U.S.–Japan alliance was initially forged in ticular political party, and even among party identi- the early postwar years is hardly the world as it is fiers the intensity of support is quite weak. Social today. Japan is a rich and powerful country rather change is causing the disintegration of traditional than a defeated and impoverished enemy. The political machines that were so important to the Soviet Union has disintegrated, the Cold War has way individual politicians mobilized support. ended, and both the United States and Japan have Japanese voters have become more like American full diplomatic and growing economic relations ones in their readiness to vote against the incum- with an increasingly powerful People’s Republic of bent party and incumbent politicians if they do not China. There are serious potential threats to peace perform well. Whether or not the LDP succeeds in in East Asia, most notably involving Taiwan and cobbling together another governing coalition after North Korea. There are also serious, if at the moment The era of stable lower house elections that must be held no later subdued, tensions between the United States and than October 2000, there can be no doubt that the one-party rule Japan over their economic relations. era of stable one-party rule in Japan is over. is over Yet, despite all the momentous political and eco- The democratic dynamic. Japanese politicians nomic changes that have occurred in the East Asian confront an uneasy but conservative electorate that region and globally in recent years, the U.S.–Japan is pressing diverse and often contradictory demands alliance remains a crucial factor not only for Japan on the political system. Interest groups have prolif- itself but for the stability of the East Asian region as erated and some of the most energetic of them are a whole. The United States has vital interests in see- motivated by the desire to prevent major changes ing that it is not abandoned, nor its credibility com- from occurring. The policy process has become promised. messy and contentious, bureaucratic power has For nearly 30 years, the U.S.–Japan relationship weakened, and government leaders, lacking a secure has been battered by repeated and often bitterly parliamentary majority, are being forced to hammer contested trade disputes. One should not underesti- out compromises with opposition parties in impor- mate the costs that this history of trade frictions has tant new ways. exacted, especially in eroding trust and goodwill on Of the pressures for change at work, perhaps the both sides of the Pacific. It is even more important, most important is the realization among political however, not to exaggerate the dangers of a “trade leaders that they can only hope to hold power if 7 Analysis from the East-West Center

war” and of a major breakdown in U.S.–Japan rela- relationship by the president, secretary of state, and tions as a result of economic differences. other top governmental and political leaders than The American and Japanese economies—the has been the case so far. Recent events underscore two largest national economies in the world—have the importance of this point. The U.S. now become truly intertwined and interdependent. It is President Clinton’s visit to China in the summer sees its security virtually impossible for either Japan or the United of 1998 created apprehensions in Japan about a shift treaty with Japan States to damage the other without harming itself. in U.S. strategy in East Asia. Even more important Both countries need to guard against letting trade than the symbolism conveyed by his decision not to more in terms of disputes spiral out of control, but the most serious stop in Japan after visiting China was his statement insuring regional threats to the structural soundness of the pillar of in a joint press conference with President Jiang Zemin security than of the U.S.–Japan relationship in the coming years are criticizing Japan for failing to deal more forthrightly defending Japan not likely to be generated by trade disputes. They with its economic difficulties. This created the impres- against attack are far more likely to result from differences and sion in Japan that the United States viewed its “strate- misunderstandings about regional political and gic partnership” with China in a more positive light, security issues. at least in terms of economic relations, than it did its It is far more difficult to manage bilateral secu- alliance relationship with Japan. rity relations in post-Cold War East Asia than it was In the fall of 1998 the North Korean government within the simple and compelling framework of the launched a missile that passed through Japanese air Cold War. Japan cannot be confident that what it space. The realization that North Korea possessed a perceives as threats to its security will necessarily be capability to deliver a missile to Japan that could carry perceived in similar terms by the United States. The a biological, chemical, or nuclear warhead greatly United States, now that the Soviet threat is gone, shocked the Japanese. So too did the relatively tepid sees the purpose of the U.S.–Japan security treaty U.S. response to North Korea’s missile launch, raising more in terms of how the two countries can work questions in Japan about the credibility of American together to insure regional security than in terms of commitments to Japan’s defense. defending Japan against military attack. Avoiding misunderstandings and an erosion of goodwill and sustaining the viability and the credibili- Meeting new realities. Important steps have been ty of the U.S.–Japan security relationship should be taken to adjust the security relationship to meet priority concerns of those responsible for the manage- these new realities. The joint declaration on security ment of U.S. foreign policy. There is no shortage of relations that President Clinton and Prime Minister rhetorical support among American political leaders Hashimoto issued in April 1996 and the subsequent for the idea that a strong U.S.–Japan security alliance adoption of new guidelines for defense cooperation and a deepening and broadening of American and between the two countries provide a basis for ex- Japanese economic ties are vitally important to secure panded bilateral cooperation on regional security American national interests in the East Asia of the issues, subject to well-known and only slowly chang- 21st century. The challenge now is to build an appro- ing Japanese political constraints on the use of mili- priate strategy rooted in this important truth. tary force. Effective U.S. management of its bilateral politi- Conclusion cal and security relationship with Japan, however, It is important not to underestimate the complexi- requires more than joint declarations and good gov- ties of the challenges Japan faces at the turn of the ernment-to-government relations at the working century. It not only finds itself in a prolonged eco- level. It requires far more focused attention on the nomic recession but it confronts a kind of “system political and security dimensions of the U.S.–Japan fatigue.” The four major pillars supporting the post- 8 Analysis from the East-West Center

war system—a public consensus on national goals, West nearly 150 years ago to the present day, is a the presence of large, integrative interest groups, a determination to succeed. The energy this produces, powerful and high prestige bureaucracy, and one- especially in a society that is well educated, techno- A decade from party dominance—have all weakened or crumbled, logically advanced, affluent, and increasingly aware now Japan will in no small part because of the success they engen- of the extent of the problems it confronts, can over- not look like the dered. Finding new goals, innovating new policy- come many obstacles to reform. A decade from now making mechanisms, creating new channels of Japan will not look like the United States but it will U.S., but it will access for public influence over the policy process, be considerably different from the Japan that exists be considerably and restructuring the party system present formida- today. Assuming that its external environment different from ble challenges. remains peaceful and stable, a condition that can the Japan that It is also important, however, not to underesti- only be met if the U.S.–Japan alliance remains strong, exists today mate the ability of Japanese to deal with these chal- Japan will emerge from its current problems a more lenges successfully. One thread of continuity in vibrant society and even more powerful economy. modern Japanese history, from the opening to the

About this Publication Recent AsiaPacific Issues About the Author

The AsiaPacific Issues series reports on No. 40 “The Struggle for Free Trade” by Gerald L. Curtis is Burgess Professor of topics of regional concern. The views Michael J. Delaney. June 1999. $2.50 plus Political Science and former Director of the expressed are those of the author and not shipping. East Asian Institute, Columbia University, and the author of numerous works on necessarily those of the Center. No. 39 “Strapped for Cash, Asians Plunder Japanese politics, foreign policy, and The contents of this paper may be repro- their Forests and Endanger their Future” by U.S.–Japan relations. His most recent duced for personal use. Copies of the Deanna Donovan. April 1999. $2.50 plus work, on which this paper is based, is paper are available for $2.50 plus shipping. shipping. The Logic of Japanese Politics (Columbia For information or to order copies, please No. 38 “International Response to Nuclear University Press). He was a POSCO contact the Publications Office, East-West Tests in South Asia: The Need for a New Visiting Fellow at the East-West Center Center, 1601 East-West Road, Burns Hall Policy Framework” by Muthiah Alagappa. from May through August 1999. He can Rm. 1079, Honolulu, Hawaii 96848-1601. June 1998. $2.50 plus shipping. be reached at: Telephone: (808) 944-7145 No. 37 “Russia’s Media Revolution: From Address: East Asian Institute, Columbia Facsimile: (808) 944-7376 Party Control to Money Control” by University, 420 West 118 Street, New York, E-mail: [email protected] Gennadi Gerasimov. June 1998. $2.50 plus NY 10027 Website: www.ewc.hawaii.edu shipping. Telephone: (212) 854-6905 ISSN 1522-0960 No. 36 “Indonesia In Crisis” by Richard W. Email: [email protected] Series Editor: Elisa W. Johnston Baker. May 1998. $2.50 plus shipping.

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