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.