Tuesday, June 22, 2010

Kan he get Japan's budget in shape?

I first apologize for the horrible pun in the title.

Japan is showing some signs of growth again, even though it's small. The budget is still a problem, though, and one thing PM Kan is considering the LDP's suggestion to increase in the consumption tax, from 5% to 10%, over the next few years. He's also talking about a balanced budget by 2020.

Compare this to Mr. Osborne's bumping the UK's VAT to 20%, up from 17.5%.

Apart from the oddity of the major political parties suggesting a tax INCREASE just before an election (which really does underscore the depth of the problem), it's worth noting that Mr. Kan has proposed this as his cabinet's popularity is slipping.

Mr. Kan is in a very tough spot, but I hope that he sticks to his guns and lays the groundwork for future responsible fiscal policies. Even if he suffers politically, history will be far kinder if he can get Japan on the right track.

Perhaps the timing of Mr. Kan's accession to the Prime Ministership will work in his favor, though. Elections are looming and the DPJ has lost a lot of public goodwill. The churn in Prime Ministers in Japan (including Mr. Kan, there have been five since Mr. Koizumi left office in 2006, though all but Mr. Hatoyama have lasted right around a full year; Mr. Koizumi, by contrast, was in office for over five years) indicates a general failure of leadership and concomitant lack of public confidence in both the LDP and DPJ (even though the PM is selected by the ruling party, public sentiment is very important). Mr. Kan may not have much of a future in office no matter what.

Thanks to this, he may well feel free to bite the bullet and make the hard choices that must be made. In the immortal words of Kris Kristofferson and Fred Foster, freedom's just another word for nothing left to lose (Janis Joplin's version of the song was far and away the best, by the way). Mr. Kan may well be supremely free to act.

There is of course the concern that raising taxes could cause growth to stall. This is a legitimate worry, and a reason to implement a tax increase gradually. It is heartening to note that Mr. Jimi is taking a sensible departure from his predecessor's preference for yet more spending to stimulate growth. It is also heartening that he is taking the position that postal funds should not be directed toward risky overseas ventures. At this point, Japan can ill-afford a crisis generated by unwise use of Japan Post savings funds.

I encourage Prime Minister Kan to press forward with the hard choices and keep Japan on the road to sensible fiscal policy.

(All linked articles were accessed on 22 Jun 2010. They are subject to change without notice, and the links may eventually break. Paragraph on taxation vs. growth concerns added after the article was published. Due to time zone differences, some articles may have a publication date of 23 Jun 2010; they were accessed on 22 Jun 2010 in the Mountain time zone, GMT -6 due to DST.)

Tuesday, June 15, 2010

Japan's next steps

With PM Kan taking the reins on a coherent note, I'm cautiously optimistic about Japan's immediate future. That said, I think Japan must address a few issues urgently in order to keep the ball rolling. Yes, some of these are certainly optimistic, possibly bordering on wishful thinking, but needful nonetheless.
  • First, address the textbook issue and concomitant historical revisionism. In terms of public perceptions of Japan, this is perhaps the single most significant sticking point in Japan's relationships with its neighbors. Japan must own up to its wartime acts and come to terms with its Imperial past. Germany has managed to survive after doing so. Taking this step will help cool anti-Japanese sentiment throughout East and Southeast Asia.
    As an example, recent polls indicate that the Chinese and Japanese public both see addressing historical issues as the top priority (see question 16 here, for instance). Given the increasing economic interdependence in Asia, the dividends of such a program will be substantial. As the public goes, so often go the leaders.

    Interestingly, this could have some interesting repercussions in China regarding the Chinese Communist Party's legitimacy in the public eye. Communism is no longer a viable ideology, and so the CCP has had to rely on other means to maintain its legitimacy. Anti-Japanese sentiment is a convenient tool, and if the Chinese public begins to warm toward Japan, the CCP will face an interesting time domestically. It will at least harmonize their domestic take toward Japan and their diplomatic take - China is on quite the charm offensive with Japan right now from a diplomatic perspective, particularly Premier Wen's jogging excursion through Yoyogi Park. While there could be some unintended consequences (aren't there always?), I believe that overall the two nations could begin to build a more meaningful bilateral relationship once the public opinion gap is bridged.

    I realize that this is not likely to happen, given the significant resources that the ultranationalist players possess. That said, it is an effort that must be made. If the DPJ wishes to meaningfully distinguish itself from the LDP, they are the party to get the ball rolling. Unless the Ultranationalists and Rightists and other fringe Uyoku groups are brought to heel, they will continue to be a problem. Textbook reform will be a key tool in reducing rightist influence. The kids need to know the truth. The truth sometimes really hurts, but Japan will continue to suffer prestige problems until this is resolved.
  • Next, as Kan mentions, get the economy sorted out. This is crucial in so many ways, and one more blog post can't do it justice.
  • Either get the birth rate sorted out or enact meaningful immigration reform. Japan is rightly proud of its unique culture, produced under unprecedented historical circumstances (periodic contact with continental Asia, punctuated by long periods of isolation, during which the Japanese had time to truly internalize and transform what they learned from the mainland, producing culture that, while obviously derived from the culture on the mainland, is vibrant and distinctive and very much a Japanese sort of thing). That said, Japan can't meaningfully continue without some solution to the impending demographic crisis (see this paper - eek! There is an alternate methodology proposed here, so it'll be interesting if it goes anywhere, and if so what results are obtained. I will be keeping an eye on projections either way.). Japan has a choice to either get its domestic birth rate up, allow immigration in a more meaningful way, or face relegation to a 2nd- or 3rd-tier power.

    The downside of the aforementioned history is that xenophobia and associated racism are endemic in Japan, though they're generally quite polite about it. This will need to stop even if the birth rate rises. As the world grows ever more interdependent and interrelated, foreigners will continue to seek opportunity in Japan, and jobs teaching English aren't going to cut it. The government needs to quit scapegoating foreign residents for domestic problems, and needs to institute reasonable measures to allow legitimate immigration. The government also needs to take steps to ensure foreign resident workers are treated as well as their Japanese counterparts. These problems are of course not unique to Japan, but the Japanese approach to the issue isn't terribly productive here.

    Also, and I'm just saying, granting Japanese citizenship to the descendants of Korean and Chinese immigrants whose families have been in Japan for generations would be a nice gesture here.
  • Evaluate Japan's security relationship with the United States and its closer neighbors. I will come back to this in a follow-up post, but suffice to say that the Futenma issue is symptomatic of some strains in the US-Japan security relationship. The relationship is strong overall, of course, and very beneficial to Japan, but it will not last forever.
Everyone has their own list of things Japan must do, of course. Not being in Japan (and not being Japanese, of course) colors my perceptions. Any of my Japanese readers/readers in Japan (a man can dream!) have input? I look forward to any comments.