International Business: COMMENTARY
COMMENTARY: HASHIMOTO: LOUD TALK, SMALL STICK
In Japanese they call it chabangeki. In English, a farce. No matter how you put it, Japanese Prime Minister Ryutaro Hashimoto is presiding over a send-up of administrative reform, deregulation, and economic pump priming. The travesty can't help but further fray relations between the U.S. and Japan, America's No.2 trading partner (after Canada) and keystone ally in Asia. The strains are deepening just when U.S. relations with Asia's other powerhouse, China, are particularly delicate.
The latest news out of Tokyo is dismaying. In the fiscal half-year from April through September, Japan's trade surplus with the U.S. soared to $20.8 billion, up 55.3% over the same period last year. The widening gap threatens to ignite political fires in the U.S. Further darkening the outlook, Japan's ruling Liberal Democratic Party on Oct. 21 unveiled an economic "stimulus" package so anemic that even cynics were nonplussed. "Expectations of what the package would deliver were so low that it was quite an achievement on the part of the LDP to disappoint the market," says economist Richard Jerram at ING Barings Securities (Japan) Ltd.
INFLAMED? More troubling are growing doubts that Hashimoto can enact the sweeping deregulation he has promised to revive growth and lessen Japan's dependence on exports for momentum. Upon taking office last year, pomade-coiffed Hashimoto, long ranked the most popular politician in polls, vowed he would "erupt into flames" if his reforms didn't come to pass. Now he risks going down in flames for botching the job.
To many Japanese and Westerners, deregulation has seemed the only realistic way out of Japan's economic quicksand, with gross domestic product expected to grow less than 1% this fiscal year. Rising government deficits seem to rule out tax cuts and stepped-up spending to spur the economy, at least to the preeminent Ministry of Finance (MOF). That leaves deregulation. J.P. Morgan Securities Asia Ltd. estimates that current liberalization plans would boost GDP by a cumulative 5% to 7% over the next 10 years.
But it's a long step from plans to reality--especially in Japan. Why? Because politicians, beholden to powerful interests, have ceded leadership on deregulation to the almighty bureaucracy, which has wide discretion in applying the rules. Says R. Taggart Murphy, a Tokyo-based former investment banker and author of The Weight of the Yen: "The bureaucracy acts as its own judge, jury, and prosecutor. Nothing is written down. That's what prevents Japan from becoming an Anglo-Saxon type of economy." Adds Robert M. Orr, a vice-president of the American Chamber of Commerce in Japan: "If you ask bureaucrats to deregulate, you're not going to get it."
To be sure, an Administrative Reform Council, which Hashimoto heads, has floated bold proposals to streamline the bureaucracy and build more power into the Prime Minister's office. But Hashimoto is stumbling badly in this initiative, too. Last month, he named a convicted bribe-taker as director-general of the Administration & Coordination Agency, the point man for reform. The outcry was such that Hashimoto had to replace the man, while suffering a 50% drop in his public-support ratings.
For a leader whose power within his own party is weak, popular backing is crucial. A bad omen is the apparent near-death of his plan to privatize the Posts & Telecommunications Ministry's insurance business. This would allow outsiders, including foreigners, to manage a $750 billion pool of funds that usually go to MOF for dubious public works projects and subsidies.
Now, that plan and others are being shelved as beneficiaries of the current system, including many in Hashimoto's LDP, scream bloody murder about such moves to change the status quo. But if reforms stall, one of Hashimoto's most popular and influential Cabinet members, Junichiro Koizumi, is threatening to quit. That would rock the regime.
Hashimoto might still weather the crisis at home, since he has no strong challenger. In the international arena, though, paralysis in Japan's economic revival agenda could have dire consequences. There are hints that Hashimoto will try a more serious fiscal stimulus than the recent fiasco. But anyone hoping that deregulation Japanese-style can make a difference anytime soon should beware. "It's a 5- to 10-year solution," says John F. Neuffer, senior fellow at Mitsui Marine Research Institute Co. "The economy needs help right now." So expect Japan's trade surplus with the U.S. to keep growing--and for Japan to lurch into another crisis with its biggest trading partner.By Robert Neff