Three Ways Japan Can Put a National Disaster to Good Use: View

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The first comprehensive report on Japan (JGDTTOT)’s Fukushima nuclear crisis is 507 pages of the most sobering reading of the year.

The verdict by a government-appointed panel: Disarray among regulators, dismal safety preparations, operational blunders, amateurish communication breakdowns and institutional inertia led to the worst radiation leak since Chernobyl in 1986.

The findings, although damning, offer Japan the kind of opening that doesn’t come along very often short of war or the sort of natural disaster that struck last March. The report itself is an encouraging sign that the nation is willing to examine its failings and, we hope, take action. The year ahead is a fresh opportunity both to rebuild Japan’s northeastern Tohoku region and break with the sclerotic strategies of the past. Here are three ways to jump-start a process vital to the country’s future (JGDPAGDP).

-- First, be straightforward. Japan (NKY) must be forthright with its people in a manner that borders on cultural anathema. The government should tell the more than 100,000 displaced people that they may never be able to return home to the northeast as radiation continues to taint food and water.

The same goes for the tiny coastal towns where there is nothing to go back to: no infrastructure, no jobs, no future. Some towns must be merged; others must be abandoned. This requires a firm acknowledgment that many of the devastated villages were dying well before the earthquake and tsunami, both demographically and economically. That means no subsidies to encourage the resumption of a way of life that was outmoded a generation ago.

Tokyo Electric Power Co. (9501), whose negligence helped put Japan where it is today, should be nationalized and its management fired without pensions. The last thing that should be protected is the status quo.

The central government should also be specific about how much money will go toward disaster recovery. Officials in Tokyo must move beyond generalities and vague statements of support and begin providing actual figures.

-- Second, give the prime minister a chance. Yoshihiko Noda’s approval ratings are sliding in the same pattern experienced by his numerous recent predecessors. It’s only a matter of time before Noda, prime minister since September, faces calls to step down. Japan’s leaders spend so much time worrying about keeping their job that they can’t actually do it. Lawmakers should give Noda two years or so to articulate a vision and begin implementing it.

That might give him enough breathing room to find revenue to finance Japan’s growing debt, develop policies to end deflation, adjust to an aging population and pay for reconstruction. No prime minister has had the courage to tackle these for fear of losing public support. Taking that risk out of the equation would give Japan’s leader a fighting chance for the first time in ages.

Noda might even be able to summon the courage to get creative in these pinched fiscal times. One idea might be a Tohoku-themed bond issue. Japanese sit on roughly $15 trillion in domestic savings, much of it in postal accounts that earn almost no interest. This money could be redeployed in the shattered northeast. Households might be enthusiastic buyers of earthquake debt, bearing higher yields. The exercise might be more productive than handing cash to the Japanese Red Cross.

-- Third, try something different. The biggest mistake would be to try to re-create what existed before March 11. Power should be transferred to local governments. The officials in Tokyo working on revival plans are mired in bureaucracy and are too far away from the damaged areas to grasp the complexities of life there. Rules require central government approval to relocate a highway just a few feet from a washed out roadbed or rebuild a destroyed hospital beyond the tsunami high-water line. We recommend a moratorium on these rules and a rewriting of regulations that should been overhauled decades ago.

Tohoku should be turned into a special-enterprise zone with low corporate taxes, a no-red-tape policy for startup companies (JNUE), tax rebates for new jobs, and incentives to encourage investment and the use of renewable energy. Control of farms and harbors should be wrested from powerful and uncompetitive agriculture and fishery cooperatives. Child allowances and college grants could be used to attract young families. Some central-government offices could be relocated there.

The region (JNVNIYOY) could even serve as the base for a globally funded natural-disaster research center that trains special response teams to be deployed anywhere. And if Okinawa is tired of hosting most of the 50,000 U.S. military personnel in Japan, move them to Tohoku.

Change is always painful, but Japan has risen powerfully from the ashes before. From the rubble of World War II, it built an economy that until 2010 was the world’s second largest. It created a stable of renowned corporate names, such as Sony Corp. (6758) and Honda Motor Co., which set the global standard for quality. Tragedy drove Japan to reinvent itself, bigger and better.

We can’t tell Japan just how to proceed with the reforms so vital to its future; that’s up to its 126 million people. But the nation has an opportunity for the kind of reset that doesn’t come along often. It would be a shame if Japan wasted this chance.

To contact the Bloomberg View editorial board: view@bloomberg.net.

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