Tokyo's Missed Opportunities
In agreeing to pump $87 billion into the flagging Japanese economy, Prime Minister Kiichi Miyazawa and his Liberal Democratic Party have taken a vital step to shore up the bedraggled Tokyo stock market and prop up the nation's ailing banks. But their focus on traditional pork-barrel infrastructure projects and measures to support stocks, land prices, and corporate investment leaves Japanese consumers out in the cold. That may be a grave mistake.
It's clear that, despite their promises, the Japanese aren't moving toward a more open, consumer-driven economy. Miyazawa and the bureaucrats who run Japan's economic policy could have pushed through consumer tax cuts to spur spending and imports. They also could have used the current weak spell as the catalyst to finally start opening up the nation's tightly woven keiretsu system of corporate cross-holdings. Favoring exports over domestic demand and producers over consumers, this network keeps consumer choices limited and prices high. At its worst, the system shuts out efficient foreign competitors such as American insurance companies, which have found themselves unable to sell auto coverage through car dealers obliged to favor the insurers of their keiretsu families.
The pump-priming program carries with it the risk of rising tension with Japan's trading partners. Big manufacturers are capitalizing on this year's slump by rationalizing product lines, making factories more efficient, and shaping up for the next round of global growth. But with Japan already running a $130 billion trade surplus, international frictions can only worsen. Miyazawa's effort to goad Japan's economy to a growth rate of 3.5% a year is laudable. But the best way to do that would have been to focus less on pork and more on the consumer's pocketbook.