For Japan's LDP, the Party May Be Over

Voters just might dump it soon

Is it the end of the road for Japan's Liberal Democratic Party? The LDP has ruled Japan with just one year's interruption since the mid-1950s, for the first several decades with great success. During the past 10 years of recession and stagnation, though, the party has come to symbolize corruption, intellectual drift, and bureaucratic paralysis. Patronage, public apathy, and the absence of a viable political alternative are what keep the LDP in power. But the nation's economic crisis has reached the melting point, and LDP Prime Minister Yoshiro Mori is clearly on his way out. The combination of political and economic upheaval gives the Japanese electorate a rare opportunity to choose a new set of leaders.

The key question is whether voters use their clout to force change. The LDP was ousted from power once before, in 1993, but was restored a year later. Yet since then the party has had to rely on coalition partners to survive. And the LDP of today is clearly growing weaker all the time. The party's slow-motion decline puts in play several interesting possibilities that could have far-reaching economic and political ramifications.

The first is that the LDP's old guard understands that making soothing noises about the economy won't work anymore. The bad news is impossible to conceal. The Fitch Inc. rating service, for example, on Mar. 14 said it may downgrade 19 Japanese banks. Rumors swirled that several were near insolvency. By that time, Finance Minister Kiichi Miyazawa had acknowledged the seriousness of Japan's plight with his startling Mar. 8 comment that Japanese finances were "on the verge of catastrophe." One Japan-watcher, David L. Asher of the American Enterprise Institute in Washington, figures Miyazawa was being candid because he realized the current LDP leadership had reached the end of the line.

The party elders certainly know that the rank and file are getting restive. In November, they had to suppress a rebellion by reformer Koichi Kato and slap down younger party members such as Nobuteru Ishihara and Yasuhisa Shiozaki. Says Shiozaki: "We've learned it's not wise to criticize the present party leadership because they will retaliate." The young turks want serious change to arrest the party's decline.

This intraparty clash underscores a deep divide in Japanese society. The LDP represents Old Japan--farming interests, a construction industry that employs one in six workers, inefficient retailers, distributors, and midlevel manufacturers and suppliers. These are the very sectors most likely to be hurt if the LDP starts chopping at the economy's excess industrial capacity, labor force, and crippling debt. To save the economy, the LDP might have to destroy its political base. So far, it hasn't had the stomach for it. Indeed, it has instead spent $1 trillion since 1992 on public works for its rural constituency, which has outsized electoral clout.

The politics of pork, though, have been a spectacular failure, which will force the ruling party to take one of two unpalatable paths. One is to stick with discredited policies. But those policies will be much debated in the runup to upper-house elections this summer. The LDP will probably lose that contest, giving a big boost to the opposition Democratic Party of Japan's hope to force a general election to oust the LDP.

Thus, sticking with the old script looks like a guarantee of electoral failure. The alternative: The LDP chooses a reformist leader, someone who can manage the balancing act of saving the party organization while appeasing its younger members. Party leaders such as Ryutaru Hashimoto or Junichiro Koizumi might be sufficiently popular to sell the public on a reformist platform that would trade a few years of economic austerity and higher joblessness for a brighter economic future by, say, 2003.

MAVERICKS WIN. A wild card in these maneuvers is the presence of political independents in the prefectures, where a grassroots revolution is brewing. Unaffiliated candidates have won gubernatorial races in Tokyo, Miyagi, Mie, and Nagano prefectures. In Nagano, the winner was novelist and reformer Yasuo Tanaka. The mavericks are shutting down worthless public-works projects or, in the case of Tokyo Governor Shintaro Ishihara, demanding more freedom from the central government. Ishihara left the LDP in 1995 and is now a scathing critic.

One popular reformer is Akiko Domoto. A former citizens'-rights activist, she is running for governor of Chiba, which borders Tokyo and is home to 6.6 million people. She rails against the unneeded public works approved by a former LDP-backed governor that have left the regional government with $9.1 billion in debt. If Domoto wins the Mar. 25 contest against an LDP rival, she reckons it will affect the outcome of upper-house elections. "The LDP could collapse," she says.

An upheaval in local politics could certainly turn the LDP's expected loss in the upper house into a rout. If the opposition Democrats and their allies take the upper chamber, they would be able to veto key LDP legislation in the lower house. The LDP and its partners could overrule any veto. It is by no means certain, though, that the ruling party will be able to keep its allies on its side--let alone its own members. If the LDP cannot govern, it may have to call a general election that would throw open the doors to a non-LDP government. This political chess game could last months, however, leaving Japan essentially rudderless in the midst of a pressing crisis.

The best but most unlikely scenario would be a breakup of the LDP and a political realignment that would bring together party reformers with like-minded opposition figures. That would not only clear out the old guard in the LDP, it would marginalize those union-backed politicians in the opposition who have little zeal for serious restructuring. The likely outcome, however, is a government led by either the untested and fragmented DPJ or by the LDP, which at least has governed before--if badly.

Meanwhile, economic woes could do more to reshape the LDP than any opposition threat. No politician can deny the glaring efficiency gap between most Japanese industries and their global rivals. Nor can any party hack offset the growing clout of foreign investors, who now represent 40% of the trading volume on the Tokyo Stock Exchange. There is nowhere for the government to hide. And the current bank crisis and collapse in industrial production and exports is turning up the heat. Politics as usual does not look like an option.

By Brian Bremner, Chester Dawson, and Irene M. Kunii in Tokyo, with Pete Engardio in New York

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