Comments on: Japan: Will the DPJ weather the global rebalancing?

By: Aurelia George Mulgan

Aurelia George Mulgan — Sat, 10 Oct 2009 23:43:13 +0000

In a recent column in the Nikkei, Professor Takashi Mikuriya from Tokyo University made some comments strikingly similar to Tsujihiro’s above. As the professor points out, the DPJ’s proposals to pay child allowances and to make high school education and expressways free were criticised by some for their pork barrel nature. However, they were entirely consistent with the DPJ’s criticism of the LDP and its way of allocating subsidies by utilising intermediary agents with strong links to the bureaucracy. This system allowed the intermediary agents to exploit the subsidies for their own purposes in exchange for which they would accept amakudari bureaucrats in various executive posts. The DPJ has chosen to make payments directly, which reveals its desire to eliminate this kind of intermediary exploitation and intervention from amakudari bodies. So there’s a real difference between the DPJ’s and the LDP’s subsidy methodologies. The change is all part of the DPJ’s policy direction of breaking away from bureaucratic control, which will deal a direct blow to the old systems.

By: Aurelia George Mulgan

Aurelia George Mulgan — Thu, 08 Oct 2009 23:03:17 +0000

Tobias, I take your points. What has been impressive, however, is how fast off the blocks the DPJ administration has been in targeting areas of wasteful spending in order to find additional funds for their own direct support policies. This is not a one-off move either. The National Strategy Bureau (read ‘Budget Bureau’) is putting in place mechanisms to prevent waste well into the future. Moreover, with an Upper House election around the corner, the DPJ will need to put the money in the hands of voters pretty soon. What is also heartening is the real understanding the DPJ has that economic reform is predicated on political reform i.e., it’s not simply a matter of switching policy directions but actually changing the systems that produce those policies. All this takes time, so one should not rush to judge the new administration too quickly. After all it took Koizumi five years to implement postal privatisation. And he had to violate long-standing political conventions to do it.

Incidentally, the agriculture triangle is the LDP-MAFF-JA, not DPJ-MAFF-JA, as I said above.

By: Tobias

Tobias — Wed, 07 Oct 2009 13:09:30 +0000

Aurelia,

I didn’t say no tools, after all. I don’t doubt the importance of cutting waste — and I certainly am aware of the significance of the government’s seizing the power to draft budgets as it sees fit. But I think it’s too early to say just how far the new government will be able to go in saving money through cutting waste.

I agree that the transition from indirect subsidies to direct payments — a rural safety net to contemplate their plans for the pensions system for example — is a significant change, and should have some effect on consumer spending. But the transition will take time, and, in the mean time, the economic pain will continue.

By: Aurelia George Mulgan

Aurelia George Mulgan — Wed, 07 Oct 2009 08:29:57 +0000

Harris says: “After all, the government has few policy tools at its disposal….The government’s debt burden limits its ability to use public funds to make up for weak private consumption….For all the dams and bridges built by the government, the money probably would have been better spent rebuilding the social safety net, which would have in turn made the economy better capable of weathering the transition from the producer-centered dual economy. In short, the DPJ-led government will attempt what should have been done a decade ago, except that now its fiscal policy options are constrained.”

The DPJ has two critical policy tools which it has already signaled it will use:
a) suspending wasteful programs and redirecting the funds to its own budgetary priorities (this process has already started with the supplementary budget – ministries are coughing up funds that had been allocated by the Aso government to various ‘wasteful’ programs);
b) fundamentally altering the way the budgetary funds are spent.

On the latter subject Tsujihiro Masafumi argues (in a recent article on Diamond Online) that the DPJ is proposing to ‘pass the money directly to each household. By doing this, the funds cannot be touched by so-called “intermediary agents” (chuukansha). The LDP developed an indirect subsidy system using “intermediary agents” such as the agricultural cooperatives (JA), post office owners, construction companies and medical doctors associations. These groups not only benefited directly from the subsidies, but they also played a significant role in connecting people to politics/the LDP. In contrast, the DPJ has proposed a direct support policy, which would bypass these “intermediary agents”. While the LDP’s approach focussed on the supply-side of the economy, the DPJ’s direct support approach targets the demand side (households and consumers). As a side benefit, the direct income support scheme for farmers, for example, will help to destroy the agriculture triangle (DPJ-MAFF-JA) and the child-rearing allowance will help to restructure the child care industry. The transformation from the indirect support system to the direct support system will additionally allow the DPJ government to reinforce its significance in the structural design of the country’s economy through incentives for innovation and productivity increases. At the same time, the direct support approach has highly neoliberal features. To compensate, the DPJ has developed a safety net through a range of social policies. While exposing industries and businesses to fair and transparent competition, the DPJ’s direct support policy offers a sound welfare system for individual households and employees.’