Postwar System Needs Remodeling

Masahiko ISHIZUKA (Counselor, Foreign Press Center/Japan)

Pressure of globalization could help premier realize goal of 'structural reform'

Thanks to Prime Minister Junichiro Koizumi, "structural reform" is now a household phrase. But even before the premier took office calling for structural reform as an essential precondition for economic growth, the phrase had hardly been unfamiliar to Japanese people.

Something "structural" is invisible, presumably complex, and deep inside society. Working on structural reform promises to bring about a marvelous new society. In its effects, it may even be equivalent to a revolution.

Koizumi's political genius has taken advantage of this national psychology. He has never been sufficiently specific about what he means by structural reform, or how to carry it out, and how that will change the nation. He is yet to spell out a grand design for the nation and the government's role in achieving it.

Specifics lacking
What appear to be specific items on the premier's reform agenda include the privatization of the postal service and of highway-related governmental corporations. But Koizumi has stopped short of full explanations why these projects are important in the context of structural reform.

But it is also true that voters have not been eager to press for more specific ideas about structural reform. They may even prefer to remain vague, for they may not like to face the hard realities.

At the government level, the structural reform to be promoted should be a change in the overall framework in which the nation's economy and society operate in the world community. From such a viewpoint, there are two overarching reform agenda to be addressed.

In his recent book, "Iraq War, Japan's Fate and Koizumi's Fate," investigative journalist Takashi Tachibana wrote that the structure to change in Japan was that under the formidable control of bureaucrats. He described this as a die-hard characteristic of this country.

According to Tachibana, bureaucratic control was perfected to prepare the nation for World War II. In his view, which is shared by many experts on economic history, that system was preserved after the war and proved effective in postwar reconstruction followed by the country's spectacular economic growth into the world's second-largest economy.

It was this structure that the U.S. demanded Japan change at the height of the bilateral trade disputes in the 1980s, when Japan appeared to overwhelm the U.S. in terms of competitiveness and an ever-increasing trade surplus. In other words, Americans thought the source of Japan's economic might was the structure of the economy.

Through the Structural Impediments Initiative talks in 1989-1990, Washington sought to change Tokyo's wartime system that permeated the country's postwar political, economic and social systems. The American purpose was to make Japan "fairer" so that the country would better fit the American concepts of democratic and capitalist systems and abandon the state-capitalism or socialistic systems. That attempt was viewed by some Japanese as a second Occupation.

Whether Koizumi was aware of that or not, Tachibana said, his call for structural reform should amount to deconstructing this system, which still haunts this country. Privatization of the postal service, for example, must be explained to the nation in this context.

Now, there is another view of the structure that needs reform. Haruo Shimada, a professor at Keio University and an adviser to the prime minister, in a recent briefing at the Foreign Press Center said that the administration's economic reform strategy is to transform a system that has concentrated all resources on selling industrial products to the U.S. market. Japan achieved its remarkable postwar growth by serving as a factory to fill America's final demand.

Japan can no longer continue as a factory for the U.S. market, however, because China is replacing it. Japan must find the final demand to meet with its industrial power elsewhere and that is its own domestic market, Shimada concludes, in the form of services that improve the quality of consumers' lives.

The argument that Japan must shift from its traditional dependence on export markets, particularly the U.S., to domestic demand has long been familiar. The proposal was famously made in the Maekawa Report of 1986, but was never fully achieved. The difficulty lies in what to do with low-productivity sectors, such as agriculture, small retailers and construction companies, which are protected by vested interests with considerable political clout.

Political connections
How are these two ideas about the structure in need of change to be reconciled? The export-oriented economic structure was forged by the bureaucrat-led development strategy in the postwar period. That structure concealed low-productivity sectors, such as agriculture and services, by the strong growth of such industries as machinery, electric appliances and automobile. The preservation of low-productivity sectors with strong political connections has been possible thanks to the fast growth of export-oriented, high-productivity sectors.

This dual structure, which still exists, has been kept by the archaic, wartime system that Tachibana describes, but globalization is pushing the two characteristics of the Japanese system toward remodeling.

(Originally appeared in the August 2, 2004 issue of The Nikkei Weekly, reproduced here with permission.)