Whether Mr. Abe or Mr. Ozawa: An Economist View

Yutaka HARADA (Chief Economist at Daiwa Institute of Research)

No one expected that only within nine months Prime Minister Abe's popularity plummeted from seventy some percent down to twenty some percent. Now it is widely agreed that the historic defeat of his party and, in effect, of his own in the last election is due to the pension problem, the politics and money problem and some ministers' inappropriate remarks. What is important, however, is the fact that voters' sentiment and behavior can swing widely for almost any reason, whether it is socially significant or not.

What can explain this phenomenon? Japanese politics used to be the LDP (Liberal Democratic Party) versus the Socialist Party, where the former advocated the Japan-US Alliance and the capitalistic system, which the latter was opposed to. In those years, many voters seriously supported the LDP and strongly rejected the Socialist Party, where some cabinet members' inappropriate remarks were not as significant as they may be today. If, however, both the ruling party and the opposition party promise to maintain the Japan-US Alliance and capitalism, it would not make much difference which party is chosen by the Japanese voters. In fact, during the last Upper House election, some people criticized Democratic Party leader Ichiro Ozawa as being like an old LDP leader and offering no different options. As it has turned out, the fact that there is not much difference was crucially important and, as a result, the voters' behavior swung more widely than anyone had expected in the last election.

It has been pointed out that weakening Mr. Abe's power can make a difference in that reform movements would be reversed and the economy might be stagnant as a result. However, the reversal of reform movements has already been happening as a number of politicians who were expelled from the LDP for their opposition to the postal privatization bill have gradually been returning to the LDP. So, whether Mr. Abe wins or loses would not make much difference in the area of reform and probably in other policy areas as well.

On the other hand, the Ozawa Democratic Party is often criticized for its "money giveaway" agenda. However, they could not give away much money anyway, unless the consumption tax is raised substantially, which does not seem realistic in the near future. Therefore, there would not be much difference between Abe's "reform agenda only in words" and Ozawa's "money giveaway agenda without money."

If there is any difference, the Democratic Party seems to be thinking of giving out money directly to people, rather than to such organizations as construction companies, agricultural cooperatives, local governments, small business associations, welfare organizations, etc., which have been subsidized by the LDP for their political support in the past. Bureaucrats have been supporting the LDP approach for their own benefit to strengthen the "Amakurari" (descent from heaven) connections. However, it would be less costly, and more effectively these days, to give out money directly to people and appeal to the public through the mass media than to set up a complicated political machinery in subsidizing various kinds of organizations.

It might be said that the political method of giving out money directly to people seems like the one adopted by many leftwing parties in Europe. If that is the case, should it be rejected outright? Before making up you mind, you should compare labor productivity among Japan, Europe and the US, where labor productivity is 7 for Japan and 8 for Europe, when the US level is normalized as 10. Therefore, choosing the European method could be, at least, an improvement, although not as much as the US method.