Yukio Hatoyama, the man who steered the Japanese opposition to a landslide victory this Sunday is nicknamed ?the alien?. For a country teetering on the precipice between economic recovery and a renewed slump, perhaps a worse one than that of the lost decade created 20 years ago by the bursting of gigantic stock and real estate bubbles, perhaps only an alien can deliver much-needed, much-postponed change. If this rhetoric sounds Obamaesque, rest assured that plenty of commentators have already noted the similarity between Obama and Hatoyama?s campaigns. In both cases, the ride to victory has been on the back of widespread social and economic disaffections. What?s worrying, then, is that Hatoyama?s drive into the future is likely to be just as tough as the US President is finding his to be.
Still, the change Hatoyama has already delivered is big by any standards. The Liberal Democratic Party (LDP) has been ruling Japan since 1955 (only taking some months off in 1993), especially amazing given that this was the first independent Asian nation to boast a multi-party system. One PM promised in 1960 that family incomes would soon be doubled. Living up to such promises, the country saw living standards improve in subsequent decades. From the rubble of the WWII, it rose like a phoenix, growing into the world?s second-largest economy. The likes of Sony and Toyota grew globally dominant; Japanese businessmen were snapping up iconic international properties like Hollywood?s Columbia Pictures. The value of real estate in Tokyo was said to eclipse that of the entire US. Once hit by the nineties trough, however, the land of the rising sun had to adjust to some settling down. This it did by the dawn of the new millennium, but growth hobbled behind other countries. Real private consumption only grew by 1.1% a year in the five years up to 2007, which was unhappily at the same level as in the lost decade.
This brings us to the Democratic Party of Japan (DPJ), formed off a five-party coalition in 1998. As the Great Recession derailed the economy from its recovery track, with Japan suffering the worst QI09 GDP contraction among major industrialised countries, voters finally gave up on stability. For international media, this adds a zing factor long missing in Japanese politics, where developments had hitherto been duller than dull. What was a de facto one-party state has now seen a power shift being heralded as no less than revolutionary.
What are the biggest challenges facing the DPJ and is its arsenal equipped with any magic bullets to tackle these? Off the cuff, Japan offers a laboratory for two big global tests, one demographic and the other concerning export growth models. As the country?s 60th PM, Hatoyama cannot but be concerned that his is the most rapidly ageing country in the world. By 2050, its population will contract about 25%. Nearly half of Japan?s population is expected to be over 60 by 2050. Old must become the new young, say commentators. Healthcare, for example, could grow to create many a Miami. Speaking more broadly, what we have here is a productivity challenge. On the one hand, there are apocryphal tales of efficiency, say Toyota?s just-in-time production that is famously cutthroat and involves delivering parts just before assembly to keep inventories low. On the other hand, Japan?s domestic service sector is overregulated to death, very disturbing given that it makes up 70% of the economy. Nowhere are reforms more desperately needed than in this sector, which is said to be a quagmire of licences and rules. At the same time, Japan?s problems are attributed to how deeply it is export dependent. Domestic demand simply hasn?t grown to expectations.
It?s young people who are wellsprings of domestic demand. Only 30% of 20-somethings have turned out to vote in recent elections as compared to 60% of the overall electorate. But, echoing the Obama phenomenon, the DPJ went out of its way to wow them. It fielded candidates who were far more than youthful and telegenic than the LDP crop, mostly in the late 60s. This had an important impact in a climate where Internet campaigning was banned. The young also make up most of the temporary workforce that accounts for a third of the labour force in Japan. So, on the one hand the workforce is shrinking (not helped by the fact that 70% of women leave their jobs to give birth). On the other hand, short on job security and government benefits, the young are ill able to afford a family, a trend DPJ promises to reverse. With family-friendly policies, a wider social safety net and so on.
Okay, but how is all this going to be financed? Japan?s national debt is spiralling beyond 200% of GDP, something that has cost the country its AAA rating. To return to Obama land, Japan is the second-largest foreign holder of Treasurys. Were it to stop buying US debt and start selling its dollar assets, what would that mean for global currency games? A stable Japan is almost a global necessity but DPJ has its task cut out to deliver it.
renuka.bisht@ expressindia.com