Opposition looks to reshape Japanese economy

TOKYO — In one of the most heated political contests in recent memory, Japan’s opposition party is courting voters with an enticing promise: monthly cash for kids.

By (AP)

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Published: Sat 29 Aug 2009, 8:32 PM

Last updated: Sun 5 Apr 2015, 10:20 PM

By giving families 26,000 yen ($275) a month per child through junior high, the Democratic Party of Japan hopes to ease parenting costs and encourage more women to give birth in a country where the rapidly aging population is among the gravest long-term threats. Parents are already given a lump sum of 350,000 yen ($3,700) for the birth of each child.

The program is the centerpiece of a plan to steer the world’s second-biggest economy to the left, away from what opposition leader Yukio Hatoyama describes as the “fundamentalist pursuit of capitalism” that he says led to last year’s financial crisis.

If the Democrats dethrone the ruling Liberal Democratic Party as is widely expected in parliamentary elections Sunday, they vow to put people — not Japan Inc. — at the core of their economic policy.

That would represent a significant change for Japan, which for decades has prioritized industrial interests in the drive to propel the country from its defeat in World War II to its current position as a world economic power.

Koichi Nakano, a political science professor at Tokyo’s Sophia University, describes the Democrats’ vision as a fundamental departure from the economic model of the past. It would be, in effect, an acceptance that Japan is waning as a global economic leader and needs a more people-centric approach to deal with the issues it now faces.

Those problems stem from a shrinking and aging population. Japan’s population of 127.6 million peaked in 2006, and is expected to decline to 115 million in 2030 and fall below 100 million by the middle of the century.

The younger generation will need to bear an increasing burden to care for swelling ranks of senior citizens, even as they watch the promise of lifetime employment fade. On Friday, the government reported that the nationwide unemployment rate hit 5.7 percent, the highest level in Japan’s post-World War II era.

“There are people who still want Japan to be able to compete in the big leagues,” Nakano said. “But others think that Japan is destined to decline, and it becomes a question of managing that decline now that China is such a big power.”

Whether the Democrats can actually pull it off is the big question.

In addition to the child payouts, they propose an expensive menu of initiatives: toll-free highways, free high schools, income support for farmers, monthly allowances for job seekers in training, a higher minimum wage and tax cuts. The estimated bill comes to 16.8 trillion yen ($179 billion) when fully implemented starting in the 2013 fiscal year.

That may be too much to handle for a country with a massive fiscal deficit. The Organization for Economic Cooperation and Development predicts the country’s public debt, already the highest among member countries, may reach 200 percent of gross domestic product next year.

The party’s labor-friendly policies, such as a ban on the use of temporary workers, are also likely to meet resistance from business groups and a public wary of too much change.

“I don’t think there’s all that much enthusiasm about the DPJ plan,” Nakano said. “People are generally supporting the DPJ not so much because they like it but because they don’t like the LDP.”

The Japan Business Federation, better known as Nippon Keidanren, is officially staying neutral. But officials have been critical of the Democrats’ ideas for growth.

In a statement, Chairman Fujio Mitarai urges voters to scrutinize policies before they head to the ballot box.

“What our country needs more than anything else is to focus on the future, and work toward concrete and realistic reforms of the tax, public finance and social welfare systems,” said Mitarai, also chief executive of Canon Inc. “We must also establish new foundations of growth by strengthening industrial technology.”

The Democrats say that growth is what they want too, and tout their measures as a way for Japan to support itself through stronger domestic consumption.

They have said they plan to pay for all the new social spending, which amounts to about 3.5 percent of GDP, by eliminating wasteful public works, streamlining the bureaucracy and tapping into hidden financial reserves.

Richard Jerram, chief economist at Macquarie Securities in Tokyo, is skeptical. He calls the Democratic platform a “quasi-socialist approach” that would destabilize public finances and hurt Japan’s overall competitiveness.

“The core of the DPJ’s economic policy seems to be a fantasy Robin Hood scheme, aimed at appealing to as many voters as possible,” Jerram said in a recent report.

Analysts agree that the measures will help households initially. Individual consumption accounts for more than half of Japan’s economy, so more money in people’s bank accounts would help the economy assuming people spend and don’t save.

Moreover, change itself is likely to lift the national mood.

“The LDP has effectively ruled this country for more than 50 years, and many people feel that we are stuck,” said Masamchi Adachi, senior economist at JPMorgan Securities Japan Co. “We don’t know what the DPJ will really do, but at least change can be expected.”

When it comes to Japan’s longer-term future, however, economists are more dubious.

Even if the Democrats’ policies result in an uptick in domestic demand, Kyohei Morita, chief economist at Barclays Capital in Tokyo, doubts that it will last. What Japan really needs, he says, is simply more people. And in that regard, giving families 26,000 yen a month is unlikely to result in more babies.

The Democrats “shouldn’t mention this child allowance as a measure to increase domestic demand,” Morita said. “It’s just an allocation of money to households and what the DPJ will get from this is simply votes, not domestic demand (in the long term).”

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