LAST BEST CHANCE:

Will the crisis create a new Japan? (Marcus Noland, March 16, 2011, Washington Post)

Before the earthquake and tsunami devastated the Tohoku region on March 11, the country was already facing a slowing economy, fiscal strain and deflation, and decades of wasteful spending had saddled the country with a debt more than twice the size of the economy. Now, beyond the tragedy’s human toll, the economic costs are still being counted — and could be vastly expanded if the nuclear reactor damage is closer to that of Chernobyl than to Three Mile Island. But if rebuilding is handled skillfully, there is hope that a different kind of Japan will emerge.

Despite its weak starting point, the government holds a few cards. Ninety-five percent of Japan’s debt is owned by its citizens, not foreign hedge funds; it’s unlikely that those citizens would dump their bond holdings if the government takes on more debt to rebuild the city of Sendai, for example. Financially, the government has more maneuvering room than might seem apparent.

Some rebuilding can be financed by redirecting spending from useless white-elephant projects to the higher priority of remaking Tohoku. The quality of public investment in the nation could improve, perhaps permanently, as a result of this crisis.

Japan’s shrinking labor force could constrain the country’s ability to rebuild — thus forcing politicians and the public to confront its misgivings about immigration. Japan has long exerted tight control of its borders and makes it difficult for foreigners to live and work in the country. Among leading industrial nations, only South Korea has a lower share of foreigners in its workplaces. The foreigners now in Japan fall into various niches: highly skilled white-collar expatriates; low-skilled, often illegal, laborers; imported rural brides. Economists have long argued that Japan needs to welcome more workers to remain economically competitive. The imperative to rebuild housing and infrastructure on a massive scale could force this immigration challenge into the open.

The rebuilding process can also help slow, if not reverse, the extraordinary concentration of economic power in Tokyo. Over the past 10 to 20 years, hundreds of Japanese corporations have moved their headquarters from cities such as Osaka and Kitakyushu to the Japanese capital. The nation’s transition to a post-industrial society (with its greater emphasis on white-collar services), the decline of regional financial institutions and a cultural emphasis on face-to-face communication in business have encouraged the clustering of economic life in Tokyo. But post-earthquake rebuilding could help spread economic activity across the country. If pursued creatively, this could help jump-start an entirely new source of economic strength in northern Japan.

But what is really at stake — and what will determine whether these other changes have any chance of coming to pass — is the structure of Japanese politics. If the incumbent DPJ successfully manages this emergency, the episode could reassure Japanese voters that this fledgling party represents a credible alternative to the LDP. Japan would then have a true two-party system in which political power and ideas are genuinely contested.

Such a transformation could make governing Japan more messy and complicated, but it also could allow the nation to confront in a forthright way sensitive issues that it has avoided for too long: the coddling of its heavily subsidized farmers, its self-defeating trade policy, its unwillingness to face immigration reform, its awkward defense policy, and its uncertain place in Asia and in the world. Japan could emerge as a more conventional and modern country with more genuinely democratic politics.

You wouldn't want to bet on it.

Posted by oj at March 19, 2011 5:16 PM
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