Bending Adversity: Japan and the Art of Survival

by Pilling, David

  Besides cleaning up the banks, Koizumi’s economic agenda had two other broad elements: cutting public expenditure and deregulating a heavily controlled economy. In his inaugural speech, he had set an overly ambitious goal of limiting Japanese borrowing to Y30 trillion ($260 billion) a year. His cost-cutting had a few key elements. First, he sought to rein in public spending on what he considered white elephant projects – the so-called ‘bridges to nowhere’ that had become a symbol of the failing construction state. Public works accounted for a large slice of expenditure and the construction industry employed no fewer than one in ten Japanese workers.26 His opening assault came when he tried to privatize the debt-laden road corporations, which were financed largely through postal savings. That precipitated a pitched battle with the so-called ‘road tribe’ within the Liberal Democratic Party, many of whom owed their seats to popularity earned through supporting lucrative construction projects. Backing up the ‘road tribe’ was the powerful ministry in charge of construction. The man Koizumi entrusted to fighting this battle quipped, ‘In the past Japan had the Imperial Army. Now we have the Ministry of Land, Infrastructure and Transport.’27

  Koizumi’s drive to cut wasteful spending was mirrored by a few local governors. Best known was Yasuo Tanaka, the leader of Nagano prefecture, a picturesque region in the Japanese alps, who was thrown out of office by the local legislature after declaring a suspension of all dam construction. Tanaka showcased his campaign for transparency by working in an all-glass office known as his ‘crystal room’ and, perhaps less relevantly, by publishing diaries about his hectic sex life under the title Bump and Grind. ‘My no-more-dam policy is not only about the environment but also about how to spend our taxes properly,’ he said. ‘These things cost a huge amount of money and most of it goes to general contractors.’28 Tanaka was subsequently re-elected in a blaze of publicity, though not all of Nagano’s residents appreciated his cost-cutting drive. ‘I can’t stand the sight of him,’ one vegetable farmer remonstrated. ‘There are a lot of people – farmers and construction workers – crying at night because there’s no work.’ Though Koizumi remained wildly popular, there were not a few dissenters saying similar things about the crusading prime minister himself.

  Koizumi pushed on regardless. In addition to his assault on public works spending, which slowly bore fruit, he cut state pensions and – controversially in an ageing society – raised the amount patients had to contribute towards the cost of medical care. He also sought to reduce the amount of tax revenue the central government transferred to local authorities. None of this proved enough to limit public borrowing as much as Koizumi had hoped, at least not initially. The government missed Koizumi’s pledge to cap borrowing at Y30 trillion. In fiscal 2003, it issued debt worth more than Y36 trillion. Many economic commentators thought that was no bad thing. In a foreshadowing of recent debates in Europe and America about the merits of austerity versus Keynesian counter-cyclical spending, some experts argued that Koizumi’s government needed to spend more in order to offset the parsimony of a private sector still too scared to invest. In his early days, Koizumi actually oversaw an expansion of government borrowing, not the contraction he had promised with his slogan of ‘No growth without pain’. Only in subsequent years, when businesses revived and tax revenues improved in line with profits, did it become safe to shrink spending. By the end of his term in office, he had succeeded in whittling back the fiscal deficit from 8.2 per cent of GDP in 2002 to about 6 per cent.29

  The final part of Koizumi’s economic agenda was deregulation. This was what supply-side economists such as Takenaka regarded as a necessary loosening of controls over economic activity in order to release pent-up entrepreneurship – and hence growth. That meant shrinking the state and being less queasy about allowing so-called ‘zombie companies’ to go bust. It also entailed loosening labour codes and curbing the power of bureaucrats who liked nothing more than a bit of power-enhancing regulation. Despite Koizumi’s ambitious rhetoric, actual progress was slow. He undertook a number of small, if symbolic, battles, but big vested interests, such as farmers and energy producers, escaped largely unscathed. One fight he did take on was over whether to allow regular shops, not just pharmacies, to sell over-the-counter cold medicines, a minor assault on the powerful medical profession which wanted to control prescriptions, for pecuniary as much as safety reasons. Yasuo Fukuda, Koizumi’s chief cabinet secretary and later briefly prime minister himself, once mentioned the cold-medicines victory to me as one of Koizumi’s crowning achievements of deregulation.30 Convenient as this piece of regulation-busting doubtless was for millions of sniffling office workers, it was hardly enough to propel stratospheric growth.

  Getting rid of regulations was clearly not going to be easy so Koizumi championed the establishment of special economic zones in which some national rules could be waived. The plan carried with it the echo, if none of the sweeping effect, of the special economic zones that had jump-started growth in Communist China. Fukuoka, a large and forward-thinking city in southern Japan, announced it would take advantage of the scheme by allowing, of all things, robots to walk down the street. Along with neighbouring Kita Kyushu, Fukuoka was a centre of robotic research and city officials wanted to give the industry a push. ‘At the moment, you can’t have robots on the sidewalk or in the street because of traffic and radio-signal regulations,’ the governor of Fukuoka told me earnestly. ‘We are asking the government to deregulate to allow these kind of experiments.’31 Robotic emancipation, like more readily available cold medicine, was probably not going to cure the economy of all its ills. Still, there was a flurry of applications for special-economic-zone status, with no fewer than 650 proposals: hospitals asking for greater leeway on treatment, schools to conduct their lessons in English and farmers in Nagano to be able to brew sake. Who knew they couldn’t? Few of these proposals, on their own, seemed likely to spark a national revival.

  Koizumi did push more substantive, if more divisive, attempts at deregulation. Most far-reaching was the further liberalization of labour laws to allow companies to hire more temporary workers, even in manufacturing where big businesses had generally offered full-time – often lifetime – employment. Such policies were credited by some with helping to make Japanese business more competitive, but blamed by others for widening income disparities. ‘If the gap between rich and poor increases, we will see the emergence of an American-style society,’ Ryusuke Kaneko, a 25-year-old musician working as an estate agent, told me with obvious alarm. ‘If things go that way, it will not be a happy time for Japan.’32 Takenaka, for one, was bemused by criticism that Koizumi had destroyed Japanese society with his radical economic agenda. ‘There were many things left undone,’ Koizumi’s former economic tsar told me years later. ‘If we are criticized because we only did a few things, I accept that. But many people criticize the Koizumi administration for too much reform. I find that really strange.’

  If economic reform was patchy, Koizumi was more successful in the field of what might be called the ‘political economy’. The most potentially far-reaching and controversial policy he pursued during his tenure was his attempt to privatize the post office, an institution where politics and economics overlapped. Really a huge state piggy bank, the post office had been raided by the Liberal Democratic Party for years as a source of easy income for public works and other popular endeavours. For Koizumi, it was a sprawling symbol of the money politics he so despised.

  • • •

  In the autumn of 2005, by then more than four years into his premiership, Koizumi electrified Japan by calling a snap general election over the improbable issue of postal privatization. That year, he had introduced a bill into parliament that would split the post office, which had 24,000 branches up and down the length of Japan, into four parts, each of which would subsequently be privatized. The bill squeaked through the lower house, but it was defeated in the upper house after a mass defection by Liberal Democratic Party legis
lators opposed to privatizing a beloved national institution. That was when Koizumi sent in the ‘assassins’. Most of them were women, and glamorous ones to boot. Carrying out his threat to destroy his own party if it did not bend to his will, Koizumi dispatched his ‘female ninjas’ – as the press revelled in calling them – to run against the rebels from his own party who had defied him by opposing postal privatization. The ‘assassins’ were mostly celebrities, drawn from all walks of life to ‘kill off’ the professional politicians Koizumi had targeted. Among their number were a former beauty queen, a female newscaster and a television chef, Japan’s equivalent of Martha Stewart – minus the criminal record.

  His decision to dissolve parliament had been against all the advice of party grandees who had considered it electoral suicide. But Koizumi was furious at the disloyalty of those who had brought down a privatization bill that had been his lifelong obsession. He took his revenge by sacking the entire government – and rolling the dice. The opposition Democratic Party of Japan could not believe its luck. It began to prepare for office. Initial polls suggested Koizumi’s Liberal Democrats might, indeed, be heading for a crushing defeat. Postal rebels and loyalists alike were terrified of losing their seat or even seeing their party shatter into pieces. If the Liberal Democrats lost power, it would bring to an end half a century of almost uninterrupted rule. Koizumi was visibly animated during the campaign. He toured the country, standing on the rooftop of party buses to defend his policies in an ever-hoarser voice. ‘This election is about postal privatization. Are you for it or are you going to oppose it,’ he challenged a crowd outside Tokyo’s Kamata station.33 On another occasion he hammed, ‘If I am able to achieve postal system privatization, I don’t care if I am killed.’34

  Koizumi wanted to bolster the power of politicians by engaging the public more actively. For years, bureaucrats had been so powerful and skilful that politicians had been considered something of a sideshow. As in the British comedy Yes Minister, in which Sir Humphrey, an articulate and deliciously crafty bureaucrat, runs rings around his supposed political masters, so Japanese politicians were considered little more than front men. New foreign correspondents were sometimes advised by old Japan hands not to bother reporting on politics at all, since real decisions were made deep in the bowels of the bureaucracy. That view was a little overstated. Japanese policy had always been the product of a complex tug-of-war between bureaucrats, politicians and business. Koizumi’s achievement – half rhetorical illusion and half substantive – was to render that policymaking process more open. The matter up for discussion in the 2005 election, among the most dramatic in Japan’s post-war history, was the apparently dry subject of postal privatization. Were you for it, or against it?

  For Koizumi it was not a dry subject at all, but an obsession. For him, the post office was a symbol of all that was wrong with modern Japan. The institution had its roots in the Meiji Restoration. When the leaders of the new government were casting around for ways of uniting the country, one of the things they hit upon was a universal postal service like that of Britain. Rich merchants were asked to donate land on which post offices could be built. Former samurai, their top-knots cut and swords confiscated as part of Meiji’s sweeping modernization, were offered jobs as postmasters. In return, they were given generous stipends, tax exemption and the right to hand down their position like a feudal title. Those privileges remain largely intact today. Even in central Tokyo, let alone the countryside where post offices hold most sway, postmasters are often third or fourth generation.

  Delivering letters was only part of it. The post office gradually evolved into Japan’s biggest savings bank and provider of life insurance. In 2005, its savings and insurance assets amounted to an astonishing Y360 trillion ($3.3 trillion), about a quarter of the vast savings pool amassed since the war by thrifty households. That made it, by some measures, the biggest financial institution in the world, more than twice the size of Citibank. The pool of savings had proved incredibly tempting for economic planners, who recycled the money to chosen industries. The Liberal Democratic Party directed the savings, via a web of semi-state bodies, towards public works programmes. It had also been tapped to fund the ‘second budget’, a murky pool of money administered by the Fiscal Investment and Loan Programme that Koizumi was trying to kill off. Post office cash was, in short, the grease that oiled the Liberal Democrats’ re-election machine. The post office’s 280,000 full-time employees – more than those serving in Japan’s army, navy and air force combined – could mostly be counted on to vote for the party and to get out the vote of friends and family.

  All this made the post office the embodiment of the money politics Koizumi had promised to destroy, the most sacred of the ‘sacred cows’. His advisers told him that privatization would unleash pent-up market forces by allowing the vast postal savings to be allocated, not according to the whim of pen-pushers and politicians, but according to market rationale. Getting rid of the state-controlled piggy-bank could also force the government to live within its means. Koizumi saw postal privatization not only as an end in itself, but also as a symbol of his determination to tear down the old Japan. When I interviewed him on the subject in his sleek office, Koizumi compared postal privatization to the sacking of an impregnable medieval fortress. ‘Osaka Castle is surrounded by moats,’ he said, smiling enigmatically. ‘If you want to attack the headquarters, you have to attack the outer moat first, fill it in, and then attack the inner moat. The postal services are the outer moat.’35

  For Koizumi’s opponents, including the rebels within his own party, the post office was much more than a moat. Its 24,000 branches played a crucial social role, they said, particularly in remote areas that had been abandoned by young people and left to the elderly. I travelled by train to one such district in the mountainous Yamagata prefecture in northern Japan where the snow can be metres deep in winter. In that rugged, sparsely populated environment, it took Yoshihiko Suzuki, an earnest 42-year-old postal worker, one hour to deliver letters on his red-and-white moped to just four remote houses. His entire route consisted of only fifteen homes. At each residence, almost all of which were inhabited by elderly people, some living alone, he would pop his head around the door to ask how they were getting on and offer to bring them shopping. The town mayor, who saw Koizumi’s privatization as an assault on Japan’s social fabric, said, ‘In these parts, the postman is more like a welfare officer. Elderly people who can’t walk into town wait for the postman to visit and he calls out, “Is everything all right today grandma?”’36

  For the post office’s detractors, Suzuki’s work was a dreadful waste of money the state could no longer afford. For its supporters, it was an indispensable public service, the essence of a caring society. Even in the cities, the post office was a well-loved institution famed for its reliability. In the year Koizumi announced its privatization, for every one million letters delivered, only eleven were misdirected. The equivalent figure in Britain was 7,000.37 An expert on the post office described the debate thus, ‘One vision, represented by the postal lobby, places great store on state paternalism, informal social welfare, risk avoidance and predictability. The second [represented by Koizumi] champions the virtues of globalization, small government and self-responsibility.’38 Shizuka Kamei, a grandee of the Liberal Democratic Party and a leading ‘postal rebel’, saw things even more starkly. In trying to destroy everything that was good about Japan, he said, Koizumi was worse than Adolf Hitler.39

  Whatever people thought about postal privatization, there was huge public excitement about the election. Koizumi had depicted it as a fight to the death over the future direction of Japan. Noriko Hama, a professor of economics who was no great fan of Koizumi, nevertheless admired the choice being offered. ‘This is a marvellous moment, something for which Japanese democracy has been waiting for half a century,’ she told me. ‘In this election, people have to say what they mean and mean what they say. They can’t get away with bein
g wishy-washy. This is something unprecedented in Japanese politics.’

  The election, of course, went Koizumi’s way. After he set out the choice, opinion polls began to shift dramatically. From being an issue to which Japan’s public gave scant thought, postal privatization was suddenly elevated to its number one concern. The rationale seemed to be: if it meant so much to Koizumi it must be important. Throughout the campaign, fought under the slogan ‘Don’t Stop Reform’, Koizumi never once allowed the opposition to distract attention from his chosen central issue. He brushed aside any attempts to talk about the mountainous public debt, the parlous state of pensions or the diplomatic imbroglios into which he had led the country. As far as Koizumi, the master of ceremonies, was concerned, the election was about one thing and one thing only: the post office. The result was an overwhelming victory. Voters turned out in the highest numbers for years and Koizumi’s party won a landslide of 296 seats, giving it a two-thirds majority in the powerful lower house of parliament. That made it the biggest victory in the party’s more than fifty-year history.

  The following month, parliament duly passed a bill to split the post office into four units: savings, insurance, mail and counter services. By 2017, some way off even by Japan’s careful standards, the state would run down its holding in the banking and insurance businesses to nothing, completing the privatization. It would retain ownership of the mail and counter services. Many of the ‘postal rebels’ had lost their seats to Koizumi’s ‘assassins’, who now became known as ‘Koizumi’s children’. Some of the rebels who had managed to get re-elected as independents crawled back to the Liberal Democrats. They swallowed their pride and voted for Koizumi’s hated bill. Kamei, the man who had likened Koizumi to Hitler, won back his seat standing for a new party. He was not so easily cowed. ‘If things keep going like this, this will be the end of Japan,’ he proclaimed darkly.40 Koizumi said with his customary directness, ‘We’ve destroyed the old Liberal Democratic Party.’41 The party of factions, money politics and rural patronage was gone, political analysts said. In its place had emerged a new organization that was more responsive to the floating urban voter, with a mandate to change Japan. The legislature appeared to be at Koizumi’s feet.