Japan wonders if new leaders have economic vision

TOKYO: Now that the Japanese have overthrown the old guard, worries are growing that the new leaders lack a long-term vision to turn around the hobbled economy.

The Democratic Party of Japan swept to power in last weekend's parliamentary elections, largely because of voter disgust with the long-ruling Liberal Democratic Party and their inability to address the country's underlying problems.

The opposition promised to expand the social safety net with handouts for families with children and farmers, toll-free highways and a higher minimum wage.

But critics say such programs were mainly designed to woo voters and fall short of mapping out a road to growth or tackling deeper issues like Japan's aging, shrinking population and its ballooning national debt.

"In short, what they are going to do is unclear," said Koetsu Aizawa, economics professor at Saitama University.

"They were out to win an election. And they have barely addressed the issues of structural reforms and economic growth."

Adding to the concerns is a widely circulated opinion piece by Democratic leader Yukio Hatoyama - the likely new prime minister - that sharply criticizes the U.S. business model for growth that Japan had emulated during the postwar period.

In the piece - which appeared in domestic and international media, including The New York Times - Hatoyama promises a Japan free of what he calls the "unrestrained market fundamentalism and financial capitalism, that are void of morals or moderation" to better protect the finances and livelihoods of his people.

Talk of decreasing the gap between the haves and have-nots appealed to voters during the campaign, but as the election euphoria wears off, many people are befuddled by exactly what kind of economic policies Hatoyama and his party plan to implement.

Aizawa and other free-market advocates worried that the party may step away from deregulating the economy, a process that began under former Prime Minister Junichiro Koizumi, who governed from 2001 to 2006.

The Democrats haven't clearly come out against deregulation, but they have said they want to review Koizumi's program to privatize the huge postal system, which works in Japan as a bank and could potentially funnel money into the private sector.

A move away from deregulation, critics argue, would stunt Japan's long-term growth prospects and disengage it from the global economy by discouraging competition and foreign investment.

Industries such retailing and selling imported autos are heavily regulated. But many Japanese blamed the reforms for leading to economic woes, such rising joblessness and homelessness, widening income gaps and the fading promise of lifetime employment.

Japan's economy is struggling to emerge from its worst-ever recession, with unemployment reaching a record high 5.7 percent.

The Democrats say their proposal to give families $275 a month per child through junior high school is meant to help consumer spending and encourage women to have more babies.

But some worry it will be expensive and only bloat the national debt which is nearly 200 percent of the economy.

Giving cash to households won't necessarily boost consumption because the money could merely end up as savings, and the Democrats could fuel people's fears about heavier taxes, said Tetsufumi Yamakawa, Goldman Sachs Japan chief economist.

"It is difficult to gauge the potential effects of the DPJ's economic policies," Yamakawa said in a recent report.

The LDP has traditionally used massive public works projects to spur growth, but over the years many Japanese have come to see these projects - which have lined many of Japan's rivers with concrete - as wasteful and destructive to the environment.

The Democrats say they plan to pay for their handouts and other measure by cutting back on such spending.

While Japan boasts a wealth of skills, including the know-how behind solar-panel technology, nuclear power and hybrid cars, Hatoyama has yet to propose growth plans, said Kenichi Imai, honorary professor at Hitotsubashi University and honorary fellow at Stanford University.

Equally skeptical is the business world, which has long thrived on ties to the ruling party.

Some have expressed worries that the Democrats' promise to ban the hiring of contract workers in manufacturing - such workers have shouldered most of the job cuts - and to aggressively curb the emissions of gases linked to global-warming.

Keidanren, the nation's biggest business lobby, has been guarded about what it says on the Democrats, stressing that it seeks to build a relationship.

But business leaders are expressing concern that while Japan has historically grown by nurturing export-dependent manufacturers, that has not been the Democrats' focus.

"I am very troubled by the Democrats' policies," Masamitsu Sakurai, chairman of the Japan Association of Corporate Executives.

He cited the proposed ban on contract workers, which he said would hamstring corporations from adjusting quickly to changes in markets.

Such temporary workers are easy to hire and fire because they aren't tacitly guaranteed lifetime employment, as most salaried workers are.

If they prove inept, and the Japanese economy remains weak, the Democrats could even be headed for an equally dramatic loss in upper house elections, which must be called next year.

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