Richard
Katz, Japanese
Phoenix: The Long Road to Economic Revival (Armonk,
New York: M.E. Sharpe, 2003). 351 pages.
Reviewed
by Scott B. MacDonald
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here to purchase Richard
Katz’s book, The Long Road to Economic Revival
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Richard
Katz, the author Japan: The System that Soured, has written
an excellent new book on Japan tackling the nagging question
about whether Asia’s largest economy will recover from
the legacy of problems caused during the 1980s. The short
answer to that question is yes, but he admits that the process
will be long and painful and will require a transformation
of the Japanese political landscape. The core problem is
as follows: “Japan’s economic crisis is basically
a crisis of governance – in both government and corporations.
And so revival requires a fundamental overhaul.” In
addition: “There is now an unprecedented gap between
the interests of the party and the nation. In a democracy,
that gap cannot be sustained indefinitely.”
According to Katz, a major part of the problem is the Liberal Democratic Party
(LDP), which has overstayed its welcome in history. As he states: “Once
a regime, no matter how seemingly strong loses its raison d’etre, it
sooner or later loses its etre. So it was with the Communist Party of the Soviet
Union, the Christian Democratic Party of Italy, dictatorships in Taiwan and
South Korea, and single-party rule by the Labor Party of Sweden. So it will
be with Japan’s single-party democracy.” Katz argues that the LDP
began with good intentions, helped rebuild Japan into an economic powerhouse
and long rules as a catchall coalition. Over time, however, the system soured
as “the system that allows all the special interest Lilliputians – from
gas station owners and construction firms to small retailers and even veterinarians – to
hog-tie the national interest in millions of tiny threads.”
In a sense, the system soured in the early 1990s when it was unable to effectively
respond to changing international economic conditions due to strong and binding
domestic interests that reinforced an earlier tendency for a dual economy.
On one side was a highly competitive export-oriented economic sector and on
the other, hiding behind tariff and non-tariff barriers and supplied with more
than ample credit, was a poorly competitive domestic sector. What complicated
making any meaningful adjustment was that the domestic sector had strong political
ties to the ruling LDP, which in turn worked closely with a national bureaucracy
oriented toward maintaining the status quo. Consequently, Japan has ended up
with a political landscape in which the reformers are confronted by an opposition
that firmly believes that adjustment is not necessary as the economy will eventually
right itself. The solution is to keep injecting credit into the system, either
through the banking system or government spending. Both have had a highly negative
impact on the country’s economy.
Enter Junichiro Koizumi, Japan’s current prime minister and leader of
the reform wing of the LDP. Katz comments: “Koizumi’s entire appeal,
and the way he came to power, was based on the population’s yearning
and hope for reform.” Indeed, popular support for Koizumi reflects the
public’s keen interest in reform – the pressing need to overhaul
the state and make things work again.
While Koizumi is clearly important in moving Japan in the right direction,
Katz ultimately regards the Japanese leader much like Mikhail Gorbachev, the
failed last leader of the Soviet Union, who was able to unleash the forces
of change, but unable to ride the course, eventually being swept aside as one
of the history’s critical, yet bypassed transitional figures. The author
reflects that “…like his Soviet counterpart, Koizumi is a sincere
reformer who faces two very large obstacles: his own political party and a
tragically self-defeating economic strategy.”
Katz expects that Koizumi will eventually be bypassed by some else, but that
he will contribute to death of the LDP and its system. What this leads us to
is that the “death throes of LDP rule will continue for several more
years, passing through several episodes of political realignment, with a series
of new parties and new personalities rising and falling.”
Katz is confident that Japan is changing and that “we have little doubt
that the era from 1990 to 2010 will be seen as one of the country’s major
turning points, not the beginning of is demise.” The bottom line in all
of this is that the pain of muddling through will eventually provoke action,
some of which is already occurred. As Katz states, “Japan is a great
nation currently trapped in obsolete institutions.” It has a well-educated
population, which only needs a program and institutional vehicle to coalesce
around in order to replace the failed state. After finishing Japanese Phoenix,
one can almost hear Katz whisper, “Don’t count Japan out.” Japanese
Phoenix is critical reading for anyone interested in Japan.
