On Mon, 12 Mar 2001, Doug Henwood wrote:
> Brad Mayer wrote:
>
> >Stratfor had a very relevant freebee on Japan today.
>
> Stratfor proprietor Friedman co-wrote a book with his now-wife
> Meredith (who had a different last name then that I can't recall) in
> the late 1980s with the eye-catching title The Coming War With Japan.
He's still on that theme. The Japan report Brad refers to ends up suggesting today's situation might be comparable to Japan's shift toward militarism in the 20s, which seems a wee bit overwrought.
[Also when he says "liquidity crisis" I think he means "profitability crisis." Is that usage common anywhere besides with him?]
Mori's Political Woes Pale Next to Japan's Systematic Trouble
09 March 2001
By George Friedman
The prime minister of Japan, Yoshiro Mori, appears about to resign. Amazingly, with only a 6 percent approval rating, controversy in Japan is about whether Mori will resign before June 29, the end of the current parliamentary session.
Questions about Mori's political survival and his seemingly feeble attempts at holding onto power are the interesting parts of the story. Obviously he is going to resign, but Mori didn't suddenly wake up without popular support. He has been on the down escalator from the beginning, yet has managed to survive.
Mori's lack of support stems primarily from economic reasons. Japan's economy has been in terrible shape for a decade and started slipping again on his watch. The Nikkei index is at a 15-year low. Unemployment - an extraordinarily sensitive issue in Japan - has risen to the unacceptable level of 4.9 percent. As the American economy catches a cold, Japan's economy is coming down with pneumonia. Add to this Mori's now infamous decision to continue his golf game after being informed a U.S. submarine sank a Japanese fishing vessel off Hawaii, and the only question remaining is who are the 6 percent who still approve of him?
Replacing Mori, however, does nothing to solve the problem, and this is one of the reasons he was not summarily ousted months ago. Not that Mori failed to craft an effective policy, but that an effective policy is impossible given Japan's political structure and culture. How long can this system continue?
Japan suffers from a massive liquidity crisis originating in Tokyo's economic policies from the 1980s - seeking market share at the expense of profits. It had the lowest rate of return on capital of any industrial economy, a problem Japan covered by maintaining artificially low interest rates. This allowed unprofitable businesses not only to survive, but also to grow and essentially gut the Japanese financial system. The very policies that allowed Japan to triumph in the 1980s created the deep malaise of the 1990s. During this period, the primary concern of successive Japanese governments was to maintain social stability. Compare this with the United States' liquidity crisis of the late 1970s. The response was high interest rates, high unemployment and a ruthless restructuring of American industry during the early to mid-1980s. This laid the groundwork for the boom of the 1990s. Where the United States had the social resiliency to endure the restructuring of the 1980s, Japan's political elite are much more wary about their ability to impose pain on the Japanese public.
Japanese Prime Minister Yoshiro Mori stated at the Diet in Tokyo, "I will make my utmost efforts to enact the budget for the next fiscal year and work very hard for economic recovery," March 6.
Two forces are at work. The first is rooted in the Japanese cultural ethic of social solidarity. Japan is the only industrialized country that has never experienced a social revolution. Feudal loyalties run both ways; in return for loyalty to the leadership, the elite must protect the interests of the lower classes. The Japanese government has simply decided it cannot follow the standard Western response to a liquidity crisis by slashing consumption - particularly among working and middle class families - through high interest rates and unemployment.
The second force impacting the situation deals with the nature of the Japanese political elite. While Japan is a democracy, working behind that democratic system is another system of entrenched bureaucratic elites in the various ministries with close ties to Japan's corporate structure. This stratum has enormous practical power and a vested interest in stability and in maintaining its relative position. Senior officials view the economic problems through a lens of personal and institutional interests. Bold initiatives radically reshaping Japanese society will not emerge from this sector.
So, Japanese prime ministers have come and gone throughout the 1990s. Each on the whole ineffectual, but able to hold together the basic social contract with the collaboration of the ministries and corporations. Japan bought into the stability of stagnation, a shared experience of distributed misery.
Japan's failure to fundamentally restructure its financial and industrial base has dug it deeper and deeper into the hole. Measures that might have solved the problem in 1991 are woefully insufficient a decade later. The quantity and quality of pain required to shape up the Japanese economy at this point would mean a generation of dramatically reduced expectations.
Mori, both as an individual and a symbol, was incapable of imposing this sort of austerity. As a result, relatively minor cyclical shifts in the rest of the world are destabilizing Japan's economy more than ever.
Japan faces an economic crisis that could rapidly give way to a social crisis. The unemployment figures cut to the heart of Japan's social contract. Unlike stagnation, unemployment is not a shared experience but something that hits the population disproportionately. Japan's reserves of economic strength are cracking.
As Mori topples, there is a striking lack of personalities to replace him. The obvious choices are as much placeholders as he. There is a deep hollowness in the Japanese political system. The mystery of Mori's survival is that while he has no support, no one else seems any better.
This situation reminds us of the succession of Russian prime ministers under Boris Yeltsin. It just didn't seem to matter. Then one day, the Russian crisis became deep enough that it mattered very much. We were given a prime minister who deposed Yeltsin and took Russia on a very different course. Sufficient pressure changes the game's definition.
There is precedent for this in Japan. During the 1920s, after a remarkably similar economic crisis, Japan executed a fairly sudden - and in many ways unexpected - shift from a sort of liberalism toward militarism and xenophobia. Indeed, what is remarkable in Japanese history is the suddenness of its social shifts. Japan was a pre-industrial society in 1860. Less than a half century later, it defeated Russia in war. Japan was a violently aggressive culture until 1945 then genuinely shifted toward pacifist liberalism.
Japan and Russia are earthquake societies in which social and economic forces build up beneath an apparently imperturbable surface until a sudden rending turns everything upside down. Unlike the United States - where change is constant, continual and therefore gradual - Russia and Japan seem rocklike, until they shift.
The Japanese prime minister has a 6 percent approval rating. Its stock market is at a 15-year low and heading lower. Young people cannot find jobs. Banks teeter on the edge of disaster, saved only by fiscal sleights of hand. The question is simple: how much longer can a system that creates prime ministers without any political support sustain itself?
We strongly suspect the answer is not much longer. The internal situation in Japan has become intolerable and unsustainable. History will neither note nor care about Mori. What is important about him and the current situation is that it drives home the fact that Japan is running out of maneuver room with this political and economic system. The poll numbers indicate Japan is facing systemic failure.
What comes next? As with Russia, we expect sudden, unexpected change that will take Japan in radical new directions.