Japan's economic woes are too great for supply-side tinkering and could come back to haunt the prime minister
Whether or not Junichiro Koizumi looks back on his visit to North Korea as a global moment in his leadership, it's not clear whether Japan's prime minister has many more Japanese moments left in him.
High-visibility foreign ventures may produce headlines, and in this case even tangible results. One looks forward to the latter with genuine anticipation. It remains a question, however, whether Koizumi can hang his heavy bag of domestic difficulties on a one-day trip to Pyongyang and expect such a hook to hold it for long.
Koizumi's ratings in public-opinion polls have taken a considerable bounce of late. He's up past the 50% mark again, compared with ratings down in the 30s a couple of months ago. The Korea initiative, announced on 30 August is one reason for this improvement. On the domestic side, though, voters seem to be giving their leader credit where it's due and not where it isn't.
Let's do the same thing. Listening to Koizumi speak in New York recently, I heard a confident politician deliver a perfectly sensible defence of his administration's record in matters of economic reform. At the end, though, I had to conclude that he's doing all the right things for all the wrong reasons.
So far as his basic reform programme is concerned ' the 'Koizumi reforms,'' as the prime minister unabashedly called them ' it's just as I thought many months ago.
When Westerners talk about reform in Japan, they mean immediate measures to counteract deflation, clean up the bad loans in the banking system, and let the chips fall where they may so far as bankruptcies and corporate failures go.
This isn't reform as Koizumi means it. It's short-term policy and politicking, and Koizumi is flinching from it, apparently wishing the nation's immediate economic condition were a secondary question, if not a sideshow.
The prime minister has a bureaucrat's soul and 10 terms in the national legislature behind him. 'His' reforms were in motion more than a decade before he arrived in the prime minister's office, and they will bear fruit only in the decade to come. Reshaping the financial-services industry, breaking apart thehuge, unwieldy state sector, reforming the tax regime, and reinventing local finance ' these are Koizumi's white whales.
'We want to turn over our nonproductive assets to the private sector and thereby stimulate the economy. We want to get down to structural reform and regulatory reform,'' Koizumi said.
'In this regard I'm thinking about how best to accelerate reform. People in the US seem to think my reforms have nothing to do with the markets. That's a complete misunderstanding.''
I agree, at least about the misunderstanding part. Japan's larger, longer-term reforms are of fundamental importance to the nation's reinvention of itself.
At the same time, Koizumi seems to be taking undue refuge in them to avoid the tougher work of developing an economic policy that will get Japan going again in the short term. That's point one.
Point two follows easily. Along with a few others, I think Koizumi's dithering on economic policy, which he more or less acknowledged in New York, is a fine thing because he still proposes a supply-side solution to Japan's deflationary spiral ' which is prima facie a demand-side problem.
Point three comes by way of an example. Earlier this month, the Financial Services Agency announced that it would delay the imposition of a cap on government deposit insurance. Bank deposits in Japan have been fully insured since 1995; the cap would limit such insurance to 10m yen ($85,000).
It's the third such postponement in the last couple of years, and the markets cast it as a cave-in to pressure from the banks and the politicians who back them.
It's going to be interesting to watch Koizumi perform ' and that may prove just the word ' in coming months. He has no immediate challengers, which tends to leave him on dry ground politically. If not Jun-san, who? At the same time, a younger generation of politicians is coming up behind him in cities such as Yokoyama and in the prefectures.
Maybe this will spur Koizumi into serious action. Earlier this month a grassroots activist named Yasuo Tanaka was re-elected governor in Nagano and is mounting a frontal attack on the cabal of bureaucrats and corporate executives who make Japan 'the construction state.''
Among other things, Tanaka keeps official appointments in a glass-enclosed office on the ground floor of the prefectural office building. It's transparency at its most literal. 'When I took office I asked for two-to-three years of low economic growth ' pain today for a better tomorrow,''' Koizumi said when questioned after his speech. 'It has been less than a year and a half.'' Is there a promise in this we should set our clocks by?
Bloomberg newsroom, New York
$17trn of debt is now ‘paying’ a negative yield
47 million Brits without financial advice
Faces substantial prison term
General election on 12 December