[talk] Genron Foreign Journalists roundtable Discussion with Foreign Correspondents

James Brooke

Correspondent of The New York Times

Andreas Gandow

North-East Asia Correspondent of Handelsblatt

Linda Sieg

Correspondent of Reuters

Jesper Koll

Chief Economist Japan Research Department of Merrill Lynch

What do foreign journalists covering Japan think of the current agenda of the Koizumi administration? The 1st "Genron NPO roundtable discussion amongst foreign journalists" was held to discuss the subjects focused on evaluation and problems of Koizumi's reform agenda to this point. Most journalists expressed skepticism on the success of his administration, although there were a few positive opinions. Wide-ranging questions concerning future problems, such as those concerning deregulation, were put to the journalists. The overall sentiment was that the lack of foreign policy and strategy, among others, was the most imminent matter to be solved.

Mr.Koll: Thank you very much for taking time to participate in this first Genron NPO roundtable discussion amongst foreign journalists covering Japan. As you know, Genron seeks to promote an open policy debate and I think your diverse backgrounds and insights into the current state of Japanese politics and society should allow for an interesting debate. To start things going, I want to ask two questions. First, what do you think of the current reform agenda of the Koizumi administration? And second, what are you writing about in your current Japan stories?

Mr.Gandow: I think the necessity of reforms is based on two fundamental elements. The first is that Japan has a lot of problems that are a legacy of the recent past, primarily the huge public deficit and the bank bad asset legacy. These are both problems that continue to grow, but their origin is in past policy action.

The second is the existence of two predictable future developments, the rapid aging of society and the sharp deterioration of Japan’s global competitiveness. It is my understanding that Koizumi is trying to solve both problems at the same time. However, my feeling at this point is that there still is no clear vision for what kind of new Japanese economy or new Japanese society he wants to build. Personally, I think that Japan should try to develop a new "Third-Way", a middle ground between free-market capitalism and old-style socialism. Japan has many aspects of society and corporate management that can be modified to make the country more competitive, while at the same time becoming an example for the newly industrializing countries of Asia. Such a vision does not exist today, and I am telling my readers in Germany exactly that. I am very skeptical of the success of the Koizumi administration. More than 200 days have passed and the only concrete development is that the anti-reform groups within the LDP are getting more and more vocal and seem to be gaining more and more power. The reform agenda is gradually being hijacked, postponed and delayed. There is no real progress on the budget deficit or bank bad debt issue, and certainly nothing that allows corporate Japan to become more globally competitive.

Personally, I think the best starting point for real reform is with the tax system. Real tax system reform could go a long way to re-start Japan's corporate competitiveness. The recent incident in which the Ministry of Finance sought to sabotage the introduction of consolidated tax accounting (renketsu nosei) makes me concerned about Japan's willingness to actually do what is necessary. Although Koizumi has made an executive decision, the whole tax system remains too fuzzy in the extreme and lacks future vision.

Mr.Brooke: I'm a newcomer to Japan. I arrived in mid-August. But certainly when I arrived, there was a lot of excitement about Koizumi back in the US. People thought that finally Japan had a real leader. His youth compared to the old-guard, his hairstyle, were all seen as symbols of a new energy, new ideas focused on changing Japan for the better. That has changed now. The energy seems to have run out, we’re back to old-style compromises and many of the bold reforms are scheduled to be postponed.

When I'm watching him, I do not get the sense of a great political master. A true master would actually seize the entire political system and re-work it. Does he have the political boldness to break up and revolutionize the political party of his father and grandfather? When all is said and done, would he have the guts to set up his own new party, maybe form a new party with the opposition? I don't think he would have the guts and vision to do this.

Of course, the Japanese people seem to be a lot more patient than I am. After all, his popularity is still in the high 70 percent range. I guess he just has a great way of saying the right things in the right way on television. He is a master of the sound bite and the LDP just keeps using him to stay in power and pursue its old-style agenda. So what we’re getting is just another ten years of the "muddle-through" that we had over the past ten years.

For US readers, that's obviously not very exciting and it is made worse by the incredible China fever” going around in America. China is obviously the last big dynasty and an incredible challenge to the US future hold on global economic power. Look at China's political will to generate more dynamism and greater prosperity for the people of China. Everyday new reforms are passed, promoting scientific research, allowing free mobility of labor, increasing home ownership and making China more flexible, less bureaucratic and more globally competitive. In contrast, Japan seems to be getting more bureaucratic with its bureaucratic obsession of bailing out losers and suppressing winners.

Just look at the facts. This year, Japan's bureaucrats spent thousands of hours negotiating trade protection for incredibly insignificant small industries in Japan negi, shitake, wooden-chopsticks. I mean, get real, this is not the sort of industry that will propel Japan towards new prosperity. Japan's industrial policy still is focused on the 19th century.

This is where I think Japan's greatest opportunity lies. Imagine a change in trade policy, focused on actually working out a free-trade agreement between Japan and China. When you mention this, all the bureaucrats always say will never happen, can never happen. That reminds me of America some years ago, when nobody thought that NAFTA the North American Free Trade Agreement could actually happen. Well, of course it did and the benefits from it are felt in the rising prosperity in the US as well as Mexico and Canada. Certainly, any progress in integrating Japan’s economy and trade with China or Asia would very quickly grab headline attention in the US. Maybe it's the only way forward for Japan to re-gain global respect and demonstrate true leadership qualities.

Ms.Sieg: I think we all agree that there is actually a consensus for reform. Obviously it is right to remain skeptical. Certainly the past ten years teach us that lesson. My own hope is that the drive for reform is much more serious this time for one principal reason: the LDP will do whatever is needed to stay in power. The party knows that first and foremost it needs to be popular. That’s what Koizumi delivers, probably much better than anybody in the party expected. No doubt some LDP members envy him for this, but they are smart enough to know that Koizumi is their principal ticket to power. So they'll do whatever he needs to stay popular, and they’ll have to trust his instincts to tell them what needs to be done.

My biggest worry is not the opposition within the LDP but the incredibly weak opposition parties. They seem to be getting weaker and weaker by the week. Instead of supporting some of Koizumi's reform programs, the opposition seems to be focused on just pointing out detailed shortcomings that really don’t matter. Like for example whether in the reform of public works a particular road project is stopped while another one is not. These sort of details are not really relevant at a time when Japan needs to focus on its national future policy. So what you see is that the opposition withdraws from the national debate, and instead becomes more and more local. So it picks up votes and seats in local councils, but looses in the Diet.

On economic policy, I do agree that Koizumi seems to lack vision. All he seems to say is that he is in favor of free markets. It contrasts to his political vision and skills to lead the LDP. That maybe because Koizumi is just not good at economics. Or it maybe because he fully understands that to survive he needs to concentrate all his efforts on changing the political structure as fast as possible. I think he's actually made great progress on this front. Look at the way policies are made. Now much more decision power rests with the cabinet and with the prime minister himself. The old "policy tribes" in the Diet (zoku giin) and the previously all-powerful LDP Seichokai (Policy Affairs Research Council) certainly has become much less influential. This is almost presidential-style decision making, not old-style consensus building from within the party rank and file. Unfortunately, while all this good stuff is happening on the policy decision-making front, the economy is sinking deeper and deeper into recession.

The really important thing going forward is progress on electoral reform. The balance between the rural and urban votes is once again too large and for Koizumi to survive in the next election he probably needs to cut down the power of the many agricultural districts. If electoral reform does not succeed, Japan's national policy will continue to decline as the bureaucracy continues to focus on defending dying 19th century industries indefinitely.

Mr. Gandow: But isn't that exactly where Japan is headed? Electoral reform or not, Koizumi does not have the mainstream support from the party, so he will be forced to continue to protect old-style, inefficient industries and the agricultural lobby. And if he does not do so, the bureaucrats probably will anyway. The Japanese Prime Minister is, after all, nothing but a robot pushed around by the bureaucrats and party elders.

Ms.Sieg: I think that's a good point. In fact, though, there is a huge conflict between the government bureaucracy and the ruling party. Who actually leads whom is never quite clear. For example, you mentioned tax reform. Here Japan has got the government tax council and it has got the LDP tax council. Of course, the government council is actually nothing but a pro-forma council that just seems to rubber stamps decisions made by the LDP council. So for Koizumi it is absolutely imperative that he changes and reforms the way the LDP makes decisions. Once this has changed you can expect more transparent and more decisively implemented economic and financial policy.

Mr.Koll: Great, so political ideas and the political process should lead economic developments. That would be great progress compared to the past decade, when political decision were only made on an ad-hoc basis in response to some economic deterioration or sense of crisis, while bureaucrats ran the country on a let's preserve the status quo basis. Personally, I think Koizumi is very much on the right rack. Just look at the quality of the policy debate. It has improved tremendously. Even the most conservative and protectionist LDP politician can no longer get away with just saying "NO". He now has to explain what his counter proposal is and why it is better than the one presented by Economics Minister Takenaka, FSA Minister Yanagizawa or PM Koizumi. The era of the politician who just says no and obstructs (No to ieru seijika) has come to an end. The debate is now realistic, constructive and much more openly competitive. I guess one of the big losers from this increased transparency and openness of policy debate are the journalists. Just having an inside-track with a powerful zoku-giin - tribesmen policy decision-maker now does not get you a scoop anymore. Instead, journalists now need to find outside experts to help them evaluate what a particular policy proposal may implicate. We've moved from "Kremlin Watching" you know, where national policy was decided by who did what to whom inside the Kremlin during Communist Party rule - to policy watching.

Now let me try and take this discussion to the next level. If you had five minutes with Koizumi, what advice would you give him? What two or three issues should the leader of the second largest economy on earth focus on to re-kindle a Japanese dream, a brighter future for the nation?

Mr.Gandow: First of all, it comes down to providing positive incentives. That goes for the politicians, for the bureaucrats, for the Japanese people and for corporate leaders. Without a positive incentive, without a tangible goal and future vision any political leader will soon lose popularity.

This is were deregulation comes in. Deregulation, economic liberalization should be a key focus to raise the standard of living and real incomes of households. Bureaucrats could play a vital role here and seem to be indeed pushing hard for accelerated deregulation in the telecommunications area. However, because of a lack of political leadership and vision, MITI is now forced to spend hours and hours on protecting the interests of local shitake and negi farmers. What's even more absurd is that MITI's industrial policy has actually helped many Japanese companies to move overseas, many in the agricultural products and processed food industry. So their old vision has been successful, it actually worked to lower prices for consumers and boost Japan's real income.

For real positive incentives, I come back to tax reform. There is simply no better and direct way to steer companies and households towards a brighter future. But instead of tax reform, what did we get? We got another two supplementary budgets, really just a continuation of old-style policies.

Mr. Brooke: Well, I agree that tax cuts should be on the agenda. But more importantly, my advice would be to make friends with China as fast as possible, provide a better Japanese social security system and finally, listen to the younger generation. The last point is key. I fear there is a rising tension between the old and young generation in Japan. I mean, my Japanese language teacher told me that she is afraid that when she gets old, the young people are going to punch and hit her because the younger generation tax rates are going to be so high just to keep the pension for the old guys going. This pension problem is really something. I'm told that today four workers support one pensioner, but that within a decade that may drop down to only two working age people. That's a social time-bomb ticking away. On top of this, Japan already has got these enormous budget deficits. There's no question that taxes have only one way to go, and that is up. Will the younger generation tolerate that without a fight?

Improving China relations are also a big challenge. It'll probably cost some money too. Look at Germany and Israel. There were many problems in the past, just as between Japan and China. But several public opinion polls now show that Israel regards Germany as its most trustworthy friend. That took a lot of work, incredible amounts of human exchanges and grass-roots initiatives, as well as a lot of reparations money to compensate for the crimes of the second world war. Dear Mr. Prime Minister, you've got a lot of work to do.

Ms.Sieg: Well, at the risk of repeating myself, I would say to Koizumi that it is essential to go ahead with electoral reform. Japan needs a better balance between the demographic distribution and the political power distribution in Parliament. The quicker the balance between the peoples actual living realities and political power can be brought into line, the better prospects for a brighter future should become.

Another really pressing issue is immigration. I mean, Japan's population is declining and either Japanese companies will go where the cheap labor and growing consumer markets are, or Japan allows cheap labor into the country. Of course I realize that this opens up all kinds of issues and there may be a danger of going the other way, that open door immigration will just turn Japan more xenophobic, blaming social problems on foreign workers and using them as a scapegoat. However, sooner or later Japan will have to face the challenge of moving away from a homogeneous society. That requires true political leadership skills.

Finally, I also think Japan needs to develop a true foreign policy. Right now, foreign policy seems to be dictated by a case-by-case approach to relationships with different countries. But there is no overall strategy or vision. For decades and decades Japan wanted to enter the global stage, become a leader, become a nation that mattered and was taken seriously on the global political front. Of course, if Japan does no longer want to be recognized as a principal global power, that’s fine too. But right now I don’t get the sense that Japan is doing anything strategic on the foreign policy front. Balancing China and Asia with the US certainly opens up tremendous opportunities, but Japan seems to prefer to be an opportunistic follower of day-to-day political expediencies, rather than a leader on the foreign policy front.

Mr.Brooke: Indeed, the opportunities are great, particularly with China. Look at the American relationship with Mexico as an example. A hundred and fifty years ago, America invaded Mexico and was the hated Gringo for many, many decades. Then America invites Mexico into the NAFTA free trade zone. The initial response from Mexico was what, you and us together? But now you have this wonderful free-trade agreement and both countries, both societies are prospering. Of course, Japan and China have their own specific dynamics, but the room for cooperation and complementarity is fantastic.

Your broader point on the lack of foreign policy is so true. I mean, here we are almost 60 years since the end of the Pacific War, yet Japan still has no peace treaty with Russia. There is much talk, but no action. Quite frankly, it's hard to take a country seriously that still, almost two generations since the end of the war, has not settled accounts.

Mr.Gandow: This is so right. Just compare Germany to Japan over the past fifty years. Like Japan, Germany lost the war and was surrounded by many difficulties in its relations with its neighbors. There were communist countries on the eastern border, democratic ones on the western border. Like Japan, it was quickly integrated into the democratic world, under US leadership. Of course it was easier for Germany to be integrated because of the allied power-structure that evolved into NATO. In contrast, the US-Japan relationship has been much more direct, without bringing Asian countries naturally into the relationship. But still, Japan's domestic leadership shows really no vision or skills to integrate Japan into Asia. Just look at the Yasukuni Shrine issue earlier this year. There is a very strong nationalistic undercurrent in Koizumi's foreign policy that will not help to integrate Japan into Asia.

The lack of foreign policy goals and strategy is really amazing. I always listen very carefully to the first speech the prime minister makes when parliament opens. Koizumi talked about the US, talked a bit about Asia and Russia; but Europe was not mentioned at all. It almost never is, yet it is quite clear that Europe's successful integration is one of the most important developments in global politics and economics.

Ms.Sieg: Let me just say one thing on the Yasukuni visit. I think it's unfair to say that he shouldn't have gone to Yasukuni if he wanted to show support for Asian feelings, but that that he should have gone on August 15th if he wanted to show full support for the nationalists. By going on the 13th he did show ability to compromise. What's wrong with flexibility? China and Korea would have been much more angry had he gone on the 15th.

Mr. Brooke: Well, I was in Beijing at the time and let me tell you, the Chinese were still pretty angry. The issue is really very emotional and I guess there has been hardly any progress to bring some rationality into the Japan's view of its past history in Asia. Perceptions are very negative, both on historical and cultural grounds.

Mr.Koll: Perhaps, but Koizumi then did go to Korea and China and apologized for Japan's past actions in the strongest words and language ever used by a Japanese Prime Minister. Doesn't that show he recognizes the need to settle the old historic accounts?

Ms.Sieg: I was on that trip. I was told that Koizumi was very happy that his words did not get reported back to Japan completely and extensively.

Mr. Gandow: Coming to grips with the past is still very controversial. For example, I still have many very lively discussion with my Japanese friends about the Tokyo War Tribunals. Many Japanese still feel they were the victims. Of course, so do the Korean and the Chinese, so the issue will remain complicated for a long time. Japan has not solved its past, so how can we expect it to create a future?

Mr. Brooke: There does seem to be some progress, though. A couple of weeks ago, South Korean business leaders came out with a declaration that they are in favor of setting up a free trade zone between Japan and Korea. I understand the Japanese Keidanren is also looking to get discussions going in that direction. Look, history is always about perceptions and many perceptions can be very selective. If you're the Chinese government, of course you'll find it much easier to teach the evils of Japanese imperialism in China than discussing the fact that many millions of Chinese people died during the Cultural Revolution. There is a lot that can be done there and if a free trade agreement were to be hammered out and show visible success, many perceptions would change quickly to the better. Mental frictions can be reduced quickly if material benefits become obvious to the people.

Mr.Koll: I want to take you up on this point of the business community charging ahead and looking to establish a free trade zone with Asian countries. In the past, we used to think of Japan as being governed by the iron consensus, the business leaders, top bureaucrats and politicians all moving in one direction. Maybe this has broken down. Certainly Japan’s business leaders are pursuing a much more progressive, forward looking global strategy than are the bureaucrats and politicians. Economic realities are driving progress, while political leadership just lags and tries to catch up.

Mr.Gandow: Sure! But politicians feed on this. While the business world globalizes, politicians have to protect the local interests who are the first-round losers in globalization. It starts with the leak farmers and ends with the bankers. Most troubled are the bankers in their 50s and 60s. They lost a lot of money for a lot of people. Amazingly, none of them has been held accountable for the mistakes made. Can you imagine any of them having to go to jail, as happened in the US with the savings and loan scandals?

Mr.Brooke: Japan is a paradise for employees and an even more so for management. But sometimes I wonder about that. Companies are shifting production overseas, the economy really is hollowing out. Labor costs have become to expensive in Japan for it to compete, so the companies go to where the cheap labor is. That could be stopped if there was immigration, but I guess that debate is not really popular.

Mr. Gandow: Yes, and you do have rising unemployment as a result, so more losers that need to be protected, thus giving more power to the anti-reform camp in the LDP. I think Japan will just end up as a so-called "headquarters" economy where all the company management stays in Japan, but the actual work gets done in China or Asia.

Ms.Sieg: That's why you need much more deregulation in Japan. The people in their 40s and 50s who lost their jobs have to be offered more opportunities to set up companies in the new emerging service sector industries. But let me tell you, covering the progress on deregulation over the past decade is really depressing. Ever since the Maekawa report there has been a very good vision about what needs to be done, but every year they seem to find new excuses to just post-pone and delay. Of course, it is really difficult to say exactly where the new growth opportunities will be. Probably the last place to offer an answer are the government bureaucrats and stuffy politicians who’ve done nothing in their lives except spend time with their koenkai groups out in the countryside.

Mr.Koll: Exactly. It's "Sayonara Dirigisme", or the old method of the government picking an industry and directing resources to it. That policy is more suited to a developing country like China in which, for example, if there is a need for 100 million new homes in two years, a housing and loan corporation is created to channel savings in that direction. Japan was brilliant at this sort-of top-down economic planning. If China becomes as good at it as Japan was in the 1960s and 70s it will really become a scary superpower quickly. But for Japan, that’s over. It's not about policies like the "my home" or "my car" initiatives. It's about "my life". The whole point about growth through deregulation is that it will be the market, it will be the peoples ingenuity and quest for a better life that gives rise to new companies and new industries. Sometimes I think the governments' unwillingness to speed-up deregulation just tells me that they really do not trust their people.

Mr.Gandow: I agree entirely. It's all about the human mind, lifestyle and new activity as people seek a better quality of life. Look at the obvious success of deregulation and Uniqlo, the 100-yen shops. Deflation is a good thing. Some economists calculate that 80% of Japan's deflation right now is due to two sectors clothing and processed food. That's deregulation at work, and good news for consumers. Japan's price level is still about 30-40% higher than that of other industrialized countries. Bringing down the cost of living through deregulation and liberalization is definitely a long-overdue good thing. I'm sure it is politically very popular.

Mr.Koll: So what do you think about the Bank of Japan should it do more to fight deflation as some politicians want it to do?

Mr.Gandow: The central bank is right to call for more structural reforms. And look, they are already raising the money supply. It's clearly been on a rising trend. Of course, you can always argue that they should be more aggressive about this, print more money, but then the Yen is poised to sink more sharply. A weaker yen means some inflation through higher import prices. Is that the right way to end deflation? Japan has deflation because of massive excess capacity. Printing money does not get rid of excess capacity. Also, the velocity of money is falling. That's natural because of the aging society.

Mr. Brooke: It seems obvious to me that the more money you print, the more will flow out of Japan.

Ms Sieg: And just printing money will certainly not change Japanese management practices, speed up deregulation or create better banks.

Mr.Brooke: Yes, you must do the hard stuff. Deregulate and trust the creativity of your people. I mean, Japan still has one of the best educated workforces on earth.

Mr.Koll: You don't think Japan needs education reform?

Ms.Sieg: The whole education reform debate is actually progressing nicely, I think. In the end, however, it comes down to the companies. I mean, what kind of worker do you actually want? The past required "salaryman" generalists. Now companies need more creative, more independent thinkers. The more companies realize that this is what they need to stay competitive, the faster the education system will change. It's the demand that creates supply.

Mr Gandow: But, you know the education system is still too focused on favoring the elite universities. That's where the national money is allocated, still centering on the old elite model. This then creates this amazing private system of juku, where people spend 40,000 yen per month so that their children can prepare for the elite-university tests. I'm told that the juku business is about 6 trillion yen. That's huge, and maybe there are some benefits as it employs as so-called teachers many people who could not get a job in a normal company. Still, for a German, this is incomprehensible. So, you have a supposedly free public university system, but to use it properly you have to spend a lot of money. Strange.

Mr.Brooke: What amazes me the most is how bad Japanese students and graduates are in English. I mean there is so much effort and money put into teaching English, so many homestay program, but still somehow the system does not work to produce English speakers. If you go to Germany, France or really any other advanced country that's no longer a problem. My impression is that the young students there for the most part cannot just read, but also speak and communicate in lively English. I guess the good news in Japan is that studying Chinese is getting more popular. Maybe that's a sign of the future.

The other education problem is the lack of entrepreneurial studies. How do you become a business man? How do you take risks and build a company. I guess they just do not have the people who can actually teach it. Also, when you actually look at the successful new entrepreneurs, they all had a rough beginning. Yanai-san of Uniqlo had a couple of bad experiences before his recent success. So did the guy from "Book Off". I guess what ultimately marks a true entrepreneurs is that he’s not afraid of failure. But anyway, I'm sure they could have learned from a good teacher. I mean, here you've got a country that spends trillions and trillions of yen on building roads and dams and other public works. Spending more on education would surely get you a much better shot at a brighter future.

Mr. Koll: Let me ask one final question: if you were to give a speech in front of a graduation group of high-school or college graduates, what advise would you give them?

Mr.Gandow: Ganbatte! Seriously, though, I really do think that Japan's society is disintegrating. The company, the kaisha, was at the center of the old system that's breaking down. So therefore my advise is, do not expect anything from your employer. Instead, think very hard to create your own vision, your own agenda. Create your own mission statement, write it down, and review it, update it as often as necessary. Do not expect anything from your company or indeed the government. You must do it yourself.

Mr.Brooke: Yes, I agree. I'd advise them to go travel abroad, be open-minded, expand their horizon and learn new things, new stories, dream different dreams. It's important to know your past, your history, but it's much more important to dream and create your own future. Japanese today are too obsessed with the past.

Ms.Sieg: Well, you two guys are so focused on the future, so focused on the individual. I want to advise them to think not just about themselves, but to also think about the other, the person next to you.

Mr.Koll: There you have it, the road-map for the future a goal-oriented, forward-looking individualism that still cares about other people. Shinsetsu kyoso caring competition.