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Saturday, April 30, 2011

No time for political games as Japan tries to rise again


Special to The Japan Times

Hong Kong — Japanese people who have been hit by the triple disasters of earthquake, tsunami and nuclear accident have been — rightly — praised worldwide for their courage and resilience. In many other places, even one such disaster would have triggered widespread looting if not rioting.

But too many sympathizers have made the blithe assumption that all will be well with Japan, that this resilience, sense of togetherness and fighting spirit will pull the country through this disaster, as it has done through so many other crises since World War II. This is dangerous, the language that turkeys gobble before Thanksgiving: We have been OK before, so we will survive again. Before the earthquake, Japan stood perilously close to several economic and political fault lines: failure to respond adequately to the disasters could push it over the edge.

Postwar Japan was aided by the very devastation of defeat plus a helping hand from the American occupiers and from the canny politics of Prime Minister Shigeru Yoshida, who let the Americans provide the defense umbrella, so that Japan could concentrate on the economy. To be provocative, a more worrying comparison is the aftermath of the 1923 Great Kanto earthquake, which killed 120,000 people, and the subsequent political squabbling and uncertain global economic conditions that led to the rise of militarism and war.

Physical and economic damage after the March 11 disasters has been more severe and longer lasting than most experts predicted. The original expectation was that economically at least Japan would dust itself down and get on with life.

But six weeks later, the big motor companies are only just announcing plans to get back to half-time working and don't expect to be at full capacity until at least October because of power cuts and damage to parts suppliers. Global supply chains have been interrupted and companies like Apple, Ericsson and General Motors have suffered shortages of supplies from Japan. Inside Japan, beer, yogurt and bottled water are in short supply, and tourism has taken a major hit.

The OECD in its report issued on April 21 forecast that Japan's growth this year will fall to 0.8 percent before rebounding to 2.3 percent next year, thanks to the boost from reconstruction spending. It is correct to expect reconstruction to help the economy, and one economist suggested that if constructive spending on repairing the earthquake and tsunami damage replaces regular wasteful public spending, this would be a powerful positive boost.

But few economists have grappled with the issue of whether the disasters may trigger a shift in the economic axes. Will Toyota, Nissan, Sharp and other big manufacturers permanently shift production from Japan or radically rethink their "just-in-time" delivery schedules fearing being vulnerable and left stranded again? Will Apple and other international manufacturers respond to the competitive clamor from South Korea and Taiwan and rethink Japan's place in their global production chain?

There has also been little analysis of the longer-term damage that the earthquake caused to power supplies not just to the Fukushima No. 1 nuclear plant. Tokyo Electric Power Company (Tepco), owner of Fukushima and the major energy supplier for the damaged region and as far away as Tokyo, had production capacity of 64.5 million kilowatts before the earthquake, but was reduced to 31 million kW after it.

By bringing back retired thermal plants and other devices, Tepco hopes to get capacity up to 46.5 million kW by the end of July, but this still promises a long and sweaty summer for the capital region and its manufacturers and households.

Long after the summer there will still be the vexed question of how to replace the lost capacity, whether to continue with nuclear power, 30 percent of Japan's energy before the disaster and planned to rise to 40 percent, or whether to risk a potentially expensive push for conventional energy.

There is the question of how to pay for the disasters, with costs climbing north of $300 billion. Even though Japan has the highest debts to GDP in the world, more than twice its GDP, most of these debts are owed to its own citizens. Officials are optimistic that the tipping point, when Japanese will refuse to accept low interest rates for lending to the government, has not yet been reached.

The government is thinking of post-quake reconstruction bonds separate from normal borrowings to be paid with fresh taxes, some ministers have suggested by raising the consumption tax from 5 percent to 8 percent. Oddly, opinion polls say 60 percent of the public is in favor of higher taxes to pay for the disasters, but opportunistic turkey-politicians of all opposition parties are lining up to oppose consumption tax increases.

It is a sign that the normal game of parliamentary politicking has resumed as if there had been no earthquake and tsunami, and this is the most worrying sign of all. It would be possible to justify either an immediate tax increase or a promise to hold off tax increases until say 2015, provided that there was a credible plan of action embracing political, administrative and economic initiatives for the short, medium and long term.

Long term this would aim ambitiously for Japan's renaissance, including, as the ever-thoughtful Robert Alan Feldman of Morgan Stanley has suggested, radical policies for energy, food and agriculture, health, pensions and social security, administrative reform, productivity and population.

Given threats to Japan's place in the global economy, it should also review education, science, as well as foreign and defense policy in re-examining the country's role in Asia and the world.

But there is no sign of a reconstruction plan or even ideas for one. Instead, Japan's political turkeys are gobbling in the parliamentary backyard about how long Prime Minister Naoto Kan can cling to power. Sadly, there is no one else with greater stature, higher principles, better imagination or superior political skills waiting in the wings, just a barnyard of turkeys. What a way to reward the resilience of the disaster victims.

Kevin Rafferty is author of "Inside Japan's Power Houses."


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