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Monday, Aug. 5, 2002

False logic of 'Koizumispeak' hinders economic progress

Special to The Japan Times

"A cat has four legs. My dog has four legs. Therefore my dog is a cat." False logic cannot get much better than this. False logic is music to the ear of those who wish to be deceived and honey on the tongues of those who wish to deceive.

Prime Minister Junichiro Koizumi seems to be much taken with false logic of the cat and dog variety these days. No doubt he wishes both to deceive and to be deceived.

"There can be no recovery without reforms," he used to say of the Japanese economy. Indisputable logic and admirable sentiment, with which there is no complaint. Yet listen to him carefully these days, and what he now seems to be saying sounds much more like: "There can be no recovery without reforms. Here is recovery. Therefore reforms are proceeding."

What the government has chosen to call recovery in fact has nothing to do with reforms. It has everything to do with exports. And export-led recovery already looks increasingly to be history, now that the carpet has been swept from under the American economy. In the closed world of false logic, however, everything is totally consistent.

"Reforms bring pain" warned Mr. Koizumi, and encouraged us not to flinch. Good for him. But one has to worry when he rephrases himself and starts to say: "Pain brings reforms." For this was very much how he sounded when he was commenting on the enhanced restructuring efforts of Japanese companies in the face of the collapse of the global IT bubble. Their hasty adjustment to rapidly changing circumstances has undoubtedly been a painful process.

But where is one to find the link that connects that kind of pain with progressive structural reforms? Only in the world of false reverse reasoning.

False logic remains relatively harmless to the extent that it is being employed for purposes of self-deception. It is when it starts being applied to hoodwink others that it becomes dangerous.

Recently, Mr. Koizumi was triumphant because his postal reform bills passed through parliament with no major amendments. Of course not, when all the substance had been squeezed out and all the contentious elements most meticulously removed before the public debate stage ever got under way.

Mr. Koizumi joyously claims that all the dissidents in his party are coming round to his way of thinking. Of course they are, when the ingredients of the Koizumi reforms are being cooked to so changed a recipe that the end product bears no relation to the original ideas as they were first presented to the public. There is no longer anything there for the dissidents to dissent against in Mr. Koizumi's reform program.

Mr. Koizumi's original position in fiscal policy was that he placed top priority on reducing the level of national debt and generally mending the state of public finances in Japan. But his priorities have been clearly redefined. He now places greater emphasis on stimulating the economy. Hence, the recent decision to go ahead with business tax cuts in fiscal year 2003. To be sure, he has pledged to "neutralize" the deficit-increasing effect of those measures over a period of several years thereafter.

But such promises are as such promises go, and if a week is a long time in politics, several years belong in the realm of infinity. There is nothing inherently wrong with switching priorities. Mr. Koizumi's problem is that he does not like to adjust appearances to match content. Even when substantive change has had to take place in his government's policy focus, he is reluctant to have that change reflected in the sound bites of "Koizumispeak."

Even as I write, there are plans afoot to redesign the final stages of the Koizumi government's program to impose caps on deposit insurance. Such caps were to be introduced for current account deposits come April next year, after a one-year postponement from the original plan. It now appears that an exception is to be made for noninterest bearing checking accounts, and these are to be protected in full, irrespective of their size.

Where these moves will finally end up is still somewhat unclear at this point. Whatever the outcome however, any exemptions from the comprehensive imposition of insurance caps, if such exemptions are indeed introduced, will represent a major departure from the original policy position.

And yet, the media quotes Mr. Koizumi as saying quite explicitly that there has been no change in the policy of an overall imposition of deposit insurance ceilings.

This is carrying the upkeep of appearances to the utmost extreme and beyond. If there has been a major policy change, it is the duty of those in responsible positions to acknowledge the fact and to explain the reasons why.

Instead, if what they do is to concentrate all their efforts in keeping up the pretense of no change, there is no hope of constructive progress, and resort to false logic runs rampant to fill the gap between style and substance.

It is this aspect of the present government that is most worrying. There are limits to bright and all-resolving ideas to remedy Japan's current economic ills. The very many ideas that have been packaged into the Koizumi agenda all have their merits. They are worth a try.

Yet they will not be worth the paper they are written on if false logic keeps being applied to imply results where none are being delivered, and content is made to suffer irredeemable metamorphosis for the sake of constancy in appearance. No proper debate can take place over alterations of policy when the pretense is that there has been no alteration of policy.

And meanwhile, the economy can but flounder. Exports may provide a brief respite. Something else may come to the rescue at some other point in time. Yet unless and until Koizumispeak turns into plain speak, there is little hope of genuine progress.

False logic to engender false hopes is the last thing the Japanese economy needs at present.

Noriko Hama is a research director and economist in the Research Center for Policy and Economy at Mitsubishi Research Institute, Inc.

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The Japan Times

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