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Monday, Nov. 24, 2008

JAPANESE PERSPECTIVES

G20's shared crisis Obama's first entree?


With the messages of "Change" and "Yes, we can," Democratic Sen. Barack Obama won the U.S. presidential election on Nov. 4. Apparently aided by the financial crisis that unfolded under the Republican administration of George W. Bush, Obama scored a resounding victory that gave him more than double the number of Electoral College votes that went to the Republican candidate John McCain.

The election of the 47-year-old senator as the first black American president itself symbolizes a major change that has swept the U.S. What will be the global implications of this change, and how should Japan respond?

The new president will face a massive domestic challenge. He must dispel the financial uncertainties and rebuild the nation's real economy.

Diplomatically, he will need to deliver his campaign promise to steer the country away from the Bush administration's unilateral approaches and strive for closer cooperation with the rest of the world.

Unlike Bush, Obama will have the Democrats who have expanded their majorities in both houses of Congress in the November election.

Still, many of the challenges that he will face as he enters the White House, including unifying the multifaceted and complex American society, dealing with the credit uncertainties and the massive external imbalances, and pulling forces out of Iraq, will be hard to resolve in the immediate future. There will emerge new problems and international friction as he starts to take action.

Obama's economic policies of trying to support the middle- and low-income segment and narrow the rich-poor gap could lead him to take severe steps against countries like China and Japan that have large trade surpluses with the U.S. and are often seen as taking away job opportunities from American workers.

As was discussed during the Nov.15-16 Group of 20 summit in Washington to deal with the financial crisis, it is of course important for each country to take domestic steps to boost their own economy. But such efforts must be made in a concerted way if they are to contribute to easing the global financial uncertainties. While the United States, as the major "imbalance" power with a current account deficit, needs to reduce its overconsumption, nations with surpluses must also correct their dependency on exports as the engine of their growth.

Japan of course needs structural reforms to shift away from its export dependency to more consumer-oriented domestic growth. At some point during this financial crisis, there were optimistic views about "decoupling" — or the belief that even if the U.S. falls into recession, Japan can still export to the emerging economics like the BRICs (Brazil, India and China). But the simultaneous falls in stock markets in many countries clearly show that economies around the world are steadily becoming intertwined.

It doesn't appear to be a logical option for resource-poor Japan to keep using raw materials for exports only to build up unstable dollar-denominated assets. On the contrary, Japan, facing a rapidly aging population, needs to focus more human resources, goods and money at home.

Also in response to the incoming U.S. administration's policy of seeking greater diplomatic cooperation, Japan needs to end its passive attitude of dealing with the holes in its security policies only after coming under pressures from its allies. Instead, the nation should clarify its own international security policies and implement them.

The security alliance with the United States will continue to be important. But the policies of the U.S. itself will be changing, and it would only be natural for Japan, as a sovereign state, to take voluntary actions in response to changing international circumstances, including China's military buildup and uncertainties surrounding North Korea.

More than six decades after the end of World War II, it is imperative for Japan to proactively take part in reforms of international institutions such as the United Nations and the International Monetary Fund, which are falling behind changes in global realities. It would be needless to repeat there is an imbalance between financial contributions among U.N. members and their powers.

Following the change to the float system in 1973, the IMF regime was left unattended without steps being taken against the dollar's unstable exchange rates. The problem has been highlighted in the current crisis.

Climate change also requires immediate action. Crisis can create opportunities, and the G20 meeting in Washington can be a starting point for that. With more countries being involved, it becomes even more difficult to reach a consensus. Still, the fact that participants were able to put together a joint statement is an indication that these countries shared a sense of crisis. Oil producing countries, whose policies can destabilize world prices, should take part in the process.

The second such conference is to take place by April, and each participant needs to aim for a common goal of creating a new stable worldwide financial system for the 21st century.

Rather than trying to protect their vested interests and claim their rights, the countries need to take responsibility for operating and sharing the burdens of a new international regime. Following its WWII defeat, Japan was unable to take part in the creation of the postwar regime. Today, the very postwar regime is up for review, and Japan should not waste this opportunity by being mired in futile domestic political turmoil. It must not just focus on its narrow, short-term interests, and should contribute to the reconstruction of world peace and stability.

Teruhiko Mano is a professor at Seigakuin University Graduate School.


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