Quotes of the Day
In Tokyo these days, it's 1989 all over again. The city's real estate market is healthy once more. Down the street from the chic office/shopping/residential complex of Roppongi Hills, a sweeping new glass-and-steel national art museum has just opened, with galleries the size of aircraft hangars. Massive—and massively expensive—Hummer suvs squeeze through the city's capillary-sized streets, ferrying the wealthy to new clubs and bars like Roppongi's Crystal Lounge, which features crystal-encrusted replicas of Michelangelo's David and the Venus de Milo. Corporate Japan's balance sheet has never been stronger, led by Toyota, which just reported a record $3.5 billion profit for the last three months of 2006. At the end of March, Japan's capital will receive a new crown jewel: the 54-story Tokyo Midtown complex in Roppongi, which will feature another new art museum inside the city's tallest skyscraper, topped by a new Ritz-Carlton hotel. You can reserve the top suite for a mere $17,300 a night.
So why, in the midst of all this rich success, did 67.6% of Japanese respond to a recent Cabinet Office survey by saying that they felt anxious about their daily lives—the highest angst level recorded since the poll began nearly 40 years ago? Perhaps because they're looking beyond the next club opening or quarterly report, toward a national future that is anything but certain. Despite the country's economic recovery, Japan is still pinned beneath $6.9 trillion in public debt, and that's 1.5 times the nation's GDP, the worst ratio in the industrialized world. A widening gap between rich and poor is threatening to shatter Japan's view of itself as a predominantly middle-class country. The boom in the big cities has yet to be felt in the nation's heartland. China's rise is challenging Japan's economic predominance, with China already spending more than its rival on defense and R&D, for example. And Japan's population is graying fast, leaving working-age Japanese to wonder how they'll support a growing number of elderly—and just who will support them when it's their own turn to retire. "Tokyo is doing well, but outside Tokyo is not," says Mizuho Fukushima, leader of the opposition Social Democratic Party (SDP). "The nation is doing well, but its citizens are not."
Meanwhile, in his first four months in office, Prime Minister Shinzo Abe has seemed out of touch with the national mood. While Japanese say they're most worried about stagnant wages, a fragile pension system and growing social disparities, Abe has chosen to prioritize plans to revise Japan's pacifist constitution. While parents fret about declining academic standards, Abe's response has been to pass a reform bill that will attempt to make children more patriotic, and may bring back physical punishment to schools. "I'm not sure that constitutional revision should be the No. 1 issue," says Sadakazu Tanigaki, a former Finance Minister who ran against Abe in September's Liberal Democratic Party (LDP) presidential election. "There are so many issues that people are more concerned about, like social security or the low birthrate." LDP Diet member Taro Kono is blunter: "Constitutional amendments? Who cares?"
Abe has already paid a political price for falling out of step with voters. His approval ratings fell to 40% in an early February poll, down from nearly 70% when he took office in September, and for the first time more people disapproved of him than approved. After early diplomatic successes in China and South Korea, scandals and controversies have entangled several top administration officials. There's growing doubt about his passion for carrying out economic and political reforms initiated by his predecessor Junichiro Koizumi, and his own advisers privately admit that the Prime Minister—who often seems scripted and ill at ease in public—is suffering in comparison to the remarkably mediagenic Koizumi. It doesn't help that Abe's young and inexperienced team lacks influence within its own party. With the LDP and its ruling coalition partner the New Komeito Party in danger of losing control of the upper house of the Diet in July elections, the Oriental Economist Report, a newsletter, recently wondered if Japan was already "on the verge of the 'post-Abe' era."
In reality, Abe is unlikely to fall so quickly. The LDP holds an unassailable majority in the Diet's lower house, and approval ratings for the main opposition Democratic Party of Japan (DPJ) are even worse than the Prime Minister's. Abe's supporters also argue that he remains relatively popular by the lackluster historical standards of most Japanese leaders, and that he hasn't received enough credit for repairing Japan's often fractious relations with its Asian neighbors. Shoichi Nakagawa, the LDP's powerful policy chief, asserts that the Abe Cabinet takes everyday issues just as seriously as it does ideological ones. "We can do constitutional reform and the economy as well," says Nakagawa. "We aren't ignoring daily matters." But Abe's critics say he's failing to prioritize and lacks the ability to articulate a vision that addresses the issues troubling ordinary Japanese. Instead, Abe seems mired in the past, calling for a return to traditional values, to Japan "the beautiful country," his favorite figure of political speech. "Abe seems to be a modern politician, but he actually has a nostalgic 1950s vision of Japan that doesn't comport with reality today," says Michael Zielenziger, author of the book Shutting Out the Sun: How Japan Created Its Own Lost Generation. Adds Carol Gluck, a professor at Columbia University's Weatherhead East Asian Institute: "His rhetoric plays as a reassurance that things are not going to fall apart. But most people do not agree with him."
it's a mystery that is bedeviling economists and politicians alike. Japan's economy has grown for 60 consecutive months, the longest period of growth in the postwar era. So why are ordinary Japanese consumers like Maki Nobata behaving as if the country were still deep in recession? "I'm trying to cut back on spending," says the 36-year-old Tokyo accountant, who received a meager raise of less than $75 a month nearly two years ago and hasn't had another one since. Adding to her worries, Nobata doubts the pension system will be in place by the time she retires. "I feel like I need money for saving and insurance rather than for spending and enjoying life. I don't feel confident the economy will continue to grow."
That insecurity helps explain why Japanese consumer spending has remained stagnant. Each month in 2006, households spent less than they did in the same month in 2005. A Cabinet Office report found that household sentiment swooned in December, and Japan's top three department stores reported declining sales in the run-up to the country's New Year holiday. While unemployment has declined from 5.4% in 2002 to 4.1% at the end of 2006, wages have gone nowhere. According to statistics from the Ministry of Health, Labour and Welfare, the average Japanese made $2,881 a month in 2002. For most of 2006, the average monthly wage was only $2,749. "The statistics say that the economy is in good shape, but people can't feel that," says Heizo Takenaka, the architect of Koizumi's financial reforms. "Those feelings are understandable."
Takenaka says he expects consumer spending to pick up as soon as deflation is finally conquered. In the meantime, Japanese companies are coming under fire for failing to pass more of their profits on to workers—and Japanese politicians are being criticized for crowing about a recovery that has been largely driven by business investment as companies gear up to meet the rising demand for exports to the U.S. and China. "There has never been a recovery dating back to 1945 that is so dependent on capital investment," says Richard Katz, editor of the Oriental Economist Report. Should the U.S. and China falter, he warns, the Japanese economy will have nothing to fall back on, given the weakness of domestic consumer spending. "This is not sustainable," says Katz.
And Japanese workers aren't likely to feel richer or more secure anytime soon. Corporations have kept wages in check in part by shifting more work to part-time employees, who now constitute over 33% of Japan's workforce, up from 20% in 1992. Business leaders insist wages must be suppressed for Japanese companies to compete globally, but Katz points out that enforced fiscal austerity is toxic for the economy as a whole. "If every company cuts wages at the same time, no one is going to buy your products," he says. "That is what's happening."
The shift to part-time workers is also exacerbating the income disparity that more than 90% of Japanese believe is a growing problem, according to a recent poll by the broadcaster NHK. Although Japan has never fully realized its self-image as ichioku sochuryu (the nation of middle-class people), the income gap is getting worse because the rich are getting richer while the poor are actually losing ground. According to the O.E.C.D., Japan is now second to the U.S. among developed countries in terms of relative poverty—the proportion of people living on 50% less than the median income. The gap is readily apparent in spending patterns. The only two categories of automobiles to show sales growth in Japan last year were ultra-cheap minicars and luxury imports.
Fears abound that the millions of young people who have never managed to land a full-time job might become a subclass permanently doomed to part-time work and paltry wages. "You have people competing for the diminishing number of good jobs, and a lot of kids just don't have the resources to compete," says Scott North, a sociologist at Osaka University. Those trends, he adds, may in turn worsen Japan's declining birthrate. "If you don't have stable employment, it'll be hard to get married, hard to raise children."
For Japanese worried about their country's direction, the depressed city of Yubari on the northern island of Hokkaido provides an ominous worst-case scenario. Once a thriving coal-mining town of 130,000, Yubari has shrunk to 13,000 people, with 40% of them 65 years old or over. In the 1980s and '90s town officials tried to stanch the economic decline by borrowing hundreds of millions to remake the city as a tourist destination, only to fail miserably—as Yubari's shuttered amusement park, melon museum and robot museum testify. After racking up over $500 million in debt—roughly 14 times the city's annual tax revenue—Yubari was forced to declare bankruptcy last summer, the first Japanese municipality to do so in 14 years. Late last year the city government announced a harsh fiscal-restructuring plan that would involve raising local taxes to the maximum while cutting public services to the bone. With its crippling debt, aging population and depressed job market, Yubari has come to embody many of Japan's ills. "All the problems that Yubari faces as a city are the same problems that Japan as a country faces," says Tatsuro Sasaya, a Yubari businessman. "It makes me wonder where Japan is headed."
Abe has taken the issue of poverty and social disparity more seriously than Koizumi did, appointing a special minister to take charge of a program designed to help the unemployed and underemployed refine their job skills. "We're hardly disregarding people's kitchens," says Nobutaka Machimura, a former Foreign Minister and influential LDP Diet member. But when Abe's feel-good rhetoric clashes with the economic realities of Japan today, he can look disingenuous or simply ineffective. At the LDP convention in January, Abe declared that "economic growth is not for business enterprises, it is for the public," and later called on Keidanren, Japan's leading business federation, to raise wages. But Keidanren head Fujio Mitarai has rebuffed those calls, lobbying the government instead to lower corporate tax and raise the consumption tax, shifting more of the financial burden to ordinary workers. "In his heart Abe feels consideration for households," says Tsuyoshi Takagi, president of the nearly 7-million-strong Japanese Trade Union Confederation. "Yet he's pushing reforms for [the benefit of] business. People are disappointed."
That complaint gets to the heart of Abe's political quandary. Japanese who feel uncomfortable with the reforms of recent years see Abe as just a friendlier version of the disliked Koizumi—while those eager for faster reforms have come to view Abe as an obstacle. Hisashi Hirano, an official with the Yubari government, couldn't stand Koizumi, but says that at least with him, "we knew where we were headed. With Abe you can't understand what his intentions are." At the same time, Koizumi's most ardent fans—especially the young, unaffiliated voters he lured back into politics—reject Abe as a conservative relic. "His popularity has fallen because he's not perceived as being radical enough," says Robert Feldman, chief Japan economist for Morgan Stanley. Feldman argues that Abe has actually been a much more aggressive reformer than he has been given credit for, citing the PM's willingness to challenge the power of Japan's entrenched bureaucracy behind the scenes. "He has created competition within government that is even better than what Koizumi did," Feldman says. But while Koizumi responded to opposition by shifting the blame to the old guard with accomplished political jujitsu, Abe and his novice team seem to lack the ability—or stomach—to take his fight for reform to the public. He punted on the critical question of whether to raise Japan's consumption tax to help cut public debt, delaying the potentially unpopular decision until after the summer elections—a worrying return to the pre-Koizumi politics of delay. No less a conservative icon than former Prime Minister Yasuhiro Nakasone argued in the Japan Times on Feb. 10 that Abe appeared "long on rhetoric and short on substance."
It also hurts that the political issues Abe has spent most of his energy on—constitutional revision and international diplomacy—haven't captured the imagination of voters more concerned with their pocketbooks. "These are important political themes," says Minoru Morita, a liberal political analyst. "But they are not what the Japanese people are demanding." Abe's allies dismiss that line of criticism as overly simplistic, arguing that constitutional revision is a bold move that will enable Japan to take control of its destiny and reimagine itself as a nation. "Many systems in Japan haven't changed since the Meiji period, and they're not suited to today's situation," says Hidenao Nakagawa, the secretary-general of the LDP. Revision "will help the everyday issues, the small politics."
Certainly the Japanese people have every right to put their own stamp on a constitution that was, after all, effectively written for them by an occupying power. But revision, which requires a two-thirds majority in the Diet, will take years to accomplish. Expending that kind of energy on a constitutional issue while the opposition DPJ focuses on bread-and-butter economic matters doesn't make a lot of political sense in an election year. "What should politicians do now?" DPJ head Ichiro Ozawa asked in the Diet last month. "Amend the constitution or improve people's lives?"
Abe has also been hurt by the ideological approach he has taken to education reform, an issue that does resonate with voters. This year more 12-year-olds than ever before took entrance exams for selective private and national high schools, their parents desperate to remove them from a dysfunctional public-education system. While conservatives worried about declining academic performance and motivation, a highly publicized string of student suicides last fall showed the extent to which bullying had poisoned Japan's classrooms.
Abe's answer? Revise the fundamental education law to allow for greater emphasis on patriotism. Although a council he convened last month released more detailed recommendations, including increasing total class time, critics aren't impressed. Abe "doesn't address the real problems that Japan's education system faces," says the SDP's Fukushima, who notes that Japan still spends considerably less per student on public schooling than the O.E.C.D. average—forcing parents to plug the gap by sending their kids to private schools if they can afford to do so.
In coming years, Japan will need a better-educated, more productive population if it is to defuse its demographic time bomb. Japan's working population is projected to decline from 66 million to 55 million by 2035. This year the first of Japan's 7 million baby boomers will hit retirement age. If nothing is done to alter the equation, a shrinking supply of workers will struggle to support a growing number of retirees, while Japan's national debt means the government may be unable to provide a strong safety net. "People have lost confidence in the pension system," says Diet member Kono, who connects this fear to depressed consumer spending.
Abe has urged Japanese women to have more children (the current fertility rate is 1.29 children per woman), appealing to traditional family values while also promising to boost child-care support. But his administration has still managed to appear insensitive and out of touch on the issue. In a Jan. 27 speech exhorting them to have more children, Health Minister Hakuo Yanagisawa referred to Japanese women as "baby-making machines." The minister quickly apologized, but Abe's critics seized on the incident—and on Abe's refusal to fire Yanagisawa—as evidence that the administration can't handle the demographic issue. "The Health Ministry deals with grave fundamental social issues like the decreasing population," says Yoshiaki Takaki, the DPJ's Diet policy chief. "We cannot accept that it is headed by someone who has demonstrated a complete lack of respect for people."
In reality, even a more politically deft government would be unable to raise Japan's birthrate enough to make a dent in the demographics. And that puts pressure on the Prime Minister to figure out a more creative way to augment the country's declining workforce, not least by promoting immigration, expanding labor participation by women and the elderly and improving worker productivity through innovation. Abe clearly recognizes that this has to be a priority. In his campaign book, Towards a Beautiful Country, he writes that Japan should be "seen by people around the world as a place where they want to come and work." In a Jan. 26 policy speech to the Diet, Abe announced that by May he would lay out "Innovation 25," a blueprint for Japanese R&D through 2025. But he has yet to unveil the concrete details that turn intentions into policy. "These are good ideas," says Takenaka, the former Koizumi minister. "But how is his agenda actually going to work?"
Ironically, the area where Abe has made genuine progress is the one that critics were most afraid he would mishandle: foreign affairs. Abe has quickly managed to rebuild Japan's fractured relationships with South Korea and China, traveling to both capitals for lightning summits less than two weeks after he took power. While Koizumi continually irritated his neighbors by visiting the controversial Yasukuni Shrine, which honors Japan's war dead, Abe tactfully sidestepped the issue by refusing to say what he intends to do about Yasukuni. "He's shown real success in dealing with this," says Koichi Kato, an LDP heavyweight who has been critical in the past of Abe's nationalist leanings.
Abe's advisers know that diplomatic successes play well in foreign op-ed pages. But they also realize the Prime Minister must begin to show that he can address the pain Japanese voters are feeling at home—while reassuring a worried LDP that he can still lead the party to victory in the crucial July elections. In recent weeks there has been disquieting dissension within the Prime Minister's own Cabinet. Abe has had to rein in his Defense Minister and Foreign Minister over remarks both men made that were critical of the U.S., Japan's key ally. The diplomatic damage was relatively light, but the controversies reinforced the perception that Abe was losing influence. Still, his allies insist he will turn things around. "Abe will demonstrate the leadership to push his ideas forward," says Nakagawa, the LDP secretary-general. "This is his time." If he fails, the Abe era may be measured in months, not years—and Japan will lose a valuable opportunity to prepare for the challenges that lie ahead.
- Bryan Walsh | Tokyo