Ozawa: The Man Who Wants to Save Japan

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Photograph for TIME by Jun Takagi

Ichiro Ozawa

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But Ozawa is not, and has never been, just a political insider. Since the early 1990s he has articulated a vision of Japan as a place that had to be a "normal country," one that had its own interests, in which national goals were set by its elected politicians, and in which the bureaucracy's job was to implement a political program rather than shape policy themselves. During his interview with TIME, held in the DPJ's modest headquarters in Tokyo's Nagatacho district, Ozawa was asked if his analysis of the need for Japan to be a "normal country" was still relevant. "Totally relevant," he said with emphasis. "We have to make a fundamental change to the current system in which the government is led primarily by the bureaucracy, and we have to replace it with the government under which the politicians will take the lead to formulate policies and execute those policies under their own responsibility." His contempt for the present LDP government was something to see. Since some politicians in the "ruling camp" are "totally dependent on the bureaucrats," he said, "they have nothing to do."

It's hard to argue that the LDP's performance of late has been anything but miserable. Each of the three leaders since Koizumi — Shinzo Abe, Yasuo Fukuda and Aso, has seemed less impressive than the last. Last month, Aso's Finance Minister, Shoichi Nakagawa, was forced to resign after appearing to be drunk (he said he was suffering the after-effects of cold medication) at a press conference during an important international meeting. "Typically recessions were good for the LDP," says Jesper Koll, president and CEO of Tantallon Research Japan, "but this time around it is sort of pathetic. The government has no credibility. Any policy that comes out now gets greeted not with just a yawn but with utter indifference."

Nor is Ozawa wrong in seeing that Japan faces enormous challenges. At home, it confronts a rapidly aging population and declining birthrate. The number of those aged over 65 is projected to jump from 28 million today to 35 million by 2025, by which time nearly 30% of the population will be elderly. This demographic shift will put enormous strain on corporate Japan, which is running out of workers — something that could be ameliorated by substantial immigration if Japan's leaders were bold enough (none has been) to prepare a traditionally closed society to open itself up. And an aging society will play havoc with demand for medical services and pensions. (Read "Chinese Immigrants Chase the Japanese Dream.")

Overseas, Japan, which just 20 years ago was the subject of books (how strangely they read now) predicting it would overtake the U.S. as the world's No. 1 economy, must cope with a resurgent competitor to its east. China's economic model is now admired around the world as a model, as Japan's once was. Asia has never seen a time when both China and Japan were simultaneously strong. That does not mean such a state of affairs is impossible; it does mean that both nations will need wise leaders if they are not to turn into bitter rivals. (It is not a small point to say that the U.S., too, will need wisdom if it is to convince the two East Asian giants that both can be valued partners of Washington.)

Above all, Japan has to cope with the fact that the economic model on which it built both its postwar prosperity and social stability is broken. Japan's spectacularly successful export-oriented industries were responsible for creating the world's second largest economy, and their lifetime-employment policies, with generous benefits, obviated the need for a comprehensive social safety net of the sort familiar to Western Europeans. Then came the bubble. After financial markets were liberalized in the 1980s, Japan went on a debt-fueled binge that made modern Americans look as thrifty as Amish farmers. The stock market soared into the stratosphere, and property prices went so haywire that it was common to claim that the land on which the Imperial Palace sits in the center of Tokyo was worth more than California.

As bubbles do, this one burst. While Japan's bureaucrats dithered, failing to face up to the crisis in the financial system, the economy went into a long "lost decade." The stock market plunged, then limped, then plunged again. (The Nikkei index is down 82% from its peak in 1989, and recently hit a 26-year low.) Banks that had once been the envy of the world had to be recapitalized. Growth picked up again after the turn of the century, as demand in China and the U.S. grew, only to be clobbered by the global recession and the collapse of external demand. In January, Japan's exports were an astonishing 46% less than they had been a year before.

The Search for Security

Ozawa's analysis of what needs to be done is clear. There is, he recognizes, "no going back to the traditional system ... We have to incorporate free competition as well as the market mechanism into the lifelong-employment system." The key to success is to rely less on exports and more on domestic demand — a prescription that, a DPJ policy document says tartly, "has been on the table for the past 20 years." But Ozawa recognizes that to encourage the Japanese to shop rather than stash their cash in safety-deposit boxes, something more than exhortation is needed. "We have to give a sense of security to the population," he says. That implies, given the demographic challenge, real reform of health care and retirement benefits. Even the younger generation, Ozawa says, are "worried that they will not be entitled to any pension benefits." Koll reinforces the point. "Anything that you can do to assure the Japanese people that their retirement future is provided for," he says, "is going to go a long, long way in boosting the economy where it needs it, in domestic demand."

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