Ldp R.I.P.?

International Economy, The, May, 2000 by Richard Katz

Clever tactics may keep Japan's Liberal Democratic Party in power a while longer, but its days are numbered.

No matter how well entrenched political regimes may seem, once they lose their raison d'etre, they sooner or later lose their etre. So it was with dictatorships like the Communist Party of the Soviet Union, and the authoritarian "developmental states" of South Korea and Taiwan. So it has been with one-party democracies like Italy under the Christian Democrats and Sweden under the Labor Party. And so it will be with Japan's one-party democracy under the Liberal-Democratic Party (LDP).

In all likelihood, the death throes of LDP rule will continue for several

more years, passing through several episodes of political realignment. There is not yet a group of opposition parties capable of displacing the LDP in an election. The most likely scenario for eventual LDP downfall is another split or series of splits -- like the one that temporarily dethroned it in 1993 -- as conflicts of interest among the LDP's assorted constituencies become more severe.

That is not a near-term prospect. The LDP should come out of this year's elections for the Lower House of the Diet, the house that names the prime minister, still holding onto power via a coalition government. Prior to Prime Minister Keizo Obuchi's stroke, the LDP was widely expected to lose as many as twenty or thirty seats. It's not Clear how much the sympathy factor will alter that prospect. In any case, even if the LDP does lose its own majority, the coalition as a whole is expected to retain a majority.

These short-term twists and turns affect only the timing and form of Japan's political transition -- not the ultimate destination. Japan's political system is an anachronism. Japan is the only advanced industrial country that remains a one-party state: The same party (including the LDP's predecessor parties) has ruled for all but two of the fifty-five years since the end of World War Two.

In the past, LDP rule served Japan well. It kept Japan in the Western camp during the Cold War and it created the political coalition underlying the economic miracle. Today, however, the LDP stands in the way of the political-economic reform required to restore economic vibrancy. If Japan hopes to reform, it must move to genuinely competitive politics where parties alternate in power. Ultimately, Japan's economic crisis is a crisis of governance -- in both companies and government. It cannot be cured without reforming the system of governance.

A few years back, the idea that Japan needs fundamental reform may have been a minority view. Now it's conventional wisdom. The current debate is whether or not the LDP can serve as the vehicle for that reform. Since hope springs eternal, both Prime Minister Ryutaro Hashimoto and Keizo Obuchi were initially the objects of much wishful thinking. While Hashimoto at least recognized the need for some reform, the Obuchi Administration certified that the LDP could not implement reform even if it wanted to.

Yes, many of the LDP's core constituents, such as exporting industries and urban salaried employees, would greatly benefit from reform. Yet many of its other constituencies -- from farmers to mom and pop retailers to construction firms -- would be targets of reform. Backed by such interest groups, 180 LDP Diet members (a majority of the LDP delegation) have formed a caucus that aims to roll back even the mild reforms and deregulatory measures already instituted. Indeed, the stronger the LDP feels, the more it abandons even the pretense of reform. Tellingly, Obuchi's successor, Yoshiro Mori, is a member of the anti-deregulation caucus. When Michio Ochi, then chairman of the Financial Reconstruction Commission (FRC), was forced to resign after offering to protect rural credit unions from strict FRC inspections, Mori defended Ochi's statements.

The LDP's dilemma is inescapable: If it makes a determined effort to institute reform, it will tear itself apart. And yet failure to enact reform has the same effect. Either way, large parts of its voter and money base will be alienated. That's why there is now an increasingly open debate between the proponents and opponents of reform. That's why the LDP wavers, appearing to promote reform one day while backing off the next. It hopes against hope that mere tinkering and the deus ex machina of a private investment boom will solve its dilemmas for it. Such indecisiveness is the classic symptom of a regime in trouble. On the other hand, the emergence of public policy debates -- and not just backroom deals -- is a healthy sign of political evolution.

For decades, the LDP successfully ruled as a "catch-all coalition," encompassing both the efficient and inefficient sectors of Japan's "dual economy." Initially, it both promoted economic growth and mediated the transfer of income from the efficient to the inefficient. From the mid-1970s onwards, the latter role predominated. The LDP helped create massive disguised employment via regulations, pervasive private cartelization, and high prices that protected the backward sectors. As long as growth was high enough, this political formula worked. But decades of protecting the inefficient sectors of the economy ultimately means that the economic pie is no longer growing fast enough to share a slice with everyone. Hence, conflicts of interests are growing.