Foreign Correspondence

[Amaunet]

Koizumi: Crazy like a fox
By Darrel Whitten


A different take on Koizumi's recent actions.

Aug 12, 2005


Much of the media would have it that Japan's Prime Minister Junichiro Koizumi effectively committed political suicide by dissolving the House of Representatives (Lower House) after a "humiliating" defeat in a House of Councillors (Upper House) over a vote on his postal privatization bills.

A snap election will be held on September 11. But why did he dissolve the Lower House when the bill was defeated in the Upper House? The answers include: a) it was easier to dissolve the House of Representatives and b) the House of Representatives is where the real power in Japan's government lies, particularly as regards to the ruling Liberal Democratic Party's (LDP) infamous factions, and therefore is much more politically important for Koizumi, as well as his "old guard" opponents within the LDP.

Not only did Koizumi dissolve the Lower House, he also withdrew LDP party support in the upcoming elections for the 37 LDP politicians who voted against his bills. Without formal LDP support, these candidates will have to run as independents, cannot advertise their campaigns in the same manner as party-backed candidates, and cannot use party funds in their campaigns. In effect, Koizumi has used the defeat of the postal liberalization bills to exorcise his most vocal opponents in the LDP.

Is Koizumi crazy, or just crazy like a fox? He is extremely unusual as a Japanese politician and particularly as one belonging to the LDP. He actually means what he says and has consistently attempted to implement the promises he made when elected. He swept into power with a landslide victory for himself and the LDP in elections in April 2001, and became a social phenomenon in the process. By then, he was a seasoned politician. Koizumi first ran in general elections in December 1969 as the replacement candidate for his father, but was defeated as he was unable to gain the support of the Yusei Zoku (postal system interest group).

After a stint as secretary to former prime minister Takeo Fukuda, a rival of the Kakuei Tanaka faction that enjoyed the strong support of the Yusei Zoku, Koizumi won his first general election in 1972. Fukuda was part of the LDP faction Ginko Zoku (previously finance ministry), which was a rival to Yusei Zoku. Thus Koizumi built his political career as a Ginko Zoku diet member, which was fundamentally at odds with the Yusei Zoku.

In 1992, Koizumi was appointed minister of posts and telecommunications in the Kiichi Miyazawa cabinet. This was like asking the fox to guard the hen house. In addition to promoting his own unique philosophy for postal system privatization, he continued to battle with career bureaucrats in the postal system over issues such as his rejection of a budget proposal by the ministry to raise the minimum amount of non-taxable, small-lot savings accounts for senior citizens.

But Koizumi's "top-down" style and passion to implement further reforms has increasingly brought him to loggerheads with aging influence peddlers within the LDP. That is because the LDP is essentially a coalition of eight "policy groups" or factions.

These factions are aligned with key ministries and public programs in a number of areas, including the Doro Zoku (Japan highway), Zeisei Zoku (value added tax), Yusei Zoku (postal system), Norin Zoku (agricultural ministry), Shoko Zoku (industry policy), Ginko Zoku (previously finance ministry) and the Kosei Zoku (welfare ministry family). Traditionally, policy within the LDP has been determined by consensus and compromise among the LDP factions, with the prime minister's post being passed around by the respective factions and the cabinet essentially rubber-stamping LDP policy initiatives. The strength of each faction is determined by the number of members it commands, which in turn is largely determined by the amount of money the faction can attract and use in getting its members elected.

Koizumi's grand aim from the beginning has been to abolish the political factions within the LDP and eliminate the sleaze and under-the-table dealings that have driven Japan's parliamentary system. His reorganizations within Japan's government were aimed at shifting the policy initiative to the cabinet from the LDP. On the other hand, the Yusei Zoku faction has long been the center of power for the LDP's most influential politicians, including the infamous Shin Kanemaru, a former LDP politician arrested for corruption in 1993.

The elimination of factionalism in the LDP is key in diverting the money flow from a few influential LDP politicians, the bureaucrats and public corporations into the private sector. In effect, privatizing government-owned businesses, such as the Japan Highway Public Corp and the postal system, entails eliminating factionalism within the LDP and defeating the "old guard" politicians whose political fortunes have been built on the pork-barreling from these enterprises.

There is a vast pool of government-controlled funds in the postal system. In effect, Koizumi's postal reform bills attack the heart of the Zoku system established by former prime minister and influential LDP member Kakuei Tanaka and his heirs. Koizumi and his supporters believe the traditional system is at the center of Japan's political sclerosis. Tanaka originally created this flow-based, vote-generating money machine and it has been inherited through the years by the party's main faction, currently the Hashimoto faction. Its kindred brother is the Doro Zoku, which was also first established by Tanaka and is now led by Makoto Koga and also has influential Hashimoto faction members.

Thus Koizumi's decades-old obsession with postal privatization fits squarely into his agenda of weaning the LDP of its addiction to wasteful public spending and the pork-barreling that won seats for "old guard" (ie Yusei Zoku and Doro Zoku) LDP members. For example, the Yusei Zoku alone was supposedly good for one million votes. Thus it is not surprising that Koizumi failed to back away or compromise on the postal reform bills, even though it has cost him significant political capital and will probably result in the breakup of the LDP. What the general public and most of Koizumi's opponents do not realize, however, is just how far Koizumi wants to reform Japanese politics from within his own party. By his own rhetoric, he was fully prepared to tear the LDP apart to achieve the lasting reforms that he believes will revitalize Japan, and his actions continue to be precisely aimed at achieving these goals.

When Koizumi swept into power in April 2001, some doubted that his cabinet would last six months. Four years on, the factions have lost power. The strongest Hashimoto faction virtually disintegrated in the 2003 LDP presidential election, and the Kamei faction is also on the verge of breaking up. Ironically, it was Koizumi's amazing popularity that helped to prolong the political lives of "old guard" LDP members.

Crazy like a fox
But Koizumi, 63, may be running out of time and public support. He has stated he would resign if he did not receive a public mandate, ie maintain a majority for the LDP in the upcoming Lower House elections. The LDP manifesto for the 2003 House of Representatives election clearly set a goal of privatizing postal services by April 2007, and Koizumi is betting his political life that this can be achieved. On the surface, dissolving the Lower House may look like political suicide, but if Koizumi can maintain a majority in the Lower House, he will have achieved what many believed was impossible - an effective exorcising of the LDP and renewed mandate for further, accelerated reform.

Looking at the party strengths in the Lower House prior to the recent dissolution, the LDP held 249 of 480 total seats, and along with the cooperation of the New Komeito Party, controlled some 59% of the votes. Since the LDP will not endorse the 37 LDP members who voted against the postal liberalization bills, the LDP and New Komeito Party as of today still have a slim 51% majority in the Lower House. Moreover, while the 37 LDP members will have to run as independents, they will remain LDP members if elected. In other words, if Koizumi and his exorcised LDP, along with the New Komeito, maintain their current seat counts (without the 37 LDP "rebels"), Koizumi will be able to keep his election promise and can be expected to re-submit the postal reform bill.

On the other hand, the snap election is a major opportunity for the Democratic Party of Japan (DPJ), which has 174 seats in the Lower House and is the only serious contender to the LDP. But the DPJ is still a work in progress and has only recently congealed to the point where it can present a manifesto and a comprehensive plan for taking over power from the LDP. Moreover, there is also brinkmanship on the part of the DPJ. Party president Katsuya Okada has publicly stated he will resign if the DPJ is unable to take over the Lower House after the September 11 elections.

What makes us suspect that Koizumi has more than a fighting chance to remain in power are the following:

1) Calculating from seats held by the respective political parties in the Lower House before it was dissolved, the LDP and the New Komeito still have a slim majority, even without the exorcised LDP rebels. Moreover, Koizumi still appears to be more trusted among voters than Okada and the DPJ, which implies that voters would rather stay with a known entity than "experiment" by handing over power to the DPJ. The DPJ, however, should continue to gradually increase its strength in successive elections.

2) A quick Nikkei survey of 10 economists listed Koizumi as the overwhelming "PM of choice". None of them picked Okada.

3) Another Nikkei survey revealed that support for the Koizumi cabinet has risen to 47%, up by some 4% since his decision to dissolve the Lower House. The survey also indicated that voters appreciate that Koizumi is showing leadership.

4) The economic news has never been more supportive. Both the government and the credit agencies have declared that Japan's banking crisis is over, to the credit of the tough reforms implemented under the Koizumi administration. Japan's economy is showing signs of re-accelerating after a brief growth hiatus over the past six months or so. Indeed, the labor market is tightening, employment conditions are improving and consumers have become more confident. In addition, capital expenditure plans are being revised upward, and even exports are beginning to recover.

5) As a result, the stock market is in the process of breaking out of the trading channel it had been entrapped in since April of last year, despite a brief hiccup when news of the defeat of the postal liberalization bill first broke.

Darrel Whitten has been following Japan's politics, economy and financial markets for the past 27 years. A former head of Japanese equities research for three global investment banks, he is currently the owner of his own consulting company and is the editor and publisher of The JapanInvestor.com, a subscription-based investment newsletter service.

(Copyright 2005 Darrel E Whitten)

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