The mountain ahead

April is here, the new fiscal year has begun, and Prime Minister Aso Taro is in London for the G20 summit.

For once, he leaves behind a favorable domestic situation. After months of bad news, with his approval ratings skirting single digits, the press is full of reports about how Aso and DPJ President Ozawa Ichiro have traded places; Ozawa's leadership under threat from members of his own party, at the same time that LDP members have all but conceded that Aso will lead the LDP into the next election.

The prime minister should not be too cheerful, despite the early arrival of cherry blossoms and the bump in the polls.

First, as Claus Vistesen notes at considerable length, the best one can say about the Japanese economy is "while indicators are still on the decline they are now declining less rapidly." The great adjustment is under way. The pain continues to be felt among Japan's irregular workers, as 192,061 have already been laid off in the period beginning in October 2008 and continuing until June, compared with 12,502 regular employees who were laid off by April. The unemployment rate rose to 4.4%, and not surprisingly the number of new hires has dropped off substantially. 4.4%, then, is only the beginning. Is Japan facing its second lost generation in as many decades, another generation with all too many members unable to access the regular labor force? Presumably there will be more opportunities for mid-career hires when the economy recovers — surely Japan learned something from the lost decade — but in the meantime I wonder whether there will be political consequences for the burden carried by irregular employees. Can the LDP really win reelection under such circumstances?

The economic collapse is dire enough, but the malaise in which the public is mired may have even more lasting consequences. I was going to say crisis of confidence, but I think it's bigger than that: the public appears to be exhausted, fed up with leaders who appear to be powerless to stop the deterioration of the Japanese economy and indifferent to public concerns. The latest indication of the public's wearyness comes in a new cabinet office poll concerning "social consciousness." Reflecting the recent Asahi poll on political attitudes, 80.7% of respondents said national policy either does not really reflect the popular will or does not reflect the popular will at all, a five-point increase on the previous cabinet poll on this matter. The responses when asked how to fix this problem were mixed, with a plurality of 27.5% blaming the politicians for not listening sufficiently to the voice of the people, 18.8% suggesting that the people need to take a greater interest in policy. When asked what they think is going well in contemporary Japan, only technology (28.1%) ranked higher than the "nothing/don't know" response "(25.4%), although the 28.1% for technology marked an increase from 21.2%. Meanwhile, the negatives were consistent with the state of the economy: 68.6% of respondents saw economic growth as a problem, up from 43.4%; 57.5% saw employment and working conditions as a problem, up from 31.1%; and 42.9% saw national finances as a problem, up from 37.5%.

Perhaps the public is overreacting to the economic crisis, their imaginations stirred by bleak media coverage. But I suspect that might be optimistic. Something tells me Japanese households know precisely how bad things are. As the above figures suggest, the economic crisis has only deepened preexisting malaise and a sense of detachment felt by the governed regarding their government. Maybe Jesper Koll, borrowing the prime minister's message about Japan's latent power, is right to be bullish on Japan. Koll presents a range of statistics about Japanese R & D spending and patents to suggest that Japan is poised to emerge from the global financial crisis a technology superpower, that its people — again, channeling Prime Minister Aso — "possess a basic power and discipline that build a strong foundation for future recovery." He is convinced that the crisis is accelerating generational change in Japan and that it "thrives in times of hardship and global turmoil."

But for all the technological developments praised by Koll, Japanese households — "balance sheets are very strong, since Japan's deleveraging already happened during the 1990s" — still remain reluctant to invest their hoard (which recently took a sizeable blow). Koll assumes that generational change will be enough to solve the paradox of thrift, but he has little to support this assertion other than an intangible sense that companies are looking to the future. Notably absent from Koll's account is any mention of demographics, which, incidentally, are central to Vistesen's treatment of the economic crisis. "Japan," Vistesen argues, "does suffer from a a chronic lack of domestic demand and consumption and it does so exactly because relying on consumption with the current demographic profile is not viable." If anything, the demographics will only worsen as a result of the latest economic crisis, as more Japanese decide to postpone, perhaps indefinitely, marriage and childrearing.

Indeed, given the findings of the March Tankan, the worst on record, it is hard to see the basis for Koll's optimism. The survey did find large manufacturers optimistic about conditions three years ahead, but that is surely overwhelmed by short- to medium-term pessism in nearly every other category, and by the deepening gloom felt by the Japanese people. Far from "rediscovering...capitalist roots," the Japanese people appear to want nothing more than to be shielded from capitalism through more robust job protection and social security. They appear no more eager to risk their savings than at any point during the past twenty years. It is too early to say what precisely the intellectual consequences of the global financial crisis will be, but in Japan it seems that what public support existed for "neo-liberal" reforms has dried up. It might return with economic recovery, but it is unclear how that will happen — if the Japanese people cannot be convinced of the necessity of reform during a "once-in-a-century" crisis, how will they be convinced once times are good again?

The one category of reforms that enjoys public approval continues to be administrative reform, because the bureaucrats remain about as popular as the politicians. Little wonder that this year's election is shaping up to be an administrative reform election. The DPJ has, for obvious reasons, made the case that regime change will be the basis for sweeping changes in how Japan is governed. Now the Aso government has answered with its own administrative reform plans.

On Tuesday, after a prolonged battle the cabinet approved the government's plan for administrative reform, which includes the creation of a cabinet personnel agency that will be responsible for appointing the top officials in ministries and agencies in the hope of combating administrative stovepiping.

The cabinet decision, however, by no means guarantees that the government will get its way: Ozawa has dismissed the plan as mere windowdressing on an administration that will be left fundamentally unchanged, while Jiji quotes an LDP member "with experience as administrative reform minister" as warning of dissatisfaction within the LDP over the bill, not to mention opposition from the bureaucracy itself, especially the National Personnel Authority. Given the government's focus on another stimulus package, will it fight for this bill? DPJ opposition might be useful for the government, if it can paint the DPJ with the dubious label of being opposed to reform outright, but plenty of LDP members might be happy to see the bill die.

And thus while I understand Jesper Koll's desire to question the conventional wisdom, the unpleasant reality is that things are set to get worse in Japan before they get better. There is a degree of unpredictability going forward, not least in the political situation, but even the best-case scenarios suggest that Japan will be struggling with domestic problems for years to come. Even the election of a DPJ government — should it occur — will only be the beginning of the process of addressing the many challenges facing Japan.