On Tuesday the Council on Economic and Fiscal Policy (CEFP) released the 2009 Basic Plan for Economic and Fiscal Reform (known colloquially as the honebuto), available here along with other documents from the Tuesday meeting.
The plan is controversial because the Asō government appears to have sidestepped an existing agreement — originating in the 2006 "honebuto" — that social security spending would be capped at 220 billion yen, a figure that the general account budget is rapidly nearing. Social security spending is by far the largest portion of the budget and a major contributor to the government's deficits, hardly surprising given Japan's demographics. Needless to say, central to the fiscal crisis of the Japanese state is figuring out how to bear the burden of providing for Japan's elderly without bankrupting the state or wrecking the economy. At the same time, the LDP has struggled to undo the damage done to the party by the Abe government's mishandling of the 2007 pensions scandal — and so, as with many other recent government and LDP documents, the 2009 honebuto stresses economic security alongside economic vitality as a goal of reform. Years of polling show that the state of social security is the Japanese public's top policy priority. The LDP cannot afford to look weak on social security as it did in 2007 if it is to have the slightest chance of winning this year's general election.
How did the Asō government resolve this tension? It punted, withdrawing the clause limiting social security spending to 220 billion yen but insisting that the government still views solving the fiscal crisis as a top medium- and long-term priority priority for the Japanese state. The new plan, for example, retains a provision that calls for annual three percent cuts in public works spending. The government will also continue to economize in other areas (which will undoubtedly undermine the effort by LDP conservatives to ratchet up Japan's defense spending).
This single episode says much about the decay of LDP rule.
Press coverage of the Asō government's decision has focused on the role played by members of the LDP's education, and health and welfare policy tribes (zoku) in pressuring the government to abandon the social security ceiling and other spending limits. "A free for all for zoku," an anonymous source told Sankei. Mainichi noted the role played by the zoku and added that Prime Minister Asō was missing in action in this debate. Naturally both of these factors are important in explaining why the Asō government softened its approach to the fiscal restraint. But it is useful to step back from the interplay of personalities: this episode shows the irreconciliable forces tugging at Asō and the LDP more generally. Asō, like Fukuda before him, is struggling to weave his way between economic reformists and traditionalists, between fiscal hawks and spendthrifts, between budget cutters and tax hikers. While at various points Asō has attempted to distance himself from Koizumi and "neo-liberal" reformism, he has stopped short of committing to an approach that is anything more than a balancing act between the competing pressures present within the LDP. The LDP cannot make up its mind what kind of party it wants to be — and unfortunately for Japan, that schizophrenic party has an outsized role in shaping government policy.
Notice that this failure of vision on the part of the LDP has nothing to do with the bureaucracy, the favorite scapegoat of the structural reformers. If the LDP had a vision for governing — or if ruling politicians could impose a vision on the LDP — the bureaucracy would not have nearly as many opportunities for mischief and malfeasance.
In other words, just as the DPJ intensifies its plans for a possible power transition, the LDP has provided an excellent demonstration of how not to govern.
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