Overview Wachman Fund History Institute Classroom Lessons Special Activities Lectures

Japanese Domestic Politics: The Challenge of Turning off the Cruise Control

By Leonard Schoppa (schoppa@virginia.edu)

Leonard Schoppa is Associate Professor of Government and Foreign Affairs at the University of Virginia. He is author of Bargaining with Japan: What American Pressure Can and Cannot Do (Columbia University Press, 1997), and of articles in Foreign Affairs, the Journal of Japanese Studies, and International Organization. Professor Schoppa spoke on this topic at FPRI’s History Institute on Teaching About Japan, October 19-22, 2003.

As recently as 12 years ago, Japan seemed to be on cruise control. Its economy was humming along at a growth rate of 4-5 percent a year, out-performing the United States and the rest of the advanced industrialized countries. Its biggest problem was the way its economic success was causing resentment abroad that kept spilling over in the form of trade disputes and demands that Japan stop “free-riding” by taking advantage of America’s open market while keeping its own market closed. The nation came in for similar scolding for the way it seemed to “free-ride” on America’s security guarantee, an arrangement that allowed Japan to get away with spending less than one percent of its GDP on defense. Nevertheless, this policy too seemed to have served Japan well. After fighting a string of wars leading up to World War II, it had managed to avoid military conflict completely in the period since its defeat. By concentrating on economic growth instead of devoting resources to the military, it had managed to emerge as one of the world’s leading economic powers, with living standards higher than those in the United States and technology that was the envy of the world. Americans grumbled that “the Cold War is over, and Japan won.”

The story is completely different today. Twelve years after the collapse of its “bubble economy,” Japan is still mired in recession and stagnant growth. If it grows as slowly as economists predict in the coming year, it will have grown at an average rate of just 0.3 percent over the past seven years. For much of this period, its economy has actually been shrinking. The banks have spent trillions of yen writing off bad loans, but new bad loans are appearing faster than they can write off old ones—leaving the banking system as a whole on the verge of insolvency. The nation has run up a mountain of public debt in a fruitless effort to keep the economy afloat, bringing its gross public debt to 145 percent of GDP. With this debt level growing at about 8 percentage points a year over the past several years, the government faces a debt crisis sometime this decade unless it imposes draconian tax increases or spending cuts. Doing that any time soon, however, would devastate the already weak economy. “Cruise control economic policies” have put Japan in this position, and the nation desperately needs to change course—soon.

Japan’s established security policy has also been in for a rough decade. The disrespect it received after contributing $13 billion to Operation Dessert Storm at the start of the 1990s was the first signal that its old strategy of “free riding” would no longer be tolerated. Mid-decade, it faced the possibility of a military conflict with North Korea over its nuclear program along with aggressive moves by China (nuclear tests and exercises in the Taiwan Strait), developments that made it clearer than ever that the end of the Cold War did little to make Japan’s neighborhood more secure. While these episodes in the 1990s seemed to suggest that Japan needed to upgrade its alliance in order to avoid being “abandoned” by the United States, the emerging confrontation between the United States and Iraq (and possibly North Korea as well) has raised questions about whether Japan needs to distance itself from the United States in order to avoid the risks of being “entrapped” in conflicts initiated by its ally with little regard for their effects on Japan. Either way, Japan faces a situation in which its established policy of playing loyal junior partner to the Americans while minimizing its actual involvement in military conflicts is outmoded and obsolete. Here too, it needs to shift out of cruise control.

Many smart people have puzzled over Japan’s failure to change course in the face of these developments, and the reasons are clearly complex and multifaceted. In my view, however, much of the blame can be placed squarely on Japan’s domestic politics. Over the 40 “good years” that followed Japan’s defeat in World War II, Japanese politics settled into a deep groove—symbolized by the long-term dominance of the Liberal Democratic Party (LDP)—that set its economic and security policies off in a specific direction that has been hard to alter. I’m sure my fellow speakers at the conference can all attest to the remarkable number of times we hear Japanese interlocutors compare their country to a giant ocean liner. You can’t turn an ocean liner on a dime. It takes lots of time and space to get one of these things turning in a new direction. The metaphor is popular, I believe, because it captures the fundamental truth about Japan’s political system: it is not designed to accomplish change in the absence of a serious and immediate crisis of the kind the nation saw with the arrival of the Black Ships in 1853 and with the American Fleet after World War II.

I have organized my remarks in two sections. In the first section I summarize how Japan’s domestic politics contributed to the entrenchment of its mercantilist economic policy and free riding security policy. In the second section, I look at how domestic politics has got in the way of policy change in the period since Japan entered its Lost Decade at the start of the 1990s.

Japanese Politics and the Entrenchment of Economic and Security Policy

Japan’s experience of defeat and devastation as a result of its prewar policy of military aggression was clearly the trigger that led to its embrace of the mirror image Yoshida Doctrine: its postwar policy of relying on the American security guarantee while spending little on defense itself and concentrating on building up its economic power through trade and technology policy. The success of this policy in the subsequent decades and the way it responded to the nation’s terrible experience with war makes it tempting to conclude that this choice was only “natural,” but in fact the process through which Japan arrived at this policy was highly contested. Japan settled on the Yoshida Doctrine only after it almost came apart at the seams during the Security Treaty Crisis of 1960. The policy was the product of a compromise that left many people unhappy—but for that reason it was all the more difficult to renegotiate the deal.

In 1951, the architect of the Yoshida Doctrine, Prime Minister Yoshida Shigeru, laid the foundations for this set of policies through the two treaties he negotiated with the United States and signed in San Francisco. The Peace Treaty Japan signed with the Western allies (but without China or the Soviet Union) released the nation from the allied military occupation but committed it to the American side of the Cold War. At the same time, the Security Treaty Yoshida agreed to as a price for the Peace Treaty bound Japan even more firmly (and perpetually, since it had no expiration date) to the Americans. Under the treaty, the Japanese agreed to provide the U.S. with extensive military basing facilities while the United States vowed to use these bases to provide for the security of the Far East. Unlike the agreement among NATO countries, under which members agreed to come to each other’s defense, Japan was under no commitment to come to the aid of the United States if it were attacked. Japan was merely obliged to help protect itself in ways that would not violate the Article 9 Peace Clause of the Constitution it had accepted under the American Occupation.

While this set of treaties laid the basis for the Yoshida Doctrine at the start of the 1950s, the remainder of that decade saw heated domestic debate about whether this was the right way for Japan to go (see Figure 1). Progressives, attracted by the vision of Japan as a “peace nation,” loudly urged Japan to give up the alliance with the Americans in favor of a policy of unarmed neutrality. Meanwhile traditional realists like Prime Ministers Hatoyama and Kishi and a young Nakasone believed Japan’s interests would best be served if it could reacquire the military power and maneuvering room needed to play the Great Power game. To get to this point, they sought to improve relations with the Soviet Union and China in hopes of reducing Japan’s dependence on the United States, increased defense spending relative to levels favored by Yoshida, and pushed for changes in the military alliance with the United States.

By the end of the decade, the advocates of Yoshida’s low profile security policy were reduced to watching from the sidelines as Prime Minister Kishi attempted to press his traditional realist agenda over the vehement objections of pacifist protests in a series of conflicts that came to a head with the Security Treaty Crisis of 1960. After the prime minister decided to force the revised security treaty through the Diet over boycotts and barricades organized by the opposition, thousands of protesters poured into the streets of Tokyo to protest his “undemocratic” behavior. One student was killed when the protesters confrontation with police degenerated into riots, convincing the Americans it was too dangerous for President Eisenhower to visit for a treaty-signing as planned.

This incident led Japanese conservatives to retreat to Yoshida’s formula, once again emphasizing economic growth under the new Prime Minister Ikeda, and playing down security issues. Traditional realists were not happy that Japan would have to remain a dependent junior partner of the United States, but they accepted the compromise as something that was necessary because of the divisiveness of the security debate. At the same time, the progressives remained bitter that Japan was still tied to the American side of the Cold War. Throughout the 1960s, they continued to engage in protests against the bases and their use by the Americans to support the war effort in Vietnam. While the main opposition party throughout this period, the Japan Socialist Party (JSP) stubbornly stuck to its vow to end the alliance and shut down Japan’s Self Defense Forces if they ever came to power, they too came to accept (and even embrace) the Yoshida Doctrine for its role in limiting Japan’s defense spending and military efforts.

The Yoshida Doctrine therefore became the “deep groove” guiding Japan’s security policy because of domestic political conflict. Under the “1955 System” of Japanese politics, defined by competition between the long-ruling LDP and the long-opposing JSP, security policy was the valence issue. The LDP was on one end, urging slow movement toward a larger security role (though many moderates within the party were happy with the status quo). The JSP and JCP were at the other end, calling for unarmed neutrality and objecting vehemently to proposals calling for Japan to spend more or do more do more to support the alliance. Voters knew where they were and where the parties were on a left-right scale by where they stood on security issues—not on economics.

The way in which conflict buttressed the status quo can best be seen during the two periods when Nakasone Yasuhiro attempted to move policy toward the “normal” range (see Figure 1 again). Nakasone served as head of the Defense Agency in 1970-71 just as the United States was starting to pull back from Asia as part of the Nixon Doctrine. Warning that America’s experience in the Vietnam War made it less dependable as an ally, he set in motion Japan’s first serious study of its defense options—a study Nakasone hoped would lead to a more active security role. Faced with strong opposition from the Left, however, moderates within the LDP such as Prime Minister Miki and Defense Agency chief Sakata Michita decided to water down the program to the point where it ended up reinforcing the Yoshida Doctrine. The National Defense Program Outline adopted in 1976 as a result of the self-study actually formalized the practice whereby Japan had been limiting its defense spending to one percent of its GNP.

Nakasone had another opportunity to push policy in a “normal” direction when he became Prime Minister in 1983-87. He vowed that Japan would be an “unsinkable aircraft carrier” supporting American security strategy in the Far East and attempted to break the “one percent ceiling” by pushing up Japanese defense spending. Nevertheless, his efforts again sparked a backlash from the progressive camp, along with rebukes from Japan’s neighbors, and Nakasone ended up with little to show for his efforts. Defense spending rose in 1987 to 1.007 percent of GNP, but it soon dipped back below the one percent level.

If conflict reinforced the Yoshida Doctrine as the guiding policy in the area of security policy, the absence of conflict led Japan’s economic policy to dig a deep groove from which it has been unable to escape. In most industrialized nations, economic policy is the defining issue in politics: one or more parties typically stand in favor of expanding social welfare programs to protect workers from the vagaries of the market while another one or more stand for business and the efficiency of markets. In Japan too, the leading parties took opposing positions on “capitalism” (the LDP) versus “socialism” (the JSP), but in reality both supported a high level of social protection. National health insurance, public pensions, and many other welfare programs were initiated and expanded under the LDP, but even more important, the LDP stood for a system of “convoy capitalism” that committed the government to keeping banks and employers afloat so they could live up to their lifetime employment commitments to their workers. Individuals enjoyed an amazing level of protection against the risk of unemployment and poverty, not through formal government social insurance programs, but through informal government policies that limited competition in large segments of the economy through regulations and trade barriers and made sure banks would continue extending loans to companies that were in trouble.

The LDP settled on this policy because it enjoyed strong support from business. Firms received cheap and ample credit they could use to expand rapidly, and they relied on government regulations, government help organizing cartels, and the government guarantee that stood behind the “main bank system” to make sure they faced few risks their investments would leave them exposed to bankruptcy. The Socialists didn’t like the way this policy coddled big business, but they appreciated the way it upheld the lifetime employment system. Until the mid-1980s, no party and no leading politicians pointed to the efficiency of markets as a basis for criticizing the established policy and arguing for economic liberalization. Of course, there also seemed to be little reason to criticize this policy since Japan seemed to be doing so well….

Japanese Politics and Policy Since 1990

Given the disastrous performance of the Japanese economy since 1990 and the emergence of good reasons to rethink the nation’s security policy, one would expect to have seen much more policy change over the past decade—but we haven’t. This absence of change reflects the difficulty of turning off the “cruise control” after a prolonged period in which Japan has been traveling in a straight line. It turns out it is very difficult to shift in a new direction when domestic politics (whether due to conflict or consensus) has locked you into an established policy line.

In the security realm, the conflict described earlier has diminished significantly in the post-Cold War environment. Since 1996, the Socialists and Communists together have been able to win no more than 20 percent of the vote in Lower House elections and just 8 percent of the seats. Their voters are aging (40 percent of those casting PR ballots for these parties were over 60 in 2000), suggesting that these parties will shrink further in the coming years. The Socialists, moreover, renounced their old advocacy of unarmed neutrality in 1994 in favor of accepting the status quo. As a result, there is now only one alternative vision of the role Japan should play in the world, the traditional realist one. This view is now advocated not only by aging politicians like Nakasone but by politicians of all ages in four different parties: the LDP, Conservative Party, Liberal Party, and the Democratic Party of Japan (DPJ). The last of these is the new leading opposition party, replacing the JSP in this role after a series of party splits and mergers that took place during the 1990s (see Figure 2). The fact that many politicians in this party, including party leader Hatoyama and most of its younger generation, are quite open in their support for the idea that Japan should play a larger security role, is quite a striking departure from the situation at the start of the decade.

The growth in the number of politicians willing to support a more active security policy is in part a result of Japan’s experience in the world since 1990. This movement got a big push from the harsh international criticism Japan faced after it failed to contribute anything more than money to the global effort to roll back Saddam Hussein’s invasion of Kuwait until after the fighting was over. Japanese elites were wounded when the nation was not listed in the list of countries thanked by the Kuwaiti government in their published letter of thanks, despite the fact that Japan had contributed $13 billion, a humiliation that has been dubbed “the Iraqi Shock.” Japanese elites involved in national security affairs were also seriously concerned when the North Koreans test-fired the Taepo-dong missile over Japan and into the Pacific in 1998, signaling the possibility of a direct North Korean attack on Japan, and when China staged nuclear tests in 1995 and aggressive maneuvers near Taiwan in 1996. These experiences led Japan to pass a series of laws allowing it to participate in United Nations Peace-keeping Missions and enabling it to aid the United States in military contingencies in its region (outside of Japan) for the first time. The politicians discussed above—along with other elites in the Ministry of Foreign Affairs, Japan Defense Agency, the Self-Defense Forces, and associated research institutes—now want to take further steps to improve Japan’s ability to deal with China’s rising power and North Korean instability by expanding Japan’s military capabilities, dramatically expanding its capability to respond to regional contingencies under the aegis of the U.S.-Japan alliance, and relaxing the constitutional constraints on Japan’s use of force.

While this group is now large and vocal enough to give the impression that Japan is becoming “a reluctant realist” (Green 2001), I think it is premature to argue that Japan has already made this transition. In discussions of regional military contingencies where Japan might be called upon to assist the United States, key LDP politicians insisted on ambiguities that would allow Japan to reassure the Chinese that the U.S.-Japan alliance was not directed against them. Last year, following 9-11, Japan opted not to send Aegis cruisers to the Indian Ocean despite the fact that the Americans had made this a special request and despite the fact that the Prime Minister had initially announced that they would soon be on the way. Richard Samuels, who looked closely at Japan’s role in the post-9-11 war on terrorism in a recent Foreign Affairs article, argues that the nation has actually hued quite closely to the Yoshida Doctrine in this conflict. It made just enough of a contribution to keep the Americans happy while refusing to make commitments that might anger Middle East countries or Asian neighbors.

There remain two reasons why Japan has found it difficult to break with the Yoshida Doctrine despite recent developments. First, 50-plus years of peace under the established policy have led many Japanese to regard the Yoshida Doctrine’s view of Japan’s role in the world as the only legitimate one. In the decades since Yoshida negotiated his treaties, no Japanese have lost their lives in military engagements.[*] Japanese territory has not been invaded. Japan’s pride was wounded after the Gulf War, and this forced some expansion in Japan’s security contribution, but most of the security developments in the years since the end of the Cold War add up to incremental shifts in Japan’s security environment. Such developments may worry Japanese national security professionals, but they are not immediate enough to force the body politic as a whole to engage in a collective self-examination.

Second, and perhaps more important, political realignment up to this point has proceeded in such a way that Japan’s traditional realists are split among four different parties, muting the level of criticism of the existing policy one hears from any given party (see Figure 2 again). The Democratic Party leadership can’t get too far ahead of former Socialists like Yokomichi who still constitute an influential wing of the party. And even in the LDP, realists like Kamei, Nakasone, and Aso must still reckon with old-timers like Nonaka Hiromu who recently recalled: “If World War II had continued for another year, I surely would have died. Having been spared, I believe that my most important mission as a politician is to do everything in my power to prevent Japan from ever going down that path again. Should it happen by some remote change that the wheels of war start turning, I am ready to lay this body of mine down to stop them…” The fact that there are still voices like Nonaka’s within the LDP, reflecting the experiences that gave rise to support for the Yoshida Doctrine within that party in the 1960s and 1970s, raises doubts about whether any current party is capable of leading a bold rethinking of Japan’s security policy. Barring a disaster that triggers a security-driven realignment of parties and leaves a cohesive realist group in one strong party, it is hard to imagine who is going to lead the process of self-criticism and renewal.

Conditions are much more ripe for a policy shift, in my view, in the economic realm. The consensus that Japan benefits from its system of “convoy capitalism” has been dealt a brutal blow by the 12 years (and counting) of economic stagnation that Japan has now endured. Though the initial recession after the collapse of the Bubble did not lead to an immediate rethinking of this model, the second and third dips of the Great Recession have chipped away at support for the status quo. Over the course of the 1990s, a series of new parties rose to challenge the LDP on the grounds that the old model of “convoy capitalism” was too inefficient and costly. Prime Minister Hosokawa’s Japan New Party, for example, gained immediate appeal in 1993 with its criticism of the stultifying regulations that were part of the old model. Ozawa Ichiro’s parties (he’s now been in charge of three different ones) have similarly attacked the LDP for advocating big government and getting in the way of the market. The new leading opposition party, the DPJ, stood on a pro-market platform when it insisted in 1998 that legislation being prepared to deal with the banking crisis include provisions for vigorous reviews of the banks to make sure they did not waste taxpayer money. And finally, the “economic reform” movement has now found its most eloquent spokesman in the leader of the LDP, Prime Minister Koizumi.

The repeated attempts by politicians to attack the LDP from this direction has opened up a new dimension in Japanese politics that is now more important, in my view, than the security dimension. Where there was once a consensus in favor of “convoy capitalism” as a model that could generate both growth and social protection, there is now open conflict between those who are trying to keep the old model afloat and those who wish to sink it (see Figure 2 again). While this is a necessary condition for change in policy, however, it is not sufficient. The first problem is that reform threatens powerful vested interests who face large losses (bankruptcy, unemployment) if reforms go through and are consequently doing everything they can do delay change. Interests facing concentrated costs are powerful everywhere, and blocking change is easier than pushing change through the legislative process. Japanese institutions seem to privilege vested interests even more than in other societies.

The second problem is that the benefits of reform are spread widely, will not accrue until some years in the future, and mostly involved the avoidance of greater pain in the future rather than large improvements in welfare. In the short term, reforms designed to clean up the banking mess, reduce labor market rigidities, and remove unnecessary regulations will further slow down the economy. Virtually everyone will suffer, with many firms thrown into bankruptcy and many individuals thrown out of work. Even if all goes well, Japan is looking at a period of time in which it suffers through what Thatcher’s England did in the 1980s. It needs to go through all of this so that it can avoid the larger economic pain that will come in the future if Japan puts off these reforms any longer: a banking system collapse, a government debt crisis, and the likelihood that the state will have to eliminate all of Japan’s accumulated private and public debts through a period of high inflation designed to confiscate Japanese citizen’s ample private savings. Few political systems are very good at imposing pain now to avoid larger pain later, and Japanese political institutions seem to suffer even more from this problem than those in other societies.

Finally, reform has been difficult because the new cleavage over economics has yet to transform the party system in a way that gives voters a clear choice of policy. All of the leading parties include reformists as well as defenders of the vested interests. Democrats who support liberalization, once again, can’t get too far ahead of the old Socialists and unionists in their ranks. And the most divided of all is the ruling LDP where Koizumi is now engaged in a full-scale war with his own party. This was visible from the moment Koizumi was chosen prime minister, over the objections of the leading LDP factions, in the spring of 2001. During the Upper House elections that summer, Koizumi openly ran against his own party. In this situation, supporters of reform clearly had a difficult choice to make when casting their votes: should they vote for the LDP in hopes this would boost Koizumi’s influence, or might that not simply strengthen his opponents by increasing their numbers in the Diet. After watching the Prime Minister compromise with his intraparty rivals on one issue after another during the subsequent year, observers were starting to wonder whether Koizumi was actually serious about reform.

With his latest cabinet reshuffle last month, Koizumi has renewed his claim to be a serious advocate of economic reform. He appointed economist Takenaka Heizo as head of the Financial Supervisory Agency, a job that gives him the authority to get tough with the banks and force them to write off their bad loans at a faster pace. He also refused to give his rivals within the LDP their customary share of cabinet posts, insisting he would use his power of appointment to reward his friends within the party. Whether Koizumi can actually push through reform remains in doubt, however, because he remains a prisoner of the party system. He is stuck in a party with the leading defenders of the status quo, unable to build bridges to fellow reformers in other parties. There may be a majority in the Diet who would support an economic reform package of the kind Japan needs right now (bad loan cleanup, capital injection, fiscal stimulus), but they are scattered between the LDP on the ruling party side and the Democrats and Liberals on the opposition side. Given Japan’s parliamentary system with strict party discipline, there is no chance they’ll be able to pool their votes to enact change short of a party realignment that brings them together under a single party or coalition.

Many observers have thus argued that Japan cannot really proceed with reform—of either economic policy or security policy—until the party system goes through another round of realignment. Both the security policy reformers and the economic policy reformers are split among multiple parties. A final complication—for both projects—is the fact that even realignment will not be able to solve both problems at once. A series of party splits and mergers that brings all of the economic reformers together will leave that party divided over security policy. Likewise, one that brings all of those who want Japan to play a larger security role together will leave this party divided on economic policy. How these policy deadlocks are resolved thus depends a great deal on whether a security or economic crisis drives the next round of realignment.

* There were two civilian casualties during the Japanese peace-keeping operation in Cambodia and 24 Japanese nationals among those who died in the World Trade Center on 9-11