I had the honor last week to interview Japan’s new Prime Minister, Yukio Hatoyama, in Tokyo. My full story on Hatoyama appears in the April 19th magazine, and you can also read the full text here. But I thought I’d add some more details from the interview on Curious Capitalist.
I only had 40 minutes with Hatoyama so it’s hard to get a real sense of a person, but my initial impression is that he’s an intelligent and thoughtful man who truly wants to shake up the Japanese establishment – and, with the pathetic state Japan has been in for so long, it’s an establishment that really needs a good shaking. Yet unfortunately, the odds that he’s going to be able to implement much of his agenda are dwindling by the day. His popularity is sinking, and there’s already talk he’ll be forced to resign in coming months. That’s an amazing political turnaround. When Hatoyama and his Democratic Party of Japan entered office a bit more than six months ago, he was riding high, having just trounced the long-governing Liberal Democrats in a national election. What’s going wrong?
First, from a policymaking standpoint, I think the DPJ is showing the inexperience of a party that’s never governed before. I also believe that some of the policies they do want to implement were a bit unrealistic based on Japan’s current circumstances. And on top of that, I think Hatoyama has (in a well-meaning fashion) badly bungled some important issues that have weakened his capacity to govern. I’ll show you what I mean by taking a look at the major topics we discussed.
The economy: Hatoyama is facing an absolute mess on the economic front, symbolized most prominently by another deflationary spiral. Here’s the main thrust of his position on how to fix things:
In the past, supply side policies had been taken in order to address that situation. But that did not prove effective. What we are trying to do is create demand, and on the strength of demand, try and rebuild the economy.
He’s right, of course. The government had tried to get the economy moving through lavish spending on all kinds of “bridge to nowhere” public works projects. It never worked, since the spending kept people employed but never tackled underlying structural problems. So the economy just became dependent on the budgetary outlays, like a needy drug addict. The strategy, in fact, also created a whole new problem: outrageously high government debt, heading towards 200% of GDP. Hatoyama wisely wants to finally put the economy into rehab by weaning it off construction outlays.
But his solution has its own pitfalls. He’s spot on that Japanese save too much, and if they spent more money, the economy would get a boost and deflation would be alleviated. To make that happen, his remedy is: more government spending. But on different stuff, as he says, “we are trying to provide direct stimulus to the households.” That has meant new policies like waiving high-school tuition fees and subsidizing families with children, as well as improving social security. In theory, this all would work by putting more petty cash into consumers’ pockets.
But I’m wondering if Japan can really afford such a program, with the debt continuing to rise. Japan doesn’t want to turn into Greece. Hatoyama thinks that he can find the money by cutting wasteful spending elsewhere. I hope he can, but I really wish he’d think more about an actual growth strategy. People will spend more money if they believe their future earnings will exceed their present earnings. With Japanese growth so awful for so long, are you surprised Japanese save instead of spend? Japan has to get beyond the notion that government handouts can solve its economic problems.
On Asia: Hatoyama very intelligently wants to link much more closely to the rest of Asia. Here’s what he said:
I very much hope to further strengthen our relations with Asian countries. I have been advocating a community or a further integration of Asia in the future by building even better relations with Asian countries, squarely facing history and recognizing what Japan had done in the past during World War II.
What he means by that last bit is that Japan’s relations with Asia, and especially China and Korea, remain strained due to lingering memories of Japan’s treatment of the region during its imperial past, especially in WWII. There’s a feeling around Asia that Japan has never properly come to terms with its behavior during the war (in the same fashion as Germany). That’s kept the Japanese a bit on the outside looking in as Asia integrates. Everyone is happy to take Japanese money, and trade between Japan and the region is still important, but many countries are wary of Japanese influence. As a result, east Asia’s three most important economies, Japan, Korea and China, are not benefiting from greater economic integration (by signing FTAs, for example) in the way that they should. Japan’s economic future will be found in Asia, and Hatoyama wants to make sure it doesn’t miss out because of emotional baggage leftover from events that took place 70 years ago. Good move.
On China: You’ll find a lot more on Hatoyama’s China policy in the magazine story, but here’s an interesting extra. TIME’s editor in Asia, Zoher Abdoolcarim, who joined me for the interview, asked Hatoyama if he “loses sleep” over the likelihood that China will overtake Japan as the world’s No.2 economy this year. Hatoyama answered:
Not at all. If you look at the Chinese population, it is exactly 10 times the Japanese population. It is only natural that sooner or later that country with ten times the Japanese population should surpass the total GDP of Japan. What is really important is that in both our countries we work on providing a stable living for the peoples of our respective countries. While we are being overtaken by China in terms of total size of GDP, it is much more important that we send out this message that we are building strong economic ties between our two countries.
A highly rational view, no doubt, but I wish on some level that he’d show a bit more competitive spirit. It might be inevitable that a giant like China will rise to the top, but I think Japan needs to do more soul-searching as to why the mammoth lead in development and wealth it had over the rest of Asia a couple decades ago is getting closed so quickly. The U.S. seems to fret over the idea it might be losing its edge (a bit too much, in fact). Japan, I worry, doesn’t.
On America: Hatoyama’s views on Japan’s relationship with the U.S. is the main topic of the magazine story. Hatoyama has gotten himself a reputation of being something of a problem in Washington. It’s not hard to figure out why. Hatoyama has effectively tossed aside an agreement the Japanese government signed in 2006 to reorganize U.S. military forces on Okinawa, but he hasn’t offered up a workable alternative. At home, the issue is killing his popularity. He promised the Okinawans during last year’s election campaign that he’d get a Marine airbase moved off of the island, with apparently no real plan as to how to make that happen. The whole deal has made him look ineffective as a leader.
Yet it is wrong to think of him as “anti-American,” or intent on “downgrading” Japan’s very important alliance with the U.S. He attended Stanford and lived in the U.S., and here’s what he had to say about Americans:
I was quite impressed by the fact that young people in America were very proud of being American citizens. I learned from them the love for one’s country. I felt that therein lies the great strength of the U.S. as well. This is what I really most admire about the American people. I believe this feeling of love for the country in the minds of the American people I think also applies to the entire world. That is why I think there is a sense amongst Americans that they also have to protect people around the world. I think that sense is very important. I believe this very strong conviction of the American people leads Americans to take and exercise leadership internationally or to attain peace and that is something I regard very highly. With that in mind, I would like to further evolve and develop the Japan-U.S. alliance.
Nice to see that someone out there still notices what the U.S. is all about.