October 14, 2009

[Policy Proposals]
1. Offer a future vision based on firm confidence in market economy.
2. Support the beneficiaries pay principle and develop a medium to long-term growth strategy.
3. Specify secure financial resources for permanent policies.
4. Set fiscal consolidation targets and develop a fiscal consolidation plan.
5. Reaffirm the significance of deregulation and structural reforms and implement them boldly.

1. Offer a future vision based on firm confidence in market economy.
　　　　　In Japan in the 21st century, economic burdens on the people are bound to increase due to population decline, the dropping birthrate, the aging population and huge budget deficits. At the same time, Japan will have to confront globalism that is expected to expand further. In order to adapt to such situation, Japan will have to improve its international competitiveness and sustain economic growth to expand the pie for redistribution.
　　　　　But the new government’s economic policy amounts to “redistribution without growth,” reminding us of old-fashioned social democratic welfare state policies that were deadlocked in the absence of economic growth. Historically, market economies have created massive wealth. No other system has outperformed the market economy system. At present, the market economy system is the most efficient conceivable system.
　　　　　In fact, in recent years, market competition has widened social and economic gaps. But it has clearly led to more efficient production methods, bringing about more benefits.
　　　　　Japan must deepen its market economy to solve its two fundamental challenges — the development of a system to achieve a good balance between a shift to sustainable stable growth and social security meeting the falling birthrate and aging population, and structural reforms (shifting resources to higher-productivity sectors) to realize such system. Therefore, the 21st century vision of the Japanese economy should build on firm confidence in market economy before appropriate safety nets are incorporated into the vision.

2. Support the beneficiaries-pay principle and develop a medium to long-term growth strategy.
(1) “An end to dependence on bureaucrats” alone cannot lead to a path to economic revitalization. As a matter of course, the elimination of wasteful spending is important. If savings from this elimination are used for income redistribution alone, however, economic recovery or growth may remain difficult to occur. Some strong supply-side policy should be taken to raise Japan’s growth potential.
(2) The “childrearing support,” “effective elimination of senior high school fees,” “abolition of expressway tolls” and other spending measures to benefit a limited range of citizens or groups cannot be expected to have any major economic expansion effects.　
　　 These measures could affect the future vision as they represent the fundamental issue involving the restructuring of values about “burdens that should be shouldered by the entire society” and “burdens that should be shouldered by individuals.” The government should not be allowed to take any easy or onrushing income redistribution measures for the reason of temporary social or economic changes.
(3) The government lacks macroeconomic policy (including short-term economic stimulus and long-term growth measures).
　　“Childrearing support” and other planned measures represent nothing more than “redistribution.” Unless new private sector demand is created and expanded, economic recovery or growth cannot be achieved. Supply-side reforms including substantial deregulation and structural reforms are required to create new demand. Particularly, structural reforms are required in agriculture, and health and nursing care areas.
　　 It is feared the Japanese economy will deteriorate further toward the second half of the current fiscal year. Most of the measures now under discussion relate to the budget for the next fiscal year. Few economic stimulus measures required for the immediate future have been offered.
(4) The proposed debt moratorium bill (a bill for measures to counter a credit crunch or withdrawal) could violate market economy principles. Resources for loans are mostly deposits. If the planned debt moratorium leads financial institutions to weaken or go bankrupt, public funds may have be injected into them to the disadvantage of not only depositors but also the general public.
　　At a time when the Bank of Japan is planning to end various corporate finance support measures introduced to counter the global financial crisis, the debt moratorium can be coupled with tougher capital adequacy regulations for financial institutions to trigger a credit crunch. Measures to counter a credit crunch or withdrawal should focus on the expansion of lending by government financial institutions and the improvement of loan guarantee systems.

3. Specify secure financial resources for permanent policies.
　　　　　Attempts to separate temporary and permanent financial resources have failed. Temporary financial resources will dry up soon. Will there be any financial resources other than tax hikes then? “Hidden treasure” special account reserves worth 5 trillion yen, which were specified as financial resources in the campaign manifesto of the ruling Democratic Party of Japan, amount to a hike of some 2 percentage points of the consumption tax rate. Most of financial resources secured by the government are from a partial suspension of a large supplementary budget formed by the previous government. Whether massive financial resources could be secured through the reconfiguration of the main budget is still uncertain. The DPJ-planned reconfiguration of the budget to eliminate wasteful spending alone cannot ensure growth. It is irresponsible for the government to fall short of proposing any growth strategy or specifying financial resources over a medium to long term.

4. Set fiscal consolidation targets and develop a fiscal consolidation plan.
　　　　　It will be difficult for Japan to get on a sustainable growth path without fiscal consolidation. Since savings from the “reduction of wasteful spending” and “hidden treasure” are set aside for new policy measures, there may not be any financial resources other than tax hikes for fiscal consolidation. As the government has vowed to refrain from raising the consumption tax over the next four years, fiscal consolidation is expected to start around 2014 at the earliest. Fiscal consolidation will be difficult without comprehensive tax reform.
　　　　　In order to put Japan on a path to sustainable growth , the government should make a plan to create a primary budget surplus and should promptly work out fiscal consolidation targets and a plan for their attainment.

5. Reaffirm the significance of deregulation and structural reforms and implement them boldly.
　　　　　The DPJ manifesto has failed to touch on deregulation or structural reforms. The growth strategy under globalism should be based on new demand development through technological innovation and competitiveness improvement through deregulation and structural reforms. Deregulation and subsidy reforms are indispensable for the development of agriculture, and health and nursing care areas where demand is expected to increase.
　　　　　The government should not shrug off essential structural reforms. Efficiency and equity are not mutually exclusive. It is natural to pursue efficiency in order to sustain growth under globalism. It is important to form social consensus on equity standards for the redistribution of fruits gained on efficiency.

October 26, 2009

[Policy Proposals]
1. Do not fuel the distrust of our nation’s key ally by the so-called “East Asian Community” initiative that lacks philosophy.
2. Keep a distance from non-democratic countries.
3. Be alert to China-led Sinocentrism.
4. Do not exclude the United States from the East Asian Community initiative.

1. Do not fuel the distrust of our nation’s key ally by the so-called “East Asian Community” initiative that lacks philosophy.
　　　　　Japanese Prime Minister Yukio Hatoyama’s “East Asian Community” initiative lacks philosophy. Japanese and foreign people who believe in freedom and democracy may naturally feel distrust of, anger at or be dishonored by the initiative.
　　　　　In his article “My Political Philosophy” contributed to the September issue of the monthly Voice magazine (an English version of the article was summarized and distributed by Tribune Media Services), Hatoyama emphasized the East Asian region as “Japan’s basic sphere of being” and said “we must continue to make efforts to build frameworks for stable economic cooperation and security across the region.” He apparently believes that Japan and China should form a community for the sole reason that Japan is “a nation located in Asia.”
　　　　　Some Americans are most outraged at the following question posed by Hatoyama in the article: “How should Japan maintain its political and economic independence and protect its national interest when it is caught between the United States, which is fighting to retain its position as the world’s dominant power, and China which is seeking ways to become dominant?”
　　　　　Hatoyama views both the United States and China as the world’s dominant or hegemonistic powers. This view indicates that he does not understand the significance of the Japan-U.S. alliance that has confronted totalitarian forces like the defunct Soviet Union and the Chinese Communist Party. Such an attitude could shake the foundation of the Japan-U.S. alliance.
　　　　　As the base of Japan’s foreign policy, Prime Minister Hatoyama should specify the enhancement of cooperation with countries that share with Japan the basic values of freedom and democracy and that view totalitarian forces as threats.

2. Keep a distance from non-democratic countries.
　　　　　The European integration that Prime Minister Hatoyama apparently sees as the model for the East Asian Community initiative has been based on Christianity as the common foundation and on democracy as the common philosophy. In contrast, East Asia has no such common foundation and lacks any common philosophy. The region also includes China,a one-party Communist dictatorship.
　　　　　The economic integration process may include the conclusion of economic partnership agreements (EPA) containing free trade agreements (FTA) to liberalize regional trade, a shift to a customs union to establish common tariffs against other regions, and the development of the region into an economic community with a single currency. Such process would be difficult to implement unless some philosophy is shared within the region. A political-security community as the next phase would be even more difficult to achieve unless some philosophy is shared within the region.
　　　　　Prime Minister Hatoyama apparently intends to accept China under the one-party Communist dictatorship as a member of the planned East Asian Community. At home and abroad, however, he must explain how such a community could be formed without any shared philosophy.
　　　　　Moreover the planned economic community could allow people, goods and money to freely move within the region. China’s population is 10 times as large as Japan’s. Hatoyama’s Democratic Party of Japan has vowed to positively work to give foreigners voting rights in Japan. If people put under the totalitarian political party flow massively into Japan and obtain Japanese voting rights, China may further enhance interference with Japan’s domestic affairs. Democracy should be the minimum requirement for any participant in the regional community.

3. Be alert to China-led Sinocentrism.
　　　　　As China’s long-term national strategy is to achieve the “Great Restoration of the Chinese Nation” to mark its centennial around 2050, the proposed East Asian Community could turn into a China-led East Asian order known as Sinocentrism.
　　　　　The year 2050 reminds us of Richard Fisher’s warning that China’s ultimate goal is to become a world-dominating military power by the middle of the 21st century. (The warning given to the delegation of Japan Institute of National Fundamentals by Fisher, a U.S. specialist on Chinese military forces, during JINF’s visit to Washington, D.C. in April, 2009, is included in the book titled “Japan Should Enhance Strategic Power” (p. 161), which has been edited by Yoshiko Sakurai and published by Bungeishunju Ltd.)
　　　　　Prime Minister Hatoyama should be alert to the possibility that China could take advantage of his East Asian Community initiative promotion to achieve its own national strategy.

4. Do not exclude the United States from the East Asian Community initiative.
　　　　　In his speech at the Foreign Correspondents’ Club of Japan on October 7, Foreign Minister Katsuya Okada indicated the United States would be excluded from the East Asian Community initiative. “I would like to consider the community as consisting of Japan, China, South Korea, the Association of Southeast Asian Nations (ASEAN), India, Australia and New Zealand,” he said.
　　　　　The U.S. Obama Administration has grown concerned about the remark. On October 14, Kurt Campbell, U.S. Assistant Secretary of State for East Asian and Pacific Affairs, told a news conference in Beijing that critical dialogues that touched on security, economic and commercial issues should involve the United States. He thus made a check against any East Asian Community initiative excluding the United States.
　　　　　China once demonstrated its ambition to create an East Asian Community involving ASEAN plus 3 – China, Japan and South Korea – as a core group (excluding the United States). Japan, alert to China’s growing influences, took leadership in 2005 in launching an East Asian Summit including the three major democratic countries of India, Australia and New Zealand in addition to the ASEAN plus 3 group. Since then, China has seemingly lost its enthusiasm to pursue an East Asian Community.
　　　　　At the same time, China Reform Forum Chair Zheng Bijian, known as a foreign policy brain for Chinese President Hu Jintao, in a contribution to the U.S. authoritative Foreign Affairs magazine (September/October 2005 issue), said “it would not be in China’s interest to exclude the United States from the process (to form an East Asian Community).”
　　　　　Whether he knew such subtle changes in China’s attitude over the past few years, Prime Minister Hatoyama called on China and South Korea to cooperate in promoting the East Asian Community initiative at a Japan-China-South Korea summit in Beijing on October 10. He described the three countries as the core of the initiative. In response, Chinese Premier Wen Jiabao retained a cautious attitude, pointing out that efforts should be accumulated since cooperation under an existing mechanism in East Asia is already underway.
　　　　　The Hatoyama government should explain why a subregional multilateral organization should be created in addition to the Asia Pacific Economic Cooperation (APEC) forum which includes the United States.
　　　　　The Hatoyama government should also specify the positions of Taiwan in the East Asian Community initiative. Any community excluding democratic Taiwan as East Asia’s fifth largest economy after Japan, China, South Korea and Indonesia is inconceivable. Taiwan is an APEC member.