Political Economy of Japan - Essay Example

Political Economy of Japan Table of Contents Answer to Question Number 3 Answer to Question Number 2 7 References 9 Bakker, A. & Chappel, B. (2002) Advanced country experiences with capital account liberalization. IMF Publications. 9 Ho, A. K. (1977) ‘Protectionism versus Trade Liberalization in Japan’, Hong Kong Economic Papers, No. 11. 9 Hollerman, L. (1988) Japan, disincorporated: the economic liberalization process. USA: Hoover Press. 9 Karan, P. P. (2005) Japan in the 21st century: environment, economy, and society. USA: University Press of Kentucky. 9 Miyauchi, Y. (2001) ‘Deregulation on japan: Striving for Socio-Economic Transformation’ [Online]. Available at http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN002170.pdf (Accessed: March 19, 2010). 9 Nimmo, W. F. (2001) Stars and stripes across the Pacific: the United States, Japan, and Asia/Pacific region, 1895-1945. USA: Greenwood Publishing. 9 Nottage, L. (September 12, 2009) ‘The new DPJ government in Japan: Implications for law reform’. [Online] Available at http://www.eastasiaforum.org/2009/09/12/the-new-dpj-government-in-japan-implications-for-law-reform/ (Accessed: March 19, 2010). 10 O’Connell, S. A. (1989) Uniform Trade Taxes, Devaluation, and the Real Exchange Rate. Washington, D. C., USA: World Bank Publications. 10 Owen, J. R. (2005) Currency devaluation and emerging economy export demand. USA: Ashgate Publishing. 10 Pesek, W. (August 4, 2009) ‘Political status quo holding back Japanese economy’, New Zealand Herald. Available at http://www.nzherald.co.nz/best-of-business-analysis/news/article.cfm?c_id=1501241&objectid=10588457&pnum=2 (Accessed: March 19, 2010). 10 Scheiner, E. (2006) Democracy without competition in Japan: opposition failure in a one-party dominant state. CUP. 10 Sheridan, G. (March 6, 2010). ‘Japan reaches pivotal point in new world order’, The Australian. Available at http://www.theaustralian.com.au/news/world/japan-reaches-pivotal-point-in-new-world-order/story-e6frg6ux-1225837484413 (Accessed: March 19, 2010). 10 Steinbruner, J. D. (1989) Restructuring American foreign policy. USA: Brookings Institution. 10 US Government (2005). Review of US. Japan relations: hearing. USA: Diane Publishing. 10 Bibliography 11 Bird, A. (2001) Encyclopedia of Japanese business and management. London, UK: Routledge. 11 Edgington, D. W. (2003) Japan at the Millennium: Joining Past and Future. USA: UBC Press. 11 Finn, R. B. (1983) United States-Japan Relations: Toward a New Equilibrium. Transaction Press. 11 Ito, T. & Kreuger, A. O. (1993) Trade and protectionism. University of Chicago Press. 11 Kohama, H. (2007) Industrial development in postwar Japan. London, UK: Routledge. 11 Lee, C. H. (2003) Financial liberalization and the economic crisis in Asia. London, UK: Routledge. 11 Lewis, M. L. (1990) Rioters and citizens: mass protest in imperial Japan. University of California Press. 11 Nelson, D. R. & Finger, J. M. (2004) The political economy of policy reform: essays in honor of J. Michael Finger. USA: Emerald Group Publishing. 11 OECD (1997). OECD Economic Surveys: Japan 1997. OECD Publishing. 11 Vogel, S. K. (2002) U.S.-Japan relations in a changing world. USA: Brookings Institution. 11   11 Answer to Question Number 1 The economy of Japan had historically been a locked nation, giving high importance to exports rather than imports. However, there are some positive as well as negative sides to such a policy, which led some groups to support the regime, while others to go against it. The following paragraphs deal with the arguments forwarded by the groups, in support of their stances. The national authorities had been in favour of trade liberalization Japan had historically been in favour of trade liberalization and deregulation of all trade barriers. Prior to 1960, Japan had imposed strict trade restrictions in the form of quotas and tariffs. However, gradually these impediments were lifted so that the domestic industries gathered the technical skills to compete with the external players. Nevertheless the national authorities had been cautious about the protection of the domestic sector or the indigenous firms. But, all its qualms were erased when the newly adopted trade policy became a huge success in 1963, which was prominent through soaring economic growth rates. Despite the high success of trade liberalisation, the nation experienced trade deficits in the early 1970s, mainly due to hikes in oil prices. Hence, the nation submerged in a phase of high inflation. This initialised the government to tighten its monetary policies and control the flow of money in the nation, leading the nation to a period somewhat similar to that of a recession. These external factors also made them impose certain restrictions on their international trade arena (Ho, 1977). The national authorities of Japan had been more or less against liberalisation and deregulation between 1970s and 1990s The Japanese economy, unlike its neighbours had remained stringent regarding international trade relations prior to the East Asian crisis of 1997. It came primarily as a preventive measure against the high recessionary phase that the economy had undergone in the early 1970s. In fact, it was after the figure had reached the peak of 30 percent that the monetary authorities decided to restrict the flow of Yen in the market (Cargill, 2003). While most of the underlying economies of East Asia had allowed the entry of external funds in corporate financing, the economy of Japan alongside that of China had decided to keep it controlled. The primary reason which imputed them to remain inactive was their concern about any possible exchange rate devaluation which might impose a deadly impact on their economic growth structure. (O’Conell, 1989). In fact, high fluctuation in the rate of exchange is one of the offshoots of financial and trade liberalization. Moreover, opening up the economy also unbinds the nation towards being susceptible to external disruptions. Such a consequence might lead to a decline in the economic growth figures and prove detrimental for the concerned nation’s future prospects (Agbeyegbe, Stosky & WoldeMarian, 2004). This is the reason why the national authorities did not favour a liberalised and deregulated trade environment and implemented capital control in their economic structure during the 1980s. the most violent protests came from the Ministry of Finance and The Ministry of International Trade and Industry of the Liberal Democratic Party in this case. International trade partners had favoured towards a liberalised trade environment Pressure started coming from the international peers of Japan - competitors as well as partners (Bakker & Chappel, 2002). Among its competitors were the underlying nations of East Asia which remained comparatively lenient on their foreign trade policies and capital controls. Amidst the partners, this pressure primarily came from United States which used to deal considerably with Japan, in terms of trade. A lion’s share of the total volume of exports from Japan (mainly, automobiles) went to USA, creating trade surpluses for the former but deficits for the latter. But this trade balance could not be assumed to be a long-lived one, given that USA comprised of a large part of the total market for Japanese made industrial goods (Nimmo, 2001). It seemed especially dissuading for the US when Japan selectively imposed regulations on the imports of products in which USA enjoyed a comparative advantage. Hence, US tricked Japan by imposing restrictions on Japanese imports. The latter was at the verge of crisis since the US market had been one of the highest demanders of Japanese products (Hollerman, 1988). Another reason why the US and other importers of Japanese goods had been furious with the Japanese policy was that, much of US financial resources went into Japan in the form of export payments, while very little entered into their nation. Hence, most of these nations experienced current account deficits while Japan enjoyed surpluses. This deficit mainly happened due to devaluation of US currency in terms of Japanese Yen, following the latter’s appreciation and imposition of textile quotas by the US. This trade deficit however, was experienced by almost all the trading partners of Japan and is related to restricting the flow of money in Japan, hence escalating the value of domestic currency. In addition, the national administration also propagated the imposition of indirect import quotas which prevented the exporting nations from selling their goods in Japan. Further, this showered a negative setback for the importing nations who felt dissuaded because of such restrictions (Hollerman, 1988). Thus, the export demand shared by Japan came down by a large extent by the early 1990s. Figures which used to be the highest among all the underlying nations of East Asia, slumped down considerably. The new Japanese government supported liberalisation and deregulation The consequence of import restrictions in the form of tariffs and quotas led to a fall in the gross export demands faced by Japan (Owen, 2005). This was nothing less than an impediment for the growth of the region, which was primarily dependent upon its export revenues. But, the prime concern was that the political scenario in the nation, during the 1990s did not favour any liberalization or deregulation moves, even though a Regulatory Reform Committee (RRC) was formed in 1999 that aimed to take care of trade regulation or tax-related problems. Moreover, there were many obstacles in the political scenario too which proved disruptive and hindering towards the adoption of deregulation and financial liberalization. Japan was at a great need of inflow of resources during the 1990s since the national government was submerged in heavy burdens of external debts (Karan, 2005; Miyauchi, 2001). Japan’s political scenario is sometimes considered to be one complying with the laws and rules of a democracy, sometimes it is compared with the polity of an economy like USA, while some others argue it to be an absolutely unique one. The political regime in the nation remained almost stagnant until 1993. However, after 1993, till 2001, there were seven Prime Ministerial replacements so that the political ambience in the nation could be considered anything but a stable one (Karan, 2005). The Ministry of Finance and The Ministry of International Trade and Industry under the Liberal Democratic Party seemed to be much against the transformation. They were reluctant to execute trade liberalization and deregulation, as against the wishes of the domestic business sector or even that of the nationals. While the latter wanted a liberalized environment to inject a competitive environment and pave the channels of technological transmissions, the government was against the idea due to the nation’s past experience with heavy recession in the 1970s (Hollerman, 1988). Moreover, the move was especially protested by the Ministries of Finance and Trade, since it would involve a large number of other Ministries comprising a government as well. Basically, the political instability that Japan saw during the later part of 1980s and the former part of 1990s imply that there had been no true connections created between the mass and the ruling body. Furthermore, the political environment in Japan is more like one where election is preceded by inclusion in the political circle. Unless one has considerable political holds or connections, there is absolutely no chance that the individual would be paid importance. It is also characterised by avenging each other on personal grudges rather than fighting for broader party interests or that of the interest of the nation. Hence, an individual who might be dead against power-sharing can obstruct the greater advantages of the nation. The LDP, which came into power in the early 1990s was characterised by such features (Steinbruner, 1989). It did not have healthy relations between various Ministries, which seemed to be secretly cursing their counterparts. However, to count for the long standing demands from the people as well as from the international arena, as said above, the administration under LDP initiated some liberalisation moves (Scheiner, 2006). Answer to Question Number 2 The vote results of August, 2009 declared the Democratic Party of Japan as the new administration of the nation after toppling down the Liberal Democratic Party, 54 years after the latter took the reins. The rising sun of the DPJ established the fact about democratic politics being carried on in Japan, instead of the autocratic rule that the LPJ had carried on with for more than five decades. It was widely publicised that the people of Japan lost their faith in the latter due to its inability in keeping promises or to attend to mass problems. (Pesek, 2010). Support from the younger generation and corporate houses The election results came at a time when the economy of Japan had been freshly out of the global financial crisis. In fact, the point is that, the nationals who had already witnessed the capacity of the Liberal Democratic Party of Japan during the past socio-economic crises, knew what the outcome was going to be had the LDP persisted as the government. A greater area of concern being that, the global crisis of 2007 was likely to have worse implications on the economy, than those of the crises of 1980s or 1990s. So, it created but a natural ripple among the general population about the previous government’s capabilities of tackling the present one. Hence, they decided for an experiment with the newly formed Democratic Party of Japan; the party got maximum support from the students or the young professionals, who were likely to face the hardest brunt of the shock (Nottage, 2009). Moreover, the DPJ promised to reduce the degree of corruption mounting among the bureaucrats while encouraging the SMEs through allowing a cut on corporate taxes. The general public disagreed about the capabilities of DPJ There remained ample scope for misgivings among the people of Japan. The source of these suspicions is the lack of abundant funds to take care of the problems. With taxes being a major share of its gross revenues, the government can never participate with its full potentials through implementing significant tax-cuts, as they would mean to envisage without ample resource cannels. In addition, the Party has also been considering the implementation of Green Investment, so as to protect its environmental aspects too. Even though the nation itself is technologically quite an advanced one, the problem persists at that related to unavailability of ample resources (ChinaTaiwan News, 2009). The DPJ has no doubt given the nation some of its most capable politicians of all times but their tread being the new government of Japan, is not at all a smooth one mainly owing to its inexperience (Sheridan, 2010). But, the impact that this relative inexperience might bestow is that about lack in leadership skills to tackle economic conditions. The Party has come into power at a time when one of the worst financial crises that the world has ever seen, struck the nation along with every corner of the globe. Besides, the Democratic Party of Japan committed a basic mistake in ignoring the public demand on postal reform (US Government, 2005). Another factor, core to the nature of the Japanese politicians is that about maintaining personal relations with bureaucrats and behaving on the basis of individual interests rather than on mass opinion. Hence, the politicians typical of Japan could be considered as narrow-minded. Basically, there seems to be no robust proof regarding the capabilities or rather efficiency of the DJP on which the national voters might pin up their hopes of seeing a brighter future for Japan (The Journal of Asian Studies, 2008). References Agbeyege, T., Stotsky, J. G. & WoldeMarian, A. (2004) ‘Trade Liberalization, Exchange Rate Changes, and Tax revenue in Sub-Saharan Africa’, IMF Working Paper, WP/04/178. Bakker, A. & Chappel, B. (2002) Advanced country experiences with capital account liberalization. IMF Publications. Cargill, T. F. (2003) Financial liberalization and the economic crisis in Asia, Volume 5. London, UK: Routledge. ChinaTaiwan News (2009) ‘DPJ needs to reinvigorate domestic economy of Japan’ [Online]. Available at http://www.chinataiwan.org/english/News/op/200909/t20090902_988771.htm (Accessed: March 19, 2010). Ho, A. K. (1977) ‘Protectionism versus Trade Liberalization in Japan’, Hong Kong Economic Papers, No. 11. Hollerman, L. (1988) Japan, disincorporated: the economic liberalization process. USA: Hoover Press. Karan, P. P. (2005) Japan in the 21st century: environment, economy, and society. USA: University Press of Kentucky. Miyauchi, Y. (2001) ‘Deregulation on japan: Striving for Socio-Economic Transformation’ [Online]. Available at http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN002170.pdf (Accessed: March 19, 2010). Nimmo, W. F. (2001) Stars and stripes across the Pacific: the United States, Japan, and Asia/Pacific region, 1895-1945. USA: Greenwood Publishing. Nottage, L. (September 12, 2009) ‘The new DPJ government in Japan: Implications for law reform’. [Online] Available at http://www.eastasiaforum.org/2009/09/12/the-new-dpj-government-in-japan-implications-for-law-reform/ (Accessed: March 19, 2010). O’Connell, S. A. (1989) Uniform Trade Taxes, Devaluation, and the Real Exchange Rate. Washington, D. C., USA: World Bank Publications. Owen, J. R. (2005) Currency devaluation and emerging economy export demand. USA: Ashgate Publishing. Pesek, W. (August 4, 2009) ‘Political status quo holding back Japanese economy’, New Zealand Herald. Available at http://www.nzherald.co.nz/best-of-business-analysis/news/article.cfm?c_id=1501241&objectid=10588457&pnum=2 (Accessed: March 19, 2010). Scheiner, E. (2006) Democracy without competition in Japan: opposition failure in a one-party dominant state. CUP. Sheridan, G. (March 6, 2010). ‘Japan reaches pivotal point in new world order’, The Australian. Available at http://www.theaustralian.com.au/news/world/japan-reaches-pivotal-point-in-new-world-order/story-e6frg6ux-1225837484413 (Accessed: March 19, 2010). Steinbruner, J. D. (1989) Restructuring American foreign policy. USA: Brookings Institution. US Government (2005). Review of US. Japan relations: hearing. USA: Diane Publishing. Bibliography Bird, A. (2001) Encyclopedia of Japanese business and management. London, UK: Routledge. Edgington, D. W. (2003) Japan at the Millennium: Joining Past and Future. USA: UBC Press. Finn, R. B. (1983) United States-Japan Relations: Toward a New Equilibrium. Transaction Press. Ito, T. & Kreuger, A. O. (1993) Trade and protectionism. University of Chicago Press. Kohama, H. (2007) Industrial development in postwar Japan. London, UK: Routledge. Lee, C. H. (2003) Financial liberalization and the economic crisis in Asia. London, UK: Routledge. Lewis, M. L. (1990) Rioters and citizens: mass protest in imperial Japan. University of California Press. Nelson, D. R. & Finger, J. M. (2004) The political economy of policy reform: essays in honor of J. Michael Finger. USA: Emerald Group Publishing. OECD (1997). OECD Economic Surveys: Japan 1997. OECD Publishing. Vogel, S. K. (2002) U.S.-Japan relations in a changing world. USA: Brookings Institution.     Read More