Ishihara's Rise Could Mean 'No' to Economic Reform
By William Pesek Jr.
Bloomberg News
Thursday, April 10, 2003TOKYO: Japanese elections rarely deliver sweeping change. But one due to take place Sunday could very well chart the course of Japan's economy for many years to come.
Two years into his stint as prime minister, few in Japan pay much attention to Junichiro Koizumi. His economic reforms were derailed long ago; his reputation as a maverick is dead. The search for a successor often leads to Shintaro Ishihara, an ardent nationalist who is expected to win re-election Sunday as governor of Tokyo.
Investors around the globe should pay close attention to Ishihara's support among voters; it is likely indeed that he will have Koizumi's job in a few years. That could be bad news for international investors waiting for Japan to become a good destination for capital.
Ishihara is an unabashed nationalist best known for xenophobic statements. The 70-year-old is Japan's answer to Jean-Marie Le Pen of France. Feminist groups also are suing him for saying women past childbearing age are "useless."
But investors should be even more unnerved by Ishihara's claims that the U.S. campaign to get Japan to open industries to foreign competition is racially motivated. He also has a knack for enraging Asians, arguing, for example, that accounts of Japan's World War II atrocities in China were exaggerated or even fabricated.
So much for Japan's hopes of maintaining a leadership role in Asia.
One of Japan's biggest failures over the last dozen years has been its battle against the forces of globalization. For all its pledges to open its economy and reap the benefits of trade, Japan Inc. is still struggling to keep things as closed as possible.
The issue is not about foreigners profiting in Japan, but the inefficiencies that undermine its economy and markets. Allowing more competition from abroad could stimulate Japan to become more flexible and innovative. It would encourage Japanese companies to get out of industries in which they are no longer competitive. It also could help Japan win more foreign investment.
It is doubtful that Ishihara would tackle these issues as prime minister. In fact, one wonders if Japan would go the other way under his leadership, dragging the world's second-largest economy further into the isolation in which it already finds itself.
In his controversial 1989 book, "The Japan That Can Say No," co-written with Akio Morita, chairman of Sony, Ishihara sketched out his desire for Japan's economy to move backward, not forward.
He followed up in 1996 with "The Asia That Can Say No," co-written with Prime Minister Mahathir bin Mohamad of Malaysia, who has run afoul of investors by railing against capitalism.
Ishihara has never been shy about blaming foreigners for Japan's malaise. It is true that the rest of the world reaps some benefits from Japan, which is blessed with the largest pool of household savings. Yen savings are parked in dollar-and-euro denominated assets, keeping overseas interest rates down and stocks up. But Japan is in a funk because of bad policymaking.
Nothing Ishihara has said suggests he would bring Japan's economy further out of its protective shell. That should be a concern for investors already fed up with Japan's unique brand of financial socialism.
Take Ishihara's policies toward Japan's feeble banks. Three years ago, he imposed a local tax on Tokyo-based banks equal to 3 percent of gross operating income. The financial institutions in January won a court case against Tokyo, forcing the city to repay ?63 billion ($1.4 billion).
Investors are unlikely to forget the episode. Japan's bad- debt problems are at the root of its 12-year slump. The country's credit system is not working, deflation is rampant, foreign investors are fleeing, and what does Ishihara do? He raises taxes on institutions battling just to remain solvent.
Or take immigration. With a rapidly aging population and a declining birthrate, insular Japan will have to embrace a radical change in immigration policy, allowing in many foreign, low-income job seekers.
Ishihara has made a career of arguing the opposite. In one of his most famous gaffes, he said immigrants were likely to go on a rampage in the event of a big earthquake in Japan. Economists around the world agree that Japan has little choice but to accept more foreign workers. Ishihara hardly seems the sort to embrace such a policy, which will hurt the economy.
Yet he remains a popular figure in Japanese politics. He is an independent, not a member of the Liberal Democratic Party. His charisma serves him well, as does his omnipresence on television. The award-winning author spent almost 30 years in the national Parliament. He is beloved for being the brother of the late movie star Yujiro Ishihara, Japan's answer to Elvis Presley.
It is Japan's power vacuum that is most likely to thrust Ishihara into the prime minister's residence. As Koizumi flounders, few nationally prominent, household-name politicians are available to replace him. Hence Ishihara's appeal to voters.
Investors, however, will be far less enamored.