The new government of the Democratic Party of Japan (DPJ), which came into power two months ago, has shocked the world with its new economic approach which practically moves the country from the right to the center left.
After defeating the Liberal Democratic Party (LDP), which had ruled Japan for the past 55 years, DPJ moved quickly to implement its election manifesto, which adopts the new philosophy of “fraternity.”
Prime Minister Yukio Hatoyama has announced his administration would shift public investment from “concrete” projects like roads and dams to “people”, to benefit household budgets such as through child, education and health allowances.
In foreign policy, Hatoyama has also tried to reduce what he terms Japan’s “over-dependence” on the United States and he has moved closer towards East Asia and the East Asian Community.
The new government is also bolder in fighting climate change, targeting to cut greenhouse gasses by 25 percent by 2020 from 1990 levels. The LDP government’s target was 20 percent.
In an interview with visiting Southeast Asian journalists, Senior Vice Minister of Trade, Economy and Industry Teruhiko Mashiko said that the DPJ government would break the “iron triangle” involving bureaucrats, politicians and businesses that had kept the LDP in power for so many years.
“Tax revenue was distributed indirectly by the LPD and that was the very source of the power base of the LDP. But the DPJ will break the iron triangle and directly transfer cash to the people,” Mashiko said.
He added that the government was reviewing big infrastructure projects, and would cut them or postpone them based on priorities, and would use the money to fund direct transfers to the people, including child allowances, free high-school education and health care.
For the business sector, Mashiko noted that the new government would continue to help businesses, but only small and medium enterprises, which account for 99 percent of Japanese businesses.
Big businesses grouped at Nippon Keidanren are quite receptive to the new government policy. Their biggest concern, though, is the government’s new target to cut greenhouse emissions by 25 percent by 2020.
Yoshihito Iwama from the Environmental Policy Bureau of Nippon Keidanren said that the industrial sector in Japan had the most advanced green technology in the world and pursued voluntary emission reductions and had managed to cut energy-originated CO2 by 6 percent in 2005 from 1990 levels.
With the new commitment, Japanese industry would need to cut their CO2 emissions by another 30 percent from the 2005 base year by 2020, as compared to 13 percent for the European Union and 14 percent for the United States.
Also, cutting further emissions from industry in Japan would cost more than other developed countries, because Japanese industry had already cut their emissions so much. The estimated cost of cutting CO2 emissions for Japanese industry would be US$476 per ton, as compared to $60 per ton in Europe and the US.
“That would very much affect the competitiveness of our products in the world market,” Iwama said.
Responding to businesses’ concerns, Mashiko promised to help industry meet the targets by subsidizing new technologies.
“We understand that the biggest concern for Keidanren is our climate policy. We need to arrive at a consensus with industry and with the people. During the process, the government will ask industry to bring in innovations and the government will help them,” he promised.
Junichiro Takeuchi, chief forecaster at the Japan Center for Economic Research, calls the new government’s policy a “grand experiment.”
“If successful, we will realize true economic expansion. However, if it fails, a huge fiscal deficit will be added onto the already critical level of our fiscal debt,” he said.
Atsushi Saito, president and CEO of the Tokyo Stock Exchange Group, shared similar views and said the Japanese people were ready to pay a price to see if the new system would work.
“I’m not pessimistic at all, very much cross my fingers. This is [one of the] greatest experiments in the world,” Saito said.
“If we are successful, we can tell you, our Asian friends, that you should share this destination through the fraternity of the East Asian community of nations”.
