"Japan Transformed offers a crisply written and insightful analysis of Japan's most recent 'Meiji moment'--the 1994 electoral reforms. As did the earlier and more famous events of 1868, the 1994 reforms sparked profound and interrelated changes, opening both the economy and politics to new competitive forces and incentives. Rosenbluth and Thies provide the most comprehensive analysis to date of these epochal changes, one which will command attention from all those interested in the interplay between electoral incentives and economic outcomes."--Gary Cox, University of California, San Diego

"Amidst the gloom and doom of Japan's aging society and sputtering economy, Rosenbluth and Thies infuse a breath of hope: the transformation of the electoral system is pushing Japan steadily toward a responsible system of majoritarian governance privileging mainstream urban voters over entrenched interest groups and part-time farmers. The importance of the electoral system is not new to studies of Japanese politics, but never has it received such bold and ambitious treatment. Concise yet broad-ranging, Japan Transformed will become required reading for beginner and specialist alike."--Gregory W. Noble, University of Tokyo

"This book fills a niche on Japan's political economy. It weaves together comparative politics, political economy, and area studies to produce an interesting and accessible account of the changes Japan has experienced over the last twenty years."--Margarita Estévez-Abe, Syracuse University

"This book offers a new definitive statement of the rational institutionalist take on Japanese politics. Its main claims are carefully presented with appropriate qualifications and nuance, while its most provocative claim--that significant change in Japanese policy has been driven by electoral reforms adopted in the 1990s--will provoke discussion and debate."--Leonard Schoppa, University of Virginia

Japan Transformed

PRINCETON UNIVERSITY PRESS

Contents

Chapter One

Introduction

Japan limped into the twenty-first century with an economy in deep malaise. Following the collapse of the Tokyo stock and real estate markets that began in 1990, the Japanese economy failed to regain its stride, languishing at near-zero growth for a decade and a half. Saddled with a large fiscal deficit, the government was hard pressed to stimulate the economy in the wake of the 2008–2009 financial tsunami originating in New York. The prolonged slump that had been called "Japan's lost decade" began to look more like a chronic affliction.

Despite appearances, Japan is not an economic has-been on its last legs but a country in the throes of a transformation from a corrupt, managed economy to an economy shaped by a more open and scrappier political process. Japan's political system is healthier than ever before, though it will be tested heavily by new global pressures, rising inequality, and a rapidly aging population. This book seeks to explain what happened to create Japan's new political economy, how it matters, and what it means for Japan's future.

Japan's twenty-first-century metamorphosis into a "normal democracy" has not gripped the attention of the West as did its earlier phase as a voracious conqueror of export markets seemingly on the verge of global economic dominance. The subject of hysterical movies, xenophobic rhetoric, and countless university courses, the once-defeated Japan had turned the tables and was now the Godzilla invading American shores. In 1988 a group of U.S. congressmen, protesting what they felt were Japan's unfair trading practices, smashed a Toshiba boom box with sledgehammers on the steps of the Capitol. Historian Paul Kennedy declared that Japan was poised to replace the United States as the world's leading economy.

Japan deserves more attention today than it received in its false glory days. As subsequent events made clear, much of the earlier fanfare about, and fear of, Japan was misplaced. Japan's economic model was not nearly as powerful as it looked. Large market shares masked thin profits and low productivity, signaling trouble for the economy's endurance. Government protection let inefficient industries survive for too long, hampering what Joseph Schumpeter once described as capitalism's innovative "creative destruction." Essential postwar industries became national and global laggards, compounding inherited problems in the financial and public sectors of the economy.

Though with little domestic fanfare and even less notice from the rest of the world, Japan began reinventing itself in the 1990s in ways that evoke parallels with the Meiji Restoration of 1868. As with the Meiji overthrow of the Tokugawa regime, Japan's political economy in the twenty-first century replaces a failed attempt to close its borders with one that accepts integration with the world economy as inevitable. Also as occurred in the Meiji Restoration, the old political structure that rested on uncompetitive domestic forces collapsed, to be supplanted by new institutions more compatible with global integration. Japan's new electoral rules, established in 1994, create noticeably different incentives influencing how politicians regulate the economy and how they approach foreign policy. Because Japan remains the world's third largest economy, it is important to understand how its domestic politics will shape its engagement with the world in years to come.

Transformations like those Japan is undergoing tell us about how politics works in a more general sense. When do political institutions change, and do they matter apart from the forces that brought about their change in the first place? How powerful are institutional incentives in shaping the political and economic landscape? How do they interact with inherited political culture and the interests of entrenched elites?

Most theories of politics of the developed world are based on the experiences of the United States and Europe. Despite being one of the world's richest countries, Japan is often the "odd man out," not only because language barriers impede the full integration of Japan's experience into the Western canon, but also because the policies Japan has adopted have seemed anomalous in the context of either Anglo-American laissez-faire or continental European welfare states. Now that Japan is moving in an Anglo-American direction, should we interpret these changes as harbingers of global economic convergence? The key to understanding the economic system to which Japan is moving, we will argue, lies both in pressures from the world economy and in how they are filtered through domestic political institutions.

Japan in the World

Despite nearly two decades of economic stagnation, Japan remains a colossal power. Its economy is enormous, and although it has been surpassed in absolute size by China's (with China's ten-times-as-large population), Japan is economically still more than a third larger than fifth-ranked Germany and twice as large as the United Kingdom or France. Although Japan officially has no army, navy, or air force, owing to its constitutional renunciation of war, the Japan Self Defense Forces (SDF) are in fact a formidable military by another name. By many other measures as well, Japan is an extremely influential player whose actions have bearing for world peace, prosperity, and health. Understanding why the Japanese do what they do on the world stage requires knowledge of how Japan's democracy translates the preferences of its citizens, interest groups, bureaucrats, and politicians into national policy and action.

Table 1.1 compares Japan with other OECD countries, plus China, in terms of territory, population, and economic size. Japan's millions are densely nestled in the valleys and narrow plains of a mostly dormant volcanic mountain range, forming the four major islands and countless small ones that make up the Japanese archipelago. The total land mass is smaller than the state of California and only 4 percent of the size of the United States, and only 12 percent of Japan's land is arable. Japan is also physically smaller than France and marginally larger than Germany and the United Kingdom. Metropolitan Tokyo, with over 35 million residents, is the world's largest city, dwarfing Mexico City (19 million) and New York City (18.5 million).

With few stores of natural resources but considerable ingenuity, occasional predation, and institutionalized economizing, Japan built a powerful industrial economy to rival the world's greatest. Japan's 2008 GDP per capita was $35,300, well behind Luxembourg's $85,100 and the United States' $48,000, but above Germany's $34,800 and far, far ahead of China's $6,100. Japan's weight is felt in visible industrial exports, as well as in its less visible purchases of raw materials from around the world. Japan exported $566 billion worth of industrial and other products in 2007, 22.4 percent of that to the United States and 13 percent to China. Japan's imports lean toward fuel and raw materials rather than finished manufactured products, a pattern that has gotten it in trouble with its trading partners that covet greater access to Japanese consumers. Toyota, Mitsubishi, and Sony have long been in greater evidence around the world than are American or European counterparts in Japan. In more recent decades, Japanese games and animation have also captured worldwide audiences as the Japanese economy shifts into software and services.

The Japanese government has spent considerable sums in support of its diplomatic aims to maintain peace and prosperity. Japan is the number two foreign aid donor in the world behind the United States, and also second to the United States in terms of support for the United Nations, the World Bank, and the International Monetary Fund. As a fraction of GDP, Japan pays the UN twice what the United States contributes (and more than Germany or the United Kingdom), and its contributions to the World Bank and the IMF, respectively, are greater than, and on par with, those of the United States.

Evidence of Japan's financial muscle is consistent with its typical description as an economic giant, but Japan's military strength is less widely understood. After World War II, the Japanese public was not only disillusioned with the militarism of its own government but also horrified by the devastation visited upon Hiroshima and Nagasaki by American atomic bombs. Japan's low military profile, though initially imposed via the 1947 constitution by the U.S.-led Occupation, retains widespread popular support. As the economy prospered, however, the small percentage of Japan's GNP allocated to military expenditures grew to enormous sums. Although Japan's $42 billion spent on defense in 2007 is still less than 10 percent of the U.S. defense budget, the striking feature of contemporary military spending is not how little Japan spends but how far ahead of the rest of the world are U.S. military expenditures. The United States accounts for about two-fifths of the world's military expenditures, which is as much as the fourteen closest-ranking military spenders combined, and seven times more than China. Japan's military budget in 2007 ranked seventh in the world, after the United States, China, Russia, France, and the United Kingdom, but ahead of Germany.

By whatever measure, Japan is one of the world's greatest powers. Understanding how Japan became powerful and how it uses its might is important, if for no other reason, for grasping the prospects for world peace. General theories and approaches of politics, suitably modified, are useful in enabling us to understand Japanese politics and policy making. At the same time, the Japanese example can help us understand what is idiosyncratic about theories developed in the American or European contexts, and can contribute to more general theories of politics.

Theories

We build the case here that Japan's policy choices are politically shaped rather than culturally or economically determined, and that politics in Japan follows a logic similar to that of politics elsewhere. There are numerous examples of existing theories that explain aspects of Japanese political economy quite well. As we discuss in the following chapters, materialist and institutionalist theories of democracy receive validation in explaining when representative government took root in Japan. A classic materialist account of Japan's current democratic stability would credit relative income equality after World War II with limiting leftist demands for redistribution. Institutionalists would point to constitutional provisions that regularized political competition and sustained among the electorate stable expectations of peaceful contestation for power. Theories of strategic competition predicted accurately both the number of factions in the LDP and the number of political parties that survived. For the reforms of the 1990s, materialist theories help account for the collapse of Japan's electoral rules in terms of changes in the distribution of economic resources. Institutionalist theories, which shift the focus to the electoral underpinnings of policy making, are important for elucidating how electoral incentives buffered and channeled economic pressures for several decades prior to the collapse.

While Japan nicely showcases the usefulness of some theories of politics, it sits uneasily with others. It would be a pity if our understanding of the politics of advanced democracies were to leave Japan out simply because it is hard to find theories that can explain the conspicuous mismatch between Japan's experiences and those of others. But what is one to make of Japan's small welfare state on an American scale, combined with income equality, heavily interventionist economic policies, and sticky labor markets that more closely resemble those in many European states?

Political sociologist Gøsta Esping-Andersen classified rich democracies into "three worlds" of welfare capitalism: "social democracies" such as in Scandinavia where governments underwrite equal outcomes to a substantial degree through wage coordination and progressive taxation; "Christian democracies" such as Germany and Italy that protect organized labor (though without the thoroughgoing commitment to societal equality of the Scandinavians); and Anglo-American "liberal" market economies that privilege economic growth over either equality or employment. This typology describes Western Europe and the United States relatively well, but Esping-Andersen himself admits to being stumped by Japan.

Our approach focuses on the interplay between political institutions and material forces. The institutional arrangements governing political competition shape the economy in discernible ways. But politicians can never completely control the distribution of resources. Wealth has a way of growing where innovation is most active, with or without government sponsorship. The Japanese government did slow the effects of globalization on politics by promoting exports ahead of the imports that would have introduced a wider range of competitors to Japanese markets. But export businesses that were winners on the global stage eventually sought to cut loose from the domestic-market-bound laggards—the farmers and small businesses—that could survive only with government protection. In time, the acquisition of resources by new groups and the collapse of formerly powerful groups threw Japan's political institutions into disarray. This, in a nutshell, is the story behind the boom and bust of the 1980s and 1990s and the electoral reform that followed. The existing rules of political competition proved unworkable, and the changed electoral rules put into place a new regulatory structure with vast consequences for the shape of Japan's political economy.

Plan of the Book

An interest in politics is not the most common pathway to the study of Japan. More typically, people are drawn to Japanese aesthetics, animation, or—before the bubble burst—the Japanese "economic miracle." Politics was the poor relation of this ancient and exotic society that had been transformed into an economic powerhouse in a few short years after the Second World War. Time was, not long ago, when the Japanese themselves spoke disparagingly of their "first-rate economy and third-rate politics (keizai ichiryu, seiji sanryu)." The postwar electoral system did indeed establish a bad set of incentives for Japan's political leaders, leading to corruption on a massive scale from which the "first-rate economy" was ultimately not immune. Japan's changed political system, following the electoral reform of 1994, gets higher marks on a normative scale of democratic governance, but its economic consequences are mixed. As is true everywhere, Japanese politics is key to its policies, including those that structure the economy.

In chapter 2, we explore the view that Japan's polity and economy have been shaped decisively by a unique cultural heritage. In contrast to this, we provide a view of culture as politically shaped and often in flux. We do not deny that cultural repertoires make some political strategies more likely than others, but they do this by supplying the materials for political entrepreneurship rather than by blinding actors to alternative choices. Japanese political behavior and Japanese culture more generally respond to broader incentives. Factions come and go, depending on what political candidates gain from factional affiliation; citizens' respect for bureaucrats waxes and wanes depending on bureaucrats' policy-making discretion; voters heed party platforms, or not, depending on whether the party platform is a likely to be translated into policies, and whether it provides a useful cue for voting behavior. The variation in these and other attributes of Japanese politics over time is considerable.

Our brief sketch of Japanese history from prehistoric times demonstrates the stark changes in Japanese values that have accompanied changes in circumstances. Any notion that Japanese culture is an immutable force operating on the minds of modern Japanese is belied by the variety of cultures in Japan's own past. On inspection, "culture" turns out to result from historical changes that themselves stand in need of explanation. Otherwise the appeal to "culture" is no more enlightening than is the description of Japan's early postwar economic success as a "miracle."

Chapter 3 recounts several Japanese experiments with democracy, beginning with the Meiji oligarchs who attempted but failed to insulate Japan's new constitutional monarchy from party competition. What are the conditions under which democracy emerges and is sustainable? Was Japan's democratic interlude during the 1920s a genuine expression of government "by the people," or was it doomed to fail? Did Japan's late industrialization (as compared to that of the United States and the United Kingdom) consign it to a pattern of economic organization that required a "strong state," militating against pluralist democracy? Was Japanese military expansionism into Asia an inevitable outgrowth of its political and economic structure, or was Japan playing, perhaps a little too late, the realist game of power politics that the European nations had pursued during the nineteenth century? Our evidence reveals the inadequacy of approaches that rely on such economic factors as income levels, income distribution, or the timing of industrialization. We show that the strategic behavior of actors was crucial to choices over economic and military policy, as were the rules governing political competition among those actors.

(Continues...)

Excerpted from Japan Transformedby Frances McCall Rosenbluth Michael F. Thies Copyright © 2010 by Princeton University Press. Excerpted by permission of PRINCETON UNIVERSITY PRESS. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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