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Posted at 05:20 PM ET, 03/18/2011

The political fault lines of Japan

Daisuke Iwase is an entrepreneur and co-founder of Lifenet Insurance Company in Japan.

A week has passed since the deadly earthquake and tsunamis hit northeastern Japan.  The Japanese people have been hurt physically, emotionally and economically, yet have endured the challenge with strong resilience. Political leaders have worked around the clock to make difficult decisions under high uncertainty; self-defense forces and policemen continue their endless search for survivors trapped in wreckages under shivering snow; brave engineers are risking their health in a desperate effort to prevent a possible meltdown; corporations are sending money, food, clothes and other amenities to areas worst hit; and the people stand united, maintaining calmness and order amidst days of uncertainty.

If anything, the earthquake and the subsequent tragedies have helped remind us of the virtues and attributes that we the Japanese people possess, which had once been a driver in rebuilding a nation from ashes to a global economic power.  For the time being, political feuding is at a standstill and opposing parties seem to be in full collaboration to take the right actions to provide the needed aid.  Many policies such as universal child care and introduction of toll-free highways, which had been heavily criticized as throwing away money for purposes of winning the general election, are likely to be postponed as a means to secure funding for the relief efforts.

While the short-term attention will be on providing immediate relief to the affected region, the ever more important issue is rethinking how to rebuild the entire nation in the mid to long term.  The tsunamis have not washed away our government debt or the structural inefficiencies in the economy.  The only way we can provide stability and true relief to the people of Japan is to take bold measures to restructure the economy and bring it back on track to sustainable growth.

It goes almost without saying that we have a serious need for fiscal reform, including a tax increase and a redesign of social welfare.  Of similarly critical importance is a policy shift that would bring about productivity improvements. The major cause of economic stagnation in Japan over the last 20 years has been policies that served to protect low-performing zombie firms and inefficient workers, which have distorted competition and postponed the process of creative destruction and redistribution of labor--both of which are essential for innovation and productivity growth.  In addition, recent changes in capital markets rules have effectively prohibited hostile takeovers and have encouraged a return to keiretsu-like cross share holdings. This has emasculated corporate managers of their animal spirits, and has left them sitting on piles of cash with little incentive to deploy capital and increase their returns during the final years of their salary-man tenure.

Many political leaders have long acknowledged these structural issues but have deferred from taking action, and for one reason only: the fear of losing elections.  An overly powerful Upper House resulted in a structural “twisted” Diet, which (coupled with an electoral system that calls for nationwide elections every 18 months) has led to the departure of 14 prime ministers over the last 20 years.  This is not a result of impatient electorates or incompetent politicians, but of an ill designed, malfunctioning political system.  Could a company where the CEO and all its executives change every year be expected to make changes that are necessary for the long term? Then why a government?

It is clear that we cannot stand another major shock, be it physical or economical. Many brave fighters have showed their courage to save the nation from falling, but now it is time for our leaders to demonstrate political courage. It’s time to make the tough policy decisions needed to draw out the very best of Japan, and to put the nation back on a path to sustainable economic growth.

By Daisuke Iwase  |  05:20 PM ET, 03/18/2011

 
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