A Chance
Of all the economies in the world that are crying out for political will to make structural reforms - at the national, state/provincial, and municipal level - one stands out, regarding need, opportunity, and impact. Japanese Prime Minister Shinzo Abe's Liberal Democratic Party (LDP), in an Upper House of Councillors election on July 21, won an expected working majority, strengthening Mr. Abe's already governing coalition established in elections late last year in the more important chamber of the Diet, the House of Representatives. In Japan, at least, political fragility is no longer an excuse for backing away from difficult economic structural reforms. (Imagine, for a moment, what could happen in Italy if Enrico Letta had such a political mandate.)
Japan is still the world's third-largest economy, recently being displaced in second position by China. And given that last decade's drivers of world economic growth are slowing, or nearly stalled (the so-called BRIC's, that is, Brazil, Russia, India, and China), and given that the Euro-zone is mired in recession, what Mr. Abe does now is critically important to the health of the world economy, to say nothing about security in East Asia. This Prime Minister, in contrast to so many others in Japan over the last twenty years, and to almost every democratically-elected leader in other rich economies, has an unprecedented chance, politically, to radically alter the long-term economic growth potential of his country - the essential ingredient for repairing Japan's dreadful public finances.
So here is, in short, what Mr. Abe needs to do. He needs to ensure that, next month, he brings Japan into the ongoing initiative for a regional free-trade grouping, which includes America, as a full negotiating partner (the so-called Trans-Pacific Partnership (TPP). Internally, this involves facing up to Japan's often inefficient small farmers, who have been protected via tariffs for decades, operating under government limits on rice production, and who could not be bought out by large companies able to introduce capital, and economies to scale. He must also confront big business and entrenched workers, by freeing labor markets in a way that facilitates firing and hiring employees. And, Mr. Abe's government must address immigration - a subject thornier than even in America - essential in demographically-challenged Japan, with its aging, shrinking population.
Each of these, on their own, presents a challenge to the ultra-conservative Mr. Abe, who will face formidable resistance from factions of his own LDP. He could easily be tempted to spend his considerable political capital on, say, re-writing the country's post-WWII constitution, which he, and so many Japanese, regard as an humiliation. The world watches, hoping, instead, that revitalizing Japan's moribund economy continues to be his focus.