Discussions, No.7  Sept. 28, 2011


Eliminate clever schemes and rebuild Japan with the power of harmony

Photo : Noda Yoshihiko

Noda Yoshihiko

The Great East Japan Earthquake struck Japan on March 11. This unprecedented disaster took from us a great many precious lives and irreplaceable hometowns. The Cabinet Office estimates the damage at 16.9 trillion yen; 1.8 times greater than that of the Great Hanshin-Awaji Earthquake. This disaster inflicted deep wounds in everyone’s heart, which cannot be expressed in numerical data, and left depleted hope not only in the devastated areas but all of Japan. The damage caused by the nuclear power plant accident continues. Indeed, Japan faces a historic national crisis.

For the five months since the earthquake, I faced this national crisis as a Finance Minister and a politician. The public, however, has cast a harsh glance at the Cabinet and the Diet as a whole. People say, “The Democratic Party of Japan [DPJ] government only talks and doesn’t implement policies.” “What are the members of the Diet doing?” The public’s collective distrust has been increasing to an unprecedented level.

The reason is clear. Despite the national crisis, the government is not fully demonstrating its function by putting together all the nation’s strengths. Many people feel the government is not doing what it is supposed to do. Politics is a business of patiently finding realistic solutions while coordinating conflicting interests and values. The key to parliamentary democracy also lies in reaching a consensus by exchanging dialogue and carefully understanding; in other words, working out a plan. Yet this plan-making ability has rapidly deteriorated in our country.

I believe in the power of the Japanese people. The lesson implicit from the victorious Japanese women’s soccer team, nicknamed “Nadeshiko Japan,” at the FIFA Women’s World Cup, is that if all the team’s members work together toward the challenge and persevere until the end, a road to Japan’s revitalization will be opened.

The greatest call for the Japanese government is to implement what it is supposed to in times of crisis. It is necessary to establish a system for bringing out the power of the private sector and uniting the wisdom of politicians and bureaucrats, and to restructure the governing function. What is needed for politicians is an attitude of facing reality and not running away from or postponing difficult tasks. This is the attitude to rebuild a new Japan. When the occasion arises, I am ready to take the lead.

Surging crisis and the hollowing out of industry

Japan is not only faced with the challenges of reconstruction and revitalization following the Great East Japan Earthquake.

Many challenges that needed resolving had piled up before the Great East Japan Earthquake, and they were bearing down on us. These challenges are now surging as crises.

The first crisis is the decline of domestic industry; specifically the issue of the hollowing out of industry.

For the past 20 years, the manufacturing industry, including automakers and electric manufacturers, has rapidly moved its production sites overseas. As a result, jobs for nearly five million people have been lost in Japan. The lost employment led to the plunge of domestic demand and accelerated deflation in the economy.

It was said that the Japanese manufacturing industry faced quadruple trouble before the earthquake. The first trouble is the strong yen that has continued since the Lehman Brothers collapse. The second is the catching-up of emerging economies such as South Korea, Taiwan and China. The third is the delay in accords such as economic partnership agreements (EPAs) between Japan and other countries. The fourth is the stagnant domestic market.

To these four troubles, the damage from the earthquake is added. Parts factories in eastern Japan were devastated by the earthquake. The supply of parts mainly in the automobile industry stopped and major industries were forced to reduce production. The lack of electricity then provided another hit while the victim was down. This summer, customers with great demand within the service areas of the Tokyo Electric Power Co., Inc. and Tohoku Electric Power Co., Inc. are being requested to reduce their power consumption by 15%. Among product manufacturing companies the view is spreading that maintaining production in Japan is now a mission impossible.

As Finance Minister I focus on avoiding the hollowing out of industry and employment, and revitalization of the economy, and I have worked hard to promote necessary policies.

One example is the foreign exchange intervention carried out on March 18 immediately after the earthquake. On the morning of the day before, the yen strengthened to the level that one dollar equaled 76 yen on the foreign exchange market. Considering this abnormal level, I decided to intervene in the foreign exchange markets in the afternoon of that same day. The target was huge foreign exchange markets. In order to send a strong message to the markets, advanced nations needed to take concerted intervention. I worked with nations intermittently, and obtained an agreement for concerted intervention during a telephone conference with these nations on the morning of the 18.

The intervention by advanced nations was done after an interval of 11 years. The market received the intent of the advanced nations and the strong yen was corrected. The yen is now again growing stronger due to the circumstances in the United States and Europe. Foreign exchange needs our fullest attention at all times.

We cannot take a wait-and-see approach toward countermeasures for the hollowing out of industry. Companies could abandon the country; people, however, cannot run away from their country.

The DPJ administration provided a total 140 billion yen of the subsidies for site location under last year’s economic measures. This measure is intended to support companies that manufacture eco-cars and energy-saving products on the condition they provide a certain level of employment. The devastated areas cannot be revived without employment. Employment is impossible without industry. In order to create jobs, drastic measures to encourage companies to make focused investment should be accelerated.

It is also an urgent task to implement measures for attracting people, who equal wisdom and money, from all over the world.

The New Growth Strategy developed last year by the DPJ administration stipulates specific measures to be implemented to maintain Japan’s competitiveness over the next 10 years and a process schedule chart. The strategy aims at creating new industries via Green Innovation (environment and energy) and Life Innovation (health and medical) and winning in the growing Asian markets. It includes 300 specific measures, such as deregulation and special districts, and development of social capital by, for instance, private finance initiative (PFI). Measures to strengthen competitiveness are already developed.

The problem is the delay in implementation. Facing the earthquake, it is necessary to prioritize contents, narrow them down and redesign, but there is no need for clever schemes. Implementation is the greatest strategy.

Facing energy and nuclear power

The second crisis is the issue of electricity and energy.

The safety myth regarding nuclear power has collapsed. What should be prioritized first is quick conclusion of the Fukushima Daiichi nuclear power plant accident. In order to also prevent damage caused by rumors, it is essential to thoroughly investigate the cause from international perspectives and accurately identify the current status of damage, and to then take preventive measures for the future.

Taking the opportunity of the oil crisis in the 1970s, the Japanese government accelerated promotion of nuclear power as a national policy. The national government is of course responsible for taking all possible measures for properly compensating the people in Fukushima who were deprived of their homes by the nuclear power plant accident, and people in other areas who suffered damage.

The reconstruction of Fukushima is a challenge for the nation. In the basic reconstruction policy, the government proclaimed it would set special districts in Fukushima for creating research and development sites in the renewable energy and medical fields. Moreover, we should unite national public research institutes in Fukushima. It is no exaggeration to say that regaining Japan’s trust in the world depends on the reconstruction of Fukushima.

What we need to discuss now is how we should face nuclear power as the government and the entire nation and how we should address the present lack of electricity. On top of these issues, we should present a short-term process schedule chart for at least the next three years and take action.

Electricity is like “blood” for Japanese society. The chaos in the metropolitan areas where planned outages were carried out after the earthquake vividly revealed the reality of the situation. The government currently has proclaimed that planned outages will not be carried out, but there are concerns that the lack of electricity in Japan is growing worse by the day.

In addition to eastern Japan, electricity also is lacking in western Japan, where Kansai Electric Power Co., Inc. and other companies provide service. Routine inspections will be conducted by April of next year for all the nuclear power plants currently in operation. If these plants do not resume operation, the reserve margin (rate of peak demand and supply capacity = available capacity of supply) will worsen further. The reserve margin in eastern Japan (Tokyo, Tohoku and Hokkaido) will be -10%, while the figure in central and western Japan (five companies in western Japan and Chubu Electric Power Co., Inc.) will be -8%. The proper reserve margin of electricity is regarded as +8%. A negative level is a state of crisis.

The government is responsible for establishing the system to stably supply electricity. Facing the harsh reality, I believe that the best policy is to strive to resume operation at nuclear power plants that are thoroughly verified for safety.

First we should develop a regulation system to ensure safety, such as development of stress testing. In these efforts, the system should be changed so that the plants that do not meet the new standards are closed. It is also essential to reorganize the regulation supervisory system, such as in the integration of the Nuclear and Industrial Safety Agency and the Nuclear Safety Commission of Japan. We should also consider a new system to unite wisdom from Japan and overseas.

In addition to developing these “vessels,” nothing is more important than the behavior of the nation’s chief officer. It is impossible to operate nuclear power plants again without obtaining the trust of people in local governments at the plant sites. The first step to avoiding an electricity crisis is the prime minister taking a sincere attitude by going to the sites, listening to opinions there and speaking in his own words.

Negative opinions have been expressed about export of Japanese nuclear power plants. However, I do not think we should hastily stop exporting nuclear power plants. As the only country to be subjected to atomic bombs, Japan has accumulated technology for the peaceful use of nuclear power. Countries such as Vietnam and Turkey trust Japan’s technology and national character and selected Japan as a partner to introduce nuclear power.

Around the world, the trend toward introducing nuclear power has accelerated, centering on emerging nations. This accident following the earthquake provided the opportunity for Japan to accumulate new technology for the safety of nuclear power, and it must do so. When our partners request, the ability to explain dangers and safety measures is also a new form of international contribution that, after the earthquake, only Japan can provide.

For export of nuclear power, many top leaders from Japan visited other countries and conducted sales activities. In the future, top leaders should continue to go to other countries and provide accurate information and countermeasures regarding nuclear power. Other countries can then decide whether to introduce it. This attitude will lead to regaining trust in Japan.

It is also important to reconstruct the energy strategy for the medium and long terms. According to the government’s basic energy plan, 14 nuclear power plants were supposed to be built by 2030 and nuclear power would account for approximately 50% of the total power generated. Constructing nuclear power plants is clearly difficult. The natural course of action is to go back to the drawing board and review the basic plan.

What is essential is to have broad and diversified discussions, instead of a dichotomy of departing from nuclear power versus supporting its promotion. It is vital to discuss the issue from multiple viewpoints, such as total costs including the closing of reactors based on verification of the Fukushima accident, the viewpoint of incorporating the world’s resources, and energy security in consideration of the use of nuclear power. While striving to reduce dependency on nuclear power, a realistic option is to use the existing power plants to a certain level until at least 2030 and to accumulate nuclear power technology.

The expansion of natural energy such as solar, wind and geothermal power, and biomass (biological resources) is a national strategy in the new era.

The rate of natural energy in Japan (including hydro power) is currently only 9%. Our immediate goal is to increase to 20% in the 2020s. This is an ambitious goal, but it should be achieved as a nation, because the expansion of natural energy is significant in terms of both securing energy and developing new industry.

The key to the success is the development of innovative technology. Technological innovation in the field of new energy, such as smart grids (next-generation power supply networks) for storing large amounts of unstable electricity such as solar power and wind power in storage batteries and operating by using the latest information technology, and smart meters (next-generation electrical meters), will be directly linked to drastic improvements in energy saving.

Energy saving is also energy creation. Together with energy saving home appliances, automobiles and housing will be changed. Change will create new industry and employment, and will become the new breadwinner for Japan. This crisis has the potential to provide a chance to revitalize Japanese industry in the long run.

In 1925 Toyoda Sakichi, the founder of the Toyota Group, offered to personally donate one million yen to the Imperial Institute of Invention (now the Japan Institute of Invention and Innovation) as a reward for inventing battery technology. One million yen at that time is equal to one billion-plus yen in the present day.

The elderly man set only one condition: the inventor should be Japanese. This seems to be based on the idea that “If a Japanese invents a battery it will bring about a revolution in the world’s electricity industry. Then Japan will jump forward to become a world industrial leader.” He predicted in the Taisho period that batteries would be a key.

Companies such as Sony and Honda were created from the ruins of the Pacific War. I consider that technological innovation in electricity-related fields, including batteries and new services, can be created from small- and medium-sized companies alive with entrepreneurship. The government’s role is to develop the environment for nurturing enterprise and support it from behind and in front.

The greatest crisis – finance

The third and greatest crisis is finance. Japan’s finance was in crisis even before the Great East Japan Earthquake: half the national revenue has depended on government bonds and the total outstanding general government debt exceeded 1,000 trillion yen. The Great East Japan Earthquake increased the crisis level of its finance, and analysts, credit rating agencies, international institutes and other parties from Japan and overseas warn about the future of fiscal management in Japan.

Some may wonder why finance is an issue now while it was not at the time of the Great Hanshin-Awaji Earthquake. In those days, dependency of the national revenue on government bonds was about 20%, and the total outstanding general government debt (debt of the national and local governments) was about 400 trillion yen. Sixteen years have passed since then, and the debt has expanded by 250%. We cannot use the earthquake as a reason to postpone our efforts to achieve sound finance.

I feel that one reason Japan’s finance fell into crisis is that all people, including politicians, are used to adding 30-40 trillion yen of debt every year. This debt was made possible by the enormous amount of personal financial assets in Japan. However, the ratio of these assets to the total outstanding general government debt in Japan is just 1.5 times, while the ratio in other major advanced nations is two to three times. It will certainly be difficult to continue to borrow at the current pace by depending on personal financial assets in Japan.

Moreover, the rapidly aging society means that increased spending on social security is unavoidable. Spending in areas other than social security is, however, at the lowest level among OECD countries, and achieving sound finance solely by reducing annual expenditures is at its limit. Some people expect tax revenue increases due to economic growth. However, since annual expenditures are increased due to the rising interest rate and prices together with economic growth, this does not necessarily lead to sound finance. According to a trial calculation by the Cabinet Office, even if nominal 3% economic growth continues, the debt-to-GDP ratio will continue to increase, and sound finance is not achievable.

As Senior Vice Minister of Finance and Finance Minister, I have directly looked at financial crises in other countries since this administration began, and I have worked to stabilize the global economy while sharing the importance of sound finance with other countries’ finance ministers.

What I realized in this situation is the reality that once we get into financial crisis, we are forced to take extremely stringent measures amid the economic chaos. One country falling into crisis due to financial collapse affects the world economy through the financial markets. It happened in Greece and in Portugal. It is important to work on sound finance ahead of a crisis.

Another question is whether it is appropriate to increase debt and impose burdens on our children and grandchildren. The current situation is like parents and grandparents spending lavishly with their children’s and grandchildren’s credit cards. Fiscal reconstruction is our responsibility for the future.

On June 30, the government/ruling party formed a plan for integrated reform of the social security and tax systems. It aims at securing stable financial resources for social security reform of pensions, medical care and nursing care, and at the same time achieving sound finance through drastic reform of the tax systems. It is also important to apply the principles of social insurance to working people and support childrearing, such as the integration of preschools and daycare. A sustainable social security system promotes the stabilization of people’s lives and the expansion of employment and consumption, and leads to economic growth. I would like to prepare for achieving this integrated reform.

The U.S.-Japan Alliance is the greatest asset

The greatest challenge for our DPJ administration is to overcome these three crises facing Japan, and to strive to revitalize the economy and stabilize finance. From the beginning, stable home affairs and sound national economy are prerequisites for national security, and also sources of diplomatic power. However, we should not be “inward-looking” because of this. If the nation’s safety and stable international relations are not secured, it will be impossible to expect the development of economic society.

Whether we like it or not, the world surrounding our country has been changing drastically. In particular, in recent years the Asia-Pacific region including Japan has made the world’s most dynamic change in terms of economy and politics.

China became an engine for world economic growth, and is now the greatest trade partner for Japan for both export and import. The huge market power is a driving force of the Asian economy. Therefore, Chinese economic society developing in harmony with international society is no doubt a great opportunity for Japan.

On the other hand, China’s rapid reinforcement of military power and expansion of the areas of its activities, coupled with uncertainty of its strategic intention, have become the greatest concerns in the region including Japan. Recently China has taken coercive attitudes toward foreign countries backed by its military power in areas such as the South China Sea, and this has become a serious concern that unsettles the international order in the region. North Korea repeatedly takes provocative military action toward South Korea, and is one of the most serious factors of instability in northeast Asia.

Looking around the world, while newly emerging economies achieve economic growth rapidly and some countries and regions show potential for development, other countries lack governing ability and become fragile and collapse. This results in risks, namely increased threats by non-state actors such as terrorism and piracy.

In the international environment where opportunities and risks intermingle, the basis for securing Japan’s safety is our independent efforts for security.

At the end of last year, as a member of the Cabinet, I was involved with the development of the defense plan outline. This stipulates the constructing of a “dynamic defense power” that provides prompt action and continuity and is supported by advanced technological and information capabilities. From here forward, we will focus on the dynamism of operations as well as the quality and quantity of defense power, and develop the structure.

Along with our own efforts, it goes without saying that the greatest asset and basis for Japanese security and diplomacy is the U.S.-Japan alliance. “Operation Tomodachi” is a great outcome of this allied relationship between the two nations that has been developed and deepened over 50 years. The success of the joint operation between the U.S. military and Japan Self-Defense Forces helped advance the U.S.-Japan alliance to a much deeper level.

We must be strongly aware of the fact that this alliance contributes to producing not only realistic interests but also sharing basic values such as democracy, respect for basic human rights, rule of law, the freedom of sailing and protection of cyber- and outer space. The U.S.-Japan alliance not only plays a crucial role in the safety and prosperity of Japan but is also an international public asset for the stability and prosperity of the Asia-Pacific region and the world.

It is important to promote the U.S.-Japan alliance in the future as well. Focus should also be placed on cooperation in the energy field in the two countries from the perspectives of national and human security. Based on the solid U.S.-Japan alliance, we would like to work with Asian and neighboring countries such as China, South Korea and Russia, utilize the frameworks of regional cooperation such as Asia-Pacific Economic Cooperation (APEC), and develop multilayered open networks in the Asia-Pacific region.

The opening page of 100 Years Decided Japan by the late Prime Minister Shigeru Yoshida, cites the magnificent achievement of the Kanrin Maru crossing the Pacific Ocean without calling in at other ports, and claims that modern Japan was opened due to the adventurous spirit of the pioneers who achieved the Meiji Restoration. I always believe that Japanese people should not be inward-oriented while facing harsh domestic situations, and we should take leadership in the development of ocean and space, which is a new frontier, and the establishment of order.

I believe that it is the historic mission for Japan, a nation blessed with oceans since historic times, to protect and develop the oceans, and protect and explore space. The call for us at the turning point of our era is this enterprising spirit.

The government developed the basic guidelines for reconstruction and revitalization after the Great East Japan Earthquake. For the next 10 years, we plan to spend at least 23 trillion yen on this revitalization. This includes disposal of debris, support for victims, revitalization of the agricultural and fishing industries, and job creation. In order to put specific measures into practice, we need to rapidly draw up the tertiary supplementary budget and then the budget for the next fiscal year.

The foundation lies in restructuring the governing function of the entire nation, as I pointed out at the beginning of this article. The greatest challenge is cooperation between the ruling party and opposition parties. Under a so-called divided Diet, it is extremely difficult to approve bills and implement policies without agreement and cooperation between the ruling party and opposition parties, particularly the Liberal Democratic Party of Japan (LDP) and New Komeito Party. Since the change of government, there has been a prolonged situation in which relationships of trust and cooperation cannot be developed with the opposition parties such as the LDP and New Komeito. Irrespective of whether it is a coalition government of the ruling party and the opposition parties, or supporting the government party from outside the Cabinet, it is clear what stance the ruling party, the DPJ, should take: sincerity rather than secret intents, thoughts rather than speculation, philosophies rather than evil thoughts, persuasion rather than refutation.

The Diet is the only national legislature. If we return to this principle, it should be the outcome of teamwork of the government and the Diet that the ruling party and opposition parties discuss bills submitted by the government/ruling party, and improve them in the Diet.

For discussion on the nuclear disaster compensation bill, which was an important bill in the Diet, one factor in achieving enactment is that the opposition parties presented a constructive counterproposal and the DPJ accepted it from the beginning and worked on the discussion for revision.

“The Diet exists for the opposition parties” is truly a wise remark. Though it depends on the case, it can become more important for the ruling party to make a compromise. The competence of the Diet’s members is tested in the revision of bills in the Diet. High-quality contents are called for in the discussions of the committee. If we do so, the divided Diet will provide an opportunity for the Diet to recover its original function.

The premise for holding discussions between the ruling party and opposition parties is review of the DPJ’s manifesto from the 2009 election of the House of Representatives. Its election promises, including child allowances, free tuition for high school, free expressway tolls and the individual-household income compensation system for farmers, are each meaningful. However, it is also true that the circumstances surrounding people’s lives and the economic situation were significantly changed before and after the unprecedented disaster.

Two years have passed since the change of government. We have reached the turning point until the term of the House of Representatives ends. I believe that thorough discussion needs to be held within the party and the manifesto needs to be reviewed, without exception. It is a matter of prioritizing policies and the means by which we proceed, rather than discussion on whether or not we pursue them. For reaching conclusions after these thorough discussions, it is essential to be united within the DPJ. We should clarify facts without being deceptive, to what extent they are feasible, why they cannot be achieved, and then we should accept criticism.

I also would like to redefine “political leadership,” which is regarded as the banner of the administration. At the end of the LDP’s administration, we as the DPJ pointed out that the LDP put most policy planning and development under the bureaucrats’ charge. The LDP administration recognized this as negative and revised the system so that the three highest-ranking ministerial officials could take leadership in the ministries and government offices. I think that we could change to a government that has some tensions.

The method in which the three highest-ranking ministerial officials make decisions on important matters should be firmly established. However, it is fruitless for the government and bureaucrats to squabble about the initiative. Unless we make the best use of bureaucrat organizations that are expert groups, we cannot in reality implement administration. It will also be impossible to collect necessary information and options for making decisions. While clarifying the division of roles, the government should leave necessary tasks to them and take responsibility for important decision making. It is important to thoroughly implement reasonable operation of the organizations.

24 years of stump speeches as the starting point

History proved the failure of socialism in the 20th century. So then, what about the new liberalism that swept the world after the end of the Cold War? Leaving everything to the markets resulted in an uncontrollable state ending in collapse, and we learned that markets were not almighty.

The important point is, after all, moderation or the middle way in politics. This does not go to the extremes of socialism, and is not at the mercy of market principles; it is a way to methodical realism. In attempting to stand up after the disaster, the Japanese government must not brag about a grand plan, nor excessively slip into a pessimistic “small Japan policy.” We need to be calm and steadily take action, adjusting to reality.

Honestly, I am an ordinary person. Unlike hereditary members of the Diet, I do not have strong financial power or sophistication, nor are my looks appealing. However, I am proud of making the most early-morning speeches among serving politicians.

On October 1, 1986 I spoke in front of a train station for the first time. Since then I continued to stand and speak in the area around Funabashi Station for 24 years until the day before I assumed the post of Finance Minister. If I gave a speech one more day, I was able to advance, even by half a millimeter. If I neglected it once, I would suffer a setback rather than maintaining my place. Therefore, even if I worked until late the previous night or I was not in good shape, I stood there. Particularly when scandals occur or accountability is questioned, I must not run away. It is important for politicians to keenly realize people’s senses, and face them. That’s what I learned from making speeches early in the morning for 24 years.

Therefore, I truly understand how disappointed all of you voters are after calling for a change of politics through the change of power in August two years ago. I am also responsible for it since I hold an important position after the change of power. Nevertheless, please count on us once again. I would like you to see the DPJ bounce back based on reflecting over the two years. If we look at the current situation of the devastated areas, there is no time to dissolve the House of Representatives and hold a general election. The ruling party and the opposition parties must now conduct serious discussion and create a new Japan.

In April after the disaster, I visited the devastated areas in Miyagi and Fukushima. While driving national route 6, I saw cherry trees in full bloom in the desperate scenes surrounded by mountains of debris. For me, it seemed that the soul of hope of the senior generations that overcame the hardships in the Meiji, Taisho and Showa periods inhabited those cherry trees.

Japan will surely recover. I am confident that if we work together we will be able to overcome the crisis.

Translated from “Waga seiken-koso-imakoso ‘chuyo no seiji wo’,” Bungeishunju, September 2011, pp. 94-103. (Courtesy of Bungeishunju Ltd.)
Note: This article was written when the author was Financial Minister.