LDP R.I.P.?

Clever tactics may keep Japan's Liberal Democratic Party in power a while longer, but its days are numbered.

No matter how well entrenched political regimes may seem, once they lose their raison d'etre, they sooner or later lose their etre. So it was with dictatorships like the Communist Party of the Soviet Union, and the authoritarian "developmental states" of South Korea and Taiwan. So it has been with one-party democracies like Italy under the Christian Democrats and Sweden under the Labor Party. And so it will be with Japan's one-party democracy under the Liberal-Democratic Party (LDP).

In all likelihood, the death throes of LDP rule will continue for several

more years, passing through several episodes of political realignment. There is not yet a group of opposition parties capable of displacing the LDP in an election. The most likely scenario for eventual LDP downfall is another split or series of splits -- like the one that temporarily dethroned it in 1993 -- as conflicts of interest among the LDP's assorted constituencies become more severe.

That is not a near-term prospect. The LDP should come out of this year's elections for the Lower House of the Diet, the house that names the prime minister, still holding onto power via a coalition government. Prior to Prime Minister Keizo Obuchi's stroke, the LDP was widely expected to lose as many as twenty or thirty seats. It's not Clear how much the sympathy factor will alter that prospect. In any case, even if the LDP does lose its own majority, the coalition as a whole is expected to retain a majority.

These short-term twists and turns affect only the timing and form of Japan's political transition -- not the ultimate destination. Japan's political system is an anachronism. Japan is the only advanced industrial country that remains a one-party state: The same party (including the LDP's predecessor parties) has ruled for all but two of the fifty-five years since the end of World War Two.

In the past, LDP rule served Japan well. It kept Japan in the Western camp during the Cold War and it created the political coalition underlying the economic miracle. Today, however, the LDP stands in the way of the political-economic reform required to restore economic vibrancy. If Japan hopes to reform, it must move to genuinely competitive politics where parties alternate in power. Ultimately, Japan's economic crisis is a crisis of governance -- in both companies and government. It cannot be cured without reforming the system of governance.

A few years back, the idea that Japan needs fundamental reform may have been a minority view. Now it's conventional wisdom. The current debate is whether or not the LDP can serve as the vehicle for that reform. Since hope springs eternal, both Prime Minister Ryutaro Hashimoto and Keizo Obuchi were initially the objects of much wishful thinking. While Hashimoto at least recognized the need for some reform, the Obuchi Administration certified that the LDP could not implement reform even if it wanted to.

Yes, many of the LDP's core constituents, such as exporting industries and urban salaried employees, would greatly benefit from reform. Yet many of its other constituencies -- from farmers to mom and pop retailers to construction firms -- would be targets of reform. Backed by such interest groups, 180 LDP Diet members (a majority of the LDP delegation) have formed a caucus that aims to roll back even the mild reforms and deregulatory measures already instituted. Indeed, the stronger the LDP feels, the more it abandons even the pretense of reform. Tellingly, Obuchi's successor, Yoshiro Mori, is a member of the anti-deregulation caucus. When Michio Ochi, then chairman of the Financial Reconstruction Commission (FRC), was forced to resign after offering to protect rural credit unions from strict FRC inspections, Mori defended Ochi's statements.

The LDP's dilemma is inescapable: If it makes a determined effort to institute reform, it will tear itself apart. And yet failure to enact reform has the same effect. Either way, large parts of its voter and money base will be alienated. That's why there is now an increasingly open debate between the proponents and opponents of reform. That's why the LDP wavers, appearing to promote reform one day while backing off the next. It hopes against hope that mere tinkering and the deus ex machina of a private investment boom will solve its dilemmas for it. Such indecisiveness is the classic symptom of a regime in trouble. On the other hand, the emergence of public policy debates -- and not just backroom deals -- is a healthy sign of political evolution.

For decades, the LDP successfully ruled as a "catch-all coalition," encompassing both the efficient and inefficient sectors of Japan's "dual economy." Initially, it both promoted economic growth and mediated the transfer of income from the efficient to the inefficient. From the mid-1970s onwards, the latter role predominated. The LDP helped create massive disguised employment via regulations, pervasive private cartelization, and high prices that protected the backward sectors. As long as growth was high enough, this political formula worked. But decades of protecting the inefficient sectors of the economy ultimately means that the economic pie is no longer growing fast enough to share a slice with everyone. Hence, conflicts of interests are growing.

City taxpayers object to their tax dollars being used to bail out credit institutions tied to the LDP-allied farmer cooperatives. They object to the hikes in consumption taxes imposed to support the growing ranks of the elderly -- tax hikes the Finance Ministry demands because slow growth means a lower tax base. In turn, the aged resent the zero interest rates being used to bail out the banks, because that means drastic cuts in their insurance annuities, pension programs, and savings income. Meanwhile, farmers, retailers, taxi drivers, construction firms, and a host of other interest groups resent losing the traditional protections/subsidies on which they relied for so long.

These conflicts have already eroded much of the LDP's power. The erosion began in 1989, when for the first time in four decades, the LDP lost its majority in the Upper House of the Diet, the weaker of the two houses. It has never since regained that majority.

Then in 1993 -- amidst economic stagnation, chronic corruption scandals, and popular demands for political reform -- the LDP split. In the subsequent elections, it lost its majority in the Lower House and fell from power for the first time in four-and-a-half decades. It did regain power a year later, mostly due to internal squabbles within the opposition coalition. But doing so required allying itself with its Cold War adversary, the Socialists. Since then, the LDP has not been able to rule except in coalition with one or more of the former opposition parties.

In the 1998 elections for the Upper House, the LDP was soundly thrashed by an anxious electorate. It lost seventeen seats, including every single contested seat in the major cities.

Thus, while single-party rule continues, single-party dominance is already over.

With so many of the fundamentals going against the LDP, why has it been able to remain in power for so long? Several factors aid the LDP.

First is the election system itself. Crass gerrymandering still gives disproportional weight to rural districts where the LDP is more popular. In addition, according to the electoral changes enacted in 1994, 300 out of 500 seats in the Diet are selected by voters choosing a single candidate in their own district, while the other 200 are elected through proportional representation (soon the PR portion will go down to 180). Since small parties can win seats in the Diet through PR without winning in any single district, they have the incentive to remain independent. But of course that divides the opposition vote in the single-seat districts. The upshot is that in the last Lower House election in 1996, the LDP gained only a dismal 33 percent of the vote in the PR section, while its 39 percent of the vote in the single-seat portion was enough to win it 56 percent of the 300 seats contested there. In other words, the election system is calculated -- that is, literally calculated with computer simulations -- to enable the LDP to win with a relatively small share of the vote. The trick is to keep the opposition parties divided. Ironically, Morihiro Hosokawa's reform administration promulgated the new election system in 1994 as a "reform" measure that would facilitate the creation of a two-party system. In reality, the compromise Hosokawa's coalition hammered out with the LDP was based on a plan developed by the LDP itself in 1990 as a way to stay in power with a minority of votes.

More important than these election gimmicks is the fact that the opposition still fails to offer a clear alternative. You can't beat somebody with nobody. Like the LDP, opposition parties like the Democrats are internally divided between pro-and anti-reform forces. Indeed, the banking reform battles in the fall of 1998 were not between parties but between allied reformers within the LDP and opposition and allied anti-reformers within the LDP and opposition.

Given the weakness, division, and disorientation within the opposition, the most likely near-term scenario is that an LDP-led coalition will continue to lead for a while. The LDP goes into this year's elections for the Lower House with a slim 18-seat majority (268 out of 500). A coalition with the New Komeito Party (48 seats) -- a party allied with a highly disciplined Buddhist lay organization -- and the new Conservative Party (20 seats) brings the coalition as a whole to a substantial majority of 336. The coalition can afford to lose many seats and stay in power -- as long as it sticks together.

But both LDP support and coalition unity are fragile. The LDP's opportunistic alliance with the New Komeito has alienated many LDP supporters, who distrust religious control of a political party. Moreover, since much of the New Komeito's base lies in the small business firms who would be the targets of reform, the LDP's increased dependence on the New Komeito shores up the LDP's anti-reformist elements. New PM Mori was one of the engineers of the alliance with New Komeito. Already, the LDP-New Komeito alliance has had some fallout. It led to breakup of the LDP's former alliance with Ichiro Ozawa's Liberals. The new Conservatives are breakaways from the Liberals who decided to remain allied with the LDP. All of this political "musical chairs" should be seen as another episode in the long, drawn-out process of realignment.

Meanwhile, the fastest growing part of Japan's electorate consists of the "floating voters" those who support no party at all. An Asahi Shimbun poll conducted prior to Obuchi's stroke showed LDP support at 30 percent, a lot more than the 12 percent who supported the Democrats, but far less than the 40 percent of voters who supported no party at all. Fifty-three percent of the voters said they hoped the LDP would lose the Lower House elections.

Nor are the LDP's own Diet members as loyal as in the past. After the LDP fell from power in 1993, a couple dozen LDP Diet members defected to the opposition coalition. When the LDP returned to power, so did (eventually) the defectors. This pattern can be expected to repeat in the future.

Clever tactics can keep the LDP in power for a while, but it cannot do so indefinitely. The gap between the political and economic needs of the country and the LDP's ability to respond to those needs is simply too large.

For the immediate future, the most likely scenario is that a weakened LDP-led coalition will remain in power, and will continue attempting to "muddle through" while giving lip service to reform. This, however, is a recipe for continued economic malaise, more political friction among different sections of the LDP base, and ultimately a new electoral crisis for the LDP down the road.

Richard Katz, Senior Editor of The Oriental Economist Report, is the author of Japan: The System That Soured (M.E. Sharpe, 1998), published in Japan as Kusariyuku Nihon To Iu System (Toyo Keizai Shimposa, 1999).