It’s time for the Japanese bureaucracy to go

The Tohoku disaster is a microcosm for the entire nation.  The problems in Japan have reached the point that the Japanese government can no longer function for the benefit of its citizens – not that it has for decades.  The current situation will make it increasingly impossible for the government to cover up its mistakes and its obvious desire to hold onto power at whatever costs to taxpayers.  The Tohoku disaster, the massive debt, and the ongoing Fukushima crisis have sealed the fate of the government and the nation…unless the government is reformed.

And we aren’t talking about a cosmetic reform designed to deceive the public.  People and personalities need to leave.  Access by special interests have to be shut off.  The system of hiring bureaucrats must be scrapped.  Entire ministries should be shut down.  The central bureaucracy has to be slashed, its power given to prefectures.

The current model has reached its end.  It is non-functioning.  It is a leech on the Japanese economy and its society, a parasite that is killing the host.

The problem is, governments in the western world — and I’m not singling out the US  — they have grown like a cancer. And now they protect themselves to stay in power and they have a variety of alliances

The Tohoku disaster draws a line in the sand.  There are solutions available but the central government is unable or unwilling to see them.

(Miyagi Governor Yoshihiro) Murai’s eye is already on something much larger and more daunting, however: turning Miyagi’s 120 miles (200 kilometers) of wrecked coastline into the country’s most attractive investment spot. Murai says he wants to create a model economy in Miyagi that could be replicated in Japan’s 46 other prefectures.

Japan as a nation, like Miyagi and the region that surrounds it, Tohoku, cannot afford to return to its pre- disaster trail of deflation and debt, he says in an interview during his Tokyo visit four months after the March 11 disaster.

If things continue along the same path, Japan will sink,” he says.

Unfortunately, the people who have overseen the decline in Japan can not be trusted to provide the solutions, mainly because they will not cede their power on their own accord.  And that makes all possible solutions impossible.

Against that backdrop (the two lost decades and the March 11 disaster), policy makers long ago lost hope that domestic consumers and businesses would drive growth. Instead, the country banked on exporters such as Toyota Motor Corp. and Nintendo Co. to keep the economy ticking.

Yoshihiko Noda, whose selection as prime minister was confirmed by Emperor Akihito on Sept. 2, has inherited those two lost decades, a yen that’s surged about 50 percent against the dollar in the past four years and a benchmark interest rate that has long stood near zero percent.

Murai’s prescription for Japan’s malaise is in line with what many critics of government policy have recommended. For years, economists have urged the central government to transfer power and grant more autonomy to local authorities, ease regulations that stifle business, wrest control of the nation’s farms and harbors from the powerful agriculture and fishery cooperatives and cut one of the world’s highest corporate tax rates.

We have been touting these solutions for nearly two years.  They are not revolutionary, except to the current status quo.  They are sound economics and common sense.

Tailored to Miyagi, Murai’s recipe for rebirth is built around deregulation and tax incentives. He says he wants to eliminate the barriers that have prevented bigger businesses from investing in agriculture and fishing industries that because of regulation and tradition have been dominated by big cooperatives made up of independent fishers and farmers.

He wants to create manufacturing hubs for cars and high- tech electronics and machinery by offering tax holidays and government subsidies. And he wants to ease about a dozen urban planning and environmental laws that he says currently stand in the way of building in a timely fashion factories that would create jobs.

We disagree about the subsidies and the tax holidays.  Subsidies lead to corruption and do not allow market forces to work effectively.  As for tax holidays, tax cuts should be permanent and across the board.  But at least he’s trying.

Miyagi’s plan is in essence the making of an open economy,” says Masaaki Kanno, a former senior official at the Bank of Japan (8301) and now chief economist at JPMorgan Chase & Co. in Tokyo. “This isn’t just about Tohoku. These are reforms needed everywhere in the country.

This sort of structural change will not come easily for Noda, says Takuji Okubo, chief Japan economist at Societe Generale SA in Tokyo.

“He cannot push reform policies,” he says. “I think he’s more focused on fiscal policy, and I don’t think he would want to make many enemies by pushing these reforms.

No one can push reforms because the bureaucracy is too powerful for politicians.  The people keep hoping that politicians will reform the government but, the truth is plain, the people must force reform because the politicians are powerless.

Labor’s expensive, land’s expensive, taxes are high, regulations abound,” Murai says. ’’We’re strangling ourselves with our own restrictions. Of course foreign companies don’t want to come to Japan.’’

By eliminating barriers — to foreign and Japanese companies alike, “thoroughly, one by one” — Murai says he hopes to win back some of the businesses that have drifted to neighbors such as South Korea in recent years.

“All it takes is one success model,” Murai says. “If we can just get one test case where people say tag teaming with companies went well, that young people are coming back, that the harbors are lively again, all the other regions carry the same problems. When they want to change, too, they can come check out Miyagi. Those reforms can spread throughout the country bit by bit.

In fact, Japan has lost the window of opportunity to reform “bit by bit.”  It needs radical and decisive reform.  It does not need to globalize or depend on its exporters or raise taxes on productive people to pay for political and bureaucratic socialist agendas.  It does not need to join the US-led TPP or give away its food security to Southeast Asia.  It simply needs to rid itself of the corrupt and controlling bureaucracy and allow the Japanese people – and most especially, the Japanese youth – to rebuild the Japanese economy through free market concepts.

There is no easy way out for Japan.  However, given the stranglehold that the bureaucracy has on the economy and the society, there is no way out for Japan unless the bureaucracy is reduced to a shadow of its current self and tasked with serving the public instead of serving itself.  This should be the target of anger and of protest.  We reiterate our call to leave one’s political agenda at home and focus on the bureaucracy.  There will be plenty of time for politics after Japan is freed from this tyrant.

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