Tuesday, September 20, 2005

Small government proponents just won an overwhelming electoral victory. But it was in Japan rather than the United States.

In just-completed elections, Prime Minister Junichiro Koizumi won two-thirds of the seats at stake in the Diet or parliament, running on a platform of cutting government bureaucracy and smaller government and less spending.

It was not just talk. For four years, he restrained government spending and even eliminated many large popular public works projects, indexed and increased employee contributions to politically sensitive pensions, and allowed private firms to compete for government functions.

His banking reforms cut in half the glut of $480 billion in bad debt, and he started privatizing the bloated post office with its 380,000 employees and $3 trillion in small deposits, more funds than the combined total in the four largest private banks.

Mr. Koizumi’s critical and gutsy decision was to go to the voters when the upper house of the Diet vetoed his plan to privatize Japan Post. He dissolved parliament and called for new elections, saying, “Let the people decide.”

With Japan’s large government sector headed by the massive postal service, its many government employees and the scores of millions who depend on government benefits, the political experts predicted defeat or at least fewer seats.

Yet, after four years of such “unpopular” reforms, he won 61.7 percent of the seats, plus 31 more from a coalition partner.

The Koizumi program is revolutionary for his very traditionalist nation. Not only will he complete the postal privatization, he will toughen its provisions before passage, which is assured. He will look for additional privatization opportunities. He will extend his social security reforms.

Most important, he plans to decentralize the national bureaucracy and give more power to local governments, a first in this historically authoritarian, top-down nation.

How did this happen in a country wallowing in stagnation since its asset bubble burst in the early 1990s? Unlike in the U.S., real estate broke together with the securities market and created trillions of yen of private-sector bad debt, with government income falling rapidly against expenses.

Fifteen years of little or no growth followed. As a result of Mr. Koizumi’s reforms over the last four years, however, growth of 2 percent was recorded in 2003, 2004 and 2005 (so far). In other words, the voters thought the reforms worked and rewarded its author and his Liberal Democratic Party.

Incredibly, he even convinced some civil servants. A career bureaucrat at the Economy Ministry told a reporter: “Koizumi wants smaller government and I realize my own job may at some point be in danger. But Koizumi is a strong leader determined to reform Japan and the people are behind him. I don’t think we have another option. It needs to be done, and Koizumi is the only one who can do it.”

A subtler factor was that Japan, like most of the rest of the more developed world, has long had a very low birthrate. After 2006, the population will start declining. Twenty percent of the population is older than 60 and the average age is quickly moving upward, making the work force less productive and providing fewer available for work at all, drawing heavily on already fiscally strained pension and health programs.

Rather than ignore economic estimates that this would seriously limit future economic growth, Mr. Koizumi took hold and proclaimed smaller future populations made it more essential to reduce government and rely more on the more efficient private sector.

Republicans today are convinced government must spend its way out of problems or they will lose power, with Katrina only the latest example. In contrast with Japan, America’s Republican president and Congress have in the same time privatized nothing of note, and domestic discretionary and entitlement spending have exploded more than under any recent Democratic president. At the same time, elections were been won with razor-thin margins and presidential and congressional public support is the lowest since the GOP came to power. But it will get worse.

Like it or not, America’s aging population will explode entitlement spending over the next dozen years or less and the U.S. will look like Japan. George W. Bush will be long gone.

Republicans can ignore the coming fiscal crisis, as did Mr. Koizumi’s predecessors, and ultimately face another repudiation like Herbert Hoover’s in 1932. Or they can be like Ronald Reagan and explain to voters that big government is the problem and must be reduced to guarantee prosperity.

The next generation of American leaders could do a lot worse than relearn the rewards of principled leadership from the courageous prime minister of faraway Japan.

Donald Devine, former director of the U.S. Office of Personnel Management, is a professor at Bellevue University, a columnist and editor of www.ConservativeBattleline.com.

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