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A Japanese Le Pen?

By PETER TASKER

What happens when technocracy fails? France provided one answer -- with the strong showing for far-right candidate Jean- Marie Le Pen in the first round of presidential elections -- and Japan may soon provide another.

The two countries have much in common. Both are remarkable postwar success stories. Both developed economic models with strong dirigiste and mercantilist tendencies. Both are governed by a small, highly-trained elite -- in the French case graduates of the Ecole Nationale d'Administration, in the Japanese case graduates of Tokyo University's law school -- who move effortlessly from the public to the private sector.

Both elites have been put on the defensive by globalization, which they regard not just as an economic challenge but as an assault on their cultural autonomy. In both France and Japan , government bureaucracy is still the natural home of the nation's best and brightest, and anything that constrains its huge discretionary power is to be viewed with deep suspicion.

The similarities don't stop there. Both countries have political leaders who seem to stay around forever. Jacques Chirac first became prime minister of France in 1974, and is expected to win yesterday's runoff election for the presidency against Mr. Le Pen. But Mr. Chirac is still a spring chicken compared to Japan's minister of finance and central bank governor, whose combined ages exceed 160 years. Among the G7 nations, France and Japan also have the fastest trains, the most protected farmers, the most opaque banking systems, the tamest press and the most aggressive nuclear energy programs. These may seem like random details but are in fact manifestations of deeply rooted political cultures.

There are of course important differences. The French elite has come up with a clear answer to globalization: the European project. Japan's attempts to lead Asia have been stymied by its strategic dependence on the U.S. and the rise of China. Most importantly, France, despite its high unemployment, has continued to generate decent growth. In stark contrast, Japan's economy ground to a halt in the mid-1990s, and the elite has shown little ability, or even desire, to get it going again.

The deeper forces behind the rise of Mr. Le Pen in France are present in Japan . In both countries the establishment has ignored the public's feeling of insecurity. In France, this insecurity is due to the soaring crime rate, which Mr. Le Pen exploited by making law and order the central element of his presidential election platform. In Japan , the feeling of insecurity is purely economic, the consequence of a decade of asset deflation that has ravaged corporate balance sheets and sucked the life out of the financial system. Japan has a lost generation of people in their 40s and early 50s who bought houses during the past 12 years -- a period which saw prices in six major cities fall by a total of 60%. Not coincidentally, the suicide rate has risen by half over the same period, to 30,000 per year.

A year ago the administration of Prime Minister Junichiro Koizumi broke the mold of political apathy, winning unprecedented support from a public eager to see an end to the slump. But that initial support has since been squandered. Rather than rebuilding economic confidence, the government has instead chosen to place more priority on the Japanese elite's obsession with fiscal discipline and industrial competitiveness. The latest example is the proposals, from the ruling Liberal Democratic Party's tax council, to hike income taxes on low-income earners while offering research and development subsidies to the corporate sector. This follows plans to raise medical fees by 50%, leaving untouched the extortionate cost of prescription drugs. In Japan the share of generic drugs is less than one-third that in the U.S.

Even less likely to generate a "feel-good factor" is the government's insistence on removing blanket insurance on savings accounts while refusing to recapitalize the banking system. Although the index of bank stocks has fallen by 40% in the last year and now stands at an 18-year low, the Financial Supervisory Agency has just given Japan's banking system a clean bill of health. In a classic sign of public insecurity, retail demand for gold has been soaring.

A technocracy is a system where decisions are made by experts who think they know the public's best interests better than the public itself. Almost by definition they are unaccountable, charmless and out of touch with those they rule. Their one saving grace is that they get the job done. But what happens when the job doesn't get done -- when the financial experts turn out to be incapable of stabilizing the financial system, when the economic experts prove to be incapable of creating economic growth? The answer is that credibility evaporates, leaving only a vacuum.

Could a Japanese version of Mr. Le Pen fill that vacuum? If so, it would be quite unlike the original French version. In his famous study of Japan's prewar slide into totalitarianism, political scientist Masao Maruyama pointed out the substantial differences between Japan and the European fascist countries. There was no fascist revolution in Japan , no mass political movement, no Adolf Hitler intent on forcing his will on the world. Instead the entire establishment gradually morphed from mild authoritarianism to delusive ultranationalism.

Contemporary Japan is not going to be thrown into chaos by the equivalent of a street-fighting ex-paratrooper like Mr. Pen. More likely the shift would be led by well-connected members of the establishment and the whole system would smoothly adjust to an antiliberal, nationalistic agenda. Without watching closely it might be difficult to see it was even happening. Recent straws in the wind are Mr. Koizumi's visit to the controversial Yasukuni Shrine, power broker Ichiro Ozawa's breaching of the taboo on discussing the possibility of Japan having nuclear weapons and Minister of Finance Masajuro Shiokawa's denunciation of foreign rating agencies and the International Monetary Fund.

Mr. Koizumi may have failed to change the substance of Japanese politics, but he has certainly changed the style. With his world-class haircut, Elvis fixation and samurai movie one-liners, he has ushered in a new era of personality politics. His axing of former Foreign Minister Makiko Tanaka, the stunning fall from grace of his comrade-in-arms Koichi Kato (the LDP's former secretary general), the almost weekly eruption of new political scandals -- these mini-dramas are being devoured by the public with a mixture of delight and disgust. Whoever comes next will need to have a strong theatrical instinct, something quite alien to the traditional back-room fixers.

The man most likely to fulfill the role is Shintaro Ishihara, the dyed-in-the-wool nationalist who authored "The Japan Who Can Say No." Apart from being immensely charismatic and telegenic -- he has his own chat show, and is the brother of the late Yujiro Ishihara, the Japanese equivalent of James Dean -- Mr. Ishihara has performed impressively in his current role as governor of Tokyo. A constant thorn in the side of the central bureaucracy, he has forced through a number of cost-cutting reforms.

If Mr. Ishihara were to reach the premiership, the wave of popular enthusiasm would make Koizumi-mania look like a storm in a sake cup. The short-term economic effects would probably be beneficial, since Mr. Ishihara would be sure to avoid the mistakes of his predecessor. Public confidence would rise, so would stock prices. But the long-term effects would be a different matter. Japan's most important relationships -- with the U.S., China, Russia and Korea -- would be on very rocky ground.

None of this is pre-ordained and it is not too late for Japan's elite to move to address the public's insecurity. What is needed is a complete change in priorities -- in favor of aggressive reflation and growth. Unless that happens Japan is heading for a period of political turmoil that will affect the entire region.

Mr. Tasker is strategic director of Arcus Investment, a London-based fund management house specializing in Japanese securities.

Updated May 6, 2002