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Japan's crisis deepens

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Japan's economy is sinking into stagnation, Michael Gatter examines why

The resignation of the Japanese Prime Minister Morihiro Hosokawa on 8 April has thrown the Japanese political establishment into confusion and paralysis.

It is a sign of the explosive contradictions, both economic and political, that are facing Japanese capitalism.

With growth rates of 1.3% in 1992, zero in 1993 and a projected 0.5% in 1994, Japan is in its worst crisis since the war.

Only 65% of its manufacturing capacity is being used. The rate of profit has been declining for four years and last year there were high levels of company bankruptcies every month. Japanese capital is heavily indebted. ¥359 trillion in new debts brought overall corporate debt to 145% of Gross Domestic Product in 1992. Japanese capitalism is living on borrowed money and borrowed time.

Japan’s main economic rival, the USA, has used the recession to improve its own trade and productivity performance. The USA has now managed to draw level with Japanese productivity in most hi-tech industries.

These problems have shaken the Japanese bosses. Yomiuri Shimbun, Japan’s biggest newspaper, is typical when it declares:

“Japan faces the worst crisis in its history”, and that the country “could face a downfall comparable to the eclipse of the ancient city of Carthage.”

The ruling class recognise that they now need to transform the country’s whole economic and political framework. While the present political and economic regime was useful in the post-war period, it has become anachronistic in the face of new and changed conditions (See below).

On the economic level the programme of the bourgeoisie is clear: deregulation, cutting corporate taxes to support investment and, of course, low wages. State intervention is now seen as an expensive and overbearing barrier to business flexibility.

The state regulates, directly or indirectly, as much as 40% of GNP. Ministries have imposed more than 11,400 rules and regulations. One Japanese economist claims that this is why prices in Japan are 33% higher than in the USA, Britain, France and Germany. With declining profits and a narrowing market this is intolerable for the capitalists. A commission was set up to draft a proposal to reduce regulations by 10%. It is unlikely that they will succeed.

Meanwhile, this year Japanese workers got their lowest wage rise since the mid-1950s, a mere 3%. Bonuses, which form an important part of income (accounting for several months’ pay) were not covered. Even with an inflation rate of 0.5% to 1%, real wages will not be rising at all.

In a desperate attempt to stimulate the economy, the government has introduced four reflationary packages of over $400 billion in the last 18 months. These are mainly public works projects, but also include business loans and the writing off of bank debts. The last package in February also included an annual income-tax cut of $55 billion. This is aimed at raising purchasing power, particularly for the middle class, to stimulate the economy.

While the majority of the bosses are still not prepared for the scale of attacks on the working class that are necessary to boost profits, a growing number recognise the need to smash up the system of jobs for life that protects a large minority of workers in the big companies.

But many bosses also fear a breakdown of the “co-operative” tradition which has created a strong sense of loyalty among the workforce. As the Nikkei Weekly put it:

“Japan’s lifetime-employment system may be facing its most crucial test since the Second World War, but a majority of personnel managers at Japanese corporations still want to maintain this traditional system.”

That is why the bosses did not attack this system in the last shunto, the annual spring wage negotiations. But more and more big companies like Honda are being forced to sack workers and to hire new blue and white collar workers on limited contracts. To win a greater share of the world market, the Japanese bosses need to tear up their entire job protection system.

The political project of many ruling class strategists goes well beyond a neo-liberal economic programme. Their slogan is, “Japan must become a normal country”, by which they mean a normal imperialist power, with all the political and military clout that involves.

In their famous book The Japan that can say No, the bourgeois writer Ishiharo and Sony boss Morita argue for Japan to build up its armed forces, become a nuclear power in the longer term and get a permanent seat on the UN Security Council. Their goal is to make Japan the dominant power in Asia.

In 1991 Japan’s exports to Asia outstripped exports to the USA for the first time. Huge investments are flowing in the same direction, particularly to China and Hong Kong over the last six months, where cheap labour is readily available. The present tug of war with US imperialism over access to the Japanese home market reflects both the growing strength of the US economy and the increasingly confrontational attitude of the Japanese bourgeoisie to its rivals. Nevertheless the majority of the bourgeoisie is not yet prepared for a full scale trade war with the USA and they are likely to compromise.

Meanwhile the way to political and military domination of the Asian market is littered with serious obstacles.

The constitution restricts defence spending to only 1% of the whole budget. There is a mass pacifist opposition to militarism. That is why conservative forces have until now been unable to put a militarist policy into practice. In the latest budget defence expenditure has in fact been cut. Cautious steps to strengthen Japanese involvement in UN foreign operations like Cambodia met with sharp public criticism, particularly after two armed Japanese policemen were killed.

The prelude to the transformation of the Japanese economic, political and military system has been the breakup of the traditional ruling party, the Liberal Democrats (LDP).

The LDP ruled Japan for nearly 40 years. It became utterly entwined with all the worst features of the old system: the huge ministerial bureaucracy, the massive corruption and the relatively restricted autonomy of the government as an executive body of the whole bourgeoisie.

This resulted in several splits from the LDP last year and the formation of new bourgeois parties—particularly Ozawa’s Shinseito (Japan Renewal Party), Hosokawa’s Japan New Party (JNP) and Takemura’s Sakigake (New Harbinger Party). Together with other bourgeois opposition parties and the reformist Social Democratic Party, they formed a coalition government.

While they agreed on the reform of the election system, it soon became clear that these parties are divided on the key questions of Japan’s future.

Ozawa formed a block with Komeito, another conservative party linked with a very rich big Buddhist sect, and brought in Hosokawa’s JNP. This block represents the most far-sighted faction of the ruling elite who are determined to strengthen Japan’s role as an international political and military power, to push through the deregulation offensive at the expense of the working class, and to build a new, united conservative party.

The Social Democratic Party (SDP), which has close links to the trade union federation Rengo, Sakigake and the Democratic Socialist Party, represents a more moderate sector of the bourgeoisie. They are unwilling to break with Japan’s pacifism (opposing an aggressive policy towards North Korea), and they blocked Hosokawa’s attempt to impose a new income tax in February. With the conservatives divided in several parties, the SDP constitutes the biggest party in the coalition.

Hosokawa’s corruption scandal was just the trigger for his resignation. The real cause was stalemate inside the government. If Foreign Minister Hata is appointed Prime Minister it would represent a clear victory for Ozawa’s strategy. But it would not put an end to conflict within the government. The “new conservatives” and possibly also the moderate bourgeois forces will continue to form new alliances. Sooner or later the government will split and a new election could resolve divisions in the bourgeois camp.

The Japanese working class needs to take advantage of the divisions within ruling class politics to launch a fightback now. However the bosses try to resolve their problems in the short term, the impending challenge to the post-war consensus will involve massive attacks on workers’ conditions, job security and living standards.

This in turn will create conditions both for a resurgence of class struggle in Japan, and for the creation of a revolutionary party of the vast Japanese working class.n

Economics of the crisis
The entire model on which Japanese capitalism developed after the Second World War has been revealed as a cul-de-sac. Japan is probably the most developed form of state monopoly capitalism, a very close network linking the large monopolies and the state bureaucracy.

This system enabled the Japanese capitalists to co-ordinate the rebuilding of their industrial infrastructure after the war.

As Nikkei Weekly, the mouthpiece of the Japanese bosses, put it last month:

“To help Japan to rebuild itself after the war, institutional frameworks were set in such a way to mobilise all financial resources. People were encouraged to save, and these funds were channelled into industry. Taxation, fiscal programs, monetary policy and all other means were directed at the strengthening of the corporate sector.”

At the core of the system lies the intensive exploitation of the working class. Japanese workers’ wages are historically low compared to those of Western workers.

Today capital expenditure stands at 23% as a proportion of Gross Domestic Product (GDP), compared to only 11% in the USA. Whereas between 1979 and 1990 labour productivity grew by 0.5% in the USA and 2.2% in Europe, it rose by 3.0% in Japan over the same period. This is why profit rates—the levels of return on investments—were much higher in Japan than in any other major imperialist country after the war.

But now the system has gone into crisis.

The rapid introduction of new technology and the widespread application of the most modern plant, equipment and machinery, means that each Japanese product embodies less and less human labour-time.

Japanese companies have been able to produce consumer goods quicker and more cheaply that their competitors. But this also lies at the heart of Japan’s mounting economic crisis.

Profits are derived from the labour of living human beings alone. The more living labour is replaced by machinery, the greater is the tendency for the rate of return on investments—the rate of profit—to fall.

This is what has happened in Japan. It has added to the existing problems of the Japanese capitalists, and is the main impetus behind their drive for a greater share of the world market.

The Japanese domestic market is very limited compared to most advanced countries. Low wages and a poor state welfare system result in low levels of private consumption.

What is more, individuals and families have been encouraged by the state to save a high proportion of their earnings, which depresses consumer spending.

With their home market so weak, the Japanese bosses have to defend it against foreign competitors. The upshot has been a strong tendency to rely on protectionism on the one hand, and on the other hand the limited domestic market provided the impetus for a tremendous export offensive, first of goods and later of capital.

But falling profit rates are not just a Japanese problem. It is a world phenomenon. United States and European Union capital also have an interest in protecting their markets from Japanese imports. Thus trade rivalry is mounting.