Wednesday, January 27, 2010

Japan Political Problems

We list some of the headaches facing Japanese Prime Minister Yukio Hatoyama, elected with such hope for “change we can believe in” just 5 months ago:

1. Ichiro Ozawa [picture]. Politically brilliant, Ozawa in 2003 made over the Democratic Party of Japan (DPJ) into Japan’s main opposition party, after leaving the Liberal Democratic Party (LDP) ten years earlier and engineering the LDP’s brief, spectacular, departure from power in that year. Ozawa is the individual most responsible for the DPJ’s resounding election victory last August. The victory was big partly because Ozawa was smart enough to make Hatoyama the premier-designate, while he stayed in the background. But as DPJ secretary general today, Ozawa is still too visible, due to his latest brush with scandal over a shady 2004 land deal, currently under investigation. Ozawa: can’t live with him, can’t live without him.

2. Hatoyama’s tail. Ozawa’s problems would cause the DPJ less heartburn if it weren’t for Premier Hatoyama’s own troubles with old-style financial subsidies. Hatoyama is struggling to explain how he legally absorbed large gifts from his mother over several years into his government-monitored campaign fund. It all looks sooo LDP.

3. U.S. bases. The Japan-U.S. military realignment agreement of 2006 saved the U.S. marine air base in Okinawa at densely-populated Futenma with a plan to move it to the more remote USMC Camp Schwab in Nago. But on Sunday, Nago elected a new mayor who campaigned against the town's base-friendly incumbent, specifically pledging to prevent the move. Hatoyama unfortunately during last year’s national campaign made a similar promise to Okinawa—elect him, and he would renegotiate the 2006 agreement. Right now, Hatoyama has a big U.S. relations problem, the kind Japanese prime ministers usually strive hard to avoid.

4. Shrinking country. Japan’s Health Ministry reports the country’s population decline is accelerating. To October 2009, births are 22,000 less than in 2008 and deaths are 2,000 more. Deaths are their highest since 1947 and recorded the 9th straight yearly increase. Japan's population shrunk by 75,000 last year, 1.46 times the 2008 decrease. This trend will continue to accelerate, since the rising death rate is accompanied by a decline in the number of childbearing women. Japan's population will dip below 100 million in 2046, below 90 million in 2055 and down to 44.59 million in 2105. The labor force and consumer markets will shrink, while social security costs for medical and nursing care services and pensions will grow substantially. Hatoyama’s administration plans to increase the child allowance and expand child care facilities, but paying for these counter measures means reworking the budget, executing tax reform and extracting money from business enterprises—not easy political tasks.

5. Non-competitive services. As Bill Emmott said in his Times article, governments have neglected the service-sector deregulation necessary to help that 70% of Japan’s economy.

Here, at least, there is room for optimism. Hiroshi Makioka from Bain & Company’s Tokyo office, is watching Japan’s service sector modernize in response to customer demand for more value for the money. Consumers will change when and how they shop in their desire to stretch their yen. Mostly smaller and medium-sized retailers are spending money and time to keep up with fast-changing customer needs, adding employees who talk with customers. putting managers on the floor, searching out new, less expensive products overseas, working with manufacturers on products and designs that meet specific customer needs, bringing sales to customers where they are, increasing delivery efficiencies, and building company cultures devoted to beating the competition.

The good news is Japan’s private sector seems to be moving ahead, not waiting for a Tokyo political miracle.

Japan as Number Three

The Times of London runs an article, “Don’t write Japan off.” The newspaper's headline unintentionally implies that we should.

Author Bill Emmott used to be the Economist’s Tokyo correspondent. Briefly, here’s Emmott’s case:

➢ China, 10 times Japan’s size, now displacing Japan as the world’s second largest economy is no more a big deal than when Japan, with more than twice West Germany’s population in 1970, displaced that country as economic #2.

➢ China’s economic development is good for Japan. China is already Japan’s biggest trading partner, Japan sells a lot more to China than it buys from it, and Japan’s surplus will grow even more with Chinese currency revaluation.

➢ an obsession with manufacturing at the expense of services is Japan’s main weakness. To help manufacturers, Japan created a two-tier labor market resulting in Japan’s being the only OECD country to increase its absolute poverty level in the past two decades. The second tier also provided service firms a pool of ultra-cheap labor.

➢ Japan has just begun a political revolution that has the potential to bring its economic strength back too. The new government wants to expand the pensions and welfare benefits that help labor and the poor, though that costs money the government may not have.

Wednesday, January 20, 2010

Handwriting on the wall.

The era of big government is over.

--President Clinton,
State of the Union, 1.23.96

Bill Clinton’s political future looked bleak in the aftermath of the Newt Gingrich-led sweeping take-over of Congress—Republican for the first time since 1952—in the 1994 midterm elections. Clinton recognized how the country’s mood had changed, hired Dick Morris from Republican Senator Trent Lott’s campaign team, moved his policies to the center, and going into his 1996 re-election campaign, pronounced “big government” dead.

After 1994, Clinton “got it.”

Bush 43 accepted Donald Rumsfeld’s resignation one day after Republicans lost the 2006 midterm elections. Recall, Bush had won in 2000, enlarged his congressional majorities in 2002, and won re-election in 2004. 2006 was his first loss. Bush correctly read the Republican defeat as a rejection of the Bush-Rumsfeld effort to prevail in Iraq with an undersized force (there were other failings, but Iraq was the biggest).

Bush removed Rumsfeld, removed Rumsfeld’s Iraq commander, brought in Robert Gates as Defense Secretary and Gen. David Petraeus as Iraq commander, and adopted Petraeus’ ultimately-successful Iraq surge strategy. To Bush, the goal was to prevail in Iraq, the 2006 elections told him he had to do better, and Bush responded positively.

After 2006, Bush “got it.”

What will Obama now do, now that elections in Virginia, New Jersey, and Massachusetts—three states he carried a little over a year ago—have voted against candidates pledged to his agenda, candidates for whom Obama personally campaigned? He has less time to change course than either Clinton or Bush had after their defeats. The 2010 midterms are 9 months away; voters opinions will jell before that.

As ex-Clinton aide Lanny Davis said this morning to Obama and fellow Democrats:
liberals need to [be] willing to meet half-way with conservatives and Republicans even if that means only step-by-step reforms. . .will we listen? . . will we stop listening to the strident, purist base of our party who seem to prefer defeat to winning elections[?]

Does Obama “get it”?

Monday, January 18, 2010

Obama Bipartisan?

Should Republican Scott Brown tomorrow win the Massachusetts senate seat held by the Kennedy family since 1952, it will create a Haitian-sized political earthquake in Washington. No longer will Democrats own both houses of congress. A Scott victory should move the Obama administration toward the bipartisanship Obama promised in 2008.

Maybe. Maybe not.

Jake Tapper of ABC News reports that yesterday, Obama had this to say about the party he may have to start working with Wednesday:
I understood this the minute I was sworn into office. . . that there were going to be some who stood on the sidelines, who were protectors of the big banks, and protectors of the big insurance companies, protectors of the big drug companies, who would say, “You know what, we can take advantage of this crisis -- because it's going to be so bad, even though we helped initiate these policies, there's going to be a sleight of hand here because we're going to let Democrats take responsibility. We're going to let them make the tough choices. We're going to let them rescue the economy. And then we can tap into that anger and that frustration.” It's the oldest play in the book.

What a whine!

If Obama truly believes Republicans would rather sit on the sidelines wishing him ill then join him in solving our serious economic crisis, bipartisanship will remain a dream. Short-term change is in his hands. Let’s hope he acts wisely.

Thursday, January 14, 2010

Does Obama have it right? Hope so.

Does Obama mean Republicans are against the status quo, against insurance companies, and for families and businesses?

He says:

If Republicans want to campaign against what we’ve done by

Standing up for the status quo and insurance companies over American families and businesses,

That is a fight I want to have.

Hey, me too! In their secret negotiations, Democrats are working with insurance companies and other “stakeholders" who defend a health care status quo, leaving Republicans, American families, and businesses on the outside ready to rumble.

Don’t Need to Read This Book

According to “Politico’s” Ben Smith, here’s all you need to know about the much-discussed 2008 campaign insider book Game Change:

the book's central theme [is] that Clinton, John Edwards, and John McCain were all brought down by their personal flaws, and probably deserved to be. Obama alone matches up, more or less, to his public portrait.

Wednesday, January 13, 2010

Obama Administration Fears Future, Promises Dirty War against Republicans

Obama is tanking in the polls. Wall Street Journal columnist Peggy Noonan feels she knows why—Democrats are above being poll driven. As Noonan sees it:
the Obama administration thinks it vaguely dishonorable to be popular. If you mention to Obama staffers that they really have to be concerned about the polls, they look at you . . . as if you don't understand the purpose of politics. That purpose, they believe, is to move the governed toward greater justice. [Contrasting justice with popularity,] they think it's weaselly to be well thought of.

Yet Democratic insiders clearly know they are in trouble, and are working on political recovery. According to the “Huffington Post’s” Thomas B. Edsall, Democrats will prevail in 2010 by making the campaign about Republicans:
Democratic candidates, [say Democratic pollsters], should pre-empt Republicans seeking to present a positive image to the public. Among the techniques to achieve this goal are floating negative stories in the press, taking full advantage of sympathetic bloggers to create a hostile portrait of the GOP opponent, and actively using "less visible" means of communication such as phone banks, direct mail, and canvassers. . . [One] Democratic consultant with clients running in House, Senate and gubernatorial races, speaking on background, says "basically it comes down to one thing. You've got to kick the shit out of somebody."

Top Obama strategist David Axelrod said pretty much the same thing, though with less salty words, in an interview with the National Journal’s Ronald Brownstein:
Axelrod's checklist includes . . .most pointedly, an effort to draw sharper contrasts with Republican positions. His comments may foreshadow a much more pugnacious Democratic message as the election approaches. "It's almost impossible to win a referendum on yourself," Axelrod insisted. "And the Republicans would like this to be a referendum. It's not going to be a referendum."

"They want to stand with the insurance industry on health care and protect the status quo, then let them defend that in an election," Axelrod said. "If they want to stand with the banks and the financial industries, and protect the status quo, then let them explain that in an election. If the party that over eight years turned a... surplus into the most significant growth in national debt by far in the history of the country and left this president with a $1.3 trillion deficit when he walked in the door and an economic crisis, let them campaign on fiscal integrity. You know... we're certainly willing to have that discussion. The difference is that we'll have that discussion in the context of a campaign. . . “

Looking at this Axelrod attempt to escape a “referendum on yourself," Commentary columnist Peter Wehner observed:
When a political party controls the presidency and, by wide margins, the House and the Senate, the midterm election will be a referendum on the stewardship of that party [emphasis added]. There’s no way to get around that. [Yet] Axelrod and his colleagues, rather than welcoming a referendum on their year in office, are terribly afraid of it.

Tuesday, January 12, 2010

Brooks: “Personally, I’m not a fan. . .”

David Brooks has nailed 2010’s political divide:
The tea party movement is a large, fractious confederation of Americans who are defined by what they are against. They are against the concentrated power of the educated class. They believe big government, big business, big media and the affluent professionals are merging to form self-serving oligarchy — with bloated government, unsustainable deficits, high taxes and intrusive regulation.

Brooks is describing a populist movement we have followed here, one much bigger than the “tea party” activists. Otherwise, Brooks has it right. People are rallying against “the educated class,” defined as “big government, big business, big media and the affluent professionals,” an elite “merging to form self-serving oligarchy” that inflicts on the rest of us “bloated government, unsustainable deficits, high taxes and intrusive regulation.”

Looking ahead, Brooks believes
the tea party movement will probably be transformed. . . several bright and polished politicians, like Marco Rubio of Florida and Gary Johnson of New Mexico, are unofficially competing to become its de facto leader.

Well, how about Sarah Palin, the most widely known populist today? Oh yes. According to Brooks, “She's a joke. I mean, I just can't take her seriously.”

And Gary Johnson? Future leader?? I follow politics pretty closely, but I had to look Johnson up. A libertarian, his current cause is ending America’s war on drugs. Is Palin really the joke, and Johnson the future leader? More likely, Brooks is flashing his “anybody but Palin” true colors.

Nevertheless, Brooks has captured the big division emerging in American politics today, which is why conservative political commentator Tunku Varadarajan spent a whole entry discussing the Brooks piece. Varadarajan in the "Daily Beast" writes:
populism does not conform to the standard left/right divide. . . The populist’s personality is driven as much by wounded pride as by economic concerns, and so he resents the cultural elitism of the liberal elites, including their patronizing desire to help him, as much as the economic elitism of the wealthy.

Yes, the populists fear and hate the big businesses and Wall Street; but—and this is the heartening thing—they have not let this turn them against capitalism and the free market. They seem truly to have taken in the point, long emphasized by libertarians and others, that big business is not the same thing as capitalism or the free market. . . the Obama administration has finally driven this point home, as it has been an object lesson in how the party of big government is really in bed with big business. . .

I will take [populists] any day over the “educated class,” the bureaucratic mollusks and the defeatist sad sacks in Washington. . . the content of [the Tea Partiers’] politics is deadly serious. The professional politicians will dismiss them at their peril.

Monday, January 11, 2010

Wall Street Jigs as Main Street Burns

The stock market Friday hit new highs on the road to recovery. The S&P 500 rose to 1,145, the Dow cleared 10,618, and the NASDAQ 2,317—all new highs since the market crashed in Fall 2008. As a consequence, my FOX INDEX has reached its new post-crash high [chart]. The INDEX measures as a percentage the distance traveled from the market’s March 9, 2009 bottom, while also marking the distance remaining to its pre-crash healthy level (12,000 Dow, 1,300 S&P, 2,500 NASDAQ). As of today, the distance traveled from the bottom to healthy has covered 76.5% of the full path.

It seems counter-intuitive that the stock market would prosper as job losses grow. But we know it isn’t. Wall Street loves lean corporations that prove they can permanently trim overhead. As Peter Coy, Michelle Conlin and Moira Herbst write in a recent important Business Week article:

cutting has been good for corporate profits. Earnings rebounded smartly as companies kept payrolls down after the 2001 recession; by 2006 profits had hit a 40-year high as a share of national income, at 10.2%, according to Bureau of Economic Analysis data. The credit bust sent that figure plunging to 5.6% during the final quarter of 2008. But over the past year corporate profits' share has rebounded to 7.4% of national income, equaling the 40-year average.

Friday, January 08, 2010

Men NOT at Work

Today, we learned the U.S. economy lost 4.2 million jobs in Obama’s first year, with December unemployment holding steady at 10%, up from 7.4% a year earlier. At that time, President Obama promised his stimulus plan would create or retain 3-4 million jobs by 2010 (average 3.5 million), while holding unemployment to 8%. The gap between what Obama promised and the actual job count for 2009, with a year to go on the 2010 promise, stands at 7.7 million jobs [chart]. We follow the Obama job gap in the same spirit as former “Meet the Press” host Tim Russert followed Bush’s job count throughout Bush 43’s first term, at least until Bush’s numbers turned positive (the term ended with Bush up 4.2 million jobs; Obama too is likely to be in positive territory by 2012).

David Paul Kuhn has discovered that the current recession is very much a “he-cession“ hitting male workers much harder than women, with 3/4ths of total job losses traditional blue collar jobs, 2/3rds of total losses experienced by blue collar men, and with 1/5th of men age 25 to 54 out of work.

Monday, January 04, 2010


In the last decade, the BRIC countries—Brazil, Russia, India, and China—emerged as important, new economic forces. The world’s leading powers have had to blend these four emerging economies in with the Atlantic-dominated, economic “Group of 7” (U.S., Japan, Germany, France, U.K., Italy, Canada). Recognizing the BRIC countries—adding them to a new “Group of 20”—helped draw them into the existing world order.

OK, but. . .

Russia an “emerging economic power”?? The U.S.S.R. was a superpower dominating the post-war period. Part of its strength came from its natural resources, including petroleum—oil and natural gas aren’t a new part of the Russian power calculus. Furthermore, Russia is a European-origin power like 6 of the “Group of 7,” which in 1997 in fact became the “Group of 8” or “G8” when the “G7” added Russia as a member. The “G8” still exists today; it still includes Russia but not Brazil, India, or China.

Russia (like China) also has been one of the 5 permanent members of the UN Security Council since the UN’s founding in 1945. Russia’s not new. It’s not emerging, like Security Council non-permanent members India and Brazil. Russia’s European, in fact the biggest European power.

Take out Russia, and focus on three emerging economies, all non-European, all still climbing out of poverty, all optimistic with bright futures ahead. We talk of the BiC powers, three nations that will shape our current century.


Half the people in South America live in Brazil. It’s home to the Amazon rainforest, the source of 20% of the earth’s oxygen and 20% of its river water. It also harbors other abundant natural resources, including offshore petroleum. In per-capita income, Brazil’s the richest of the BiCs. While Brazil’s society exhibits a deep gulf between rich and poor, a smaller share of its population lives in poverty than in either India or China.

From the Los Angeles Times:

"You feel like it's the country of the future because everything is on the rise," said L.A.-based entertainment marketing consultant Isaac Joseph. "The Olympics may help pull the country together, and everything is moving forward in this fast and exciting way. Between the ethanol, nature reserves, culture and people -- it's really a hub of all things that are totally happening."

Regarding oil, the Economist reports:

The president of the Agência Nacional de Petróleo (the industry regulating agency) puts total potential reserves in [Brazil’s] Santos Basin at 80bn barrels. If the new discoveries are found to be commercially viable, Brazil could become one of the world's major oil-producing and exporting countries.

Brazil’s offshore fields alone would rank it #8 in world oil reserves, behind 5 Middle Eastern countries, Canada, and Venezuela, but ahead of Russia.


Harvard’s Niall Ferguson, proud he coined the term “Chimerica” to describe the world’s current two superpowers, waxes eloquent about the strength of China:

Asia’s latest and biggest industrial revolution scarcely paused to draw breath during the 2007-09 financial crisis. And what a revolution! Compare a tenfold growth of gross domestic product in the space of 26 years with a fourfold increase in the space of 70. The former has been China’s achievement between 1978 and 2004; the latter was Britain’s between 1830 and 1900. Or consider the fact that US GDP was more than eight times that of China’s at the beginning of this decade. Now it is barely four times larger – and if the projections from Jim O’Neill, Goldman Sachs’ chief economist, prove to be correct, China will overtake America as soon as 2027: in less than two decades.


Conventional wisdom holds that China comes out ahead of India partly because it’s done better at controlling population growth. But Indians figure lots of young people compared to China helps their country. After all:

U.N. projections say the population of working-age citizens in China will peak in 2015 and plunge by 23% by 2050. By then, there will be 438 million Chinese 60 or older, or 61 people older than 60 for every 100 adults of working age, up from just 16 in 2005.

In India by contrast, the population continues to explode. According to the Wall Street Journal:

Megacities are sprouting around the globe. But in billion-person India, the trend is on steroids. The country already has 25 of the world's 100-fastest growing urban areas, according to City Mayors, an international urban-affairs think tank. That compares with 8 in China.

To economist Swaminathan S Anklesaria Aiyar, writing in The Times of India, India’s working-age population growth relative to China’s means that:

India will overtake China as the fastest-growing economy in the world. China will start ageing and suffering from a declining workforce. . . So its growth will decelerate, just as Japan decelerated in the 1990s after looking unstoppable in the 1980s. Having become the world's second-biggest economy, China's export-oriented model will erode sharply - the world will no longer be able to absorb its exports at the earlier pace. Meanwhile, India will gain demographically with a growing workforce that is more literate than ever before. The poorer Indian states will start catching up with the richer ones. This will take India's GDP growth to 10% by 2020, while China's growth will dip to 7-8%.

At present, India's gross domestic product has been growing faster than that of most other developing countries, averaging 8.8% a year over the past five years. In 2009, a rough year elsewhere, India’s economy grew by 7.9% through the third quarter, far surpassing expectations.

Brazil, India, and China—two democracies, two giants, two Asian powers, all non-European, three countries reshaping our world.

Sunday, January 03, 2010

Hope and Love in 2-0-1-0

there is not a liberal America and a conservative America -- there is the United States of America. There is not a Black America and a White America and Latino America and Asian America -- there’s the United States of America.

--Barack Obama, 2004

Good rhetoric, Mr. President. The time has come to practice what you preach. Listen to the other side. Put in place some of their best ideas. America cries out for such leadership.

For those of us who haven’t enjoyed what’s come out of the White House over the past year, it’s time for us to listen and to acknowledge that they too have some good ideas. Strive for a country that combines the best of both sides.

We might begin with three points, the last two coming in part from Bob McDonnell, the governor-elect of Virginia:

1. Help the other guys with their tough, but correct, battles. George W. Bush received little Democratic support with two big efforts he undertook on behalf of the nation. One was to reform Social Security, which will go bankrupt around 2040. The other was to go after Islamic extremism when Al Qaeda and Iran-backed Shia militias emerged as terrorism-based fighting forces determined to kill Americans in Iraq.

It’s true; Democrats failed to help then. Now the Democrats are in power, and conservatives should show how a party acts in the national, not partisan, interest. Support Democratic efforts to reform Social Security and Medicare (Medicare may otherwise be bankrupt in 7 years), and help Democrats battle Al Qaeda in Afghanistan, Pakistan, and elsewhere. Especially, don’t demagogue Democrats on Social Security and Medicare. Democrats in turn should listen to Republican ideas on each of these tough issues. One America, working together.

2. Operate a leaner, more effective government, one that incorporates the best ideas from the far more competitive private sector.
Run government like a business. Because of foreign competition, business has learned over the past two decades how to run lean and mean operations. Government, lacking any pressure to compete, remains limited by its political goal never to make a mistake, since the main thing government fears is doing something wrong. Government suffers for its errors of commission, never for doing nothing. This must change. Government failing to model itself on business means continued government marked by inefficiency and waste.

Democrats, the party of government, need somehow to realize that if they don’t learn how to make government work, they will lose. Republicans nevertheless should help Democrats realize their only path to retaining power is ruling effectively. Republicans must resist the temptation to help Democrats fail. Instead, help them out. One America, working together.

3. Improve public education. Democrats are led by the products of a two-tier education system that helps a privileged minority (them) and does little for the vast majority condemned to union-dominated public schools. Democrats should be red-faced ashamed of what they are doing to America’s future, in the name of protecting unions. Thus far, Republicans have failed to push education reform to the top of the national agenda, though Bush 43 briefly tried with “no child left behind.” The time has come for Republicans to make such an issue out of our failed public schools that Democrats have no choice but to respond.

You see, Democrats know better. They know they benefited from superior education. They know that union control over poor public schools is ruining America’s future. It’s past time for Democrats and Republicans, working together, to put children first, above unionized teachers. One America, working together.