Look, who is the best friend of Russia in Japan? –An economic consequence of Japanese election 2013 on Russia-Japan relations

        The demise of the Cold War urged us to grow our brain out of the simplified friend-foe dichotomy. Reintegrating herself into an increasingly globalized world of the 21st century, Russia as well as any other country cannot think in an outdated framework of “you are either with us or against us.” Yet, we also must not dismiss the fact that there is a substantial difference between friendship and best-friendship. Therefore, for Russia to develop stable and favorable economic relations with Japan, it is imperative to carefully identity who is the Russia’s best friend in Japan –the best friend who has aligned interest not only with Tokyo but also with Moscow and who can strategically formulate proposals to make concrete actions out of the shared objectives.

        Based on the previous article “Wait, New Japan Just Forgot About Russia? –A political consequence of Japanese election 2013 on Russia-Japan relations,” this article aims to further elaborate on a critical economic consequence of the last Japanese election in regard to Russian foreign and economic interests. In doing so, I identify Japanese businesses (particularly Japanese business federations) as a critical agent who can foster bilateral partnership around the shared interests between Russia and Japan.

Photo: nippon.com 

        The previous article summarized that the last election was fought over the twelve major policy agendas, where the reemerging Liberal Democratic Party (LDP) managed to win hearts and minds of Japanese citizens. Quoting from the previous article, these are the top policy agendas presented in the Japanese upper house election 2013:

1.     Constitutional amendment

The LDP claimed that Japan should amend its pacifist constitution to establish an integrated defense army; procedurally, the current rigid requirement of constitutional amendment (2/3 super majority at both upper and lower congress) should be eased to simple majority of ½.

2.     Economic revitalization

How to get out of the two-decade recession and economic decline; the LDP insisted a growth-led strategy of controversial Абеномика that jointly utilizes inflation targeting, quantitative easing, and dynamic investment promotion.

3.     Energy security

All parties agreed that Japan should further invest in renewable energy resources; while the LDP did not clearly articulate how to deal with the Fukushima issue.

4.     Agricultural policy

The LDP firmly stated that the Trans-Pacific Partnership free trade agreement is beneficial to Japanese agricultural sector, while other parties were reluctant to accept Japanese participation in the trade regime.

5.     Post-nuclear disaster management

There was practically no difference among policies of all political parties; uncertainty remains and no clear roadmap to clean up the mess was outlined, although some proposal was made to strengthen national and regional disaster response systems.

6.     Foreign relations and national security

All parties including the LDP did not specify the prime threat to Japanese national security, but interestingly, they altogether called for a mightier marine patrol system and further cooperation with the U.S. Practically, this indicates their preoccupation with growing Chinese maritime presence in the Asia-Pacific region.

7.     Social security and elderly welfare

Similar proposals were made to enhance the quality of life of Japanese senior citizens, however, no drastic policy change was proposed amid Japan’s apparent demographic crisis.

8.     Tax regimes

The LDP’s chief proposal was to raise the VAT from 5% to 8% “sometime soon” and eventually to 10%, while simultaneously cutting corporate taxes to foster investments. Other parties capitalized more on the development of income redistribution mechanisms that would provide a better safety net for lower income households.

9.     Education

The LDP proposed a controversial policy of “territorial education” which aims to enhance awareness and knowledge of Japanese history, culture, geography, and territorial integrity among school children.

10.  Child welfare

Concrete proposals to tackle the issue of “childless society” were almost nonexistent; instead, some quantitative measures to enlarge kindergartens and nursing facilities were discussed by major parties without any major policy disagreement. 

11.  Regional decentralization

Major parties (including the LDP as one of the strongest supporter) articulated the necessity of the 道州制 (Doshusei: state system) which aims to reintegrate the current 47 provinces into American style state system to foster regional policy coherence and integration.

12.  Political and administrative reforms

Some minor electoral reform plans were outlined to enhance equity and equality of each vote. Along with the proposal of state system, drastic reformation of electoral districts was also proposed by major parties.

Photo: Telegraph http://i.telegraph.co.uk/

        Prime Minister Shinzou Abe’s victory is largely believed to be owing to his Abenomics revitalization policies. Although controversy remains over its economic stimulation package mainly led by a series of monetary policies of an unpresetended magnitude rather than growth of real economy, IMF as well as other influential international organizations have acknowledged its positive impact (at least so far). A prospect has been opened that Japan may finally get out of its twenty years “zero growth” devolution.[1] With European countries still stagnating over their economic performances, the U.S. unable to reach its full recovery, and China gradually losing its miraculous momentum, Japan’s economic potential as a reemerging growth pole has significant meaning for global as well as for regional economy. Undoubtedly, newly revitalized Japanese economy also brings tremendous opportunities for Russia; however, Russia should know how to effectively seize the moment in her favor and further her presence in the Asia-Pacific region. The previous article analyzed two political developments came out of the main policy agendas discussed at the last election, namely:

1. The pivotal triangle of U.S.-China-Japan relations (which develops out of agendas of constitutional amendment; foreign relations and national security)

2. Japan’s silver democracy spurred by its changing population dynamics (which develops out of agendas of energy security; post-nuclear disaster management; social security and elderly welfare; education).

        Adding to this analysis, a third dimension of economics also must not be underestimated. Particularly, the agendas of economic revitalization and energy security together shape a new prospect for Russia in advancing its strategy towards Russia-Japan economic relations.

3. Business alignment (economic revitalization; energy security)

        Based on his extraordinarily extensive experiences as a world traveler and political analyst, Parag Khana articulates that in today’s world of intertwined interests and transnational interactions, diplomacy has grown out of its traditional governmental realm and has been reshaped as megadiplomacy –a term that describes the complex mixture of governmental, non-governmental, and corporate diplomacy in framing and tackling global challenges.[2] As political interaction between Russia and Japan remains deadlock over their territorial dispute, I argue that corporate diplomacy is increasingly replacing governmental diplomacy between the two states in promoting the long-wished strategic partnership. The time is too premature to assess overall performance of the Abenomics policies. Yet, Prime Minister Abe is different from his successors for understanding that official diplomacy is not only the way to achieve mutually acceptable cooperation. For example, when Prime Minister Abe came to visit Moscow on last April, around fifty CEOs from leading Japanese multinational firms (mainly megafirms in the field of energy, infrastructure, medicine, and agriculture) accompanied with him to various negotiations and discussion forums.[3] As business federations remain a key political actor in Japanese policymaking,[4] Mr. Abe had clear intention to take advantage of the megadiplomacy that can push agendas that government alone cannot further.

        As energy security emerged as one of the prime agendas in post-Fukushima Japanese society, it is understandable that Japanese businesses long for a better Russia-Japan relations more than anybody else in Japan. There are at least several reasons to safely assume so.

        First, the failure of the Democratic Party of Japan (DPJ) to stabilize nuclear disaster and reestablish stable energy supply frustrated Japanese businesses more than any time in modern Japanese economic history. There were several electricity cuts and major firms were called for compromising their commercial interests over a greater benefit to Japanese society as whole. But, anybody who has studied manufacturing management (especially of high technology products) knows that, periodical electricity cut or even fear of it is not acceptable. Just like nuclear reactors, there are usually several core machineries at major factories that must be operating for non-stop-24-hour for various reasons (such as safety and efficiency). Any abrupt energy crisis that compromises the continuity of these manufacturing operations may result in tremendous short-term and long-term losses for firms. Japanese automotive industry suffered tremendously in 2011 when production delay of even one component undermined the entire production schedule. At the time of crisis, their loss was even amplified by the stagnating car demand and societal fear for the lack of sustainable fuel supply.

        Second, a majority of energy consumption comes from commercial and industrial sectors rather than residential usage. However, the DPJ have prioritized to safeguard interests of citizens (the voters) and largely subordinated those of businesses, which triggered unprecedentedly harsh criticism from Japanese business federations.[5] Prime Minister Abe could successfully seize majority at both upper and lower congress, partly because he emphasized the importance of business community and pledged to further recover and accelerate business-government relations –a historical strength of Japanese economic structure. Some analyzed that Mr. Abe’s decision to bring CEOs with him to Moscow reflected his consideration towards the influential business community, hoping to gain further support for Abenomics polices from business executives. But my view is that Mr. Abe rather intended to let businesses run in the Russian “frontier” ahead of lengthy governmental bureaucracy, searching for common interests and realizing them in concrete terms. His plan was rather successful and a major investment agreement to promote Japanese investment into Russian economy was signed in Moscow with presence of Mr. Putin.

        Last but not least, Japanese businesses can be the “best friend” of Russia in Japan rather than “good friend,” because of their stable interests and highly institutionalized structures. As we have seen Japan has “mass-produced” prime ministers just over a decade, I maintain that it is more profitable for Russia to put emphasis on corporate diplomacy. Although Mr. Abe runs both upper and lower congresses at present moment, his political life largely depends on a loose coalition of the LDP members and other aligning partners. Whilst the result of Abenomics remains unclear and the internal division among the LDP political figures persists, it makes more sense for Russia to realize a long-term partnership with Japanese business federations. For example, the prominent Japan Business Federation (日本経団連) elects its president among the leading multinational firms every four to six years with senior representatives staying over even longer period. They have consolidated interests (although minor disagreement remain inside) and well-equipped with successful advocacy forces to influence Japanese policymaking outcome. Facing the full return of the LDP into Japanese political landscape, the significance of the Japan Business Federation as well as other influential business forums augment their value in realizing megadiplomatic agendas that government alone cannot accomplish. A critical factor that has been hindering the formulation of far-sighted Japanese foreign policy perspective is the eminent political discontinuity that made so many foreign negotiators cry over the table. There is not guarantee that Mr. Abe stays for at least four years while global political and economic challenges are becoming more and more complex and pressing.

Photo: Japan Business Federation Organization Chart http://www.keidanren.or.jp/

        In sum, the return of Mr. Abe indeed increased the prominence of the LDP as a ruling power; but, the value of engaging megadiplomacy with Japanese business federations has become even higher than ever. These business-led forums of joint policy advocacy do not only understand political constraints and economic interests of Russia but also maintain stable, influential, and popular leadership over fairly long period. As we all know, friends and lovers come and go; but best friend stays. One economic consequence of the last Japanese election therefore turns out to be increased value and significance of Japanese business federations as a long-term economic partner, who are ready to swiftly formulate mutually acceptable agreements with Russia. Now, this is decisive moment for Russia to define who is her best friend in Japan; is he/she the prime minister who comes and go every ever, or is he/she someone who is ready to sit on the negotiation table for years to realize our collective endeavor?