Japan's mighty bureaucrats are up against an unlikely foe: a model-turned-fiscal-firebrand.
Renho Murata is better known for her swimsuit pinups and TV-presenter past than shaking up the status quo. As new leader Naoto Kan's minister of reform, Renho is about to become the most-feared woman in Tokyo.
She is also one of the reasons investors may be pleasantly surprised by Japan's newest prime minister, the fifth since Junichiro Koizumi stepped aside in 2006. Here are three scenarios that, if realized, might put Asia’s largest economy on sounder footing.
One: true fiscal change. Clearly, the emphasis is on “if.” This is an economy that's cried wolf too many times. Eight months ago, Yukio Hatoyama led the Democratic Party of Japan in ending 54 years of virtually uninterrupted one-party rule with big talk of reform. And then, nothing. He resigned the premiership last week.
Enter Kan, a fiscal hawk. If there's anything Japan needs to do, it’s to convince global investors the nation isn’t heading the way of Greece. As finance minister, Kan, 63, warned that policy makers can’t be complacent about issuing ever-growing mountains of debt just because borrowing costs are low. Kan’s pick for finance chief, Yoshihiko Noda, says Japan must draw lessons from Europe’s fiscal crisis.
Efforts to make sure debt still has buyers have veered into the surreal. That can be seen in a new advertising campaign that suggests, with apparent sincerity, that Japanese women are attracted to men who invest in government bonds. Yeah, right.
To reduce a debt that's roughly twice the size of the $4.9 trillion economy, the DPJ is doing something revolutionary. It’s holding public hearings at which lawmakers force bureaucrats to defend their bloated budgets. And Renho, the single name by which the lawmaker goes, made quite a splash nationally with aggressive interrogations of government staffers.
Japan needs more of that, and it's about to get it. Conversations about reining in debt too often focus on tax increases -- not a good idea with deflation deepening. It’s about spending less, and spending better.
Funds need to be redirected away from wasteful public-works projects and toward pursuits that create quality jobs and increase competitiveness. Japan could actually get more growth out of less borrowing if it spent more creatively.
Lawmakers need to be careful. DPJ leaders want to tread carefully in paring research spending at a time when China and India are upping theirs. Still, Japan is a fiscal train wreck waiting to happen. Kan's focus on debt is good news for Japan’s credit rating and investors to boot.
Two: youthful energy. At 42, Renho is a poster girl -- literally -- for fresh leadership. So is Noda, who, at 53, stands in stark generational contrast to Hatoyama's first finance minister -- 77-year-old Hirohisa Fujii. What’s more, Kan gave his party’s No. 2 post to Yukio Edano, 46.
Age is no predictor of performance. Nor is youth normally a plus in a political culture steeped in seniority and back-room appointments. The septuagenarians had their chance in Tokyo, not to mention the octogenarians. Why not try turning the keys over to a younger, less-ingrained crowd?
Kan's background and priorities make that possible. He’s one of the few prime ministers Japan has had in recent decades who didn’t descend from political royalty. His family name had nothing to do with this election.
This “commoner” may be a less predictable leader than his predecessors, less doctrinaire in his views and less beholden to shadowy puppeteers pulling the strings from afar.
Three: bureaucrats beware. Kan won't make many friends among the government staffers who really run the economy. His party’s lip service on wresting control from the bureaucracy hasn’t translated into action. Kan’s decision to dump some of Hatoyama’s key retainers in favor of his own suggests the gloves are coming off.
Too many bureaucrats work for themselves, not taxpayers. One reason is the hope of eventually getting a cushy gig in the industries they oversaw while in government. If that's not a recipe for corruption and economic stagnation, what is? In trying to revitalize an economy devoid of vitality, Kan is looking in the right places.
That gets us back to the “if.” None of this is possible if Kan isn't around long enough to deliver change. Next month’s upper-house elections are the first big test. If he and his coalition government survive, Kan will have an opportunity to show investors that Japan can hold its ground in a volatile global economy.
Kan's sticking around would break the revolving-door politics that plague Japan. It’s become too easy for prime ministers to walk away when the going gets tough. A better system would require that they make bold decisions, stand by them and make them work -- not bow out when approval ratings slide. No serious person can say this discontinuity in government is a good thing.
Change doesn't come easy in Japan, and new approaches to it are desperately needed. A commoner premier and a one-time swimsuit idol asking hard questions may be just the answer.
Pesek is a Bloomberg News columnist.