Koizumi's Big Step

Hiromu Nonaka, the 77-year-old liberal democratic Party stalwart, was arguably the most powerful man in Japan. As a leader of the ruling party's largest faction, which controls 100 seats in Parliament, Nonaka was a political kingmaker. He pulled strings to sway government policies, banged heads to maintain internal order within the LDP, exploited allies who owed him favors in order to bring down political foes. He used all of his clout to stymie the reform efforts of his party rival, Prime Minister Junichiro Koizumi, 61. But after losing a power struggle with Koizumi, Nonaka last week announced his retirement from politics with an uncharacteristic public outburst.

"I'd like to devote my remaining energy to the struggle to throw out the Koizumi administration!" he railed at an impromptu news conference in Tokyo.

Nonaka's comment was much more bluster than threat. Indeed, his exit may prove to be a seminal event in Japanese politics--and a huge opportunity for Koizumi. When he took power two and half years ago, Koizumi pledged to "smash the LDP" (his own party) if it ever stood in the way of his efforts to end the corrupt patronage system that's responsible for Japan's long economic decline. By wooing key members away from the faction controlled by Nonaka, one of the last of the party's old guard, the prime minister has effectively made good on his vow. Koizumi embarrassed Nonaka by persuading conservatives once loyal to him to support his reelection campaign. He's now all but certain to retain the LDP presidency in a Sept. 20 election--and after that, easily win the next general election that must be held before June (but is likely to occur much sooner). After his LDP coronation, Koizumi is expected to reshuffle his cabinet (expelling opponents; adding allies) and dissolve the Diet's powerful Lower House, perhaps as early as next month. With Japan's economy rebounding and his personal approval rating on the rise, he is poised to become Japan's most powerful prime minister since Yasuhiro Nakasone, who ruled Japan in the mid-1980s.

Koizumi supporters say that, free of LDP constraints, he'll be able to turn his attention to more fully implementing his broad reform program. He has already slashed public-works spending, set in motion the eventual privatization of scores of public companies (now subsidized with about $50 billion of public money) and drafted stricter accounting rules to ensure that Japan's shaky banks stay solvent--or can be speedily nationalized, as happened recently with Japan's fifth-largest lender, Resona Bank. He aims to rid Japan of so-called zombie companies (like the massive and terminally ill retail giant Daiei) that have long been living on loans they can't repay. While the prime minister's changes aren't sweeping, he has succeeded in putting new rules into place that make rapid change possible in one of the world's most hidebound countries. His task now will be to accelerate the reform process.

The prime minister's most important achievement thus far has been to challenge, and to largely transform, Japan's corrupt political structure. With Nonaka's retreat, he seems to have vanquished the pave-and-spend, dole-out-the-pork LDP mainstreamers. Within the LDP, he's moving to neuter the factions that largely exist to spread power and money among the senior elite. Instead, Koizumi hopes to create a quasi-presidential system in which the prime minister's office, not the LDP headquarters, sets the policy agenda. "The once-almighty faction has become an object of ridicule," says Kazuhiro Kobayashi, chief editorial writer at the Tokyo Shimbun.

Koizumi's assault on the old system began five years ago. He ran three times for the LDP presidency, failing twice before being named party leader in 2001. Two days later, LDP lawmakers elected him Japan's 25th postwar prime minister. Conventional wisdom suggested he would falter early, lose his popular appeal and be tossed out of office having done no lasting damage. That's been the hoary pattern of Japanese politics. In fact, Koizumi's enduring popularity rendered him too powerful to topple.

Skeptics and the political opposition argue that the prime minister is a "fake" reformer. Rather, he's a deft politician with an agenda. Koizumi's message to average Japanese is simple: stalwarts in the party block me at every turn, but "people power" will prevail. "He is very good at creating the image that he is fighting against opposing forces within the LDP," says opposition leader Naoto Kan, who heads the Democratic Party of Japan (DPJ). "In this way he looks clean and good compared to people like Mr. Nonaka. He is a genius [at] this."

Ironically, Japan's rising political opposition has bolstered the prime minister. If it were weak, LDP members might perceive Koizumi as expendable. But with Kan and his opposition brethren enjoying growing (though still modest) public support, LDP lawmakers have been cowed into supporting Koizumi, knowing that his political demise would be their own.

Barring a huge upset this week, Koizumi will appoint a new cabinet soon. His game plan is to stack it with reformers and perhaps a celebrity or two. Among the names being bandied about: Koji Omi, a midranking LDP lawmaker, who may become the next Finance minister. Omi recently organized an informal committee on tax reform to rival the official one, which is dominated by LDP elders. Shinzo Abe, now deputy chief cabinet secretary, could land the Foreign Affairs brief for his tough line on North Korea.

The significance of a popular, independent cabinet would be profound. Koizumi is trying to establish a lawmaking process that revolves more around the prime minister and the cabinet, not bureaucrats. In his view, ministers should originate bills, vet them with an LDP policy council neutered of factional bias, then move it to the Diet for a vote. His aim, outlined in an interview with the Yomiuri Shimbun last week, is to end the factional horse-trading that "is causing the government budget to increase."

Amid all the political maneuvering, Koizumi is also trying to keep focused on fixing the economy. In a policy manifesto issued on Sept. 8, he pledged to "press ahead with financial, tax, regulatory and spending reforms." Just two sentences long, the plank nonetheless embraced a critical point--that deflation is a symptom of Japan's failure to change. With the old fogies in retreat, says Hironari Nozaki, a banking analyst at HSBC Securities in Tokyo, "Japan's banking crisis may actually be solved over the next couple of years" as lenders, under pressure from the government, cut off support for failed companies.

Beyond economics, however, Koizumi harbors a less publicized agenda: to raise Japan's stature in the world. It entails more foreign-policy independence from the United States--and a further broadening of the role of the country's Self-Defense Force. One option: reinterpret the Constitution to allow the SDF to participate in collective self-defense by, for example, joining an alliance to topple North Korea should it go nuclear and threaten Japan. Another is to amend Article 9, which "forever renounces war as a sovereign right." "I think he has a dream to be remembered as one of the great prime ministers," says Takashi Tachibana, a political critic in Tokyo. "In his mind, constitutional revision is something many former prime ministers thought and talked about but were unable to achieve. He may see that as his mission to complete, or at least put on solid ground."

Put simply, Koizumi wants a more democratic and dynamic country. His reliance on "people power" has rendered public opinion more meaningful than ever. His victory over pork-barrel recidivists means the LDP "must compete with ideas," says Takashi Inoguchi, political scientist at Tokyo University. And the rise of Kan's DPJ, Koizumi's virtual alter ego in key aspects of reform, may foreshadow the eventual emergence of a two-party system in Japan. "For the first time since the war, and in my lifetime, that may happen," says 56-year-old business consultant Hirotaka Yoshizaki. "I see the light at the end of the tunnel."

With Koizumi preparing to settle into his job, the era of no-name, short-tenured Japanese leaders could be over. There have been nine prime ministers during the last 10 years. With some luck and persistence, say experts, Koizumi could next create that rarest of things in the Japanese politics--a legacy. "I suspect he will be remembered as the Reagan or Thatcher of Japan, although a smoother, fuzzier version thereof," forecasts Robert Alan Feldman, Morgan Stanley's chief economist for Japan. "Politics will work differently, and that will be one of Koizumi's great contributions to the country." That would be a remarkable achievement--if he can pull it off.

Koizumi's Big Step | News