Who Killed the LDP?

If there were obituaries in politics, the following would likely appear in Tokyo in late August: "The Liberal Democratic Party—which ruled the nation for five decades, presiding over its phenomenal rise and its more recent slide into stagnation—died on Aug. 30 due to complications from political sclerosis. It was 53 years old."

Declaring the LDP dead in advance of Japan's general election may seem a bit hasty. But with the ruling party trailing the opposition Democratic Party of Japan by roughly nine points in the polls, the results seem all but guaranteed, and the campaign itself has become something of a death march for the once proud Liberal Democrats. Even before the electioneering started, former defense minister Yuriko Koike likened her party's quandary to that faced by Japan's Army during the World War II Battle of Guadalcanal, when more than 20,000 Japanese soldiers died in a suicidal operation. Prime Minister Taro Aso has lately been heard discussing a "graceful defeat."

As with any high-profile death, experts have already started trying to determine the causes. So far, most of the blame has focused on Aso, but he is merely an aggravating factor. Vaulted to the leadership last September in the hope he could cure the faltering party, he squandered his modest popularity through indecision and a string of gaffes. By July, things had gotten so bad that more than a hundred LDP legislators rebelled, calling for his resignation. Aso survived, but the party that produces such leaders—both of his predecessors threw in the towel after only a year—may not.

The death of the LDP system has been inevitable for some time, for two reasons. First, its core political model—trade pork for votes—has become unsustainable in a country with a slow-growing economy and a public debt of $8 trillion. Second, the party had been grievously weakened by its supposed savior, former prime minister Junichiro Koizumi. Koizumi's reforms, though popular at the time and viewed as good for Japan, had two potentially fatal, unintended consequences: they undermined the LDP's ability to govern effectively and alienated its vote base.

Things weren't always so tough. The LDP's core strategy was solidified in the 1970s, when the steely Prime Minister Kakuei Tanaka revamped the nation's infrastructure, building a vast new network of highways and bullet trains connecting the cities to rural areas—all of which sped Japan's industrial development and distributed plenty of pork to key allies like the construction industry. Tanaka's effort to improve rural conditions was part of a popular campaign to make Japan more egalitarian—and it worked, spreading wealth and strengthening the LDP. In the decades that followed, Tanaka's followers and Japan's bureaucracy kept the machine humming by continuing to generously dole out cash to favored supporters, and the farm lobby became a pillar of the party's base. The LDP's increasingly powerful operation was funded by the government's highly successful cultivation of the export sector and its efforts to drive domestic demand, which created the growth—and the tax revenue—that made LDP pork so plentiful.

But the good times came to a crashing end in the early 1990s, when the crash of a huge real-estate bubble triggered the beginning of Japan's "lost decade." As real-estate prices plummeted, domestic demand withered and the financial sector became saddled with bad loans. Yet the LDP failed to squarely deal with these problems, and it spent so much on pork that Japan failed to invest in new export industries, even as lower-cost rivals began threatening its dominance. Instead of directly addressing slowing growth, the LDP continued to steer cash to old allies in construction and in rural areas rather than create industries of the future. The result was that the Japanese government kept building impossibly expensive roads and bridges to nowhere, even as average annual GDP growth for the 1990s dropped to less than 2 percent. Disgruntled voters began noticing the party's darker side—its coziness with interest groups and its endemic corruption. In 1993 the LDP even briefly lost power when scores of its legislators bolted its ranks.

As conditions worsened further, the LDP doggedly stuck to its old ways. From 1992 to 2002 it came up with 18 different stimulus packages. But these measures were all short on fresh ideas and full of wasteful spending. The LDP still managed to cling to power, but only because there was no real alternative in Japan—for most of the LDP's life, the only significant opposition came from the socialist and communist parties, which were unattractive to Japan's conservative majority. The LDP's chief cabinet secretary, Seiroku Kajiyama, seemed to capture this key to his party's success in 1996 when he reportedly said, "The LDP's raison d'être is that corruption is at least better than communism."

Then Junichiro Koizumi swept onto the scene in 2001, and suddenly it seemed that the LDP might have found its savior, a man who would break with the party's ineffective old habits and create a modern operation full of new ideas. Koizumi, who was 59 when he became prime minister, was an unusual Liberal Democrat in both style and substance. With his longish hair, his penchant for heavy metal, and his unconventional and confrontational tactics, he stood in stark contrast to his party's bland, geriatric pols. Voters were electrified by his personal charisma, and pundits and the public alike applauded his insistence that there could be "no economic growth without structural reform." Japan had become a one-party state, in which the LDP funneled tax money to favored industries and spread the wealth to its allies. Now the system had ossified and the growth was gone. Koizumi promised to bust it all up and introduce market competition in the process.

Having built high approval ratings by appealing directly to the voters over the party's head, Koizumi began using his personal capital to attack the LDP's notorious faction system, which was criticized at the time for promoting corruption and backroom dealing. To shake things up, he began appointing cabinet members himself, some from the private sector, rather than allowing factions to assign jobs based on seniority, and he publicly attacked a powerful rival faction as "resistance forces" opposing his reforms.

On the economic front, Koizumi slashed handouts and pork-barrel spending. He pursued free-market reforms, loosened labor laws, privatized government-run entities, and tried to clean up the banking sector's bad loans. This campaign culminated with Koizumi's privatization of Japan's vast postal network in 2005, which provided more than 240,000 jobs and controlled more than $2 trillion in assets—a huge chunk of Japan's total private savings. Privatization, Koizumi argued, would make for a smaller government, a freer market, and more efficient use of the postal network's assets.

Since Koizumi's premiership ended three years ago, however, it has become increasingly clear that rather than revitalize the party and the country, he only saddled both with new problems. Instead of cleaning up the LDP, as he promised, Koizumi acted mainly to destroy a rival faction (the one descended from Tanaka) and put his own allies in key posts. Koizumi did make real efforts to introduce competition into the economy—for example, by slashing subsidies to rural areas and changing employment laws to allow companies to hire and fire more easily. But the promised growth was too slow to save the economy. The new employment rules created a growing army of low-paid temp workers, further weakening demand, which was already at rock bottom. Deflation continued, and falling prices gave people another reason to put off buying anything. Critics began to blame Koizumi for neglecting the plight of Japan's expanding underclass and for helping widen the income gap, which grew to record levels.

So long as the LDP had Koizumi around to offer the nation hope, it remained powerful. But once it lost its charismatic leader, voters began to turn on it. "Simply put, Koizumi was morphine for the LDP. As long as he was there, things were OK," says Naoto Nonaka, a politics professor at Gakushuin University. "But once the morphine ran out, the LDP was back on its deathbed."

Koizumi also weakened the LDP's ability to recover. For all of the criticism heaped on the faction system, it had been good at training freshman politicians for the rough-and-tumble of Japanese politics, and proved effective at building consensus on policy within the party (faction leaders would meet to hash out differences). Shorn of that system—Koizumi weakened the groups and discouraged new LDP members from them—the LDP no longer has an effective bottom-up means for formulating and coordinating positions. This has left Koizumi's successors unable to unify the rank and file and the bureaucracy on difficult issues, such as reducing wasteful spending for road construction. Prime Minister Yasuo Fukuda was forced to water down his attempts to do just that, and Aso managed to pass a $150 billion stimulus this May only because of the extremity of the economic crisis.

The LDP has also been struggling with one flaw Koizumi didn't change: its tradition of hereditary politics. All of Koizumi's successors—Shinzo Abe, Fukuda, and Aso—came from political dynasties. Koizumi's own father and grandfather had both served in the cabinet, and Abe, Fukuda, and Aso were all sons or grandsons of prime ministers. This trend, which extends throughout Parliament, has produced a generation of leaders unskilled at retail politics—since they were born to power—and widely viewed as spoiled and out of touch with common Japanese citizens. That's proved an especially damaging drawback at a time when ordinary folk are hurting as never before.

If the LDP gets trounced at the polls on Aug. 30, as everyone is predicting, the results will likely prove fatal. Two outcomes seem possible. The first is that the LDP will simply disintegrate. Several of the party's own bigwigs have predicted a "political realignment" following the election. Former LDP member Yoshimi Watanabe has already formed a new party, and former LDP internal-affairs minister Kunio Hatoyama has promised a new manifesto of his own (though neither man has yet to achieve much momentum).

The second and more probable scenario is that the LDP will reemerge as a fundamentally different party, one that focuses more narrowly on emphasizing economic growth in contrast to the DPJ's stress on social welfare. Although the LDP, having learned its lessons from its Koizumi era, currently insists that it will "break away with extreme market fundamentalism," it is likely to remain a more conservative force than the DPJ, especially as it struggles to redefine itself. It's even possible that both parties could split, with advocates of growth forming one new party and supporters of welfare forming another. Such an outcome would be a big improvement over Japan's currently muddled politics, where the big-tent parties are often hard to distinguish on policy grounds. Whatever happens, at least one thing is certain—the political system that ruled Japan through a mix of pork and politics for some 50 years won't be around much longer.