Japanese farmers fear Koizumi's reforms

USA Today

FUKUYAMA, JAPAN — After nearly four decades of farming, Hiroshi Hirokawa can't compete anymore without government help.

In a rural village outside this city of 375,000 on Japan's east coast, he works 17-hour days growing reeds and weaving them into the $2.40 to $80 tatami floor mats used in traditional Japanese homes.

But the past four or five years, Chinese farmers have been able to deliver the same mats for half the price. If the government didn't subsidize his operations and throw up trade barriers to block imports, Hirokawa acknowledges, he would go out of business.

"Foreign companies are trying to invade our market," says Hirokawa, 57. "If the government does nothing for us farmers, we will disappear."

Now Hirokawa worries that Japan's popular new prime minister, Junichiro Koizumi, is planning to withdraw the government's helping hand.

Koizumi has somewhat vaguely hinted at ending efforts that arise from government attempts to protect mom-and-pop shops and small farmers such as Hirokawa from competition.

He has vowed to end reckless spending on white elephant public works projects that help sustain rural economies in backward parts of Japan but that have left the government neck-deep in debt. He also wants to privatize Japan's postal savings system, which acts like a gigantic government bank, collecting deposits from savers, paying them next to nothing in interest and financing pork-barrel public works projects.

In communities such as Hirokawa's village, residents are trembling.

Japan's political system has been skewed toward rural areas. Legislative districts in the boondocks tend to have fewer voters than urban districts, effectively giving the hinterlands more political power than demographics suggest they deserve. Politicians have catered to farmers and small businesses at the expense of urban voters. They've blocked foreign agriculture imports, and used tax incentives and zoning regulations to prevent big store chains from threatening the mom-and-pop shops that account for 55 percent of Japan's retail business.

Urban consumers pay

By sustaining noncompetitive enterprises, Japan's Liberal Democratic Party (LDP) governments have stuck urban consumers with high costs (Japanese families spend a fifth of their household budgets on food, nearly twice what U.S. families pay) and left the Japanese economy crippled by inefficiency for more than a decade. Even though he is an LDP veteran, Koizumi has promised to end the old ways of doing business.

Farmers such as Hirokawa, along with the owners of inefficient small businesses, are expected to lead resistance to the reforms, perhaps keeping Japan from making the changes it needs to breathe life into a comatose economy.

Although many of the farmers admire Koizumi's brash, hip style, they are counting on local LDP bosses to block reforms that threaten their way of life. "Mr. Koizumi doesn't know the farming business," Hirokawa says. "I hope he won't make a drastic change." He adds, hopefully, that Koizumi "cannot make decisions on his own."

For Hirokawa, the day of reckoning has so far been delayed. The Japanese government dutifully came to his rescue three months ago, slapping tariffs of more than 100 percent on some Chinese farm products, including most tatami mats.

The move started a trade war with China, which responded by limiting imports of Japanese autos.

But Koizumi has vowed to take on special interests within his own party if necessary. His opponents within the LDP are likely to smother internal squabbling until after today's elections for the House of Councillors (Japan's version of the U.S. Senate, its national legislature's Upper House). Whatever they think of Koizumi's proposals, they hope he will carry the LDP to victory. Later, they can try to stop his agenda. "For now, they are keeping quiet, but for how long?" wonders political scientist Koichi Nakano at Tokyo's Sophia University.

Two economies

The LDP's old ways have created a dual economy that simply doesn't work anymore. On top are world-class exporters such as Toyota and Sony, where workers are 20 percent more productive than their foreign competitors. At the bottom are small enterprises and farming operations, many of which survive only under government protection; their combined work force is only 69 percent as productive as their U.S. counterparts, says consultancy McKinsey & Co.

Unfortunately for Japan, the laggards account for about 90 percent of Japan's economic activity. Protected by the government, they have little incentive to innovate or cut costs.

If the government allowed more competition, McKinsey estimates, Japanese productivity could grow faster than it did in the United States during the boom years of the mid- and late '90s. What's more, competition would bring prices down and tap into pent-up demand by Japanese consumers. The spending spree would boost the economy and soften the pain of the reforms. But even McKinsey concedes that Japan would sustain job losses as noncompetitive enterprises went under.