The DPJ needs to decide
It will be interesting to see how the Democratic Party of Japan responds to the business issues raised in the latest EBC White Paper (available at www.ebc-jp.com). The paper vividly describes a market which is organised for the benefit of a narrow range of producers, in close collaboration with government ministries.
The paper’s authors will be keen to persuade the DPJ to their point of view, but it’s not clear how Japan’s new governing party will react. The DPJ claims to be the champion of the “little people” against big business and the bureaucracy. But the question is whether the DPJ can reconcile battling vested interests while protecting employment. I suspect that the DPJ is trying to conduct a fundamentally schizoid policy. Attacks on the bureaucracy and their business partners should lead to a shake out in those industries, involving layoffs and plant closures. But this goes against the DPJ’s very strong commitment to protect employment.
The white paper clearly lays out many of the issues the DPJ must tackle. A typical example is the lack of an independent regulator in the telecommunications industry. Thus, the Ministry of Internal Affairs and Communications is the main telecom regulator, despite the fact that the government owns a one-third equity stake in NTT – and must do so in perpetuity, according to law.
The white paper goes on to point out that interconnection fees (whereby smaller players pay NTT to use its infrastructure) in Japan are very high compared to the OECD average. A rare legal action by foreign and Japanese carriers was brought against the regulator to rectify this.
However, progress was disappointing, with a fee reduction being phased in over five years, and NTT being allowed to recover the funds by different means.
We know that, in the past, former Prime Minister Junichiro Koizumi would have looked at deregulation to inject competition into the market and lower prices. The DPJ certainly wants to help consumers with lower prices.
It also wants to limit the power of the bureaucracy. But will it really push for increased competition in the telecom sector to the extent of breaking up the carrier’s dominant position? That would clearly go against its philosophy of protecting employment at all costs.
Another interesting case the EBC highlights is Japanese airports. Air fares are kept high by the cost of flying through Narita. The EBC points out that this is due to a government “special account” charge levied on Narita airport, which is passed on to the airlines. The government earmarks the special account proceeds to build local airports. The proliferation of local airports then drains air traffic from secondary hubs at Nagoya and Kansai.
The result is an over-dependence on Narita, and higher prices for everybody. According to the DPJ’s own rhetoric, this special account is an ideal candidate for elimination. But will they keep their promise if that means throwing construction company employees out of work?
We will only know in the coming months.