by Manuel Alvarez-Rivera, Puerto Rico
Voters in Japan go to the polls this Sunday to choose half the members of the Sangiin or House of Councillors - the upper chamber of the Japanese Parliament, the National Diet. A total of seventy-three seats will be filled in forty-seven constituencies by the semi-proportional Single Non-Transferable Vote (SNTV) system, while forty-eight seats will be allocated on a nationwide basis by proportional representation: Parliamentary Elections in Japan has further information on the House of Councillors' electoral system. In addition, GEM's Edward Hugh follows the election and its impact on the country's economy at Japan Economy Watch.
Under Japan's 1947 constitution, bills rejected by the House of Councillors can't become law unless the Shugiin or House of Representatives - the lower chamber of the Diet - overrides the upper chamber's veto by a majority of at least two-thirds. Thus, an opposition-controlled upper house can block the government's legislative agenda, although the lower chamber retains the final word on a number of important matters such as the designation of a prime minister.
Constitutional provisions notwithstanding, the 2007 upper house election has become for all intents and purposes a referendum on the ten month-old Liberal Democratic Party (LDP) government of Prime Minister Shinzo Abe, whose approval rating has fallen sharply following last May's suicide of Agriculture Minister Toshikatsu Matsuoka (who had become embroiled in a political funding scandal involving office expenses and bid-rigging of public contracts) and the disclosure of serious problems at the Social Insurance Agency, which has lost track of fifty million pension records; to add insult upon injury, an additional fourteen million records were never entered into the agency's computer system, and the municipalities previously responsible for the information have destroyed their records.
Meanwhile, the opposition Democratic Party of Japan (DPJ) has been riding on a wave of discontent in the aftermath of the pensions fiasco - a salient issue in a country whose population is both rapidly aging and gradually declining - and recent opinion polls have the DPJ ahead of the LDP by an increasingly large margin, with New Komeito - the LDP's coalition partner - in a distant third place, and the Communist and Social Democratic parties further behind.
Since 1955, the LDP - a conservative party with close ties to the business community - has been Japan's dominant political force. Until 1989, the party presided over a period of remarkable economic growth, in which Japan emerged as one of the world's major industrial powers. However, since 1990 the Japanese economy has been in and out of recession, alternating with periods of weak growth. Nonetheless, the LDP has been out of power only once during the last fifty-two years (from 1993 to 1994), although in 1989 and 1998 it suffered major defeats in elections to the House of Councillors: in both cases, the results were viewed as a popular rejection of incumbent LDP governments, and the sitting prime ministers were forced to step down. However, on both occassions the party went on to prevail in subsequent elections to the House of Representatives and remained in office.
In the last House of Councillors election, held in July 2004, the DPJ won more votes and seats than the LDP (although the latter retained control of the upper house in alliance with New Komeito - an offshoot of the lay Buddhist organization Soka Gakkai), but in an early House of Representatives election held in September 2005, the LDP government of then-Prime Minister Junichiro Koizumi won a landslide victory, trouncing the DPJ. Nonetheless, Koizumi had promised not to run for re-election as president of the LDP and stepped down from office in September 2006; Abe succeeded him as party leader and head of government.
However, Abe is widely perceived as having moved away from the reforms initiated by his popular predecessor, pursuing instead a nationalist agenda centered around a revision of the pacifist "MacArthur" constitution (imposed on Japan by the U.S. after World War II) and the establishment of an education reform intended to foster patriotism. Although Abe's seeming indifference to bread-and-butter economic issues had dented his public standing (and a number of verbal blunders by some members of his cabinet haven't helped matters either), the government appeared to have suffered no lasting damage until the suicide of cabinet minister Matsuoka and the subsequent pensions debacle, which appear to have turned public opinion strongly against Abe and the LDP.
Should voters hand the government a major setback in Sunday's vote, it is widely believed that Prime Minister Abe would have no choice but to resign, triggering a leadership battle among the LDP's various factions, and perhaps an early election for the House of Representatives - although the latter is generally regarded as unlikely to take place unless the ruling party suffers a truly catastrophic defeat at the polls.
Update
The Liberal Democratic Party (LDP) was comprehensively defeated in Sunday's upper house vote in Japan. With all votes counted, the ruling parties lost their absolute majority in the House of Councillors, where the opposition Democratic Party of Japan (DPJ) has displaced the LDP as the largest party for the first time in more than fifty years.
According to definitive figures published by Japan's Ministry of Internal Affairs and Communications, the results of the prefectural district vote were as follows:
Democratic Party of Japan (DPJ) - 24,006,818 votes (40.5%), 40 seats
Liberal Democratic Party (LDP) - 18,606,193 votes (31.4%), 23 seats
New Komeito (NK) - 3,534,672 votes (6.0%), 2 seats
People's New Party (PNP) - 1,111,005 votes (1.9%), 1 seat
Japanese Communist Party (JCP) - 5,164,572 votes (8.7%), no seats
Social Democratic Party (SDP) - 1,352,018 votes (2.3%), no seats
Independents - 5,095,168 votes (8.6%), 7 seats
Others - 477,182 votes (0.8%), no seats
Meanwhile, the results of the party list vote were the following:
Democratic Party of Japan (DPJ) - 23,256,247 votes (39.5%), 20 seats
Liberal Democratic Party (LDP) - 16,544,761 votes (28.1%), 14 seats
New Komeito (NK) - 7,765,329 votes (13.2%), 7 seats
Japanese Communist Party (JCP) - 4,407,933 votes (7.5%), 3 seats
Social Democratic Party (SDP) - 2,634,714 votes (4.5%), 2 seats
New Party Nippon (NPN) - 1,770,707 votes (3.0%), 1 seat
People's New Party (PNP) - 1,269,209 votes (2.2%), 1 seat
Others - 1,264,800 votes (2.1%), no seats
Consequently, DPJ won 60 seats; LDP, 37; NK, 9; JCP, 3; SDP, 2; PNP, 2; NPN, 1; and Independents, 7. In all, the distribution of seats in the House of Councillors after the 2007 election will be as follows: DPJ, 109; LDP, 83; NK, 20; JCP, 7; SDP, 5; PNP, 4; NPN, 1; and Independents, 13.
In terms of both seats and vote percentages, the LDP had slightly better results than in 1989, when the party was defeated in a House of Councillors election for the first time. However, the 1989 defeat came after a landslide LDP victory in the preceding 1986 upper house election, and the LDP remained by far the largest party in the legislative body, whereas this time around the defeat followed an earlier setback in 2004, and the result was a DPJ seat plurality. Meanwhile, the LDP's junior partner, New Komeito sustained comparatively minor losses, remaining by far the country's third-largest party.
Japan's election was closely followed in Peru, as former President Alberto Fujimori - who holds dual Japanese-Peruvian nationality - ran unsuccessfully on the nationwide list of the small People's New Party. Fujimori is currently under house arrest in Chile, awaiting possible extradition to Peru, where he faces corruption and human rights violations charges.
Although Prime Minister Shinzo Abe has acknowledged his party's defeat in the election, he insists he will remain in office, and leaders of the LDP and New Komeito agreed on Monday to continue ruling in coalition with Abe as head of government. Meanwhile, the opposition DPJ is expected to continue pressing for an early House of Representatives election, which Abe has rejected so far. However, with the opposition parties set to take control of the upper house, and potentially derail the government's legislative agenda, Abe is taking his party and his country into uncharted political waters, and it remains to be seen if he will be able to weather the storm.
Abe does an about-face, and resigns after a year in power
Six weeks after his ruling Liberal Democratic Party (LDP) suffered a crushing defeat in elections to Japan's upper house of Parliament, the House of Councillors, Prime Minister Shinzo Abe announced on September 12, 2007 he will resign as head of government, after just under one year in office. However, the LDP still holds a comfortable majority in the House of Representatives - which has the last word on the appointment of a prime minister - and an early lower house election is regarded as unlikely, all the more so given the ruling party's poor showing in the recent House of Councillors poll.
Abe, who had previously insisted he would remain in office irrespective of the upper house election outcome, asked the LDP to find a replacement, and in an internal election held on Sunday, September 23, 2007, the party chose Yasuo Fukuda as its new leader. Fukuda, who was chief cabinet secretary from 2000 to 2004 under former prime ministers Yoshiro Mori and Junichiro Koizumi, easily defeated LDP secretary-general Taro Aso, who served as foreign minister under Abe and who had been initially regarded as the front runner in the ruling party's leadership race.
Friday, July 27, 2007
Subscribe to:
Post Comments (Atom)
Special Feature, The German Economy At A Glance
Welcome to the Global Economy Matters Blog. Below you will find the normal chronological blog posts. But first here is our Monthly Special Feature which in January 2008 focuses on Germany. Here you will find charts which provide background data on the German economy. We hope these will be of some help to the first time reader here, making it easier to contextualise, assess and get to grips with the general argument being presented on the blog. The big question which arose concerning the Germany economy in 2007 was whether or not the new found dynamism in German economic activity constituted some form of remaissance, and formed part of a global decoupling process whereby a sustainable recovery in domestic demand was taking place. Analysts on this blog never really accepted this view. The key question and central enigma associated with the German economy is really why domestic demand should have remained so congenitally weak over such a considerable period of time.
Since this phenomenon is also to be observed in the the two other societes with very high (circa 43) population median ages - Italy and Japan - we postulate that demographics and population ageing processes offer some part of the explanation here.
Basically what we can observe as societies move above the 40 median age mark are a number of stylised facts. Weakness in domestic private consumption would be one of these, absence of consumer credit driven property booms would be another, growing pressure on the national debt as the elderly dependence ratio steadily rises would be another, and growing dependence on export growth for sustaining GDP growth would be the central feature of the whole edifice.
We hope you will find the background data presented here useful in assessing the argument which we are presenting on this blog, which is basically that a key component in the longer term growth stagnation from which Germany is suffering has its roots in the underlying demographics. Basically and in the long run (possibly with a 30 year lag) fertility does matter. Please click on thumbnails for better viewing.
What follows is a very rough and ready attempt to describe in broad brush strokes how the contemporary German economy actually works. First off, and as is well known, German society is ageing, and at the same time the German population has started declining. Not only is Germany's median age rising, the proportion of the population in the key 25-49 age group is now falling.
As can be seen from the chart this crucial age group touched its highpoint in 1997/98. This could be thought of as the moment of maximum capacity for the German economy since it includes the crucial 25 to 40 household-former, first-time-homebuyer group. In terms of credit expansion, it is this group which drives a significant part of internal demand.
The age group also includes another important group, the 35 to 50 years one. This group drives an economy in productive terms, since these are the prime age workers. If you think of a society as a 100 metres sprint athlete, then there is an age when this athlete is at the maximum of his or her running potential, an age after which each time they can only run the 100 metres more slowly.
Well a society is the same in terms of its collective economic potential, without addressing underlying issues either through fertility or immigration, it can only move forward more and more slowly. Consumption becomes flat, and GDP growth - gioven the external dependence - fragile.
Private consumption has hovered pretty close to the 60% mark for many years now, while government consumption - after moving sharply upwards as a total share in the first half of the 1970s has subsequently remained pretty constant, moving around the 19% of GDP mark. The big difference has been in the importance of fixed capital formation (GFCF) which reached from 1975 to 2000hovered around the 22 - 24% of GDP mark.
Prior to 1975 GFCF was at a much higher level, while post 2000 it has dropped substantially And So what we can see is that the year between, say, 1975 and 2000, when GFCF remaind a more or less constant share of GDP, constituted - to use the language of neo-classical economics - the constant growth period of the German domestic economy.The years prior to 1975 were the convergence, or "catch-up" years
And especially the 1960s, after Germany finally broke out of the destruction and devastation of WWII - while the years after 2000 constitute what the neo-classicists would call the "balanced growth period", although as we can see, it isn't very balanced, and there certainly isn't a steady state.
2008 Forecasts: There is a consenus at the present time that the German economy is slowing. Where there is no real consensus is over the rate at which it is slowing and where and when it will settle. It is clear that GDP growth in 2007 will be below the heady 3.1% annual rate achieved in 2006. The OECD last December revised their 2007 German forecast down to 2.6%, and their 2008 one down to 1.8%. The IMF in their October World Economic Outlook forecast growth for 2007 at 2.4%, slowing to 2% in 2008. Morgan Stanley's Elga Bartsch, while optimistic that the German economy will whether the credit crunch better than most (and here she may well be right) is somewhat more sanguine, putting 2008 growth at 1.5%. In general though I rather doubt her overview that "Germany could well be on the way to becoming the new growth locomotive in Europe." and especially her suggestion that "the phase of underperformance in terms of GDP growth, which has plagued Europe’s largest economy for years, is clearly over." Unfortunately, what we are arguing on this blog is that Germany's GDP growth rates since the mid 1990s are not some special kind of "underperformance", but what can be expected from a society with a rapidly rising median age which is increasingly dependent on exports rather than domestic consumption for growth.
The EU commission in it's November 2007 forecast was also convinced that the German economy was now on a "solid growth path", forecasting 2.5% growth for 2007 and 2.1% for 2008.
I personally will be very surprised if we see growth in the region of 2% for the German economy in 2008, and I even consider the 1.8% from the OECD and 1.5% from Morgan Stanley still on the high side given the extent of downside risk. Basically the reasonably favourable depreciation rules which currently apply to German investment have been changed as of 1 January 2008, and we might reasonably expect to see some sort of impact on investment comparable with the negative shock which hit private domestic consumption following the VAT rise on 1 Jan 2007. In addition all the indications suggest that German consumption will continue to be weak in 2008. So if consumer consumption is at best flat, governemnt consumption equally so, and investment and construction weakening, we are simply lefy with export growth, and here the outlook is definitely more negative in 2008 than it was in 2007. The Spanish economy (one important German customer) is visibly wilting by the day, as is the UK (another big customer), but it is to Eastern Europe we must look for the biggest impact on German exports of any correction in 2008. Just one data point should suffice, Germany exports roughly the same value of goods to the Czech Republic (and more to Poland) as it does to China. This means that Geramny is proportionately not that exposed to any slowdown in China, but hugely exposed to any sudden shift in growth and demand in the East of Europe.
So I would say, that on current data, 1% growth in Germany in 2008 look a reasonable estimate at this point, but that this needs to be taken to mean with considerable downside risk. Germany is now tremendously dependent on what happens elsewhere, and until what does actually happen elsewhere becomes clearer it is difficult to be more precise on Germany.
The only apparent bright spot on the horizon is employment, but I am dubious that in the context of Germany's ageing workforce this will work through as some are hoping, as I expain at some considerable length in this post here. My opinion is that Germany will enter recession at some point during 2008, and that we may well have 2 consecutive quarters of negative growth. The continuing high euro will maintain pressure on German exports, and high oil and food prices will maintain pressure on the inflation front, at least in the first half of 2008. The ECB will probably switch stance towards rate reductions at some point, but since, as Elga Bartsch among many others so eloquently argues German internal consumption and investment are not especially dependent on credit conditions, easing from the ECB may not have as much impact as one would hope for.
Key Posts For Understanding The Present Path of the German Economy
Is The German Economy Heading For Recession in 2008?
Employment and Unemployment in Germany January 2008
Germany Economy, What Price the VAT Effect Now!
The German Economy, Employment, Export Shares and Age Structure
Structural Aspects of German Export Dependence
Does NeoClassical Steady State Growth Really Exist?
0 comments:
Post a Comment