A Year of Historical Turning Points?

Reconsidering Japan’s Energy Policy

This year has offered various opportunities to think about “path dependence”—or, to put it in plainer terms, about historical turning points. The first such opportunity was of course the March 11 Great East Japan Earthquake and the subsequent disaster at the Fukushima Daiichi Nuclear Power Station. In the face of a catastrophe of this order, the world of politics needed to change. In particular, something needed to be done about the paralysis resulting from the split in control of the National Diet, where the opposition dominates the upper house. One possibility would have been to put together a grand coalition for a predefined term to tackle the urgent tasks of disaster recovery and combined reform of the social security and tax systems. For a while it seemed as if this might actually happen, but in the end Prime Minister Kan Naoto used the catastrophe as a pretext for prolonging the life of his own administration, and the political deadlock remained unbroken.

Meanwhile, we find ourselves at a historical juncture in Japan’s energy policy as a result of the nuclear plant disaster. On December 12 the Fundamental Issues Committee of the Advisory Committee for Natural Resources and Energy, chaired by Nippon Steel Corp. Chairman Mimura Akio, approved the bulk of a draft document prepared by its secretariat setting forth issues to be discussed in drawing up a new basic energy policy for the nation. The document refers to saving energy, introducing renewable energy, shifting to the cleanest possible fossil fuels, and decreasing dependence on nuclear power as much as possible. At this committee meeting, Minister of Economy, Trade, and Industry Edano Yukio revealed his ministry’s intention of coming up with a proposal for reform of the electric power system, addressing such issues as the separation of power generation and transmission operations and the system for calculating electric power charges, by early in 2012.

In view of the Fukushima Daiichi accident, I believe that we need to undertake a fundamental review of our country’s nuclear energy policy. But given Japan’s dependence on nuclear power for about 30% of its electricity (though the share as of November was only 20.1% because of the shutdown of a number of reactors following the March earthquake and the postponement of the scheduled resumption of operation at reactors temporarily out of service for regular maintenance checks), its energy security as a resource-poor country, and the need and responsibility Japan has for improvement of the safety of nuclear power generation both domestically and internationally in the wake of the Fukushima Daiichi accident, completely abandoning nuclear power is not an option. Even if the government decides to stop using nuclear power generation at the earliest possible juncture, the country’s existing nuclear power plants will continue to operate for decades to come. Also, research and development for decommissioning reactors is required. If the country decides to abandon nuclear power, causing this to become an industry without a future in Japan, how many talented young people will think of devoting their lives to this field as researchers or engineers? This is not a feasible choice.

It is essential, however, to review the regulation of electric power transmission, including consideration of splitting power generation and transmission operations, to promote competition in the power generation sector, and to reform the electric power rate structure. Given the costs of dealing with the Fukushima Daiiichi accident, there is a strong chance that Tokyo Electric Power Co. will fall into insolvency, and the government is already considering an infusion of public funds on the order of ¥1 trillion. If implemented, it will amount to the effective nationalization of TEPCO. This is a good chance for a fundamental reform of the electric power system for the sake of creating a flexible system of charges for electricity to respond to movements in supply and demand, as well as for the building of “smart” communities.

Global Economic Turmoil and the Japanese Political Scene

On December 8 and 9 the leaders of the European Union held a summit meeting. On the heels of Greece, Italy now faces a grave debt crisis. But, as expected, the only outcome of the summit was a move to further “Germanize” the EU. Along with the implementation of further austerity measures in the countries already hit by debt crises, the leaders agreed on the imposition of upper limits on fiscal deficits and national debts (with Britain excepted) as an extremely important long-term measure—one that might be called the first step toward fiscal integration to accompany the already implemented currency integration. This, however, will not overcome the debt crisis that countries like Italy and Spain are facing, and even if the EU manages to come up with a mechanism to defuse the crisis at some point next year, hopefully as soon as possible, and averts a collapse of the euro, the European economy is bound to suffer sluggishness.

In China, meanwhile, at the December meeting of the Central Economic Work Conference, partly in response to the debt crisis in Europe, it was decided to “fine-tune” the monetary tightening policy that had been in place for over a year. In the wake of the global financial crisis in 2008, China implemented large-scale public investment, which led to a number of strains, including inflation, widening of economic disparities, and deterioration of the financial health of state-owned banks and local governments. Now that the authorities have moved to stimulate the economy again in the face of the European debt crisis, these strains are liable to reappear, and though we cannot be sure of the timing, the possibility of a major adjustment in the economy is emerging.

In the light of these developments, we should probably expect the state of the global economy to become even more parlous in the period ahead. Meanwhile, Japan is about to enter a political season. In the elections for mayor of Osaka (city) and governor of Osaka Prefecture held on November 27, the victors were Hashimoto Tōru and Matsui Ichirō, respectively. Hashimoto is the founding leader of the Osaka Restoration Association, of which Matsui is also a member. In the gubernatorial race Matsui faced a candidate backed by the two biggest parties, the ruling Democratic Party of Japan and the opposition Liberal Democratic Party, and Hashimoto was up against the incumbent mayor, Hiramatsu Kunio, who was backed by the DPJ, the LDP, and the Japanese Communist Party as well, but both men won by large margins. We can take this as an expression of popular frustration with the two major parties and their backers, notably teachers and civil servants. Tentative moves are already afoot among politicians at the national level, such as Watanabe Yoshimi, leader of Your Party, and Kamei Shizuka, who heads the People’s New Party, to link up with Hashimoto and form a third force to challenge the DPJ and LDP. Meanwhile, the combined reform of social security and taxes that the government is aiming to implement is about to become a key issue on the national political scene. I expect to be able to discuss this matter on another occasion, but here I would note that within the administration and the ruling DPJ a confrontation has already emerged between the two camps that I identified in this column last month, namely, those pushing for improved productivity and those favoring traditional pork-barrel politics, over the contents of the combined reform proposal that the government is aiming to finalize by the end of December. Of course we cannot tell what will happen next in the political arena. But as the global economic scene turns increasingly grim, there is now a greater chance of an early general election. I earnestly hope that this will become another historical turning point, marking the end of the impasse in Japanese politics.