Monday, May 16, 2011

Are Japan’s Days of Overseas Adventures Over?

The following is my email response to an inquiry from a friend in the academia, verbatim but with personal details edited out.


Foreign relations in the abstract are of little concern to most voters. Instead, they respond to specific issues such as the North Korean abductions or a mad cow disease breakout in a beef exporting country. Politicians as well as the MSM are inclined to think differently, since statecraft is a far more amusing endeavor than making sure that the private sector keeps the trains running on time, i.e. leaving them alone as much as possible. Still, in a democracy, it is a luxury to be indulged in at one’s peril unless one has dotted and crossed all the more significant I’s and T’s at home. Specifically in Japan’s case, it does not have geopolitical interests that diverge significantly from those of the United States (and to a lesser extent the EU). This means that Japan can largely free-ride on global public goods (and to a lesser extent regional public goods) that the United provides for the rest of the world (including China, though the Chinese authorities would be loathe to admit it).

Much attention was given in the mid-90 and early 2000s to the LDP regime’s interest in permanent UNSC membership and a larger international profile for the Japanese military, propelled in the latter case by the perception of humiliation on the occasion of the Gulf War. However, the first floundered because of the lack of support from non-permanent members that were not part of the push for inclusion in the Council and ill-concealed antipathy from China; the second was always destined to be limited because of fiscal constraints. Meanwhile, on the economic front, the Doha Round is now in its death throes while post-Kyoto Protocol climate change talks are going nowhere fast, leaving little room—or need—for Japanese authorities to spend whatever political capital it has on the issues. The triple disaster has certainly forced the Kan administration to take its eyes off the rest of the world, but, as you say, it only accelerated, albeit dramatically, a trend that had already been in the making.

What will happen when the Japanese economy recovers from the disasters? First of all, the fiscal circumstances will continue to demand the attention of the Japanese government and its constituencies. That means that there will be little political room for expensive overseas adventures excepting FTAs and other economically advantageous undertakings. (Prime Minister Kan gave lip service to foreign ambassadors in Tokyo by promising that the 100 billion yen cut that Japanese ODA took to finance the relief and recovery efforts would be restored many times over. But that’s a canard, really, since the cuts will last only a couple of years—fingers crossed—while Japanese ODA will last many decades beyond that, if significant numbers of developing countries remain just that: developing.) And that leads to my second point: Japan needs socioeconomic reform. This will demand most of the Japanese government’s attention, as well as the expenditure of considerable political capital for more sweeping FTAs with Japan’s major trading partners. Any efforts outside of support for socioeconomic reform will be largely reactive, responding to events and circumstances as they unfold. (A violent endgame on the Korean Peninsula would be a good example.) Third and finally, Japan will emerge out of the disasters’ aftermath older and, in relative terms, economically diminished if BRICS and other developing countries maintain their most recent historical growth trends. This will diminish further the Japanese government’s ability to act proactively on the regional and global theater and the willingness of the Japanese public to support any such adventures.

There is anecdotal evidence to suggest that the younger post-online generation has a different outlook on the rest of the world, domestic and overseas, than their elders. The drift away from hardcopy print media to the less judgmental visual media and the vastly more fragmented online sources of information and public (for want of a better word) discourse could be a contributory cause. The consequences of a post-industrial society—the difficulties that the less skilled have in finding secure, well-paid jobs; complacency settling in with general affluence; aging demographics creating a societal background that discourages risk-taking across the board—could also be behind what I suspect is a more global phenomenon. 35 would be as good a point as any to find an Internet-driven divergence if there is one. But all this is speculation on my part and is not based on personal observation. The Japanese under 35 generally do not speak to me.

I hope that helps. And congratulations on your [book] contract. I understand that any academic career will be well-served by that hardcopy publication.


PS: The following are fragments of an earlier attempt at responding. They don’t quite fit into the main narrative, but I include them here since they might add more substance to my arguments there.

“The last point is true of all democratic nations (and, over the long run, in all others as well) but particularly so in Japan. I see two reasons for this. First, Japan is not one of the main protagonists in any regional issue that has existential consequences. This means that regional issues will only be in the forefront of voters’ minds in the case of an acute incident—which will be of electoral consequence only if it changes voters’ perception of the administration’s competence. Second, Japan’s interests regarding global issues are mostly consonant with the countries in that of the United States, ROK, and to a somewhat lesser extent with the EU. This creates massive incentives for any conventional administration to ride the US hegemony’s wake to the maximum possible, i.e. do the moistest with the leastest. You have heard of the Yoshida Doctrine?

“So unless there are specific issues that demand political attention—to give two examples, 1) DPRK developing nuclear weapons and firing ballistic missiles in our direction and 2) the US pushing us to do more to provide regional and/or global public goods—an administration is well advised to…”

Saturday, May 14, 2011

Kruel Kan Going after TEPCO Pensioners? So Surprise Me

I’ve been getting a few inquiries on the government’s (so far) successful decision to essentially force TEPCO’s private-sector stakeholders—employees, shareholders, creditors, sister regional (de facto) monopolies, and yes, consumers—to foot the entire bill while remaining for the time being for practical purposes the guarantor of TEPCO’s solvency and viability. The following is my written response, unedited, to an email that refers to a Nikkei report that Prime Minister Kan is asking TEPCO pensioners to join the rest of the stakeholders lining up for haircuts. I relied solely on my memory to write it and I’m not a lawyer, so some of the facts being used may be a little off, but I’m pretty confident that the overall narrative is pretty sound. I’ll also add here, as I told one of the inquirers on the phone, that the SOB that (I think) he is, he puts policy ahead of politics, not the other way around as more conservative parts of the Japanese mainstream media suggests.

I’ll meet you half way. I agree that Kan is an SOB. Anecdotes in the media and on the grapevine suggest that he’s been that way all along. But “political” SOB? I’m not so sure, at least in this case. True, TEPCO pensioners are not legally responsible for the mess barring the individual TEPCO pensioner whose individual contributory negligence is proven. However, if the government does not step in beyond the 120 billion yen and keep TEPCO solvent, creditors (or TEPCO) would have no recourse but to enter into one of the bankruptcy procedures and take significant haircuts. The no-doubt very generous discretionary portion (上乗せ部分) of the corporate pension plan will be in jeopardy, as TEPCO payments into the pension fund will be slashed, affecting TEPCO pensioners present and future. So, if it’s not unreasonable to demand that if the government is going to step in to save TEPCO, all stakeholders—and that includes the sister regional monopolies if you think about it—must chip in with a portion of their potential losses in the event of bankruptcy, then it’s not unreasonable to demand that TEPCO pensioners pitch in too. If this story sounds familiar, it is. It’s the parable of the JAL pensioners.

So much for Kan’s jerkhood. Or is it? Are we carrying strict liability too far? After all, one of the concessions that the government made to convince Chubu Electric Power to stop its one currently operating nuclear unit was to agree that CEP had done nothing wrong and was shutting the unit down purely as a matter of government policy. Now TEPCO stakeholders must be wondering: What does CEP have that TEPCO doesn’t? One journalist reminded me, “The accident.” True. And the Nuclear Power Indemnification Act (NPIA) demands strict liability. But Chief Cabinet Secretary Edano has on at least one occasion stated that TEPCO and the government are jointly and separately liable (不真性連帯責任), and a couple days after that the responsibility was a 50-50 split. Legally, that means that TEPCO can sue the government to shoulder its prorated-for-responsibility part of the damages. Moreover, there’s a plausible case to be made—I won’t bother with my reasoning here—that Article 3, paragraph 1, of NPIA should be invoked, putting the entire damages squarely on the government’s shoulders and the government’s alone.

The government has been doing a pretty good job of bluffing TEPCO into submission, and the TEPCO board of directors would have to move to the Caymans or someplace else where right-wing megaphone vans and firebombs cannot reach their dwellings before they could make a stand. Still, there’s no reason to believe that overseas shareholders and creditors—say, some hedge fund in Connecticut that happened to have been holding a chunk of TEPCO shares before the tsunami inundated Fukushima 1 might have reason to bring a shareholders suit on behalf of TEPCO against the government—it would be an administrative lawsuit in the case of Article 3, paragraph 1 and a civil lawsuit in the case of recovery of prorated damages—or TEPCO board members for damages.

In fact, the alternative that I present here would be a very real one if this occurred in a different socio-political environment. (Say, Delaware?) So, barring the odd US hedge fund—and there’s probably a legal minimum proportional holding required to bring shareholder lawsuits; you can look it up—the saga is likely to unfold more or less according to the government’s storyline,although there will be political bumps along the road. But no one seems to have a better alternative, and no one appears willing to contemplate an formal bankruptcy whose ramifications for the immediate stakeholders and more broadly the Japanese economy itself are unknown. In the meantime, though, it is only fair in my view that TEPCO pensioners, like any other group of stakeholders, shoulder its proportional share of the full financial burden.

BTW it is useful to keep in mind that TEPCO is likely to be allowed to more or less pass on the 1 trillion yen/yr in extra fuel costs and the write-down for at least four nuclear power units, and all the regional monopolies should also be allowed to include their payments into the newly proposed sinking fund in calculating their tariffs. So we the electricity consumers will also be sharing the costs of the disaster.

Thursday, May 05, 2011

My Take on the Asahi/Wikileaks, Mostly Focused on the Nuclear Disaster

Another stateside friend New York tossed this NYT report my way. The following is my response, lightly edited here with a sentence tacked on at the end.

The bits and pieces mostly jibe with what we've been seeing and hearing in the media since the DPJ took over. That's what's remarkable about the US wikileaks in general. It's like, tell me something we hadn't known or suspected. That said:
..."Compartmentalization and risk aversion within the bureaucracy, however, could increase Japan's vulnerability to threats for which it is less prepared,"

Bureaucratic decision making has been cited as a factor in Japan's lack of preparedness, almost exactly three years later, for the record-breaking tsunami that crippled the Fukushima Daiichi Nuclear Power Station and set off the worst nuclear disaster since Chernobyl. While the cable offers few specifics about the weaknesses in Japan's disaster planning, it does go on to warn that a blow that disables the country could have catastrophic consequences for global trade and finance.
Note that the first sentence appears to refer to the response to a threat for which it has not prepared for, while the subsequent paragraph appears to be referring to the lack of preparedness itself. These are two connected but logically distinct propositions. Confuse the two, and you get a narrative that is literally nonsense. A bureaucracy, of course, is by nature compartmentalized and risk-averse, so, left to its own resources, will always respond poorly to the unforeseen. Case in point: Hurricane Katrina. That is why leadership is so important. Case in point: Hurricane Katrina. And leadership is where the Japanese public is pinning the blame on. In my conversations on this subject, I've insisted that the typical response under the LDP regime to a nuclear disaster--any disaster--would have been to put the administrative deputy chief cabinet secretary in charge of crack bureaucrats assembled from the responsible ministries, team him up with a parliamentary DCCS, and have chief cabinet secretary preside over the entire process. The CCS could share the chores of public communications with the prime minister. Basically, put the people who know how the parts work, to minimize on-the-job learning. Instead, Kan approached the task as if a car broke down in the middle of the road, tried to repair it himself, then ignored the manual and started asking passers-by for advice.

That said, I suspect that most of the things that came to pass were driven by science and engineering and that most of the mistakes came in the public communications process. Note, though, that the human response to any nuclear disaster tends to be deeply irrational, unscientific, and apocalyptic. This means that the margin of error for managing the figurative—if not the physical—fallout is very small compared to other disasters, such as massive toxic chemical spills—or the tsunami itself.

More on My Take on TEPCO’s Post-Nuclear Disaster Liability

A friend of mine wrote in to tell me that according to a media report, plans are afoot for a 50/50 split between TEPCO and the government for liability stemming from the nuclear disaster under Article 16 of the Act on Compensation for Nuclear Damage. However, he’s looked at the TEPCO website and thinks that it’s still looking to be absolved altogether somewhere down the line under Article 3, paragraph 1 of the Act. The following is my response, lightly edited. I left a couple of embarrassing details visibly edits because I thought it was funny that I’d totally forgotten that I’d blogged it. At least I didn’t imagine it all in the still of the night.

It’s about time.

I made the argument early on—the SSJ Forum, where predictably no one picked up on it—that TEPCO directors could face shareholder lawsuits if they did not pursue the Article 3.1 route. And if I were a hedge fund holding TEPCO shares, I would be afraid of being sued by my investors if I didn't file that lawsuit against the TEPCO directors. Now, if I were a shareholder of that little old bank in Illinois that had put some of its money in that hedge fund... Remember how those little old banks would hold the entire deal in ransom during the 90s bailout negotiations?

As for the 50/50 split, it's been at least a couple of weeks since Chief Cabinet Secretary Edano said that the government and TEPCO were jointly and severally liable (I think that's essentially what he meant by 真正連帯債務) and maybe a week[couple of days] (ed. HAHA I’d forgotten that I’d blogged it two nights ago) since he mentioned, almost in passing, that it would be a 50/50 split. I was surprised on both occasions when the media failed to take note. It's probably hard for people who don't go to the source to realize that the power utility that everyone loves to vilify is facing strict liability. It would be difficult IMHO to prove negligence, since TEPCO had jumped all the legal hoops up to the Fukushima disaster. Government negligence should be easier to prove, since it was the one who decided not to require more precautions despite some expert opinion to the contrary. With power comes responsibility. But 50/50? I wonder where that came from. Surprising to hear a lawyer—Edano—make that concession before the inevitable negotiations with TEPCO. I wonder if the fix is already in.

All in all, I'd go for Article 3, paragraph 1; it heals you, whereas Article 16 only keeps you alive, and who wants to be on life support for the next 20 years…Oh, Dr. Kerkevorian...

Wednesday, May 04, 2011

The Japanese Government’s Liability around the Nuclear Disaster: or, Edano Got Game

Chief Cabinet Secretary Yukio Edano has quietly but firmly made it clear that the Japanese government is jointly and severally liable (he apparently invented what appears to be a retronym—真正連帯債務—to emphasize the point) for damages arising from the Fukushima nuclear disaster. Yesterday (? Monday), he went on record as saying that the government and Tepco would be responsible for half each of the (according to the latest estimates) 4 trillion yen tab. When everybody is finding it convenient to dump on Tepco, he’s injecting a little lawyerly reality into the process without being called a Tepco lackey. That’s quite a feat.

Sunday, May 01, 2011

The Ebb and Flow of the Anti-Kan Forces

Some headlines from the online Yomiuiri:
23 April: “Diet Members Aligned with Ozawa to Step Up Efforts to ‘Depose Kan’ When New Week Begins (小沢系議員、週明けから「菅降ろし」本格化)”
26 April: “Prime Minister: ‘Must Be Candid in Admitting Loss’ in [Nationwide] Local Elections (統一選「率直に敗北と認めざるを得ない」…首相)”
27 April: “60 [Diet Members Show Up] at Study Group to ‘Depose Kan’…Heavy Ozawa Influence (民主「菅降ろし」勉強会に60人…濃い小沢色)”
29 April: “[National Labor Union] Rengo Chairman Koga: ‘Ceaseless Conflict within DPJ Regrettable(連合・古賀会長「民主党の絶えぬ対立は遺憾」)”
01 May: “Will Refrain from Efforts to Depose Kan for the Time Being…Ozawa, Hatoyama Agree菅降ろし、当面控える…小沢・鳩山両氏が一致)”
In the meantime, on 29 April, the DPJ, LDP and Komeito—but no PNP, which fact being totally ignored in the MSM—come to an agreement on the first supplemental budget that allows the Kan administration to finance it mostly with “buried treasures” initially allocated in the FY2011 budget to subsidize the national pension fund. The reallocation as well as the child allowance and toll-free highways—two items in the DPJ manifesto that are being scaled back to finance the supplemental budget—and other expenditure items will be revisited when the second supplemental budget is formulated. This will be the basis on which the three parties will work to formulate and enact the FY2011 deficit bond authorization bill.

The MSM is still taking at face value the LDP and Komeito’s claim that they want Kan out. But I think that my assessment in my previous post (29 April) makes more sense in the light of this sequence of events. Note also that Ozawa’s bark as passed along by mostly anonymous associates and illustrated by the poor attendance at his anti-Kan rally is proving to be worse than his bite.