Two Scandals and a Few Tips for the DPJ

Janne drew a parallel between two examples of government involvement in fraudulent activity in an earlier comment. Here’s some background that explains the differences, and a few unsolicited tips for the DPJ on exploiting them to its advantage nevertheless.

There’s actually a sensible reason for MAFF involvement in the Sumitomo-Mikasa transaction that ended up with 145 tons of defective rice being passed on to shochu* manufacturers. The government—to be more specific, the Ministry of Agriculture, Forestry and Fisheries (MAFF)—is responsible for all tariff-free rice imports under WTO minimum access requirements. The government uses an auction system, under which trading companies undertake to find the rice and import the rice for the government, which turns around and sells the minimum access rice to domestic businesses for processing into shochu, rice cakes, glue and other rice products. The government is careful not to allow the rice itself to enter the retail market, where it would come into competition with domestic rice. Unfortunately, 145 tons out of 7,000 tons that Sumitomo imported from Thailand on behalf of the Japanese government had became infected with molds. Under the terms of the contract, Sumitomo had to purchase the infected rice. In order to keep the supply chain in order and the merchandise flowing—remember, there is a WTO obligation to fulfill—a MAFF official suggested that Sumitomo use Mikasa Foods, one of the few rice processors with the processing capacity for non-food end use—glue as a suitable outlet for the defective rice. Unbeknownst to MAFF, Mikasa Foods had hit on the highly lucrative business model of buying up defective rice on the cheap far beyond its legitimate processing capacity and passing it off to unsuspecting food processing businesses at high mark-ups. Someone, somewhere, appears to have snitched.

Then, is MAFF merely an innocent bystander in just one transaction in a case of wholesale fraud? Not quite. According to a Yomiuri report, MAFF has conducted 96 inspections since 2004, when Mikasa Foods began passing on the defective rice. However, all the inspections have been announced beforehand, giving Mikasa Foods ample time to engineer a cover-up. Not anymore, but the political damage has been done.

The opposition has several courses of action at its disposal, a few of which come to mind immediately. It can demand that the government produce information on all government inspections to see if they do not carry similar risks of cover-ups as the result of prior notice. It can demand that the government produce a complete list of former government officials employed by firms doing business with the government on minimum rice (or, if it wants to expand the playing field, businesses otherwise subject to government inspection). It can search for the names of any LDP Diet members receiving political contributions from Mikasa Foods. I am sure that Akira Nagatsuma and his colleagues are already looking into these and other ways to exploit the latest revelations to the DPJ’s advantage.

As for the latest Social Insurance Agency revelations regarding the falsification of premium payment records to cover up corporate delinquencies, this is yet another example of the systemic failure at the SIA. The extent of the fraud is unknown and is likely never to be made clear; there’s good news and bad for the government in this. The saving grace for the LDP is that the SIA has been so openly and thoroughly discredited that it takes a misdeed of massive proportions to excite the Japanese public.

So, as far as the government is concerned, one, the contaminated rice, is a case of guilt by association; the other, a case of institutional breakdown. Or so MAFF would like to claim. The success of the DPJ turns on its ability to weave these and other issues into a narrative that implicates the LDP in a systemic failure as the result of 53 years of political neglect. The latest policy manifest from DPJ appears to shaping up as everything that it promised in 2007, then some (dropping the gasoline tax surcharge and expanding agricultural subsidies to fishermen), still without raising taxes. This exposes its flank to attack not only from the LDP but also from the mainstream media. The DPJ must open a new front for attack; here, recent events seem to be giving government incompetence a new lease of life.

* Shochu is the Japanese term for a large family of distilled alcoholic beverages made from any one of wide variety of grain and tubers. Soju the Korean equivalent, appears to have much older origins. They both appear to belong to an Asia-wide family of powerful, often odiferous alcoholic beverages. And I know it’s powerful becaush right now I am writing dish footno… ah whadda…

More on the Late-Term Elderly Medical Care Insurance System (Featuring Yōichi Masuzoe the Teflon Minister)

The Yomiuri poll continues to amaze me over Yōichi Masuzoe, the Health, Welfare and Labor Minister overseeing the troubled cleanup of the missing public pension accounts － poll results: 34.9% positive grades, 62.7% negative grades － since only 11.8% agreed with the opposition that he should resign, while 84.1% said that he didn’t have to. The DPJ leadership has always made clear that a House of Councilors censure resolution will turn on public opinion. It appears that he remains in the clear.

The public confusion over the rollout of the Late-Term Elderly Medical Care Insurance System does not seem to have hit him yet either. That is not too surprising, since mainstream dailies (with the notable exception of the Sankei) had not been giving the troubles heavy coverage until quite recently*. I believe that this is changing.

Moreover, public pension account holders are paid on the 15th, and today is the first occasion of the deductions under the new Insurance System. The opposition hopes to make this a bigger problem than it is by connecting it in the minds of the public with the public pension accounts scandal. Over the next couple of weeks, we’ll see how successful they are. I suspect that Mr. Masuzoe will escape any serious consequences. It will generate some negative coverage for the Fukuda administration if the media goes around quizzing the recipients, but I doubt that it will translate to a plus for the DPJ, or any part of the opposition for that matter, except perhaps the Communists

Having said that, I’ll have to alter my assessment of the political impact slightly, now that we’re seeing some serious coverage. I don’t see the deduction issue having a serious impact, but more broadly, the rollout reports feed into the now-familiar incompetence issue adding to the image of a bumbling, indecisive administration. However, that’s an already well-established trope, and these latest troubles are a temporary blip compared to the other far more serious problems of the coalition and more specifically the Fukuda administration.

* I believe that at least part of the reason for this is that the subject is too complicated to digest without help from the authorities (this leaves you vulnerable to spin) and the facts of the rollout are too diffuse to capture without some serious digging (this means that management must decide whether it’s worthwhile to send reporters out there beyond their regular beats and kasha clubs).

The Yomiuri appeared to have been going particularly lightly (though it did begin hitting in earnest over the weekend), which some observers may attribute to its pro-government stance. Note that Sankei, although more conservative in some respects than the Yomiuri, always hits hard at incompetence and corruption in government and more generally the public sector, as well as at any backsliding from and during attempts at reform. However, for me, the evidence is too circumstantial to say anything more definitive. DPJ advocates will be less unsure.

Parallels between Mr. Fukuda and Mr. Abe in the Polls; Stargazing; and Lots of Footnotes on North Korea, Refueling Resumption Bill, Etc.

The Abe Cabinet’s public poll numbers* had slipped steadily since its inauguration in 2006 September until opposition outnumbered support for the first time in 2007 February. However, as the political financing scandal epidemic more or less subsided** and the ruling coalition managed to pass the budget and enact much of its legislative agenda, the Abe Cabinet’s numbers recovered in April and appeared to stabilize there. But then, the DPJ finally broke through with the 50 Million mislaid public pension accounts. The Abe Cabinet’s numbers took a huge hit, from which they never recovered. True, the DPJ’s numbers did not rise in similarly dramatic fashion, but the LDP’s numbers fell, and that’s what mattered. The pension accounts scandal devastated the ruling coalition in the July Upper House election and mortally wounded the Abe Cabinet (on life support, then clinically dead, for the last two months of its existence). Does the story sound familiar?

Some of the 15-16 December poll numbers in the latest Kyōdō Tsūshin wire service report can only be interpreted in light of the initial rage at the cavalier way in which the Prime Minister and his Chief Cabinet Secretary (charged jointly with the Health, Labor and Welfare Minister to clean up the management mess at the Social Insurance Agency) tried to brush off the latest revelations***. As the anger subsides and if nothing more occurs to further erode trust, the Fukuda Cabinet will recover a good portion of the support it dropped. But a sense of betrayal will linger in the public’s mind, bringing a new fragility to the Fukuda Cabinet. All innocence has been lost; with it, much of Mr. Fukuda’s margin of error.

What, then, are the factors that will have a major effect on the Fukuda administration’s fate?

You can forget about his 27-2829 December trip to China. There will be no surprises; the dispute over the East China Sea gas fields will be resolved, if ever, on the occasion of President Hu Jintao’s visit to Japan next spring****. If there is no solution available on that occasion, then Mr. Fukuda should be polite, but firm in rejecting Chinese claims.

ADD: On the other hand, if they do decide to settle it, there's no reason why they can't do it on this occasion. If they do, it will certainly be a nice feather in the Prime Minister's cap. Chinese leaders tend to gift tributaries... (20 December)

On North Korea, no meaningful progress will be made on the abductees, in the sense that no new information will surface from the North Korean side*****. This is unlikely to be a problem for Mr. Fukuda unless the Bush administration decides to take North Korea off the list of state sponsors of terrorism, which in turn is unlikely to happen unless North Korea comes clean on its uranium enrichment program and its plutonium and plutonium bomb stockpiles******.

You can forget about the refueling resumption bill, too, which will be adopted by a supermajority override on 12 January or thereabouts. What the Kyōdō Tsūshin poll says is that the public is angry at the Prime Minister and his Ministers’ handling of the pension accounts revelations and is taking it out on the refueling bill*******. It’s not about the bill itself. In fact, pushing the bill to its ultimate conclusion will not damage Mr. Fukuda in the public eye; to the contrary, it will be somewhat helpful, as a show of decisiveness.

National security brings me to the uglier face of the defense controversy: the Moriya and Co. scandals. I’ve said before that the coalition can weather the scandal if it is limited to Yamada Yōkō but that all bets are off if indictments spread to other businesses. I should have qualified that by saying that criminal proceedings against LDP members would cause problems commensurate with the number and statuses of such politicians. I think that the Fukuda administration can even weather the singular implication of Fukushirō Nukaga, his Finance Minister. But for that, he needs to act decisively in the face of a variety of contingencies. ********.

I had thought that the tax bill would be a major theater of contention on the chess board. Now, I am not quite so sure. There is open dissent in the DPJ on the most important and problematic item among the time-limited tax measures: the ten-year old “temporary” supercharge on the gasoline tax. Specifically, it has been revealed that some road-construction-happy DPJ Diet members are circulating an open letter opposing the DPJ pledge to eliminate the supercharge and to put the remainder in the general budget, and threatening to vote against a DPJ bill to that effect. But even if the threats prove hollow and the wayward DPJ road tribe toes the party line, it is my belief that the odds are overwhelmingly in favor of both sides coming to a compromise. It is important for the Fukuda administration not to lose its nerve as the deadline approaches.

So, as far as the major issues that come to my mind are concerned, Mr. Fukuda should be able to make his way to the Hokkaidō Summit. That alone should firm up support for his Cabinet. But this will more likely than not require a certain firmness and decisiveness － a ruthlessness, actually － that his predecessor Mr. Abe was not able to muster. Can he? That is essentially the point that Tobias raises here. So, will he or won’t he? Only God knows. And if another good friend (of mine, not Mr. Fukuda) Shisaku is God, then Mr. Fukuda is as good as dead.

* AKyōdō Tsūshin report is recovered here. The graph can be compared with the one in this report on the Fukuda Cabinet. The blue and red lines trace support and opposition respectively.

** It helped that some of the negative press spilled over to the DPJ side, most notably on party leader Ichirō Ozawa and his less-than transparent real estate transactions and other political financing mysteries.

*** I posted on it here, in case anyone needs a reminder. No? Oh well.

**** My best guess is a joint development agreement that covers areas beyond both edges of the disputed waters. That way, neither side compromises its position on the dispute, while allowing development of resources that should be commercially viable only for the Chinese market. If it happens, you read it here first.

***** The Japanese side is demanding the following:

1) Account for all the abductees.
2) Return remaining survivors.
3) Punish the people responsible.

Barring regime change, it is hard to imagine these demands being fulfilled. If the North Korean claims are true, then the Japanese side is demanding that the other side prove a negative. To do so to with any measure of satisfaction, the North Korean side would have to offer a degree of transparency and access that the North Korean regime cannot provide. If, as is likely, they are lying, they still face the accounting issue. Besides, there is no way that they can admit the truth now, since they would then have to proceed to the third Japanese demand, which in turn would raise the transparency and access issue all over again.

These are non-negotiable. Agreeing to anything that does not hold out hope for fulfillment of these demands means that you are grabbing the third rail with your bare hands. So you can see why the American authorities can’t get a coherent answer when they ask the Japanese administration to tell them what it means by “progress” with regard to the prospective delisting of North Korea as a state sponsor of terrorism.

****** In the unlikely event that North Korean side does declare its nuclear stockpile, I’m sure that the Bush administration will move to delist North Korea. The Japanese authorities will acknowledge the matter gracefully; they have no choice. It will be useful to remind the Japanese public that Japanese sanctions against North Korea were first linked to the abductees issue (to the best of my knowledge) in 2006 October, when restrictions were tightened in response to the North Korean nuclear test. Thus, if there is meaningful progress toward actual destruction of the stockpile (as opposed to mere declaration), Japan will be rightfully expected to begin rolling back those sanctions. But that is a bridge that will not be reached in the foreseeable future.

******* It is instructive that the Yomiuri poll, taken only a week before the Kyōdō Tsūshin poll, showed only a slight decline in support numbers for the refueling resumption bill. Some of the support must be casual and more a vote of overall confidence than an expression of a preference for that particular policy objective. I would rephrase this accordingly if I were to write it now.

******** Specifically, Mr. Fukuda needs a　color-coded contingency plan with a clear red line beyond which he will dismiss Mr. Nukaga.

Sudden Drop in the Polls Convinces Prime Minister Fukuda to Apologize after All

The evening Yomiuri reported that Prime Minister Fukuda had made up his mind to apologizing for having to break the LDP/Abe campaign promise to go after every last public pension account owner and pay them. Plunging opinion polls will do wonders for your conscience. On the other hand, Mr. Fukuda’s performance seems to have left something to be desired in terms of showing true contrition. It’s not his style, I know… still.

Looking back, I can believe the sometimes insensitive Heath, Labor and Welfare Minister Yōichi Masuzoe making this kind of public communication blunder. Why, though, did Mr. Fukuda and worldly, astute Chief Cabinet Secretary Nobutaka Machimura make this god-awful gaffe? Some of it must have been due to a sense of loyalty to Shinzō Abe, hapless Prime Minister and co-member of the Machimura faction. But a previous press conference by Mr. Masuzoe, where blaming the election campaign seemed to work, appears to have lulled the authorities into a false sense of security*.


Barring further bad tidings, Mr. Fukuda’s poll numbers will edge up again. But his likeability quotient has dropped, and his margin of error has narrowed. In the short run, though, this will make him even more determined to push the refueling resumption bill with a supermajority override, and even more unlikely to call a snap election. However, he will be more reluctant to push the opposition on other major issues.

Why? First, LDP hardliners will push for his resignation if he does not push the refueling bill. Second, nothing helps to discourage Mr. Fukuda from dissolving the Lower House more than prospects of losing more seats. Finally, his capacity to make the public feel that the DPJ is being unreasonable and disingenuous in any public confrontation has been diminished.

* I hope to have more on that later.

Why the Public Pension Accounting Scandal Blew Up Again on Tuesday

If you are a Japan politics otaku, you will remember that it was the revelations over the 50 million public pension accounts that had not been traced to their owners that really pushed the LDP over the cliff in the July Upper House election, the cake under the icing, if you will, of all those lesser scandals and misstatements. When Prime Minister Abe went over and above what his administration was promising (consolidation of all accounts by computer by March, the end of the Japanese fiscal year) and vowed to go after every last account and restore it to its rightful owner, most people thought he was overreaching. When Yōichi Masuzoe, a social welfare expert and one of the smartest Diet members in the LDP, assumed the Health, Labor and Welfare portfolio in the post-election Cabinet, he surely knew that it would be impossible to fulfill Mr. Abe’s campaign promise. Yet when Yasuo Fukuda took over as Prime Minister in September, choosing to keep on most of Mr. Abe’s Cabinet members and other political appointees including MHLW Minister Masuzoe, neither individual did anything to back away from Mr. Abe campaign promise*. On 31 October, a Ministry of Health, Labor and Welfare committee consisting of independent experts and other notables issued a report that included ballpark figures that gave a fairly good idea of the causes and magnitude of the hardcore, intractable cases. Yet Mr. Masuzoe waited and chose this point in time to officially own up to the fact that millions of accounts not only would remain unattributed by the March deadline but might never be restored to their rightful owners.

All this predictably caused a furor, and the opposition is on the attack, most notably with calls for a censure motion against Mr. Masuzoe, and Diet testimonies by Prime Minister Fukuda, Chief Cabinet Secretary Nobutaka Machimura, and of course Mr. Masuzoe**. Clearly, the opposition hopes to have a field day during the expected month-long extension of the extraordinary Diet session into mid-January. And that, in my view, is exactly why the announcement was made on Tuesday.

It has been clear for some time that this Diet session will be re-extended, the Upper House will vote it down, the Lower House will override it by a supermajority vote, the Upper House will pass a censure motion against the Fukuda administration/Prime Minister Fukuda, Prime Minister Fukuda will not call a snap election, and life will go on. Now there will be several other bills remaining on the agenda at the current 15 December recess date, but the ruling coalition has no intention of forcing them through during the re-extension, much less allowing the opposition to enact its own agenda items. Thus, activities during the extension had promised to be mostly, if not exclusively, about the refueling bill and the opposition’s efforts to link them to the Ministry of Defense scandals. This meant that there would be a lot of Diet members in both Houses sitting on their hands with little to do but wait to vote in the plenaries. Given such prospects, what more could a hungry opposition have asked for, if not another juicy chunk of the ruling coalition to sink their teeth into?

Normally, of course, that would be a political disaster for the Fukuda administration. However, in the case of the pension accounts scandal, it was bound to blow up anyway in March, during the regular Diet session, the real deal, when the budget and the budget-related bills, particularly the time-limited special tax measures, would be facing crunch time. Unlike the refueling activities, the public pension accounts are a domestic issue, a money issue, fruits of our real blood, sweat and tears***. At a minimum, it would have a disastrous effect on the legislative agenda****. Secondly, the aura of haplessness that would be cast on the Fukuda administration by the accretion of successive scandals would be compounded by the fact that, with time, the problem would become less and less Mr. Abe’s and more and more Mr. Fukuda’s. These two elements are enough to convince me that the Fukuda administration and LDP strategists decided that it would be better to take their lumps now, than to wait for the regular Diet session.
Then why this particular moment? Over the previous couple of weeks, the LDP had finally managed to win over skittish coalition partner New Kōmeitō to re-extending the extraordinary Diet session. It achieved this by assuring them that Prime Minister Fukuda would not call a snap election even if the opposition passed a censure motion in the Upper House after the coalition supermajority in the Lower House overrode an Upper House rejection of the refueling resumption bill. With that final piece of the puzzle in place, the time to clear the air had finally come.

This is not to say that the ruling coalition is not taking a hit. I would be surprised if Fukuda administration’s poll numbers do not take a dip. I would only be mildly surprised if Mr. Masuzoe (unfairly, if prudently, in my view) is forced to resign. However, the coalition is putting the blame on a desperate Prime Minister Abe making a campaign promise that could not be kept. That, together with best efforts by the authorities and a full, clear accounting of the limits of the ongoing efforts to identify the account owners, will be enough to keep the scandal from derailing Mr. Fukuda’s desire to hold the next Lower House general election at his convenience, sometime after the next G8 Summit in Hokkaidō in 2008 July and the end of the current four-year Lower House tenure in 2009 September*****.


* When questioned, Mr. Masuzoe would come close to repudiating it, but would pull back, citing the need and his will to fulfill a political promise.

** There is a public communications angle to this, and it’s clear that the Fukuda regime bungled some aspects of it. Specifically, poor public communications efforts by the Mr. Masuzoe and the Chief Cabinet Secretary appeared to compound the problem. This was not been one of Mr. Fukuda’s shining moments either, but he appears to have escaped the brunt of the initial media assault, mostly because of the way they timed Mr. Masuzoe’s press conference. But more broadly, I think that they should have done more spadework, so that they could ease into the new narrative when the official revelations were made. I’ll try to address this as part of a separate post on the scandal.

*** In a way, Ichirō Ozawa’s decision to force a showdown on the refueling extension was a strategic error that is somewhat analogous to Mr. Abe’s highlighting constitutional amendment and patriotism in education. None of them were hot-button issues with the vast majority of the Japanese public. The two men overestimated the quality, if not the numbers, of the support that their proposals received.

**** Note that the public pension accounts scandal is handled by the Health, Labor and Welfare Committees in the two Houses, about as far as possible in terms of jurisdiction as you can get from defense issues. Thus, pulling it back to a re-extended extraordinary Diet session means that the opposition will have a hard time using the former to mess up the schedule on other work that must be done.

***** It is possible that the reluctance in some opposition quarters to force a re-extension (e.g. People’s New Party co-leader Tamisuke Watanuki) or even to oppose the measure in the first place (e.g. DPJ deputy leader Seiji Maehara) helped to force the LDP’s hand as well. Without a Diet in session as a platform to press the pension accounts issue, the opposition would have had no choice but to wait for the regular session to be opened. Conversely, the opposition could be wishing that they could save the pension accounts for the regular session.

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I stay away from these unverifiable conspiracy-type conjectures, which are usually no more than selective facts strung together with charming plausibilities. But in this case, the circumstantial evidence was too strong for me to resist. I am nevertheless more ready than usual to be proved the fool.