5 STEPS INTO THE ASIAN MILENNIUM
PAGE 5 OF 7

That was the first time ever that a Japanese prime minister has publicly declared the need for better housing.

     The cost of cramped, overpriced housing is felt in the pocket book to be sure, but more in the Japanese psyche. Aside from suffering unpleasant living and working conditions and the attendant loss of privacy, these conditions perpetuate a mindset built around scarcity and rigid conformity to social norms -- a severe impediment to producing the free-thinkers needed to ensure economic vitality and relevance in the 21st century. The consequence: a population better able to endure a bad status quo.
     There are other costs resulting from the protection of farmers. The lack of suburban land -- combined with regulations designed to protect small retailers -- discourages efficient foreign retailers from invading Japan. As a consequence, Japanese consumers end up paying 15-50% more for clothing, electronics and other goods -- another big protection tax. Yet another form of taxation is being denied, by protectionist regulations on the financial services sector and in the tax codes, the ability to use their quadrillion yen in savings to earn decent returns from foreign investments. Instead, most of it lies fallow in savings accounts that pay 1.5% interest. Taken as a whole, the various protection taxes add up to 50% of income after the highest income tax rates outside Europe. Taken together, these official and hidden taxes take 80% of Japanese income, making them, in real terms, the world's highest-taxed people. It's a form of virtual slavery. What does this sacrifice buy? It keeps a band of wrinked tyrants in power and Japanese farmers in business.
     But the bad old days of LDP dominance are numbered. The first cracks appeared in1991 when it was forced to embrace a desperate alliance with a disintegrating Socialist Party to keep its grip on the lower house of the bicameral Diet. A few Japanese politicians, including some members of the LDP itself, began voicing the need to restructure the political system, the economy, Japanese living conditions. The most notable blow for change came in 1993 when Ichiro Ozawa, a tough, savvy and relatively young powerbroker, broke off from the LDP and cobbled together a reformist coalition that briefly wrested the Diet away from the LDP. Ozawa never advocated de-protecting rice farmers, focusing instead on the need for Japan to play a more active role in world affairs. But the mere appearance of a credible rival to the LDP showed that the Japanese political system wasn't entirely braindead.
     In November the fiery reformer was back in the news after Prime Minister Keizo Obuchi turned to Ozawa's Jiyuto, Liberal Party, for an alliance to make a majority in the upper house of the Diet. That signaled both the LDP's desperation and Obuchi's willingness to sacrifice some LDP sacred cows. Even more significant was that Obuchi's action plan for economic revitalization, announced in late November featured the goal of doubling living space. That was the first time ever that a Japanese prime minister has publicly declared the need for better housing. The housing issue has always been the deadly third-rail of LDP politics, carefully avoided for fear it might fry the holiest of sacred cows -- protecting rice farmers.
     Standing alone the goal of doubling living space might be dismissed as pretty words. But it was followed in early December by the announced intention to replace the existing grudging and stingy rice import quota with a more open-ended system that would impose a 350 yen per kilogram tariff on imported rice. The tariff if exhorbitant, effectively quadrupling the price of American and Thai rice and making both more expensive than all but the most premium brand of Japanese rice. But the proposed change represents acceptance in principle of expanded rice imports and the attendant transformation of some of the nation's rice paddies into gracious suburbs.
     A suburban expansion boom will amount to the liberation of Japan's consumers from both the oppressive and brutal protection taxes on housing, food and consumer goods and from the politics of scarcity and conformity. Affluent Japanese families living in spacious suburban homes with swimming pools will stop seeing their nation as an impoverished land that must jealously guard hoarded wealth against the world. They will come to see themselves as citizens of an interdependent community of nations with the right and duty to consume as much as they produce -- like other affluent peoples. Not only will that seachange in attitude inject immense new vitality into an East Asian common market, but will help drive growth and prosperity for the entire world. The benefits will accrue to a broad range of foreign companies -- American developers, Corean carmakers, Chinese electronics companies, to name just a few segments. The biggest benefit, though, will be enjoyed by Japanese consumers. Their nation will stop being an economic black hole that takes in money and stuffs it under the tatami, and start radiating capital and prosperity, helping its neighbors grow and prosper as well. A dynamic, revitalized Japan will draw the global economic center of gravity closer to East Asia. PAGE 6

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