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Chapter 9 The Global Economic Crisis and the Politics of Regime Change in Japan Yves Tiberghien Unlike in the United States or Europe, the 2008 to 2009 crisis did not hit Japan through the banking sector. Rather, it unfolded mainly through the contraction of global trade and the collapse of its key export engine, which led to a 6.3 percentage point GDP contraction in 2009 and forced the government to rely further on fiscal stimulus and increase its overall public debt, reaching 200 percent of GDP by 2010. In large part because the banks had barely recovered from the protracted financial crisis that followed the collapse of the great Japanese bubble in 1990, they had not loaded their balance sheets with large stakes in U.S. subprime mortgage–related securities , unlike European banks, nor had they been directly involved—this time—in large-scale subprime lending themselves. There was no evidence of a significant increase in bad loans on bank balance sheets. However, the global crisis of 2008 to 2009 came as a sequel to the collapse of the great financial bubble in 1990 and nearly two decades of near stagnation and slow, protracted structural change. Its impact on the Japanese system can only be understood in the context of this earlier crisis and the ensuing long and partial transformation. The Great Recession coincided with a historic regime shift in Tokyo. In the election of August 30, 2009, the Democratic Party of Japan (DPJ) decisively defeated the conservative Liberal Democratic Party (LDP), which had ruled Japan continuously since 1955 save for ten months in 1993 and 1994. There can be no doubt that the economic crisis played a role in decreasing confidence in the government of Prime Minister Aso, but the out- 262    Coping with Crisis come of the historic election of 2009 was overdetermined and expected independently of the global financial crisis, given a deep structural crisis of the LDP regime and a strong yearning for change among voters. The 2009 landslide was heralded by the LDP defeat in the Upper House elections of July 2007. The DPJ did use the global crisis, as well as the public backlash against the process of gradual liberal reforms led by the LDP between 1996 and 2006, to promise a new direction in economic policy, one that would focus on strengthening public welfare provisions and shoring up Japan’s social system. I call this new direction—announced by the DPJ in the summer of 2009—social-democratic because of its dual renunciation of neoliberal reforms and the old-style particularistic welfare politics of the LDP, rooted in the support of particularistic interest groups such as the construction industry and small and medium enterprises. As part of this new direction, the DPJ promised a child support allowance for all families, generous unemployment benefits, and a reduction of inequalities between permanent and irregular workers. This historically new thrust hit not one but two bumps on the road in the summer of 2010. By June, it became apparent that the fiscal scope for a major expansion of universal welfare was not there, unless new resources could be found, such as an increase in the consumption tax, now among the lowest in the Organisation for Economic Co-operation and Development (OECD), at 5 percent. In addition, the DPJ government was beset by incompetence, internal tension, and corruption charges swirling around its secretary general. This led to a change of prime minister in May 2010 and a bitter loss in the Upper House election of July 2010. Thus, by the summer of 2010, the great social-democratic revolution of 2009 had lost both its fiscal capacity and its legislative capacity, given the strong bicameral system of Japan. Intense party bickering in parliament and the nuclear disaster of March 11, 2011, have further hamstrung the DPJ, leading to the downfall of Prime Minister Naoto Kan and his replacement by Yoshihiko Noda in September 2011. Although its original mandate remains and corresponds to genuine popular feelings, the DPJ government under Noda has moved further toward disaster relief, fiscal reconstruction (aiming at raising the consumption tax), and free trade. One crucial theme emerging from the 2008 to 2009 crisis is the commitment by the victorious DPJ to a partially social-democratic agenda and to the rebuilding of the core strengths of the Japanese political economy, such as its training system and the provision of lifetime employment. To use the language of Varieties of Capitalism (Hall and Soskice 2001), after...

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