#EconomyClass to Japan
Brief Review of the Political Economy of Japan
Politicians in Japan are elected by local constituencies to press local issues. What are normally called political parties are, in fact, coalitions between remarkably autonomous political entrepreneurs. These politicians join together in factions not to promote a common ideology or agenda but, instead, join forces in order to serve clientelist objectives. Japan is clearly a successful democracy with universal suffrage, competitive elections and freedom of the press. Still, until 2009, a single party dominated politics and controlled the government for over 60 years. That party, the Liberal Democratic Party (LDP), however, never offered Japanese voters a coherent or programmatic policy agenda.
Particular economic structure, often referred to as the Japanese Model and sometimes as “Japan Inc.” the structure of the electoral system contributed to a clientelistic system that allowed for the centralization of economic power into the hands of the bureaucratic officials with Protectionist practices.
Successful, technically sophisticated international firms but in reality small and inefficient producers, farmers and retailers dominate much of the economy. Intrusive state bureaucracy has managed and directed the economy so successfully that it grew from the ashes of World War II to the second richest country in the world in less than 40 years because of the powerful role the state played in supporting and directing the economy for much of the post-war era. This “dual economy” can be understood as the product of an implicit deal between the large and highly competitive export oriented manufacturing firms in the major cities, on the one hand and small business and farmers, on the other. The government maintained an extensive system of price subsidies to Japanese farmers, as well as unnecessarily high levels of government spending in rural areas, both of which kept farming incomes as high as in those in urban areas.
Japan’s public social welfare system is tiny when compared to other rich industrialized countries and in this context one should think of employers as an integral part of the welfare state. companies that have no hope of paying back their loans are simply extended further credit so they can continue to pay salaries.
Biggest cities pay more tax than rural areas and Japan has had the smallest tax burden of any rich country since World War II. It collected a higher share of its revenues from corporate profits and property taxes with a lower share from consumption taxes than any other country in the OECD. Japan has had one of the most nominally progressive personal income tax systems in the world. Japanese have developed a tax system with a very narrow tax base that generates comparatively little revenue.