Japan is widely considered to be a rather unconventional player in the field of international politics and economics. Although still the world's second largest economy, the country appears passive in international affairs while the nature of its domestic policy making continues to mystify foreign observers. Despite the fact that Japan's economy is contracting at an ever-increasing rate and that industrial production has plunged to its lowest level in 14 years, Japanese politicians seem unwilling or unable to act. Foreign companies are leaving Japan after having experienced more than ten years of recession, and the stagnant Japanese stock market recently caused both Merrill Lynch and Morgan Stanley to close down their Japanese retail division. Yet, there are still some who believe that Japan has in fact changed and that the country continues to do so, though it is a very gradual process.

In "Regime Shift", T.J. Pempel argues that Japan has changed dramatically from the 1960s, but that the process as a whole has not made the country more similar to other industrialised democracies. The author argues that slowing economic growth, international pressure and socio-economic changes have altered the country's political economic equilibrium. Other political scientists seem more cautious, however, concerning the prospect for change. University of California Professor Steven K. Vogel's "Can Japan Disengage" argues that "Japan's post-war political-economic system bound the competitive and protected sectors to each other through political bargains and economic relationships, and that this legacy continues to slow the pace and shape the content of Japan's liberalisation today". This paper will present a present a brief review of the arguments presented by Pempel and Vogel, and in addition some relevant criticism of the views presented. A particular focus will be on the validity of the following argument: "The relentless internationalisation of the economy, combined with the prolonged recession of the 1990s, cannot but profoundly transform Japanese political economy". While this paper will show that there is room for optimism regarding Japan's ability to change, it will also be argued that reform is bound to take more time than it would in the major Western industrialised countries. Additionally, while Pempel touches upon a wide range of policy areas with regards to Japanese politics, Vogel's interest is more limited in scope and focuses primarily on Japan's ability and will to liberalise its economy. As the goal of the Japanese government in the post-war period has focused primarily on economic growth, this paper will in particular compare the views of Vogel and Pempel with regards to Japan's ability to implement economic reform to avoid a prolonged recession. As will be shown, while most analysts are pessimistic with regards to Japan's future in the short-term, one can at best be cautiously optimistic when taking a long-term perspective.

Pempel points out several factors that he argues help make Japan a country without parallel, both in economical and political terms. The uniquely strong position of the LPD up to the early 1990s is unmatched in any other industrialised democracy, and the author comments on the rather puzzling fact that the party achieved this without being particularly popular among the electorate. Evidently, a rather unique electoral system that persisted until the 1990s is the main cause of this discrepancy. This is not to say, however, that Japan's democratic institutions were insufficient when compared to their Western counterparts. The author mentions a survey on comparative democracies from the 1960s, which ranked Japan ahead of the United States and Denmark. Japan's incomparability with other countries in terms of its political economy can thus not simply be blamed on flawed democratic institutions, but must have a different origin.

Another factor contributing to the uniqueness of Japan is, according to the author, the country's unparalleled level of economic growth that continued almost continuously until the burst of the bubble economy. Additionally, Japan achieved this while keeping a high employment rate and a well-functioning tax-system that helped secure income distribution with an effect seldom seen outside Scandinavia's social democracies. Oddly enough, however, the country has enjoyed peaceful labour-management relations, and the credit for the country's high level of income distribution must thus go to a keen sense of egalitarianism within the LDP. As the author comments: "If the Japanese economy offers a different version of capitalism, Japanese politics presents a different version of conservatism". In addition, Chalmers Johnson's "MITI and the Japanese Miracle" argued that Japan has a uniquely flexible way of evaluating managers, and that this contributes to smoother labour-management relations than in some other countries. Johnson also commented on another interesting effect of Japan's unique human resource management, saying that the latter "avoids disincentives to cooperate with other enterprises and with the government". As will later be shown, this intertwining of interests complicates effective reform of Japan's political economy, and also helps explain the timidity of Japanese corporations in terms of pushing for reform.

Pempel uses the term "punctuated equilibrium" to describe what he considers to have taken place in Japan, namely an era of long continuities followed by dramatic shifts. Although the author evidently believes that any complex political economy is experiencing constant change, he argues that the Japanese system underwent a series of dramatic alterations in the mid-1970s into the late 1980s that laid the groundwork for the deeper transformations in the 1990s. Seen as a whole, Pempel writes that the continuing process of change in total is sufficiently important to constitute a "regime shift", although many remnants of the past certainly remain. In the author's definition, the term "regime" is less sweeping in its cohesion than for example "political system" or "constitutional order", but does on the other hand transcend the scope of specific administrations, presidencies or cabinets. It is composed of three elements, namely socio-economic alliances, political-economic institutions and public policy profile. The author's theory is based on the idea that these three components are constantly reinforcing and sustaining one another, and that disjunctive tension between these leads to negative synergy, consequently creating a downward spiral. If not corrected by internal adjustments, the regime will eventually collapse and a new one will emerge.

The author presents examples of four different kinds of regimes that he best feels represent the majority of the regimes that achieved stability in the post-war period, namely Sweden, the United States, Britain and Italy. Still, the main conclusion drawn by Pempel is that while Japan certainly shares some characteristics with all of these regimes, "more notable overall is the extent to which the Japanese mixture mirrored none of them". The peculiarities of Japan's high-growth economy should be well known, but the author takes care to emphasise LDP's strong power base and the uniquely influential function served by the Ministry of International Trade and Industry (MITI). This relationship was described in detail by Chalmers Johnson, and the term "Japan Inc" was in the 1980s a popular way to describe Japan's political economy. Writes Pempel: "Government officials took their central task to be the shaping of the economy in ways they deemed beneficial to the national interest, and this was measured largely in macrostatistics rather than in enhanced consumer choices or lower prices". Also embedded in Japan's political economy was a strong sense of mercantilism, which again contributed to a gigantic trade surplus. Limited foreign imports were of particular benefit to the nation's farmers, but also to various local small businesses and other enterprises of electoral importance to the LDP. Steven Vogel comments that this led to a divergence of interests as Japan's economy grew, this as some sectors thrived on competition while others survived on regulation. Similarly, the nation's defence was and continues to be essentially outsourced to the United States, while spending has been kept at under one percent of GDP. Pempel presents figures indicating that Japan would have achieved thirty percent slower growth during the period 1954-74 if its defence expenditures had been in line with those of most Western industrialised democracies.

According to the author, while the conservative dominance experienced several alterations during the 1970s and 1980s, a radical change occurred in the 1990s when the old regime was replaced by something new. Berkley Professor Steven K. Vogel generally reputes this argument, and argues that the old Japanese regime is alive and well. As will be shown, the two authors offer two widely differing views on the state of the Japanese political economy.

From the very beginning of Vogel's argument, it is evident that his focus differs from that of Pempel. While the latter seems largely preoccupied with political issues, Vogel's interest lays mainly in describing Japan's economic system. It is commonly believed that no other industrialised country has such a large gap in international exposure and productivity between the leading and lagging sectors as Japan, but the pace of reform has been excruciatingly slow due to LDP's powerful electorate within Japan's protected industries. Although Vogel claims, with good reason, that consumers and exporters would benefit from liberalisation, he also argues that they have not been particularly vocal in terms of their political preferences. Additionally, the author argues that attempts made in terms of liberalisation have been ineffective and often preoccupied with minimising the harm to important domestic groups. Similar political considerations make the government hesitant to clean up the country's insolvent banking system and to limit spending on public works projects that have a very limited ability to stimulate economic growth. The government still pours 19% of its budget into public works, although there finally seems to be consensus for a shift of stimulus into sectors as education and information technology. According to Koizumi's proposed budget for 2002, the post allocated for public works is to be cut by 10%, and optimists hope a more efficient budget will help revive the economy. With a debt level at 130% of GDP, however, The Economist recently argued that "Japan is rapidly running out of room to afford any kind of economic stimulus".

The impact of globalisation and the prolonged recession has, according to Vogel, had a very limited effect on altering Japanese preferences for mercantilism. Still, numbers presented by the author presents little doubt that Japan would gain from economic liberalisation. An MITI estimate from 1997 reported that major reform could raise real economic growth by 6.0% for the period 1995-2001, cause an increase in direct investment and decrease consumer prices by 4,3%. This could not but dramatically alter the lifestyle of Japan's population for the better, and also dramatically improve the country's relative consumer purchasing parity compared to other industrialised countries. Yet, perhaps the most puzzling fact presented concerns the continuing tendency of Japanese consumers to sacrifice their self-interest for the cause of national economic strength. Thus, even though most Japanese would benefit from both economic and agricultural liberalisation, a 1988 Yomiuri showed that 57,1% of respondents supported just the opposite. While the economic depression and a recent influx of mad cow disease may have altered this picture somewhat, it is likely too simplistic to only blame Japanese politicians with the slow pace of reform. It can also be argued, however, that the patience of both the Japanese electorate and the nation's politicians appears to be wearing thin. Some analysts believe a deepening economic crisis may have the potential to create new consensus equilibrium with regards to Japan's economic policy. They are, in other words, implying that the economic situation has to deteriorate further before for substantial change to occur. Some pessimists even consider it likely that Japan will become the next major nation to default on its national debt following Argentina, a perspective that certainly would represent a dramatic development following years of stagnation. Considering Vogel's relatively negative description of Japan's economy and recent downgrades of Japan's credit rating, a potential default should not be considered unlikely, particularly when considering that Japan's recession has deepened since Vogel's made his negative predictions.

Pempel, on the other hand, chooses to emphasise that many Japanese companies have entered into partnerships with foreign companies and moved production facilities abroad. It should be commented, however, that the companies Pempel mentions mainly represent Japan's competitive business sector and not the sectors that traditionally have been protected. Still, it is evident that Japan's financial markets have been liberalised to a certain extent, although not always voluntarily. The issue of bad loans is of such character that the Japanese government did not really have another way out, but the risk of big national banks going bankrupt remains a daily cause of uncertainly in Japan's financial markets. The break-up of the Bretton Woods exchange system was evidently not welcomed nor expected by Japan, and caused the yen to rise dramatically against the dollar and other currencies. Accepting this new reality, Japan has been much admired for its successful transformation from a developing country producing low-valued-added exports to a modern industrialised nation producing high-valued-added exports to compensate for the yen's strengthening. Still, as a logical consequence of the move to high-valued-added products, it would be reasonable to believe that the country would become projectionist toward high-valued-added products to protect its industries from foreign competition. In fact, the opposite was and remains true. As Pempel comments; "Japanese markets for imports remained skewed against high-valued-added manufacturing goods competitive with Japanese-made products". This evidently comes in addition to raw oil and other raw materials Japan needs to import from abroad. Still, the recent trade dispute with China concerning the imports of leek and other agricultural products may seem like an odd political priority considering the current economic slump, and did certainly not help convince anyone that Japan is moving away from mercantilism. Additionally, the trade dispute gathered negative international attention and was to many a confirmation of unconventional position in international affairs. Cambridge Professor David Wall considered it a prime example of rich OECD countries refusing imports from developing ones, describing Japan's position on the matter as "totally self-centred".

In continuation of his argument, Vogel adds that neither Japanese manufacturing exporters nor the country's political parties have shown much will in terms of economic reform. Ironically enough, the author regards Daiei's Nakauchi Isao to be one of the most zealous advocates of reform. The company's downfall since the publishing of Vogel's article greatly illustrates the general state of Japan's economy. Currently, the discount retailer is virtually bankrupt and one of newly established UFJ Holding's biggest headaches. Japan's distinctive interfirm network would certainly face adversity in case of liberalisation, but the Keidanren appears to be reluctant even with regard to issues as agricultural reform. As many industries and unions seem intertwined, few are vocal in calling for reform out of fear from upsetting another businesses. The traditional Japanese preference for consensus making appears to have survived even tough economic times demanding efficiency and quick decision making. The president of a textile union, Takagi Tsuyoshi, gives a clear indication of how decisions are made: "We try to determine which group has a more difficult situation, and which group has a more reasonable argument. And we give preference to the group with the tougher situation".

Considering the low level of support for reform among the electorate and the corporate sector, it should not come as a surprise that Vogel does not consider Japan to have any parties that unequivocally stand in favour of economic liberalisation. Taking this into account, the end of LDP's political hegemony during the 1990s does not necessarily represent a major step towards a change in the country's political economy. It can even be questioned to what extent the party has lost its power basis, as LDP already by mid-1998 enjoyed a slim majority of the Lower House and controlled all cabinet positions. Under the party's new Prime Minister, LDP is running under a popular slogan of reform while little of the latter is in fact implemented. Some critics will therefore argue that the party has changed its marketing strategy while making few or no changes to the product, a move that can hardly be considered to represent a regime shift. Vogel argues that new opposition parties may potentially begin to represent groups that earlier were not heard during LDP's hegemony, but the biggest problem appears to be the issue of actively communicating the benefits of reform during elections. While talk of reform may seem interesting when it concerns someone else, the traditionally risk averse Japanese do not appear very enthusiastic towards the prospect of aggressive deregulation. Vogel seems to have some faith in the Democratic Party, but criticises it for heeding to interest groups in traditional LDP fashion and for being riddled with internal contradictions. Interestingly enough, it is generally agreed that Koizumi basically ran on an DPJ-platform during the last election, and that this won support from urban voters in addition to traditional strongholds in the countryside. The party sailed on Koizumi's popularity to achieve an impressive election result, undoubtedly a convincing showcase for LDP's unbeatable election machine, for not to mention the essential support received from the Federation of Agricultural Co-operatives.

Regarding Japan's bureaucracy, the two authors appear to hold relatively coinciding views. "In general", writes Vogel, "they advocate deregulation in all areas except those under their own jurisdiction". According to Pempel, MITI was becoming particularly active during the late 1990s in terms of offering protection for energy companies and other cartels. Still, Pempel may be correct when arguing that Japan's economic policy during the 1990s was much less cohesive than what was the case during the 1960s. However, as University of Tokyo Professor Nobuhiro Hiwatari comments: "Yet the bureaucracy is "Janus-faced", co-ordinating conflicting interests within a relatively exclusive policy-circle under its jurisdiction and thereby avoiding political intervention mobilised by dissatisfied interests". It can thus be questioned if recent deregulation represents an actual regime shift or just gradual attempts to adjust to a new economic reality. Competition between Japanese bureaucracies is, after all, not anything new. While the primary focus of the ministries currently is on protecting their preferred industries rather than on actually promoting them, the rules of the game have not necessarily changed.

Then, has the rapid internalisation of the economy, combined with the prolonged recession of the 1990s, actually led a profound transformation of the Japanese economy? It is very tempting to offer a concrete no. First, just about one decade has passed since the alleged end of LDP's political hegemony, but the nation is still stuck in a recession that only seems to be worsening. Second, despite the fact that LDP is widely blamed for the slow pace of reform during the last decade, the party is still able to cling to power without showing much will for reform. The election of Prime Minister Koizumi last year does not appear to have changed the political situation notably, and it is difficult to argue that a political vacuum of this character can represent a regime shift. Third, the recent trade dispute with China was a reminder of Japan's continued preference for mercantilism. In terms of defence policy, few analysts will argue that the country has made a very notable step forward from the Gulf War, particularly with regards to the ongoing "War on Terrorism".

Still, while Pempel may have been somewhat ahead of time in terms of announcing a regime shift, it is evident that changes in Japan can take time, and a shift may thus still be underway. The full effects of the limited reforms that have been implemented in the country's financial markets may not be felt for quite some time. Some optimists also hope that Mr Koizumi will live up to people's expectations and show himself capable of transforming LDP into a more progressive instrument for change, although achieving success at the latter probably constitutes too much of a challenge for any man to do by himself. Still, while Pempel considers the 1990s to constitute something completely new in terms of Japan's political economy, a majority of the international analysts watching Japan seem to think a more obvious characteristic of Japan during the 1990s was the country's inability to change. In case Pempel is correct, however, meaning that a regime shift actually occurred during the 1990s, it can by no means by compared to the scope of the regime shifts that followed the elections of Reagan and Thatcher. Evidently, one of the ultimate characteristics of Japanese history is the country's strong taste for dramatic regime shifts and extensive reformations. In this respect, the regime shift described by Pempel is very uncharacteristic of Japan's past. It is to be hoped that Pempel in fact turns out to be mistaken, and that Japan will soon experience a regime shift of scope that will truly transform the nation.

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