Japan Party’s Vow to Cut Projects May Curb Stimulus (Update1)
By Stuart Biggs and Masatsugu Horie
Aug. 27 (Bloomberg) -- Japan’s opposition vows to slash public works spending if it wins this month’s election, as polls indicate. Keeping that promise may be tough in a nation where construction is the No. 5 employer and a political fundraiser.
Government outlays on dams, roads and bridges have been a source of stimulus since Japan’s bubble economy burst two decades ago. Infrastructure spending amounted to 4.4 percent of gross domestic product last year, extending a binge that has driven public debt to almost twice GDP, or $175,000 for every Japanese household.
The opposition Democratic Party of Japan says much of that money cements ties between builders, bureaucrats and government officials and pledges to spend less on construction. Yasuo Tanaka, a DPJ-supported candidate in the Aug. 30 election who canceled public projects as governor of Nagano prefecture, says the population isn’t well served.
“Japan creates huge public projects, huge highways, huge dams, huge tunnels and huge cranes,” Tanaka, 53, said at a rally on Aug. 13 while campaigning in Amagasaki, west of Osaka. “Politicians who leave responsibility to the bureaucrats ensure policies that squander money and serve vested interests. We need to change all these things.”
Just three of Japan’s 113 major rivers flow uninterrupted, the result of damming that provides construction jobs regardless of the need for flood control or the creation of reservoirs. The 1.44 trillion yen ($15.3 billion) Tokyo Bay Aqualine tunnel and bridge attracts only two thirds of the 33,000 vehicles a day originally forecast.
Inflated Numbers?
The DPJ says many projects are built and financed on the basis of inflated estimates, a practice known in Japanese as “enpitsu o nameru” or “licking the pencil.”
“Japan has turned its agricultural lands and countryside into construction sites,” said Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo. “What they’ve been doing is pouring concrete on mountains.”
The party, which has never run the government, promises to cut 1.3 trillion yen from 7.9 trillion yen in public works spending earmarked in this year’s budget by canceling what it calls “anachronistic” projects, including dams, and diverting those funds to child-care benefits and education subsidies.
That has drawn complaints from industry critics such as Tetsuya Nomura, chairman of the Japan Federation of Construction Contractors, and chairman of Shimizu Corp., Japan’s third- largest building company.
Recession Fears
“My particular concern is the potential of Japan falling deeper into recession,” Nomura said in a July 22 press briefing in Tokyo. The DPJ “mustn’t stop the economic recovery.”
Shares of Tokyo-based Shimizu have fallen 26 percent this year compared with an 18 percent gain for the benchmark Nikkei 225 Stock Average, as the DPJ overtook the ruling Liberal Democratic Party in opinion polls. The 100-member Topix Construction Index gained 4.5 percent in the same period.
Building projects often have little residual economic benefit in rural areas, where the population is both aging and shrinking, Schulz said.
The DPJ, headed by Yukio Hatoyama, 62, promises to keep bureaucrats from moving after retirement to construction companies and other industries they have regulated, a practice known as “Amakudari” or “Descent from Heaven.”
Ichiro Ozawa resigned as DPJ leader in June over a campaign funding scandal involving Nishimatsu Construction Co. Ozawa’s aide was indicted in March on charges of concealing 35 million yen in donations. Tokyo-based Nishimatsu apologized in June after former president Mikio Kunisawa was convicted of making illegal contributions.
Poll Lead
A Kyodo News poll released on Aug. 23 said the DJP would win more than 300 of the 480 seats in the lower house of parliament if the election were held then, while the LDP would win less than 150. The poll surveyed 155,110 voters from Aug. 20 to Aug. 22; Kyodo gave no margin of error. The LDP currently has 300 seats and the DJP 112.
Taking on builders carries risks as Japan emerges from its deepest postwar recession. The industry employs one in 12 workers, twice the ratio in the U.S, according to Japan’s bureau of statistics and the U.S. Labor Department. Japan’s jobless rate is set to climb to an unprecedented 5.9 percent by next year up from 5.4 percent in June, according to a Bloomberg News survey.
In Amagasaki, Tanaka’s opponent is 73-year-old incumbent Tetsuzo Fuyushiba, a former land minister with LDP coalition partner New Komeito. Fuyushiba boasts on his Web site of past projects he championed, including hospitals, schools and parks in the city, which has a population of about 460,000.
People’s Needs
“We never build something just because we want to build it,” Fuyushiba aide Shigeyuki Hirata said in an Aug. 14 interview. “It’s always based on people’s requests. I basically think we should build what people need.”
Hirata said Tanaka’s history as Nagano governor serves as a warning for Amagasaki’s voters. A total of 334 construction companies in the prefecture went bankrupt in Tanaka’s six years in office as he slashed public spending, according to Hirata.
Tanaka, now head of New Party Nippon, a DPJ ally, says he advised unprofitable construction companies to shift their business model or merge. Nagano’s budget was reduced by 22 percent during his tenure, cutting the prefecture’s debt by 7.9 percent, local government statistics show.
Spending on construction projects nationwide rose to 22.1 trillion yen from 21.1 trillion yen in the year ending March 31, or about 4.4 percent of GDP, said Keisuke Naito, a senior economist at Mizuho Research Institute in Tokyo.
To contact the reporter responsible for this story: Stuart Biggs in Tokyo at
[email protected].
