The deadly earthquake and tsunami in Japan are rightly dominating the news broadcasts these days. It’s even largely knocked the civil war in Libya and the increasing instability in places like Bahrain off the top of the news agenda. Most of the coverage is focusing on the immediate tragedy of the devastation and the following nuclear crisis. It’s reasonable that this should be focus of the 24 hour news crowd. But every now and again, they will bring up the economic consequences of this disaster – usually with a “what will this mean for the US economy” emphasis. What’s not being discussed is the politics of Japan’s response to the tsunami both in the short term and in the medium term.
Adding to this economic misery, Japanese public debt as a percentage of their GDP as of 2010 was over 225%. That makes them #2 in the world in debt to GDP ratio. To put this in perspective, Greek and Irish public debt as a percentage of GDP are 144% and 94% of GDP respectively (as of 2010, the USA is at 58%). Japan may find it difficult to borrow the money to finance the rebuilding of a large part of their country.
Japanese politics is currently dominated by two major parties. The party that governed Japan for most of the post WWII period is the Liberal Democratic Party (LDP). The LDP set up a managed a protectionist, corporatist state that has been struggling for a long time. LDP officials dominated the politics of the country both legislatively and administratively. For decades, the civil service was hired, fired and promoted at the whim of the senior leadership of the LDP. They had cozy relations with big business and used their dominance of the courts and regulators to protect their corporate allies. There have been allusions to a scandal some time ago involving falsified inspection reports for the nuclear power plant currently in crisis in Fukushima.
The party in government at the moment is the Democratic Party of Japan (DPJ). This is a reformist, centrist party that grew out of the merger of a number of center-left parties and break away factions from the LPD in 1998. They finally won a majority in the Japanese lower house in 2009.
To manage the crisis, the government will have to establish the trust of the people and authority over private interests that may seek to take advantage of the crisis or escape responsibility for mismanagement (for example TEPCO's and their nuclear power plant). The long history of cozy and often corrupt relations between Japanese civil servants and corporate big shots may hinder this on two fronts. First, the Japanese civil service may still, after just two years, reflect the influence of 6 decades of LDP dominance. Many of these government bureaucrats may have more affinity with the executives at TEPCO than they do with their own elected superiors. I've heard comments from American media that various ministries in Tokyo are starting to give the press the run around - for example the science ministry refusing to discuss the Fukushima situation and referring all questions to the Prime Minister's office. This may be what the PM wants but it may also be unwillingness by the government officials with the most knowledge and responsibility to be forthright about what TEPCO is doing. Second, as the government appears to only release information once the story has already broken, it will lose the trust of the population and may not survive the next election.
To rebuild, Japan will have to either generate economic growth or borrow to finance government recovery projects. Japan is not in the best position to do either. We may be witnessing the event that marks the final transfer of regional leadership from Japan to China and South Korea.