Monday, 26 March 2012

Lessons for Singapore from Japan's struggles

By Leonard Lim, The Sunday Times, 25 Mar 2012

The 50m-long corridor was pitch-dark save for a few lights and the heaters were all switched off even though the temperature outside was in the single digits.

It was hardly the welcome one would expect at Japan's Ministry of Economy, Trade and Industry (METI), one of the country's most important government departments.

But the gloomy atmosphere - power-saving was being implemented after last year's Fukushima nuclear disaster - seemed an apt metaphor for a once-great country now facing a bleak future.

A mood of pessimism hung over the academics, economists, government officials and men in the street I met or spoke to while on a study visit in the Japanese capital last week.

Many painted a dire picture of the country's economic, fiscal and political situation.

The government is burdened by the largest debt among developed economies, at about twice the size of its US$5 trillion (S$6.3 trillion) economy. On top of that, half of the 2012 fiscal year's budget is being financed by borrowed money.

The twin dangers of an ageing population and low fertility rates loom large. Japan, the world's most rapidly ageing society, expects two out of every five of its population to be 65 or older by 2060. As the population ages, public finances are under intense pressure from growing social security spending. The social security system, which takes up about a third of the annual 90 trillion yen (S$1.4 trillion) budget, is in desperate need of an overhaul and pension rates are expected to have to fall in future.

'The social security system is at a turning point,' Senior Vice-Minister for Health, Labour and Welfare Yasuhiro Tsuji told me. 'The safety net is crumbling.'

The system is being kept aloft by borrowing, pushing the burden to future generations. But this is unsustainable, Mr Tsuji admitted readily.

Meanwhile, for months, the entire country has been mired in a debate over doubling the consumption tax from the current 5 per cent to 10 per cent by 2015. Citizens recognise that the government needs revenues to enhance the social safety net.

'Sooner or later, we know taxes must rise,' said Mr Motoharu Ochiai, a senior analyst at Japan's Institute of Social and Economic Affairs. But naturally, the longer it can be put off, the better.

Politicians who oppose the tax hike, including some within the ruling Democratic Party of Japan, say it will hurt the economy at a time when it is struggling to recover from last year's tsunami and earthquake.

The fundamental problem is that the government lacks a sense of crisis and commitment to urgent action, said Mr Masakazu Kubota, the senior managing director of the influential Japan Business Federation or Keidanren.

This was supposed to be a study trip focusing on my host country. But greeted by the persistent picture of despair, my mind drifted back to home, and what had helped Singapore thrive in previous years and stay on a different path from Japan.

The parallels between Singapore and Japan are uncanny though.

Economically, Singapore faces uncertainty, albeit of a different nature. Growth here is projected to slow in the coming years. The economy is more developed and cannot grow at such a fast pace, and the Government is tightening the inflow of foreign workers amid intense public criticism of the liberal immigration policies in the past.

Demographically, Japan's population is what Singapore's will be like in a few decades when one in five people will be aged 65 or older.

And like Japan, Singapore is facing falling fertility. It has not had replacement rates of at least 2.1 for a few decades.

Politically, Japan was once what Singapore is. The Liberal Democratic Party used to be the dominant party, and enjoyed nearly 50 years of uninterrupted power until 2009.

Singapore is still a one-party dominant state, no matter how seduced some may be by the idea of an ascendant opposition.

But what sort of government will Singapore have - and need - when it confronts the population challenges that Japan is in the throes of?

A week in Japan gave me a glimpse of how a certain kind of partisan politics can hobble a country further, even though it may not have been the cause of its woes.

For Singapore to stay ahead in the global economic race, a strong, nimble government which can set policy quickly and decisively to deal with crises is necessary.

But what sort of political system will we have that can produce a strong, nimble government?

Can Singapore carve its way forward by finding its own solutions to a political compact that accommodates both greater checks and balances, and efficiency and decisiveness in policy-making?

These are questions with no easy answers, not to me at least.

But a remark by a visiting professor of economics at the International Christian University provided a stark warning if a wrong path is taken.

Dr Naohiro Yashiro was asked about the lessons that the Japanese experience held for Singapore in coping with threats like an ageing population. It boils down to strong political governance, he said, something that Japan lacks now.

'You can learn from a good teacher, but also a bad one,' he added.

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