POINT OF VIEW/ Kazuo Mizuno: Economic growth does not equate to well-being

My advice to the new government of Prime Minister Yukio Hatoyama is to not flinch from the challenge of developing a new economic model that enables people to live a high-quality life even if the economy doesn't grow at all.

The Democratic Party of Japan's campaign platform for the Aug. 30 Lower House election contains some elements that foreshadow such a model.

The oil crisis in the 1970s brought an end to the era when continued economic growth could benefit everybody. But the Liberal Democratic Party kept its policy focus on economic expansion without trying to adjust the nation to a new era of zero growth. The LDP managed to achieve the policy goal, to some extent, but with the costs of inflation and economic bubbles.

This, however, resulted in the collapse of the society, built through the nation's amazing postwar economic development, that made most people feel they belonged to the middle class. Current society has been divided into two clearly separated segments--like major and minor leagues, without promotion-deciding games.

At first glance, many of the DPJ's policy proposals, including a new child allowance and tuition-free public senior high schools, appear to be costly giveaways of taxpayer money. But they were originally designed to narrow the division between the rich and the poor.

When the DPJ was criticized by the LDP for lacking a growth strategy, however, the party defended its policy platform by arguing that the measures proposed would help stoke domestic demand. If the LDP's talk about growth strategy sounds anachronistic, the DPJ's response to the LDP's criticism sounds fainthearted.

It is said that the people's main interest is in measures to nurse the economy back to health. Unlike in the past, however, production recovery doesn't necessarily lead to an upturn in income, employment or consumer spending in today's Japan.

As rising costs--due to soaring prices of oil and other raw materials--are being offset by cuts in labor costs, production increase only means longer working hours. People are not longing for that kind of economic recovery.

With the nation's population shrinking, there is little hope for growth in domestic demand. But external demand doesn't offer much hope, either, as rising material costs sap profits from exports.

Whether the DPJ is aware of the shift in the economic structure or not, the party's policy of redistribution of wealth is in tune with the times.

There are two essentials for the new economic model: a strategic focus on Asia and a clear departure from the 20th-century model based on the assumption that economic growth solves all problems.

In this age of globalization, the 3 billion people in emerging countries are trying to achieve within just one or two generations the affluence of the developed world, which was realized through four centuries of development. Key consumers are now in Asia. The Asia-focused foreign policy being pursued by Hatoyama and his foreign minister, Katsuya Okada, is in synch with the key trends of the new era which was ushered in by the Lehman Shock and turned the spotlight on Eurasia.

Japan's main exports should shift from products like cars and electronics to services and intellectual properties. The question is how Japan can take advantage of "Japan Cool" adoration to tap into domestic demand in other parts of Asia. Japan needs a postmodern economic model that will help Asian neighbors realize their admiration for Japanese lifestyles.

In the same vein, it is also important to make the economy less dependent on oil. Hatoyama's pledge to sharply cut Japan's greenhouse gas emissions has not been welcomed by the Japanese business community. But the industrialized countries that have built their wealth by imposing burdens on developing countries must now bear much of the burden in fighting global warming. Japan can win international support for its commitment to the cause by setting an ambitious emissions reduction target.

The Hatoyama Cabinet's policy principles stress shifting the economic policy focus from economic rationalism to the well-being of the people. They say increasing the state budget is not necessarily a solution. This is a clear message that the days when economic growth solved all problems are gone, and the difference from the credo of the LDP government is clear.

Ten years won't be enough to make up for what has been lost due to the misguided economic policies since the 1970s. The new government should be allowed to take its time in pursuing its unique policy initiatives to change the course of the nation. But it should not be fazed by the criticism about its lack of growth strategy.

I hope the new government will realize that not having a growth strategy is better suited to the 21st century and make serious efforts to remove the remnants of the past growth-oriented economic policy.

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The author is chief economist at Mitsubishi UFJ Securities Co.(IHT/Asahi: October 31,2009)