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A big winner from the Dec 16 national elections may be the country's construction industry and towns such as Naganohara, Gunma Prefecture, where a sprawling dam development sits unfinished after more than four decades.
Polls show the election is likely to return to power the long-dominant Liberal Democratic Party (LDP), which has promised to boost public works and talks of spending 200 trillion yen on projects over the next decade -- about 40% of Japan's economic output.
Many economists are troubled by the plan. Japan already has the heaviest public debt load in the industrialized world and they note that similar public works programs in the past 20 years have done little to counter the economy's long stagnation.
But it is music to the ears of construction industry executives, who saw public works budgets slashed by a third by the incumbent Democratic Party of Japan (DPJ), and has already boosted the stocks of builders such as Kajima Corp, Taisei Corp and Obayashi Corp.
It would also be a boon for communities like Naganohara, which count on government investment to help the local economy.
"We have been made a fool of by the Democrats, which opposed the Yamba dam for the sake of opposing whatever the LDP had promoted," said the town's mayor, Kinya Takayama. "Most local residents want the LDP back."
The DPJ stopped the $5.6 billion project after it won power in 2009 promising to switch focus "from concrete to people," but later backtracked, faced by the high costs of killing it off despite doubts whether the dam was really needed.
Half-finished bridges, ramps and roads now stand as a symbol of Japanese politicians' long addiction to concrete and a short-lived push to kick the habit.
The proposed dam would flood part of Naganohara and turn its surroundings into a 300-hectare reservoir. Hundreds of people in this town of 6,243 have already been moved. Takayama says government funds and a new artificial lake could bring new jobs and tourism to the area.
QUAKE-PROOFING
While the Yamba dam is a throwback to Japan's past -- construction began in 1967 -- the LDP's spending plan comes with a new twist: it will focus on quake-proofing of buildings, bridges, tunnels, dams and transport networks.
That is bound to resonate after last year's magnitude 9 earthquake and a deadly tsunami killed nearly 20,000, triggered a nuclear crisis and caused over $200 billion in damages, making it the world's costliest natural disaster.
A collapse earlier this month of a 1970s tunnel on a major highway also backs the LDP's argument that Japan's world-class infrastructure built during its postwar boom is ripe for a revamp.
"It came as a chilling reminder of over-age infrastructure," said Tatsushi Shikano, a senior economist at Mitsubishi UFJ Morgan Stanley Securities. "I guess it may make sense to increase spending on public works to some degree."
The LDP's election manifesto is short on detail, but officials involved in drafting the plans say about half the spending could come from the national budget and the rest from the private sector and local governments.
Under such assumptions public works would cost the budget 10 trillion yen per year, twice as much as now. LDP lawmakers say they would find savings to limit extra borrowing.
"Spending 100 trillion yen over a decade would not be such a stunning figure," said Yoshimasa Hayashi, an LDP lawmaker who serves as a special adviser to the party's secretary general.
Whereas massive investment in roads, train networks, ports and other infrastructure contributed, alongside exports, to Japan's postwar boom in 1950s and 1960s, later on the law of diminishing returns kicked in.
As the focus shifted from meeting the rapidly growing economy's needs to using public works as a way of stimulating growth, creating jobs and catering to special interest groups, economic benefits have dwindled, economists say.
"Building dams and roads in depopulated areas can only have one-off effects," says Takayoshi Igarashi, a Hosei University professor, a leading expert in public works who advised former Prime Minister Naoto Kan.
"It's totally different from spending on highways and bullet trains linking big cities like Tokyo and Osaka during the rapid economic growth era, which had far greater multiplier effects by stimulating car purchases and other private spending."
Nomura Chief Economist Tomo Kinoshita estimates every 100 million yen spent on public works would only add 110 million yen to overall economic output. So if government spending stops, the economy would return to its slumber.
Since the bursting of the speculative bubble in the early 1990s, successive LDP governments relied on public works -- spending 110 trillion yen over 10 years -- to try to revive the economy.
It remained an economic policy tool of choice in the last decade, except under Prime Minister Junichiro Koizumi, who made efforts to consolidate budget finances part of his reform agenda in 2001-2006.
PORK BARREL
The LDP's rivals accuse the party that ruled Japan for over half a century of trying to resurrect old pork barrel politics.
"It would be a return to old politics," said Shuji Kira, a Democrat Party member. "Last year's disaster has given the LDP a perfect excuse for creating demand for construction industry."
The old system would have the central government fund public works projects to benefit local communities in return for their votes for the ruling party. Those in turn would bring contracts for construction firms which kept cozy ties with bureaucrats, often employing former officials, and which supported LDP politicians with donations.
One senior official from a construction industry lobby acknowledged a public works boost would benefit the sector.
But he insisted tougher political financing laws and closer scrutiny made the links between politicians, builders and bureaucrats a thing of the past.
"No one is using money now in order to associate with politicians," the official said on condition of anonymity.
Shinzo Abe, the LDP's leader and a former prime minister, says big government spending is needed to spur growth because the aggressive central bank easing he has prescribed will take time to work.
Shares in Kajima, Taisei and Obayashi have risen between 11% and 16% since mid November in anticipation of the election and an LDP win.
"Monetary policy would not have immediate impact on private investment. It could take one, two, three years to stimulate private investment, consumption and create jobs. We cannot just wait for that to happen," he said last week.
But economists warn the policy will fail if not accompanied by deregulation and other reforms.
"Just doing infrastructure spending is not going to accomplish anything," Jesper Koll, head of equity research at JPMorgan Chase, said.
"If all you do is ‘baramaki' (pork barrel), debt monetization and massive fiscal spending, it will end in tears and Japan will become the Argentina of the 21st century," he said, referring to the collapse of the Latin American nation's finances a decade ago.
© Japan Today
50 Comments
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Yubaru
Japan's infrastructure is falling apart and instead of using public funds to build more roads and bridges that lead to nowhere it should be focusing more on replacing what already exists. The highways in and around Tokyo and other metropolitan areas are disasters waiting to happen.
SquidBert
I'm glad that someone will benefit, because the people will lose.
MiuraAnjin
Please no. Just no.
minello7
What a surprise !!!!!
nigelboy
That was basically the plan LDP submitted last June to make the infrastructure "safe".国土強靭 But I wonder how many of the posters here would even mention about "replacement" or "reinforcement" if the recent tunnel collapse didn't happen?
hereforever
Once again I say; the media is campaigning for LDP. Bought and paid for?
gaijinfo
Yea, if there's one area where Japan hasn't spent ENOUGH money, it's the construction industry. I'm surprised those guys have been able to stay in business.
Kabukilover
This is where our hiked sales tax with go.
Yubaru
There was a story on NHK well before the tunnel collapse talking about the infrastructure problems throughout Japan and it was pretty scary considering that many of the highways and tunnels and other public works projects that were initially built 40 to 50 years ago are in dire need of repair or replacement.
hereforever
"........ and caused over $200 billion in damages, making it the world’s costliest natural disaster."* Correct me if I'm wrong but didn't they receive most of this money from donations around the world? And why haven't they mentioned rebuilding the Tohoku region? Correct, DPJ did stop construction of road construction that lead to nowhere and other useless construction that benefited only LDP and their friends.
Hiroicci
OK, see you in "Corruption, Corruption, Corruption" Monday, next week!
moomoochoo
Unbelievable. 54years to learn from their mistakes, but they're gonna just go and do it again.
Dennis Bauer
Ah, so don't fix the old tunnels make new tunnels!
illsayit
They will use dams and use water for energy. zichi I thought you were all for people getting out of the cities and eco friendly energy? Infrastructure in not so condensed areas surely would also deal with safety issues regarding earthquakes? Ill admit there was probably underhanded moves, but not all, and construction isnt the only place that happens.
SquidBert
Sometimes when a prisoner gets out of jail, they will immediately commit a new crime just to be able to go back inside, preferring the safety of the evil they know to the uncertainty of freedom.
nath
Ooooh, I think this has suggested a new slogan for the LDP: "From people back to concrete!" "人間からまたコンクリートへ！”
I thought those days were gradually becoming a part of the past. Its like an unbelievable nightmare that is poised to come true. Sure, approaches like this worked well for decades in the postwar period, but that was a different time, and it was the stagnation of the LDP, the failure to adapt or come up with anything new, that brought on Japan's lost decades in the first place.
Hiroicci
I will be really gutted with the voters, if they send the LDP back to power, which is highly likely.
Admittedly, the DPJ are ineffective and amateurish, whereas the third force parties are unelectably nationalistic. But are the LDP a logical conclusion for them??? They remain unreformed and keen on state level corruption. Their economic view is still "issue bonds and dig holes." With Mr Stomachache in premiership, other Asian countries, mainly China and the two Koreas will see more chance to get upset.
Onniyama
Can't believe the Japanese people want to go back to this corrupt system that wastes their money.
smithinjapan
And Japan ALWAYS benefits when the construction companies win. I can't believe how stupid the people are here.... true, the choices are bleak, but voting LDP guarantees Japan will further slide in debt while lining only politicians and construction company pockets.
Ewan Huzarmy
I can't believe that the people who wanted change and voted them out four years ago, are willing to vote them back in as they feel betrayed.
Simple mathematics ..... You can't fix fifty odd years of rot in four.
This is becomming like watching legless sheep on a conveyer belt into an abattoir !
alliswellinjapan
Don't think there to be that many who denies the need for sufficient public spending for construction work necessary for disaster prevention following 311 and the recent tunnel incident. What is deeply troubling however is that construction appears to be pretty much the only clear initiative the LDP is able to clarify as to how the trillions of yen to be newly printed is going to be spent, which in essence is nothing other than a return to pre-Koizumi LDP politics. While this initiative should greatly help them secure the regional votes which appears to be already showing, sincerely hope other parties critical of this approach are able to secure enough urban votes so as to enable them to put on the breaks when necessary. Also hope Hashimoto dumps Ishihara and ties up with Your Party after the election which in my view is what he should have done in the first place.
herefornow
40% of the economic output on pork-barrel projects. Unreal, even by Japanese and LDP standards. Japan is going to wish for the day when its debt to GDP was only 235% like it is now. Hold on tight, it is going to be a bumpy ride with Abe setting the economic course for the country.
Ivan Coughanoffalot
If in doubt, splash concrete about. It didn't work for 54 years, so the laws of probability state it's got to work sometime.
I despair of this country. People choose to re-elect a proven failure, who spouts proven failed policies. Restart the reactors, get us even more massively in debt with failed pork-barrel yakuza construction projects - and he can't even control his own bowels.
Yep, sounds like the way forward.
globalwatcher
You have a choice to walk away from all bad apples and not to buy any of them, but not in this cae. This is very sad for many voters as the LDP may only last less than a year. At the end, the biggest loser is a tax payer and the world.
GW
OMG just OMFfG!
Folks we are soon to be on the HIGHWAY TO HELL!
GW
Folks it may be time to move the Greece!
And to convert your yen!
Disillusioned
Ah, corruption at its highest level! And they say the yakuza are criminals? Ha!
Disillusioned
Noda's comments are correct, but he is not making a strong enough argument. He has to say what his alternative plan is. It is one thing to state how the opposition's plan is flawed, but he has to offer solid alternatives. People are not gonna vote for him just because he stays their plan is bad. They need to know his plan as well. This will kill his election and the right-wing imperialists will be back in power and running their corrupt little world very soon. Meanwhile, the infrastructure of Japan is crumbling around them and will continue to do so while these fat-cats line their pockets and look after their mates
GW
Sorry Takayama but your way of thinking is stupid, yeah lets spend billions of yen to make a giant highly polluted pond(it wont be a lake!) that will have a canoe rental place & maybe a couple ramen shops...............eh no that wont do anything.
And to the person who mentioned hydro ................not much if any of that happening, certainly not worth the decades of wasted money that is already lost on this fiasco!
cleo
...In contrast to the LDP, who basically backed what the DJP promoted with regard to help for Tohoku, taxes etc., but opposed any measures unless the DJP PM resigned/the LDP got their political back scratched/the DJP agreed to hold an election.
That's exactly what the LDP say their platform is. It would be funny if it wasn't so dire.
rowiko68
Yeah, SOMEONE will surely benefit from an LDP win, but it sure as hell is not gonna be us, the wider public!
JeffLee
Japan will become the Argentina of the 21st century
No it won't. Japan's isn't indebted to foreigners, is one of the world's biggest creditor nations, and it runs a big current account surplus. It can pay for all this simply by issuing bonds, with no major inflation or debt-servicing-cost fears.
Jesper is a skilled and convincing speaker, on which his reputation is based, but I have serious doubts about his actual knowledge of economics.
Kazuaki Shimazaki
OMG. 10 trillion a year? I was willing to let the LDP have their little fun (you have to let politicians have their little fun, sad as it is), as long as they fix foreign policy and defense (relative to other parties), but there is nowhere in the budget to squeeze 10 trillion out from to compensate (except for the ever-exploding social security, and I bet that isn't a target).
The fact Japan's debt is not indebted to foreigners is probably why everything hadn't exploded already, but a 235% debt:GNP with ever increasing debt repayments just can't be healthy.
Yubaru
Age or time does not mean gaining any intelligence when it comes to Japanese politicians.
The problem is that all the politicians have to do is take care of their own little district, (pork) get reelected time after time, and tell everyone else to kiss their butts.
GW
JLee,
Yes J-debt is basically all owed in Japan. But the debt has gotten so massive & we all know the numbers put out by J-Inc are WAY OFF as far debt etc etc.
So even if the govt decides to scew the locals it will be a massive hit & who know what will happen to exchange rates for example, and what if interest rates went up.........that make the debt shoot stright up skywards.
No matter how you slice this Japan is already in extremely bad shape & needs to control/reduce costs, what this imbecile abe is planning is straight up insane, he may start something that Japan wont be able to control.
viking68
They need to focus on creating real industries that bring back real jobs instead of paying money into these projects.
What is happening with solar cell research and building wind and tidal farms? There is some going on but not enough.
illsayit
hydro electricity is that what they call it(in english)...anyways yous people should watch some kids programmes they are very informative. Arent they trying to make energy production at a local level, I believe a few have already been set up. And the process is way easier than solar or wind. Mind wind is still being developed. But solar? In Japan? The technology just doesnt have seemed to have reached that cost productive level yet? Dams, will funnel the water not to waste and keep it a lot more controllable to be used for energy, I reckon. And what is with all the concrete talk? Havent you seen how green Japan is? Weeds grow like mad each season. Snowy areas even have a high fertile produce. While Im cautious about the LDP being voted in, what they are suggesting with construction is not as bad as it seems. While I dont always like big construction companys, there is a possibility for mid-level construction companies to improve, which is definitely needed, and would stimulate the economy. And doesnt deserve the bad-mouthing towards construction that big companies have created.
Yubaru
You've obviously never been to Naha and just about the entire southern half of the island. Black and grey have replaced "green" as the main color.
Using money that they don't have, only creating temporary jobs, increasing the profits of the mega-construction companies, and oh did I mention creating more debt that is not affordable, plus ignoring infrastructural problems that WILL eventually lead to more headaches in the future?
And new construction doesnt sound bad to you?
They are only saying this to get the companies to back them in the upcoming election, because we all know that worker-bees vote as their bosses tell them to even when they know better.
Tiger_In_The_Hermitage
Please no more building big white elephants.... its a waste of tax payer money.
nigelboy
I'm constantly amazed that people here use LDP-Yakuza-Construction bubble era Nihonjinron rhetoric which clearly signifies the lack of illiteracy among the western expats including their media and journalists.
The construction project funding have been stagnant over the course of the last 18 years as evidenced by the downward trend in issuance of construction bonds. This can be easily found in the MOF website but I guess this is a task that's too difficult to do to some of the posters here.
Having said that, the primary reason why this plan is feasible is that Japan is in a deflation in which BOJ and DPJ have done absolutely nothing to combat this issue. Rather than increasing the social services and welfare which did nothing to increase the tax revenue (the receipients basically put the money in the bank) but increased the spending, what public construction does, at least, is to increase tax revenues due to the mulitiplier effect.
Also bear in mind that issuance of new construction bonds accounted for less than 4% of the total new bond issuance as opposed to nearly 29% 18 years ago. Coupled with the fact that the main infrastrcuture was built during the 70's as opposed to much earlier period for other developed nations, a massive reconstruction is sorely needed. Furthermore, if you consider the government public spending to a ratio of 1 sixteen years ago, U.S. and France doubled the ratio while Japan has halved.
http://www.sato-nobuaki.jp/activity/a_20111027-002.pdf
And as JeffLee alluded to, the debt balance of the Japanese government is nothing more than a net zero +/- on Japan's total balance sheet as evidenced by the account surplus and being the biggest net creditor in the world for 20+ years consecutively. The money is there. The problem here is that it isn't circulating among the population. (minimal mulitiplier effect, hence deflationary spiral). Hence, rather than focusing on reducing debts, the government needs to focus more on increasing tax revenues through investment in public works.
nigelboy
Correct that to "literacy" above.
The government bond issuance is linked below.
http://www.mof.go.jp/jgbs/reference/appendix/hakkou03.pdf
It's evident that DPJ's baramaki did nothing but add to the social/welfare cost while offering very little return.
illsayit
yubaru-get off the train get a license and youd see whole lot more. zichi, yes it does seem like a lot. Maybe you are for poor quality, or underpaying, or maybe youd rather the govt just stimulate the economy with a 5man per child allowance for everybody which would be cheaper? Then again you could just take in some of the monetary talk nigelboy has provided.
bruinfan
@Zichi
Thank you for the link. Incredible.