Japanese lessons for Nick Clegg and David Cameron

Britain’s leaders face the same problems as Hatoyama’s coalition government did -- until its collaps

The resignation last week of Japan's prime minister Yukio Hatoyama was greeted with a grim sense of inevitability by the Japanese public, which has grown used to a rapid turnover in the country's top office.

Hatoyama's successor, Naoto Kan, is Japan's sixth prime minister in less than four years. But the latest resignation has particular resonance for politicians in Britain. Hatoyama led a coalition government comprising his own centrist Democratic Party of Japan (DPJ), along with the smaller left-wing Japan Social Democratic Party (SDP).

Although Hatoyama's resignation came largely as a result of his own blunders, the final shove was provided by his coalition partner, the SDP leader, Mizuho Fukushima. Hatoyama's nine months in office were dogged by scandal, indecision and missed opportunities, but he was finally forced out over his failure to fulfil an election promise to move the controversial US Futenma marine base, currently located on the island of Okinawa.

His reversal on Futenma was seen by the public as symbolic of a broader inability to deliver on critical issues. When he came to power last August, public support for Hatoyama and his government stood at an astonishing 75 per cent; by the time he resigned, it had fallen to 19 per cent.

Fraught alliance

Hatoyama's failure over Futenma put pressure on his party's already fraught coalition with the SDP, which represents what remains of Japan's socialist electorate. Opposition to the Japan-US security alliance is a central pillar of their pacifist platform, so, not surprisingly, the SDP's Fukushima refused to support Hatoyama's decision to revert to the status quo and allow the US military to remain at Futenma.

The prime minister was thus forced to dismiss her from her post as minister for consumer affairs. The rest of the SDP swiftly followed their leader in leaving the coalition.

Within Britain's coalition government, David Cameron and Nick Clegg claim to have come to an "agree to disagree" arrangement over replacing Trident. But defence-related issues could easily open up divisions at Westminster similar to those that have occurred in Japan.

There are other similarities between the governments. In Japan, as in Britain, the coalition partners garner electoral support in conflicting ways. Elections for Japan's House of Representatives, the more powerful of its two chambers of parliament, are based on a mixture of proportional and single-member seats. The majority of DPJ MPs are elected in the single-member category, so the party must maintain a centrist stance in order to attract a wide variety of voters from as many constituencies as possible.

The SDP finds itself in the opposite position. The number of its members is in single digits, with more than half elected from proportional lists. The party's survival depends on its reputation as a progressive alternative to the two main parties.

Central to this aim is the SDP's unique commitment to reducing the presence of the US military in Japan and retaining the country's pacifist constitution.

Principle or pragmatism?

While the British Liberal Democrats enjoy wider electoral support than the Japanese SDP, their positions are in some ways similar. The majority of partisan Liberal Democrats -- those who vote for the party out of conviction, and not tactically or in protest -- are drawn to what they consider a more challenging agenda than the one offered by Labour or the Conservatives.

Like Japan's SDP, the Lib Dems will be punished by their core supporters if they are seen to compromise on their principles and election promises.

With elections for Japan's upper house around the corner in July, Fukushima's options were either to walk or to face the wrath of SDP voters at the polls. She orchestrated her own dismissal rather than be seen to support the DPJ over the Futenma controversy.

Surely it will not be long before Nick Clegg faces a similar dilemma. Perhaps the moment has already passed; joining a Conservative-led coalition in the first place was a slap in the face to many Liberal Democrat voters.

A departure from government on principle before the next election might mitigate the electoral damage to the Lib Dems. Both Clegg and Cameron should watch developments in Japan with interest.

Dr Tina Burrett is assistant professor of international relations at Tokyo's Temple University.

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Let's turn RBS into a bank for the public interest

A tarnished symbol of global finance could be remade as a network of local banks. 

The Royal Bank of Scotland has now been losing money for nine consecutive years. Today’s announcement of a further £7bn yearly loss at the publicly-owned bank is just the latest evidence that RBS is essentially unsellable. The difference this time is that the Government seems finally to have accepted that fact.

Up until now, the government had been reluctant to intervene in the running of the business, instead insisting that it will be sold back to the private sector when the time is right. But these losses come just a week after the government announced that it is abandoning plans to sell Williams & Glynn – an RBS subsidiary which has over 300 branches and £22bn of customer deposits.

After a series of expensive delays and a lack of buyer interest, the government now plans to retain Williams & Glynn within the RBS group and instead attempt to boost competition in the business lending market by granting smaller "challenger banks" access to RBS’s branch infrastructure. It also plans to provide funding to encourage small businesses to switch their accounts away from RBS.

As a major public asset, RBS should be used to help achieve wider objectives. Improving how the banking sector serves small businesses should be the top priority, and it is good to see the government start to move in this direction. But to make the most of RBS, they should be going much further.

The public stake in RBS gives us a unique opportunity to create new banking institutions that will genuinely put the interests of the UK’s small businesses first. The New Economics Foundation has proposed turning RBS into a network of local banks with a public interest mandate to serve their local area, lend to small businesses and provide universal access to banking services. If the government is serious about rebalancing the economy and meeting the needs of those who feel left behind, this is the path they should take with RBS.

Small and medium sized enterprises are the lifeblood of the UK economy, and they depend on banking services to fund investment and provide a safe place to store money. For centuries a healthy relationship between businesses and banks has been a cornerstone of UK prosperity.

However, in recent decades this relationship has broken down. Small businesses have repeatedly fallen victim to exploitative practice by the big banks, including the the mis-selling of loans and instances of deliberate asset stripping. Affected business owners have not only lost their livelihoods due to the stress of their treatment at the hands of these banks, but have also experienced family break-ups and deteriorating physical and mental health. Others have been made homeless or bankrupt.

Meanwhile, many businesses struggle to get access to the finance they need to grow and expand. Small firms have always had trouble accessing finance, but in recent decades this problem has intensified as the UK banking sector has come to be dominated by a handful of large, universal, shareholder-owned banks.

Without a focus on specific geographical areas or social objectives, these banks choose to lend to the most profitable activities, and lending to local businesses tends to be less profitable than other activities such as mortgage lending and lending to other financial institutions.

The result is that since the mid-1980s the share of lending going to non-financial businesses has been falling rapidly. Today, lending to small and medium sized businesses accounts for just 4 per cent of bank lending.

Of the relatively small amount of business lending that does occur in the UK, most is heavily concentrated in London and surrounding areas. The UK’s homogenous and highly concentrated banking sector is therefore hampering economic development, starving communities of investment and making regional imbalances worse.

The government’s plans to encourage business customers to switch away from RBS to another bank will not do much to solve this problem. With the market dominated by a small number of large shareholder-owned banks who all behave in similar ways (and who have been hit by repeated scandals), businesses do not have any real choice.

If the government were to go further and turn RBS into a network of local banks, it would be a vital first step in regenerating disenfranchised communities, rebalancing the UK’s economy and staving off any economic downturn that may be on the horizon. Evidence shows that geographically limited stakeholder banks direct a much greater proportion of their capital towards lending in the real economy. By only investing in their local area, these banks help create and retain wealth regionally rather than making existing geographic imbalances worce.

Big, deep challenges require big, deep solutions. It’s time for the government to make banking work for small businesses once again.

Laurie Macfarlane is an economist at the New Economics Foundation