Hatoyama was candid enough to admit to his people that his administration will be characterized by a “process of trial and error and there will be some mistakes.”

At a time when the Japanese yen is soaring –a big hurt to exporters like Honda and Nintendo — he appointed the spry Hirohisa Fujii, aged 77, to be Finance Minister — the same position he held 16 years ago when an opposition party held the reins of power for 11 months. Foreign Minister Katsuya Okada,  diffident and unflashy, will ensure that relations with Washington don’t go off the rails.

However, my FAVORITE Japanese politician has also found his way into the new, uh “reform” Cabinet. Shizuka Kamei, leader of the splinter People’s New Party, will be in charge of “postal and financial affairs” –which is like putting Al Capone in charge of the Federal Reserve.

Kamei, 72, is the Japanese leader most like a classic Chicago wardheeler in the days of  “The Boss” Richard J. Daley. (Yes I once covered politics in Chicago.)  Kamei firmly believes in spending goverment largesse on dams, subways, highways and whatever else will give people jobs.  He’s now been put in charge of the agency that was supposed to break up the world’s largest bank — the Japanese Postal Savings system — and get that money flowing into private and commercial accounts where it could be better spent.

Kamei opposed the postal privatization agenda of former Prime Minister Junichiro Koizumi, the maverick who kept ruling LDP from killing itself off in the mid-1990s, and subsequently left the party in which he had been a powerhouse for decades.

Now he turns up as a Cabinet member in a so-called “reform” government. Of course this is a political “payoff” for supporting of the Democrats in the Japanese parliament. But it bodes ill for the sort of deep and drastic reform the country needs if it is ever to emerge from its financial “black hole.”

Kamei is likely to push the use of postal savings to prop up small and medium industries that have been going broke for years. He has already proposed a three-year debt moratorium, and could conceivably force the postal savings system to issue more “life support” loans to so-called “zombie” firms. These firms are the “living dead” –  no longer economically functional, but still not killed off.

Kokumin, SDP chiefs offered plum posts

Japan needs a healthy dose of entrepreneurship, innovation and new business creation. That can’t happen if so much of its capital is tied up in moribund firms that are kept in business.

The clash between the OLD and NEW Japan will be fought even within Hatoyama’s new cabinet.  Kamei’s first name –Shizuka– can be rendered to mean “quiet.” Kamei, a blustery, barrel- chested old-school pol, is anything but. He would endorse the comments of a famous old Windy City pol who once said, “Chicago ain’t ready for reform.”

Is Japan?

Ohmigod they proclaim! The US-Japan alliance is dead. Oh NO! Change in Asia? Maybe we can’t “count” on our friendship with Japan anymore??

The classic Timesian approach was in full view in a piece earlier this week, full of Beltway background and off-the-record fumbling.

The victory of the Democrats on Sunday means the White House must deal, for the first time in decades, with a Japanese government that is a complete stranger, and one that has expressed blunt criticism of the United States. The party’s leader and presumptive prime minister, Yukio Hatoyama, recently spoke out against American-led globalization and called for a greater Japanese focus on Asia.

Well, who WOULDN’T express criticism of American foreign policy during the Bush years? Even our CURRENT President thinks Bush led us into a disaster in Iraq. In fact that’s why he got elected.

What all these Washington “experts” forget to point out is that it was George Bush, Don Rumsfeld and Dick Cheney that “forced” Japan to support an ill-fated Iraqi campaign that the vast majority of the Japanese people vehemently opposed.

Remember when George Bush decided to “take names” and figure which nations of the world were “friends or foes?” The French said “No.” The Germans said “No.” But the Japanese, nervous that they would be left “at sea” in Asia, acted in contravention to their own Constitution to support the U.S. military campaign in Iraq, even though our invasion never received United Nations sanction.

Japan’s support for the Iraqi war — a kneejerk, slavish response by then Prime Minister Junichiro Koizumi — effectively killed the country’s ability to win the one foreign prize it has long sought: a seat on the UN Security Council. (Remember Japan has been one of the biggest financial backer of that institution, while Washington is usually in arrears in paying its UN debts.)

You don’t get that sort of victory in the UN kowtowing to the Americans…but that’s what Tokyo did because of the Bush’s administration demand that friends “stand up and be counted.”

So the election of Hatoyama and the Democrats allow the two nations to rethink and reconceptualize the nature of their alliance now that the Cold War is dead. And despite the traditional hostility of the Japanese to the Democratic Party, I believe the new government will find a lot to agree with when Obama and Hatoyama finally sit down and meet

Hatoyama, Obama speak by telephone

Japan needs to think about it’s role in the 21st century.  Guess what? So does Washington. There’s plenty of room for mutual progress on a healthy and sustainable, now that Rumsfeld and Cheney are no longer running the world.

No one should wish their worst enemies a night under North Korean guards…

But their commentary /explanation in today’s LA Times of how they were captured only raises again the nagging question: What on earth were they doing there on North Korean soil??

Their explanation of how they were captured once again suggests that these two lacked the proper preparation, knowledge or experience to be tasked for such a risky assignment. While their sympathy for North Korean refugees was perhaps laudable, their decision to knowingly cross the Tumen River border — well known to be ambiguous, not well-marked and full of smuggling routes — suggests, as I have alluded to earlier, a base desire to “touch the soil” in the DPRK even if that had nothing to do with the actual reporting of the story.

Call it a schoolgirl stunt.

As they write:

….We knew our guide was taking us closer to the North Korean side of the river. As he walked, he began making deep, low hooting sounds, which we assumed was his way of making contact with North Korean border guards he knew. The previous night, he had called his associates in North Korea on a black cellphone he kept for that purpose, trying to arrange an interview for us. He was unsuccessful, but he could, he assured us, show us the no-man’s land along the river, where smugglers pay off guards to move human traffic from one country to another.

When we set out, we had no intention of leaving China, but when our guide beckoned for us to follow him beyond the middle of the river, we did, eventually arriving at the riverbank on the North Korean side.

To me this episode also suggests some of the perils of “do it cheap” journalism — the sort of reporting we’ll increasingly see as old-line media die out and the market has not yet found ways to pay experienced hands who know their way around in desolate and foreboding places. Alas, there remain no “barriers to entry” in journalism these days.

I recognize that I’m not being PC here…but I suspect the capture of these two is only the “edge of the wedge,” as increasingly risky and dangerous reporting assignments get taken over by those who really don’t know better.

Laura Ling and Euna Lee: Hostages of the Hermit Kingdom

These words written by Ichiro Ozawa, intellectual founder of the Democratic Party of Japan –which now takes over leadership of the world’s second largest economy after their stunning parliamentary victory on Sunday –aptly sum up the Japanese challenge in the 21st century.

Ozawa’s words, quoted by my former colleague Dan Sneider in today’s Washington Post,  sum up how the Japanese thought of themselves. Essentially, they were great “free riders” in the world — able to export their way to prosperity while dependent on Washington’s security blanket in foreign affairs, never having to really decided for themselves what their future should look like.

The result was a nation frozen in amber for nearly two decades –while the world around them changed.

The next Japanese goverment, to be led by Stanford-educated engineer Yukio Hatoyama, will now be able to begin a true national conversation about how to arrest the nation’s long slide toward irrelevance. Revamping the economy, instilling hope in a “lost generation” of young people, defining an approrpriate foreign policy agenda and reviving the national economy are all huge challenges facing the country. None will be solved overnight.

But this “breath of fresh air,” gives Tokyo a real chance to revive and reinvigorate its alliance with Washington, re-engineer  its connections across Asia and rediscover its potential to generate  economic growth based more on domestic consumption, not just on exports to the US and Europe.

The Obama administration will need to signal early on that it welcomes a productive, cooperative and more equal partnership — in line with Obama’s own preference for multilateralism. This shouldn’t be too much of a stretch.

The challenge will be in Tokyo — turning campaign  rhetoric into coherent policy.

The leader of Japan's Democratic Party, Yukio Hatoyama, celebrates in Tokyo on August 30 (Junko Kimura/Getty)

America’s great reset began almost precisely one year ago when the collapse of Lehman Brothers and the election of an African-American Democrat as President signaled a major turning point in the nation’s economic and political affairs

Now America’s great Asian ally begins its own epochal Great Reset.

The Liberal Democratic Party, which held a choke hold on Japan’s political life for more than 50 years, which protected special interests, carved up the spoils of incumbency and never managed to reinvigorate the nation after the collapse of the “Japanese miracle” in 1989, finally collapsed in defeat Sunday, a spent, bloated and demoralized political force. Its demise was long overdue.

The opposition Democratic Party or Minshuto not only toppled the LDP, but seems likely to garner a two-thirds majority in the Lower House  of the parliament, or Diet –enough power to pass bills without the help of the minority.

DPJ Wins 308 Seats To Topple LDP From Power.

This was less a victory for the Democrats than it was the final reckoning against a doddering and bloated political machine, the sort that put old Chicago Mayor Richard J.  Daley to shame. This defeats signaled a massive protest vote by millions of disaffected Japanese who saw the LDP as being simply unable to articulate a future course for a deeply troubled nation that has never really risen up and recovered from the crippling deflation of hte 1990s.

Alas, it is not yet clear that the Democrats, and their party leader Yukio Hatoyama will have the strategic vision and political discipline to lead Japan out of the wilderness, either. On the campaign stump, Hatoyama promised a retreat from “market fundamentalism” –an ironic choice of words in a nation whose economy is heavily managed through government intervention — and a new foreign policy more independent of Washington.

It isn’t clear how much of this Hatoyama really means. The Japanese foreign policy establishment has long been leery of Democrats in America, feeling they are so beholden to labor unions that they will never stand up for Japanese interests.  Yet it was George Bush — not the Democrats — who forced the Japanese to offer logistical support for the U.S. war in Iraq, something the majority of the Japanese people opposed — and despite a pacifist Japanese constitution that expressly forbids war-making. In choosing to go along with Bush, the Japanese were not acting in their own self-interest, but reflecting their slavish devotion to the USA and to the long-held notion that if Japan supports the U.S. military, the U.S. will protect Japan’s economy.

Now the world looks different than it did a year ago.

In principle, Hatoyama could work closely with an Obama administration to recalibrate Tokyo’s troubled relations with China and Korea, and develop the terms for a post- Cold War alliance with Washington on issue ranging from humanitarian relief to climate change.

The last time an opposition won an election in Japan, however, the new government it formed lasted only about 10 months. So it’s too soon to predict how stable the Democratic government will be. The problems they will inherit, however will be profound.

On the eve of the balloting, national unemployment was officially reported at 5.7 percent — a record, but in fact far less than the real number as millions of workers have been reduced to part-time work, or arbeito without benefit of benefits, overtime or job security.  The nation’s birth rate has collapsed, as young women refuse to bear children meaning that Japan is on course to become so old and grey that it will make South Florida look like a hippie commune. And the nation’s debt amount to around 170 percent of yearly economic output

Hatoyama is no magician…and the Democrats mostly lack a coherent policy agenda. But for once the Japanese people have concluded the risk of doing nothing was more perilous than the decision to put the reins of power in the hands untested newcomers.

Let the Reset begin…

When it comes to elections, even David Letterman seems to be getting into the act these days. That joke –which fell pretty flat, actually – came off his TV show Monday night.

So I guess I’m not the only who’s been thinking a lot about the election fixation in America these days, given how much military muscle and political “spin” was invested in a flawed exercise in democratic expression in Afghanistan, and how much ink will be spilled to analyze a vastly different, but equally flawed, democratic exercise in Japan this coming Sunday, August 30^th.

As a foreign correspondent, I spent time in both countries, and know well the tendency for Western diplomats, journalists and even some NGOs to focus intensively on the process of an election exercise. Americans seem to understand what an election is, and given the constant drumbeat of U.S. political news in this era of blogs and snarky commentaries, the running assumption that the word “election” in a place like Iraq or Afghanistan – or even in a wealthy, developed nation like Japan – must somehow share the “look and feel” of the voting process in the good ol’ US of A is a very tempting conclusion to draw.

Alas, it just ain’t true.

Let’s first take Afghanistan. It’s difficult to consider as serious an election in a nation that has yet to get its arms even around the fickle conception of “nationhood.” Even before the Soviet invasion, Afghanistan was a nation cobbled together by colonial powers –i.e., the British — governed by a nominal monarch, but steadfastly remained an uneasy, dislocated amalgam of warlords, tribal leaders and clerics. This land had no history of democratic rule, no real experience with democratic expression and a very meager sense of national destiny or collective purpose.

So throwing an “election” on top of this stewpot of ethnic rivalries and warlord factionalism only encourages the sort of gamesmanship and cheating we are seeing in this voting process – intimidation, ballot stuffing and the like.

Are we now really surprised to learn that a drawn-out battle to find a “winner” of this “election” between Hamid Karzai and Abdullah Abdullah will only stir up more of the divisiveness and tension that previously existed? If the roots of democracy are shallow,  is it any wonder that a Western-imposed exercise in democratic expression doesn’t carry the same weight?

Japan is a radically different case that only helps prove the broader point.

It is all but certain that the ruling Liberal Democratic Party, which ruled Japan for nearly all of its post-war years, will lose control of the Diet, or parliament, on Sunday. Many will rush to declare a “major revolution” because the Democratic Party of Japan – mostly made up of old retreads and failed functionaries from the former LDP – will claim victory and start to run the country.

Yet is likely that little will actually “change” in Japan after an election where, quite ironically, the opposition is aping candidate Barack Obama and using the word “change” as its mantra. As my friend Martin Fackler correctly notes in today’s New York Times

“voters expectations seem limited about what the Democrats would achieve given their inexperience and often lackluster leadership.”

After Decades, Japan Prepares for Likely New Ruling Party

Elected leaders wield little real power in Japan – the well-entrenched bureaucracy actually runs its highly regulated system, a system which usually short-circuits the free market, open trade, entrepreneurship or the innovative spirit of the young. While the opposition claims it wants to cut the size of the bureaucracy, it also wants to boost government spending at a time when Japan’s debt- to-GDP ration is beginning to resemble that of a Third World nation. The Democrats have announced few coherent policy innovations –except the idea that paying about $260 a month to every family with children will somehow boost the national birth rate which has fallen primarily because Japanese women don’t want to bear children in a society where most men take no responsibility for child rearing. It’s not clear that an economic bribe will overcome “womb strike.”

Of course it’s little wonder the ruling LDP is staring at the political abyss. Nearly twenty years after the “bubble economy” collapsed Japan is still wondering what kind of nation it should become in the 21^st century; how it should relate to its fast-growing neighbor, China; whether it should really open up to the outside world or keep itself closeted – a path that will lead to inevitable, if relatively comfortable decline. The LDP failed to get the economy healthy again, and never initiated a national conversation about how Japan would thrive in a post-industrial world. Even without the excesses of the subprime real estate debacle, Japan still got crushed by the collapse of domestic consumption in the far-off USA.

So let’s put some of this in perspective. Western-style representative democracy certainly remains a worthy goal for most nations, but let’s not inflate our conceptions of what democracies are, what they can accomplish and how individual nations mature and grow into democracies of the sort we might recognize. The Japanese could never accept the chaos that is an Indian election, and probably not American-style democracy either. Their democracy was imposed from above, from shoguns and samurai and from Gen. Douglas MacArthur; it did not result from a popular revolution from below.

Nor have the Afghans shown, through their history, a pre-disposition towards “democratic values.” The sort of self-expression and individualism that is so vital to the American conception of identity doesn’t exist quite the same way in Japan or Afghanistan.

So let’s not suppose elections are the end-all or be-all of political or social quarrels. And let’s not naively wonder with great angst and surprise after elections are held that some of the disputes haven’t really been settled at the ballot box.

There is a part of  “political culture” that is, indeed, irreducibly about  “culture.”

Warren’s Congressional Oversight Panel helps explain why, like a faulty plug in your sink, the fact that the Treasury and the Fed have poured billions into the banking system doesn’t necessarily mean that any more than a wee dribble makes it out into the “real economy,” where real businesspeople and home owners need credit in order to start companies, hire folks and get the economic wheels turning. That’s because there’s a plug in the sink — a big mess of bad loans.

As with Japan two decades ago, the COP points out, there is a serious question as to how much big banks really want to admit their loans have gone south, take the losses, and try to move on. This is the approach the Treasury has tried to encourage with its Public Private Investment Program or PPIP, designed to give the banks enough cushion to declare and right off their losses.

But banks seems to be bulking up on loan loss reserves without really writing off their bad loans. The trouble is — what is the right value to put on a loan that is defaulting. Do you say there is really no value at all to the asset? Do you say that the parcel in question or the office building is really worth what you thought when you made the original loan –and time will prove you right? Or is it somewhere in between?

As the COP group notes:

To the extent banks have not written-down troubled assets, they are in effect continuing to invest in those assets by holding them for a future return. That is not an unreasonable strategy in itself. But it only postpones the day of reckoning if it turns out that, rather than appreciating, the assets depreciate.

This is the same problem the Japanese faced: Why declare a loss now, if you can hold on long enough and perhaps find that you get yourself bailed out by an economic “rising tide.” The problem is…how long can you wait? And how long do you stop making attractive new loans while you wait for your older loans to recover any value? How many of you have tried to get a bank loan lately??

Warren’s panel points out that the banks that are “too big to fail” — think Citicorp and J.P. Morgan will probably be okay — because the Federal Reserve will ride to the rescue once again if they become imperiled. But the smaller neighborhood banks could be in trouble if unemployment continues to rise and retail and commercial real estate falls apart, since they are less geographically diversified and could be “taken out” by just a few major hits from failed loans.

Many suspect this could be the shoe that drops next.

North Korea: 2 US journalists pardoned -

The release of reporters Laura Ling and Euna Lee was a sign of North Korea’s  “humanitarian and peaceloving policy,” the Korean Central News Agency reported.

This is a big win for Clinton, of course, and also increases the hopes that dialogue between Pyongyang and the Obama administration might be put on a better footing.

The fact that the former President met with ailing and reclusive leader Kim Jong-il on Tuesday for a banquet meal suggested that a release of the two reporters for San Francisco-based Current TV might be in the works. Now it’s possible that Clinton –through his  “informal”  visit — has laid the ground work for a more extensive dialogue between Washington and Pyongyang on a host of troubling issues, including nuclear proliferation.

Clinton will have stories to tell when he emerges from North Korea, as Kim has not met with a senior Western leader in many years.

Ironically, Clinton might well have traveled to Pyongyang in late 2000 to help repair DPRK-US relations if the battle over the presidential succession between Al Gore and George W. Bush hadn’t taken months to resolve. You may recall that his Secretary of State, Madeleine Albright, went to Pyongyang earlier that year to lay the ground work for a potential visit. The two reporters now work for Gore’s Current TV.

All of that ground towards progress was quickly lost when then-President Bush took great pride in labeling North Korea one part of the now-infamous “axis of evil,” along with Iran and Iraq.

Who knows? Maybe the Clinton visit can erase the past years of Bush’s baleful legacy and lead, eventually, to the final conclusion of the Korean war.

A lot remains to take place of course — but this is a hugely positive step and may someday change the “security profile” of Asia.

President Clinton speaks at the United Nations (Mario Tama/Getty)

No, it isn’t Secretary of State Hillary Clinton, but the former President who alighted from an airplane in North Korea early Tuesday.

Bill Clinton is apparently in the North Korean capital hoping to win the release of journalists Euna Lee and Laura Ling, correspondents for San Franciso-based Current TV, in which Al Gore, Clinton’s Vice President, is a partial owner. The two were convicted in June of illegally crossing the North Korean border from neighboring China and were sentenced to 12 years of hard labor.

The Associated Press reported

Clinton landed in Pyongyang on Tuesday and was greeted at the airport by North Korean officials, including chief nuclear negotiator Kim Kye Gwan, North Korea’s state news agency said in a brief dispatch. “A little girl presented a bouquet to Bill Clinton,” the report said.

Like most bold maneuvers, the dispatch of the former President to the closed North Korean capital offers risks as well as potential payoffs. The DPRK is longing for “Respect” from the West, and sending a former US President to beg for leniency for two U.S.  citizens  would certainly seem to offer ailing strongman Kim Jong-il something of the “face” he clearly demands and expects. The U.S., moreover, is really more interested in getting the North Koreans to rein in its nuclear development ambitions and the potential sale of rockets and nuclear technology to rogue states. Winning the release of two US journalists is, in the larger context a sideshow, albeit an important one.

It is hard to believe the Obama administration and Jeff Bader, the very able head of Asia policy for the National Security Council, would permit Clinton’s trip unless there was some signal from Pyongyang that some measure of tangible progress would result in a relationship that has been deadlocked for most of the past decade.

Yet there is also a possibility, at least, that Clinton could come away from this intervention empty-handed. The North Koreans have proven time and time again that they are master negotiators. Observers believe that Kim Jong-il is now ill, that the transition of power to his youngest son — a virtual unknown in the West – is incomplete and that the powerful leadership of the North Korean military will have to be assuaged if any denouement with the U.S. is permitted to take place.

But the North Koreans have also  signaled in the past that they would like to “come in the from the cold,” re-establish relations with the United States and get themselves removed from all economic sanctions.  So there may well be negotiating room for the ex-president.

If he scores a meeting with “Dear Leader” Kim and his son and heir-apparent, that in itself would signal a major achievement.

What, even Japan faces a blue collar crisis? The home of monozukuri or the culture of manufacturing?

An excellent piece in the FT today

Not made in Japan.

points out

the plunge in global demand and a sharp rise in the yen have thrown Japanese manufacturers into crisis, and reignited a debate about the country’s reliance on the sector. That is because it was not finance that transmitted this recession to Japan – it was manufacturing.

Japan, where manufacturing was THE basis of prosperity faces a new crisis, as blue collar jobs are being outsourced to China and Southeast Asia, or cheap workers from Brazil are being imported into the country to do the dirty jobs young Japanese are no longer interested in performing.

In America, we believe the service economy — think software, accounting, insurance, health care and yes finance — will be the ultimate savior of our troubled employment picture. But in Japan the service at banks and department stores may be impeccable…look at the 12 people who wait on you at a department store…but it doesn’t earn the firms any money. So without manufacturing…what will be left?

It also doesn’t help Japan’s search for reinvention that its inflexible, hierarchical and often silo-ed system of development doesn’t really help boost national innovation. Need we be reminded that Sony, the company that invented the Walkman, has never been able to compete with the I-phone and I-pod, which so seamlessly mesh lower-value hardware with high-value software? Or that Panasonic and Sony are now being out-muscled by Samsung and LG from Korea?

So even though the roots of financial crisis in Japan and the U.S. came from different places — Japan suffered because we American consumers got too indebted chasing overpriced real estate — the way “out” of the mess may be surprising similar: looking for innovative products that boost  sustainability and lower energy uses.