TOKYO – Prime Minister Fumio Kishida says Japan should revitalize its economy through “new capitalism." Many in this avidly capitalist country are puzzled over exactly what he has in mind.
Kishida has said he believes a more equal distribution of wealth is needed to prevent the world’s third largest economy from sinking into stagnation. That sounds dramatic, but analysts say he doesn’t stand for drastic change.
The conservative, pro-U.S. and pro-business Liberal Democratic Party, which has ruled Japan almost continuously since World War II, won a better-than-expected 261 seats Sunday in the lower house of Parliament, comfortably exceeding the 233 seats needed and giving Kishida a mandate, at least for now.
“With this definite support from the people, I will dedicate myself to working on policies and parliamentary efforts,” said Kishida, chosen as head of the governing party just a month earlier.
The Liberal Democrats prevailed over weaker opposition parties despite widespread unhappiness, until a recent drop in cases, with the government’s handling of the coronavirus pandemic, perennial corruption scandals and a failure to deliver on promises for sweeping reforms intended to drive much faster growth.
Kishida appears unlikely to stray far from the pro-market policies of the past decade. Under former Prime Minister Shinzo Abe, who stayed in office from late 2012-mid-2020, the economy limped along with massive help from the central bank's ultra-cheap credit and government spending. Abe's successor, Yoshihide Suga, stuck with that “Abenomics" program.
Now, Japanese are waiting to see what “Kishidanomics" will bring.
“Kishidanomics remains a complete mystery to me,” said Kinuko Kuwabara, a free-lancer in Shizuoka Prefecture, central Japan.
What people really want tackled are coronavirus pandemic measures and corruption in high places, she said.
“Maybe Kishida himself isn’t sure what he plans to do,” said Hideo Kumano, executive chief economist at Dai-Ichi Life Research Institute.
“All we have are slogans. It’s unclear how much you can really believe them and how they can be realized.”
Topping Kishida’s to-do list is another big dose of government spending to help Japan recover from the COVID-19 shock. The economy grew at a seasonally adjusted annual rate of 1.9% in the April-June quarter, a tepid pace considering the severity of the pandemic downturn in 2020.
When taking office, Kishida said he believed raising the tax on capital gains would help to rebalance an economy that is growing increasingly unequal. Although the disparity of wealth is greater statistically in the U.S. than in Japan, Americans have access to more generous social welfare programs, according to OECD data. That means poverty is a growing problem in Japan, especially among single mothers struggling to make a living wage.
Kishida backtracked from talk of raising taxes after a few days of stock market sell-offs, saying a higher capital gains tax — which would help redress Japan's highly regressive tax regime — would have to wait until the economy was growing at a much stronger pace.
He now says he hopes to drive growth by slashing corporate taxes — which Abe also did — in the classic “trickle down" strategy of encouraging companies to raise wages.
That approach has fallen flat, however, as companies hoarded their earnings. Instead, a growing share of workers are employed part-time or on contracts that don't provide full benefits. The tax system, meanwhile, penalizes families with two full-time incomes.
In the era of rapid growth that followed World War II, workers were promised jobs for life. With “lifetime employment” a vanishing dream, people need to freely job-hop and find new opportunities and skills.
Economists say that apart from boosting wages to encourage consumer spending, what Japan really needs for sustainable growth is deregulation and a freer labor market. That's daunting and politically risky because such changes require reforms that would shake up vested interests, angering the constituencies, such as farmers and big businesses, that have helped keep the Liberal Democrats in power for so long.
The current system protects and rewards old-guard under-performing companies while failing to drive innovation.
None of this was headline news in the run-up to Sunday’s election, when opposition parties campaigned on promises of cash handouts and lowering taxes. The Liberal Democrats, meanwhile, promised more spending in coronavirus research, carbon neutrality, hydrogen energy and efforts to restart nuclear plants — not better social safety nets and redistributing wealth.
“We don’t know for sure what he plans to do, but we know his approach will not be that different from ‘Abenomics,’ ” said Hideaki Tanaka, a professor of public policy at Meiji University in Tokyo.
“What we have is a to-do list. Without a real analysis of why Japan isn’t growing and lacks innovation, and a real diagnosis of what’s behind this sickness, there can be no cure,” he said.
Yuri Kageyama is on Twitter https://twitter.com/yurikageyama