FOREIGN POLICY


 

 

Fumio Kishida’s New Populist Measures Look To Shrink Inequality And Stir A Sluggish Economy.

Abenomics was supposed to be the magic toolkit that revitalized the Japanese economy. But nine years and a couple of prime ministers later, growth remains sluggish, and wealth disparity has risen.

Picking up on growing public anger over inequality, newly elected Prime Minister Fumio Kishida has laid out a populist economic policy that offers cash, seeks to bolster potential growth sectors, and prods companies into raising long-stagnant wage levels.

While the ideas have their attractions, they also mean a greater state role in an economy that most experts agree needs less government intervention to succeed, not more.

The program, which Kishida touts as no less than a “new capitalism,” features tax incentives—and in some cases tax penalties—for companies, depending on whether they raise wages or not. His goal is to avoid becoming yet another revolving-door prime minister like his predecessor Yoshihide Suga, who lasted just over a year in office.

Suga’s fate was no exception. Since 2006, seven Japanese prime ministers have been unable to last much beyond the one-year mark in office, brought down by gaffes, mini-scandals, and general public weariness with having them in charge.

To set himself apart, Kishida has turned his back on the Abenomics of former leader Shinzo Abe, the one man who managed to break the one-year curse (on his second try) with a record-breaking nine years in office, in two separate terms, before stepping down in 2020.

Kishida’s move has popular support. In a survey by Japan’s Jiji news agency in October 2021, 62.5 percent of respondents said he should reexamine Abenomics, while only 14.7 percent said he should keep on the same road.

While Abenomics did invigorate the top tier of Japan’s economy, with a rising stock market and strong corporate profits, lower-paid staff and small companies were largely left behind.

Defying Abe, who remains a powerful figure in the ruling Liberal Democratic Party, is a risky strategy. But Kishida sees an opportunity in trying to reorient economic policy from growth to fairness.

“Abenomics clearly delivered results in terms of gross domestic product, corporate earnings and employment. But it failed to reach the point of creating a ‘virtuous cycle,” Kishida said in an October 2021 interview with the Financial Times. His Economic Revitalization Minister Daishiro Yamagiwa was more direct:

“We do recognize there were insufficient parts to Abenomics,” he told reporters the same month. “There are limits to a trickle-down approach, and some things need to be done bottom-up.”

Some image building is clearly necessary. Kishida, a former foreign minister with a limited public persona, came into office this past October as a compromise candidate in the leadership election for the Liberal Democratic Party, blocking bids from both the liberal and right wings of the party.

The initial reviews were not particularly good, with the first polling showing an approval rate for his cabinet of 40 percent, among the lowest for any administration in the past 20 years. The figure has since climbed to around 60 percent, but the Japanese public is notoriously fickle over how it rates its leaders.

A large part of the economic package involves throwing around large sums of money totaling 56 trillion yen (around $490 billion), about 10 percent of the nation’s GDP.

The goal is to bring back some of the glory days of Japanese success in the areas of semiconductors, digitalization, and green technology. One area of focus is on “economic security” (code for “let’s make products here instead of in China”), and Kishida has appointed a new government minister to lead the initiative, a sure sign that concrete action will follow.

In the voter-pleasing camp, Kishida is also promising payouts of 100,000 yen (around $870) for every family with children. Government largess is by no means a Kishida invention. Previous administrations have assiduously invested and subsidized—leaving Japan with one of the heaviest levels of government debt in the world.

But Kishida’s biggest challenge rests in trying to create economic growth through rising domestic demand. Rising corporate profits would in turn lead to higher wages and fuel greater spending. It is basic to most economies, but in Japan has proven an elusive goal.

Ever since the collapse of the so-called bubble economy around 1990, Japan has been stuck in an economic time warp. It remains prosperous and profitable but has failed to keep pace with the growth it has seen around Asia and indeed in the rest of the world.

Most telling is the fact that wages in Japan have barely shifted. Government data shows nominal wages rose just 1.2 percent from 2012 through 2020.

Corporate Japan, on the other hand, has been doing very well. Corporate profits rose to record highs in 2018 and are now back to near that level after a coronavirus-induced dip. Retained earnings (roughly equivalent to cash sitting around) has climbed to an estimated $6.5 trillion as of 2019.

It’s not just the populists who see this as destructive to building growth.