/

Abe’s magic doesn’t work

by

Special To The Japan Times

Prime Minister Shinzo Abe correctly identified some of the essential problems that Japan must resolve if it wishes to recover from economic crises that have seen it falling from being the world’s second most powerful economy toward middling power status.

Then with waves of his magic wand, he virtually solved them: he will raise the economy by 20 percent; he will transform agriculture into a powerhouse via the Trans-Pacific Partnership; he will increase economic dynamism by giving women a greater role, taking 30 percent of management positions; he will boost Japan’s fertility rate so that its population stabilizes at 100 million.

If only: Perhaps Abe should now retire a hero and let someone take over who can work out how to achieve the policy prescriptions, far more difficult than making promises.

Many problems are of Abe’s own making because he abused his political and economic capital by ignoring the economy for nine months to force through questionable security laws with huge potential negative economic impact.

Growth is flat. After years of quantitative easing, bigger proportionally than in the U.S. or Europe, inflation stubbornly refuses to move to Bank of Japan Gov. Haruhiko Kuroda’s promised land of 2 percent. The stock market is riding high on the prospects of yet more quantitative easing causing the yen to fall and further boost corporate profits. Big corporations are awash with money, but ordinary workers have not seen increases in their wages.

Japan’s supporters say that it remains powerful, a leader in science and technology — witness two Nobel Prizes in this year — and still an industrial powerhouse with world renowned companies and No. 3 in the world in terms of total gross domestic product. Everyday life for most people is comfortable and safe. Unemployment is 3.4 percent.

But if you look beyond simplistic headline numbers, Japanese should be worried. In purchasing power parity, India has passed Japan as the world’s third biggest economy, and is 55 percent bigger ($7.4 trillion against Japan’s $4.77 trillion). By income per capita, Japan has slipped, with about $36,000 (whether measured in current or purchasing power parity dollars), which puts it somewhere between 24th and 30th place in the world league, depending on whose detailed figures are used. Even if you strip out small resource rich places like Qatar, Brunei, Saudi Arabia and Macau (at $104,000, top of World Bank rankings for 2014 thanks to income from casinos), Japan comes well below the U.S. ($54,000), and below Switzerland, Ireland, Australia, Sweden, Germany, the United Kingdom and France in per capita rankings.

All this is before the damage of a declining and aging population has begun to bite a heavily indebted government. Japan’s population has fallen below 126 million and is heading for 87 million by 2060, with the fertility rate 1.41, way below the replacement rate of about 2.1 births per woman. Already 26 percent of Japanese are 65 or older, a figure set to rise to 40 percent.

The biggest worry should be that most Japanese are not worried, behaving like the proverbial frog happily luxuriating in warm water that is being heated, ignorant that it will soon be boiled.

Should Abe be congratulated for pointing out the problems, or damned for his patronizing and potentially totalitarian attitude that he can by edict solve issues with complex roots going deep into society and postwar history?

He declared he planned to raise Japan’s total GDP to ¥600 trillion from about ¥491 trillion last year, but offered neither a timetable nor a road map. His determination that women should make up 30 percent of Japan’s managers — and a new law obliging big companies to set targets — flies in the face of the reality that women make up fewer than 10 percent of managers and about 1 percent of senior executives.

Even a nursery school teacher could tell Abe that there is a potential contradiction between his demand for more women in the workforce and for women to produce more children. Young mother Haruka Hamada dared to say so on a BBC program this month: “I understand why Prime Minister Abe says that the economy needs more women to work — but I wonder if he is listening to the actual mothers.” She wanted to give her children the quality time of her presence in their infant years but admitted, “Until I became a mother, I did not realize how difficult it was to raise kids and to do all the housework.”

Some new mothers would like to resume their careers but face difficulties. This is not just a question of the often-cited shortage of day care facilities — although there is still a shortage. There is also a need for child care centers that are open beyond the typical 9 a.m. to 5 p.m. and, more important, a need for companies that can fit new mothers back into a male-dominated career structure.

In the West, where hierarchies are not so rigid and the working day is often flexible, it has been hard enough. But in Japan, where salarymen are expected to stay working and drinking until the late hours, how can they accommodate a working woman who takes time off to have a child, returns, but wants to leave by 5 p.m. or 6 p.m. at the latest to cook for her children and help with their homework, and then wants more time off for another child? Is it fair to the men who toil away in daily drudgery to give women so many concessions?

The number of Japanese women in the workforce has increased, almost to U.S. participation levels, but they are not making an impact in the C-suites yet. The World Economic Forum’s index for gender inequality shows Japan languishing in 104th place out of 142 countries surveyed.

Indeed, the wand-waving Abe has exacerbated the wider problem of the structure of employment in Japan, by failing to help the swelling ranks of workers on short-term contracts. The government recently passed legislation that would encourage companies to use cheap contracts and swap workers after three years. If Abe listened to the people, he would quickly learn how short contracts create uncertainty and reluctance to undertake costly commitments, such as buying a house, getting married or having a child.

In addition, graying Japan faces the problem common to advanced countries: that members of the younger generation are comfortable with their modern conveniences and don’t want to spoil them with the expensive burden of children or, even in some cases, of marriage. Abe’s decision to appoint a — male — minister to encourage women to have more babies seems pathetic.

The quality of decision-making in Japan today is poor. Especially in times of rapid change, game-changing political or economic policies should be thoroughly examined, the implications, advantages and disadvantages assessed from all angles, and the people consulted, before a decision is made.

Yet such careful scrutiny is often lacking. A tepid opposition and a media that cozies up to those in power are failing to play their proper critical role. But Abe also impatiently wants results quickly. He terminated discussions on the planned increase in the consumption tax to decree that there would be lower rates for food and daily products, no matter that the Finance Ministry is opposed, no matter that exceptions will be costly to implement, no matter that solving Japan’s heavy indebtedness will demand a consumption tax of 20 percent or more, according to reputed economists. Abe’s excuse is that the Upper House election is coming soon.

But should Japan, on the brink of social and economic turmoil, distort decisions with momentous long-term consequences by reference to short-term electoral considerations? Japan needs invention, innovation, entrepreneurship to lift it from gloomy stagnation, both economic and social, but it first needs to understand its plight. Abe’s greatest tragedy is that he is encouraging the belief that there are instant magic solutions to Japan’s deep problems.

Kevin Rafferty was managing editor at the World Bank from 1997 to 1999.

  • Paul Martin

    Until Japan becomes a truly cosmopolitan international multicultural society it will be a pariah country in the eyes of the World, nationalism and aloofness is a disease in today’s global community !

    • CaptainAsia

      Well then, we might as well count the Chinese out because they are like a hundred times worse than Japan.

      • Paul Martin

        They have become very cosy with Britain and I am british so that can’t be all bad at least economically for the uk.

  • Liars N. Fools

    The refusal to have an extra Diet session in which Abe and his ministers would have had to delineate their plans gives them more time to develop the talking points if not actual plans. A big question mark is the rate and timing of the VAT hike.

  • Richard Solomon

    Thanks for a thorough summary of where Japan stands and how Abe’s so called leadership has been mostly smoke and mirrors with little substance behind it. Admittedly, he and the country face difficult challenges which will require strong leadership. He was willing to stand up to his opponents when it came to the so called security laws, collective self defense, etc. He is unwilling to do the same when it comes to facing down corporate interests to demand substantially higher wages, more women in executive positions, more flexibility for women employees, more permanent employment, etc. Neither is he willing to lead by example. Has he promoted more women from the LDP ranks to be cabinet members? Has he insisted that ministries in the government promote more women into management and executive positions?

    Abe talks a good game. But he lacks the wherewithall to try to actually implement these ideas. Or is he more interested in creating ‘a beautiful Japan’ by revising history, altering textbooks to exclude information about Japan’s unsavory actitivities during WW II, etc? I suspect the latter is more important to him and his supporters than leading the country out of its doldrums and reversing its problematic demographics.

    • CaptainAsia

      Focusing on the future does not entail forgetting the past, that is just an accusation drummed up by the Chinese and Korean xenophobic communities that are scrambling to consolidate a complete stranglehold over their populaces. It is unfortunate that both China and Korea feel the need to have to rely on generating hate to stay in power.

      Much to the disappointment of China and Korea, who were hoping that Japan would crumble after the Fukushima disaster and prolonged campaign of both nations attempting to tar Japans reputation overseas and within their own respective borders. What they forgot to calculate was that Japan and the Japanese people are an extremely hard working and talented people that dont wait around for a bone to be thrown at them. Japanese people work hard and are very very creative.

      It is unfortunate that Korea and China both have stated “foot in the mouth comments” that they no longer need Japan, only to realize that Japan is a powerhouse to be reckoned with.

      It goes without saying that to call Abe hawkish begs one to look at what Xi JInping is, Abe looks like a dove next to him, yet the propaganda has taken root in amongst the “educated” media buffs of democratic nations. The attacking of Abe is not going to improve China or Korea, both in their economies and human rights practices, the latter belonging more to the Chinese. The brandishing of weapons and threatening to use nuclear weapons on the USA by China on many occasions, territorial grabs, deceitful negotiations etc…only furthers how meek and harmless Abe is.

      While people like you jump on the band wagon of lets Hate Abe club, much goes without saying that the real reason for this practice to exist in the first place lies with the shortcomings of the leaders of Korea and the Chinese communist parties vicious and desperate attempts to hang on to power at all costs. Even worse is the actions of Park cuddling up to Xi Jinping and attending a military parade of the worst hawkish stance imaginable.

      Japan may be trying to revise its constitution but it is not attempting to change it. That means Japan will never wage war against another nation as stated in article 9. However this does not mean that it cannot go to the aid of its allies that are set to defend Japan in the case of invasion. Therefore much of what Abe is doing is understandable, especially in light of the Senkaku invasion attempts by the PLA navy.

      Several years ago the Chinese and Korean Park almost succeeded in painting Abe in black and creating a scapegoat, now in hindsight we can only admire the foresight of the Japanese. Much has happened in the Asia Pacific region since then and Japan has nothing to do with it. The culprit is China and Korea’s Park would do better if she distanced herself.

      • skattan

        You claim that China has threatened to use nuclear weapons against the United States on many occasions. Could you give a source for that claim?

  • nosnurbd

    As before, Japan is hitching its hopes on the wrong horse. Japan tried to follow the west in the beginning and clasp on to the idea of Imperialism, military power and the certainty of superiority. It ended in chaos and defeat. To get on track, Japan needs to make friends with and apologize to it Chinese, Korean, Russian, and Southeast Asian neighbors (as well as Okinawa) to clear the decks for true progress in Asia. Japan should and must become an independent country. I may never become the head of the Greater East Asia Co-prosperity Sphere but it could become a true power in Asia, maybe the Switzerland of Asia, rather than the Israel of east Asia. The internal problems are really more significant than the external threats. If Japan needs money: Tax the Rich and Japan needs to let the US know that Japan has its own self interests. Become a bridge rather than a wall.

  • nosnurbd

    As before, Japan is hitching its hopes on the wrong horse. Japan tried to follow the west in the beginning and clasp on to the idea of Imperialism, military power and the certainty of superiority. It ended in chaos and defeat. To get on track, Japan needs to make friends with and apologize to it Chinese, Korean, Russian, and Southeast Asian neighbors (as well as Okinawa) to clear the decks for true progress in Asia. Japan should and must become an independent country. I may never become the head of the Greater East Asia Co-prosperity Sphere but it could become a true power in Asia, maybe the Switzerland of Asia, rather than the Israel of east Asia. The internal problems are really more significant than the external threats. If Japan needs money: Tax the Rich and Japan needs to let the US know that Japan has its own self interests. Become a bridge rather than a wall.

  • Richard Conrad

    “Even a nursery school teacher…”
    Perhaps you’d consider rephrasing that?

  • jcbinok

    Two things I can’t understand about Japan economically are:
    (1) Why isn’t retirement/social security mandatory? Some workers are on shakai hoken, some aren’t; some pay into the retirement system, some don’t. It’s confusing and a lot more money could be collected for the elderly if retirement payments were automatically deducted from your pay check (and matched by the employer).
    (2) Why is the interest at banks here essentially nil for savings accounts? What’s the point in parking your money at a bank if inflation outstrips interest rates? You’re losing money.

  • tisho

    He identified the problem, but his solutions are wrong. He wants to emulate the American way of ”spending yourself rich” and ”taxing the companies out of existence”. Real economic growth comes from production, not consumption. A country does not become wealthy by buying more than it can produce, it becomes wealthy by producing stuff, and then consuming what it produced. Taxing the companies is only going to stimulate them to leave the country, and/or cut more jobs, and/or reduce wages, and/or cut staff. Production comes from savings and investment. When you tax the hell out of companies, they can’t save, and when you regulate the hell out of them, they can’t invest the little they’ve saved into expanding. His entire way of thinking is that more consumption is going to increase the GDP figures, therefore we need to stimulate consumption, which is absolutely ridiculous way of thinking and preposition. People consume whenever they have money, if they don’t consume it means they don’t have money, consumption is not going to create wealth, more production, more investment, productivity, this is what creates wealth, not consumption. You have to first produce something to consume it. He needs to cut the taxes and reduce the regulations, make it as easy as possible to save, invest, hire/fire and start a business. What would help the middle man.