Commentary / Japan

Post-'Abenomics' reforms

by Shinji Fukukawa

Prime Minister Shinzo Abe dissolved the Lower House on Nov. 21 and set the general election for Dec. 14. He characterized the snap election as an election to seek people’s fresh “mandate for Abenomics” — his set of policies designed for national economic recovery.

Abenomics has achieved some results in the financial, stock market and monetary fields. But its real effects on the real economy such as workers’ wages and equipment investment are still unknown. In this sense, Abenomics is headed for a crucial stage involving the question of how much it can carry out the nation’s pressing structural reforms.

• The first and foremost structural problem Japan needs to solve concerns its population structure. According to the National Institute of Population and Social Security Research, Japan’s population, which stood at 128.05 million in 2010, will fall to 86.74 million in 2060 and 49.59 million in 2100.

Its population is projected to decline in the 21st century by the same margin as its population grew in the 20th century. Only recently, the government has set forth countermeasures including an increase in the number of child care facilities. But the question is how to address such problems as the tendency among people of marriageable age to stay unmarried temporarily or permanently, the growing trend of late marriage and the decline in the average number of births for married couples.

Furthermore, the problem of the aging population in Japan will increase the costs of its social security system unless it is reformed. This in turn will exert strong pressure on its already worsening financial situation and declining productive-age population.

• In the second place, there is the need to increase Japan’s rate of economic growth — in other words, its capacity for innovations and market charm. The Organization for Economic Cooperation and Development forecasts that the annual average real economic growth for the 2010-2030 period will register 3.3 percent for the world and 2.3 percent for OECD member nations.

But the rate for Japan will be 1.1 percent — lower than 2.5 percent for the United States, 1.6 percent for the European Union, 5.4 percent for China and 5.8 percent for India.

During Japan’s deflationary period after the burst of its asset-inflation economic bubbles, Japanese industries moved many of their production functions to foreign countries, causing the nation’s industrial competitiveness to decline. As a result, its current system is not capable of increasing exports even if the yen’s value declines. As for household electrical appliances for which Japan once boasted high competitiveness, half the demand has been filled by imports in recent years.

As for the amount of direct income investments relative to gross domestic product, Japan ranks lower than Taiwan, South Korea and China, to say nothing of advanced countries. This country must strive harder to raise the innovative power of its industries and improve the charm of its markets.

• Third, it is necessary for the nation to raise the power of its human resources. Education is the basis for raising human potential and quality and the source for promoting innovations. But whereas Japan’s elementary and secondary education ranks high in international comparison, the ratings for its undergraduate and postgraduate university education are low.

The government is trying to strengthen the international competitive potential of its higher education by concentrating responsibility and power on university presidents. But the success or failure of this effort has not been determined yet. It is basically important for these educational institutions to make comprehensive efforts to promote their reform awareness and carry out necessary measures to upgrade their levels of creativity, international orientation and autonomy.

Additionally they need to make stronger efforts to turn out the “new elite” professionals who will shine on the world stage in such fields as politics, economics, management, science, technology, design, fashion, journalism and sports as well as nurture core people who will play a major role in supporting the global society.

• Fourth, it is important to raise the nation’s cultural power. Japan has fostered excellent culture and cultural assets while working to coexist with nature. Culture is the aggregation of beauty, sensibility and ethics, and its magnificence moves the hearts of people and fascinates people abroad.

Recently the fusion of art and technology and of culture and industry has been progressing greatly. This trend is clear in the contents industry, which produces animations, and in the development of beautiful cities and attractive fashion. These developments contribute to economic growth.

• Fifth, more efforts are needed to promote reforms of the nation’s social security system as well as financial reconstruction. As the population continues to decline, the financial burden of the social security system, which includes pensions and medical and nursing care services, will become heavier and the nation’s financial structure will deteriorate further. If such a situation is left unattended, the allocation of investments toward future generations will decrease, thus affecting the base for economic growth, and give rise to intergenerational conflicts. A way must be found soon to help resolve the problem.

• Sixth, it is important to cultivate the nation’s capabilities to respond to global risks. Japan, which heavily relies on other countries for energy, raw materials, foods and markets, cannot expect to maintain its economy properly without promoting globalism.

But in the current situation, the world’s structure is getting further multi-polarized, with its key functions declining and risks rising in such aspects as global governance, security, market functions, resources and energy supply and environmental protection.

Under these circumstances, Japan needs to enhance its diplomatic capabilities and improve its systems for cooperation with other major countries so as to help firmly establish the merits of globalism that mankind has gained beyond the barriers of nationalism.

The above-mentioned are six major challenges Japan should address in the post-Abenomics situation with an eye on structural reforms aimed at the revival of “Japanability” or Japan’s influence on the global scene. All six tasks are difficult to carry out but must be done quickly. A political decision is required in this connection.

Shinji Fukukawa, formerly vice minister of the Ministry of International Trade and Industry (now the Ministry of Economy, Trade and Industry) as well as president of Dentsu Research Institute, is senior adviser for the Global Industrial and Social Progress Research Institute in Tokyo.