Commentary / Japan

Abe's magic doesn't work

by Kevin Rafferty

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.