On Oct. 4, Fumio Kishida became Japan’s 100th prime minister, succeeding Yoshihide Suga, who held the office for only a year.
Kishida secured the top job by prevailing in a four-person race to lead the Liberal Democratic Party (LDP). On Sunday, he and the LDP are to face a national election for the Japanese House of Representatives, the lower, but more powerful chamber of the Japanese Diet.
Together with its coalition partner, the Komeito Party, the LDP is expected to win decisively. The most recent poll by Japanese public broadcaster NHK puts the LDP’s support at 38.8 percent and Komeito’s at 3.9 percent. The largest opposition party, the Constitutional Democratic Party, polls at just 6.6 percent, followed by the Japanese Communist Party with 2.8 percent.
If the LDP does indeed win big, Kishida would be on track for at least a three-year tenure as LDP president and up to four years as prime minster before the next parliamentary election must be held. That is more than enough time to introduce and implement a policy agenda of his choice, so the question is what route he might take.
During his LDP leadership campaign, Kishida promised a shift in economic policy away from “neoliberalism” and toward a “new capitalism.”
He hopes to create a virtuous cycle between income redistribution and growth, arguing that neoliberalism has created a widening gap between Japan’s rich and poor.
Kishida wants firms to distribute profits more widely to employees, customers and sub-contractors, in addition to shareholders, which implies a change from “shareholder capitalism” to “stakeholder capitalism.”
His ultimate goal is to make the middle class dominant again, he has therefore proposed a tax break for companies that raise employees’ wages and salaries.
Kishida’s platform is reminiscent of a 2018 open letter by BlackRock chairman Larry Fink to fellow corporate executives called “A Sense of Purpose,” in which Fink argued that “companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”
And yet, many questions remain. Does Kishida’s vision of a new capitalism imply an endorsement of environmental, social and governance principles? Or is he just nostalgic for the old days of Japanese capitalism, when employees were expected to stay in one company for life — with seniority determining promotions — and when firms were expected to avoid layoffs even in a severe downturn or for the purpose of restructuring?
Only after Kishida provides more details about his economic program will we know which way the new prime minister envisions.
As for the COVID-19 pandemic, which is still ravaging Japan, Kishida has called for increased wages and salaries for nurses, care workers and nursery-school teachers.
Unlike in many other countries, this objective can be achieved largely through government action, because healthcare, long-term care and childcare are heavily regulated sectors in Japan.
Additional support for these workers would no doubt be popular. Japan’s healthcare system is infamous for its rigidity and stifling regulation, with workers commonly being forced to log overtime hours without pay.
Although Kishida’s emphasis on redistribution is what drew most of the attention during the campaign, he does have a growth strategy as well.
He wants to invest more in science and technology, build digital infrastructure in underserved rural areas, create resilient supply chains and strengthen the social safety net. One concrete measure he has proposed is a ￥10 trillion (US$87.9 billion) “university fund” to support research at top institutions.
However, conspicuously absent from Kishida’s growth strategy is the word “reform.”
Perhaps he associates that term with neoliberalism, because it can be used euphemistically to describe painful firm closures or mass layoffs for cutting costs, but the association is mistaken.
Japan desperately needs a government that is willing to pursue reforms to encourage a digital transformation in many industries. Without that, it is hard to see how Kishida can deliver higher productivity and thus higher real wages for ordinary workers.
Moreover, firm closures or layoffs in unproductive, declining industries can be managed with retraining programs and transitional safety net policies. Such reforms are wholly consistent with stakeholder capitalism.
An important debate in this month’s national election campaign is over the size of cash payments to young and low-income workers.
The Komeito Party has proposed one-time lump-sum child benefits of ￥100,000 for each person under the age of 19 in a household. Opposition parties have also proposed cash disbursement to households, as well as a lower consumption tax rate.
Another voice in the mix is former Japanese minister for internal affairs and communications Sanae Takaichi, who ran against Kishida in the LDP leadership election and has since been appointed to a key policymaking position within the party.
During the campaign, she channeled modern monetary theory, suggesting that there is no limit on the issuance of government debt as long as it is denominated in the country’s own currency.
That means that there might be strong pressure within the LDP itself to open the fiscal taps.
Although Kishida campaigned on proposals to introduce progressive tax rates for interest, dividends and capital gains, he has since backed away from that idea in the general election campaign.
There now appears to be an intensifying race to increase fiscal deficits in support of radically expansive cash disbursements. If Kishida joins in, that could make him popular in the short term, but it would raise myriad macroeconomic risks for Japan further down the road.
Takatoshi Ito, a former Japanese deputy vice minister of finance, is a professor in Columbia University’s School of International and Public Affairs, and a senior professor at the National Graduate Institute for Policy Studies in Tokyo.
Copyright: Project Syndicate
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