Posted on Sunday, October 31, 2021 | 8:18 p.m.
Updated 10 minutes ago
TOKYO (AP) – Prime Minister Fumio Kishida has said that Japan should revitalize its economy through “new capitalism”.
Kishida said he believes a more equitable distribution of wealth is needed to prevent the world’s third-largest economy from slipping into stagnation. It sounds dramatic, but analysts say he’s not advocating for radical change.
The conservative, pro-American, pro-business Liberal Democratic Party, which has ruled Japan almost continuously since World War II, won a better-than-expected 261 seats in the lower house of parliament on Sunday, comfortably exceeding the 233 seats needed and giving Kishida a warrant, at least for now.
“With this sure support from the people, I will devote myself to working on policies and parliamentary efforts,” said Kishida, chosen as head of the ruling party a month earlier.
Liberal Democrats have prevailed over weaker opposition parties despite widespread discontent, until a recent drop in cases, with the government’s handling of the coronavirus pandemic, perennial corruption scandals and a setback promises of radical reforms designed to accelerate growth.
Kishida seems unlikely to stray from the pro-market policies of the past decade. Under former Prime Minister Shinzo Abe, who remained in power from late 2012 to mid-2020, the economy limped with massive help from ultra-cheap central bank credit and government spending. Abe’s successor, Yoshihide Suga, has stuck with this “Abenomics” program.
Now the Japanese are waiting to see what “Kishidanomics” will bring.
“Kishidanomics remains a complete mystery to me,” said Kinuko Kuwabara, a freelance worker from Shizuoka Prefecture in central Japan.
What people really want are action against the coronavirus pandemic and corruption in high places, she said.
“Maybe Kishida himself is not sure what he intends to do,” said Hideo Kumano, chief executive economist at the Dai-Ichi Life Research Institute.
“All we have are slogans. It is not clear how much you can truly believe them and how they can be achieved.
Topping Kishida’s to-do list is another big dose of government spending to help Japan recover from COVID-19 shock. The economy grew at a seasonally adjusted annual rate of 1.9% during the April-June quarter, a moderate pace given the severity of the pandemic slowdown in 2020.
Upon taking office, Kishida said he believed raising the capital gains tax would help rebalance an increasingly unequal economy. Although the wealth disparity is statistically larger in the United States than in Japan, Americans have access to more generous welfare programs, according to OECD data. This means that poverty is a growing problem in Japan, especially among single mothers who struggle to make a living.
Kishida returned to talks about raising taxes after a few days of stock market liquidations, saying that a higher capital gains tax – which would help straighten Japan’s severely regressive tax regime – would have to wait until the economy is growing at a much faster rate.
He now says he hopes to spur growth by lowering corporate taxes – which Abe has also done – as part of the classic “trickle-down” strategy of encouraging companies to raise wages.
This approach fell flat, however, as companies racked up their profits. Instead, a growing share of workers are employed part-time or on contracts that do not provide full benefits. The tax system, for its part, penalizes families with two full-time incomes.
In the era of rapid growth following World War II, workers were promised jobs for life. With “lifelong employment” as a dying dream, people have to freely find employment and find new opportunities and skills.
Economists say that aside from raising wages to encourage consumer spending, what Japan really needs for sustainable growth is deregulation and a freer labor market. It’s intimidating and politically risky, because such changes require reforms that would undermine vested interests, angering voters, such as farmers and big business, who have helped keep the Liberal Democrats in power for so long.
The current system protects and rewards underperforming old guard companies while not fostering innovation.
None of this made headlines in the run-up to Sunday’s election, when opposition parties campaigned on cash-handing pledges and tax cuts. Liberal Democrats, meanwhile, have pledged more spending on coronavirus research, carbon neutrality, hydrogen energy and efforts to restart nuclear power plants – no better social safety nets and redistribution of wealth .
“We don’t know for sure what he plans to do, but we do know that his approach won’t be that different from ‘Abenomics’,” said Hideaki Tanaka, professor of public policy at Meiji University in Tokyo.
“What we have is a to-do list. Without a real analysis of why Japan is not growing and lacking in innovation, and a real diagnosis of what is behind this disease, there can be no cure, ”he said.
Yuri Kageyama is on Twitter https://twitter.com/yurikageyama