International / Theory

Honest Abe: will Japan’s PM stick to his plan for economic reform?

by Aiden Depiazzi

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After a brief and disastrously inept spell as Prime Minister of Japan in 2006-2007, Shinzo Abe was returned to power when his Liberal Democratic Party won a landslide victory at the 2012 general election. Nonetheless, the horizon was bleak. A sweeping majority in the House of Representatives was pitted against a divided upper house that had, through a consistent lack of ability to cooperate with the government in the lower house, seen the coming and going of fifteen prime ministers in just two decades.

As of July 21, Abe and the LDP-New Komeito coalition have control over both houses. For the first time in years, Japan is facing the prospect of having stable government for an entire term. His plan to reinvigorate the Japanese economy, coined ‘Abenomics’, is looking to be implemented swiftly and aggressively.

There is no question that something drastic is required to rescue Japan from its current thrall. Sluggish growth and high unemployment in the early 1990s led the government to almost double consumption tax. The result was calamitous; prices plummeted, real wages followed, and the recession worsened. Japan has lacked a sustainable fiscal structure for almost two decades, and its short-sighted and blinkered economic policy saw China surpass it as the world’s second largest economy in 2010.

Abenomics is an exciting policy package, one easy to sell to Japanese voters, but whether or not it is the solution Japan is looking for is yet to be confirmed. Its radical monetary easing and supply-side reforms fix an old and ineffective policy focus on the demand side of the economy, but it doesn’t seem to have anything adequately planned to deal with the nation’s ageing population and subsequently shrinking labour pool. Spending on social welfare, particularly on pensions and aged care, needs to be wrangled. Japan has for years resisted opening up its market for private health cover to international players; Abe needs to pursue this, or face burdening an improving economy with needless spending. Disenfranchised younger generations need to be reengaged, which means Abe needs to stimulate job creation. With one of the highest rates of youth suicide in the world, Japan is facing a population crisis in the coming decades if something is not done to address the shrinkage.

Other countries have faced a similar set of circumstances in the past and have dealt with it, swiftly and with positive results for economic outlook, through immigration. Abe’s target for sustained growth cannot be achieved without expanding the workforce. Settling young, skilled migrants is essential to repairing Japan’s population forecast, but the Japanese view the concept of immigration with considerable disdain. Abe faces considerable opposition from social conservatives within his own party, making it likely that the traditional Japanese resistance to higher rates of immigration will persist.

The problem will only be perpetuated over the next term of government; Abe is an ultra-conservative, an aggressive nationalist, and one whose foreign policies demonstrate an alarming desire to relaunch Japan onto the world stage through political manoeuvres, not economic ones.

Abe’s actions in the past nine months have already put Japan’s neighbours on edge. His intention to rewrite the constitution to erase the restrictions that enabled post-war Japan to re-join the international community have stimulated enormous public support domestically, while causing great concern to nations like South Korea. A more aggressive and assertive Japan, one perpetuating backwardly conservative social policy, doesn’t bode well for its East Asian colleagues.

Abe will be under enormous pressure to use this seldom found control of both houses of the Diet to abandon his economic regime – not as popular, it is said, within the LDP as it is amongst the public – and pursue political gains instead. But if he truly wants to re-establish Japan as a competent and modern economic player in the Asia-Pacific theatre, he needs to tame the conservatives within his party and work with the technocrats to fix the economy. Bold monetary policy, trade liberalisation and structural deregulation all bode well for Japanese economic prospects, so long as Abe has the resolve to prioritise them.

One of the most exciting Abenomic components is his commitment to have Japan join the Trans-Pacific Partnership (TPP), an emergent free-trade agreement amongst Pacific nations. For years, trade negotiations have been stifled and stalled by Japanese interests; like a stubborn child unhappy with what they’ve been served at the dinner table, Japanese bureaucrats have resisted cooperation with any arrangement that would threaten their protected domestic agricultural interests or the government’s internal social agenda. Governments have for decades slashed the work performed by Japanese diplomats, largely viewed to understand the need to liberalise their trading arrangements, to sustain their rigid and unchanging views on Japan’s place in the world.

It is no wonder that well over 70% of the Japanese population approve of Abe’s current policy objectives. He has successfully paired economic reform with expansionist and nationalist rhetoric, and will almost certainly wedge those who resist liberalisation and deregulation by selling the policies with the same rhetoric to his own party, his coalition partners, and to the population at successive elections. But what Abenomics means for Japan’s relationship with China should call the international community to concern. The continued dispute over the Senkaku Islands and Abe’s visits to the controversial Yasukuni Shrine – which celebrates and commemorates the names of over a thousand Japanese war criminals – show something of a blind and inadvisable attempt by Japan to antagonise China. Paired with Abe’s intentions to reform the constitution to enable Japan to possess a standing army for international deployment, conflict in the region in the coming decades is looking less and less improbable.

Monetary easing, consumption stimulation, trade liberalisation and market deregulation are desperately needed if Japan is going to show any sign of economic improvement in the coming years. The question now is whether or not Shinzo Abe will fulfil the economic commitments in his doctrine first, or use his position for a nationalist and expansionist social agenda that could accelerate and worsen disputes in the region.

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