Dec 6th 2014
THERE is little doubt that Shinzo Abe, Japan’s prime minister, sees himself as a leader with an historic mission. In an interview with The Economist, he recalled the revolutionaries from his home prefecture of Yamaguchi who in the 1860s overthrew the old order and transformed Japan into an industrial powerhouse. Now, as then, he argued, Japan has to overhaul itself to catch up with the outside world. Also as then, his domestic opponents are united. “Far-reaching change was necessary for Japan, and my seniors in history staked their lives to achieve it, even though reform did not necessarily win backing from the majority,” he says.
Now Mr Abe claims that he needs yet another mandate from voters to implement Abenomics, as his reform programme is commonly known—even though his government already possesses a thumping majority. The snap general election he has called for the lower house of the Diet, or parliament, on December 14th, follows a run of bad news that has put his government on the defensive.
THERE is little doubt that Shinzo Abe, Japan’s prime minister, sees himself as a leader with an historic mission. In an interview with The Economist, he recalled the revolutionaries from his home prefecture of Yamaguchi who in the 1860s overthrew the old order and transformed Japan into an industrial powerhouse. Now, as then, he argued, Japan has to overhaul itself to catch up with the outside world. Also as then, his domestic opponents are united. “Far-reaching change was necessary for Japan, and my seniors in history staked their lives to achieve it, even though reform did not necessarily win backing from the majority,” he says.
Mr Abe’s supporters have been surprised by how little political capital he has spent on his own economic plan. After his landslide victory in December 2012, he fired up the country with talk of three economic “arrows”: radical monetary easing, extra public spending and bold reforms in the way Japan’s calcified economy works. He has governed in a hyperactive style, jetting off to dozens of countries in a diplomatic offensive. Yet he has shown far less vigour in pushing through the tough, market-oriented reforms that he has repeatedly promised.
Now Mr Abe claims that he needs yet another mandate from voters to implement Abenomics, as his reform programme is commonly known—even though his government already possesses a thumping majority. The snap general election he has called for the lower house of the Diet, or parliament, on December 14th, follows a run of bad news that has put his government on the defensive.
The economy is still struggling after a rise in the consumption (value-added) tax in April from 5% to 8% that crimped household spending. Falling GDP in the latest two quarters means that Japan is technically in recession, although revised figures to be announced on December 8th could show that the economy shrank from July to September by less than originally suggested, possibly close to zero. In October year-on-year core inflation (excluding the impact of the tax rise) fell to 0.9%. It may decline further, thanks partly to falling oil prices. This suggests that Mr Abe’s monetary arrow is falling well short of his target to reach 2% in 2015-16—even after an extra round of easing announced in late October. And an unwelcome reminder of Japan’s gargantuan pile of debt, now at over 240% of GDP, came on December 1st when Moody’s downgraded Japan’s credit rating in response to Mr Abe’s move last month to delay a second rise in the consumption tax, from 8% to 10%, which had been due next year.
Unemployment has fallen to a comfortable 3.5%. Yet Mr Abe’s popularity is sliding as Japanese outside the big cities complain that their standard of living has failed to improve or has even fallen. Wage rises have not kept pace with inflation and a weak yen has pushed up prices of imported goods. Wealth is far from evenly distributed across the country. But the opposition parties are in such dire straits that Mr Abe’s Liberal Democratic Party (LDP) is likely to sweep the board, losing few of its current 294 seats in the powerful lower house. Together with its Buddhist-backed coalition partner, Komeito, the LDP now has a majority, with two-thirds of the 480 seats. If, as expected, Mr Abe loses no more than 20-25 seats, rivals inside the LDP might be unable to pose a serious challenge to him for several years.
Armed with a fresh mandate, might Mr Abe at last become serious about reform? Time and again he has declined to do battle over tough measures. It has not taken public protests or workers’ strikes to force a climbdown—merely the threat of clashes with bureaucrats and vested interests. For example, when the government met resistance over changing rules on overtime pay, which encourage employees to put in unproductively long hours, it responded by applying the new laws only to the best-off workers.
Many suspect that the reason for Mr Abe’s backsliding may be that he is diverted by a passion (inherited, perhaps, from his late grandfather, Nobusuke Kishi, a post-war prime minister) to revise the country’s war-renouncing constitution, which was imposed by America in 1946. He wants to reinterpret the constitution to allow Japan to come to the aid of allies if they are attacked. The proposed change has proved deeply unpopular and drained the government’s energies. Some analysts believe that, as the scion of an illustrious political family, Mr Abe lacks the guile and force required to face down the traditionalist LDP, which, in the words of one of its parliamentary members, “doesn’t understand the first arrow [monetary easing], loves the second [government spending] and hates the third [reform].”
To be fair, Mr Abe has been bold in some areas. His efforts to force Japanese companies to adopt nimbler and more accountable management practices are already bearing fruit. His drive to lift the status of women in the workplace is showing signs of altering pervasive sexism. As soon as next autumn the city of Osaka is due to allow thousands of workers from the Philippines and elsewhere to help Japanese families look after housework and children—a controversial guest-worker programme which the government plans to copy elsewhere.
There are thus some grounds for believing that Mr Abe really does intend, as he assuredThe Economist, to push structural reform after the election. At times he sounds like a true radical: pledging to promote mobility in the rigid labour market, slash waste in medical care, liberalise the electricity market and shake up Japan Agriculture (JA), a vast, monopolistic network of agricultural co-operatives.
By far the most important reform would be to overhaul outdated work practices. During Japan’s long-ago high-growth past, firms competing for scarce talent deliberately tried to discourage employees from job-hopping. Unions still cling to ironclad protections for employees. There is a de facto ban on firing: judges can use precedent to insist on somebody being allowed to keep a job if dismissal is deemed not to meet “social approval”. To skirt restrictions, many companies hire ever more low-paid “irregular” workers with few job protections.
The rising share of workers in such jobs, now almost two-fifths of those employed, has many knock-on effects. Young men stuck in irregular jobs are far less likely to marry and start families, contributing to a low birth rate. Some, dissatisfied with their lot, join in the ranks of the far-right, contributing to worsening relations between Japan and its neighbours (see article).
What are the chances that Mr Abe might overhaul the labour market? At the labour ministry, a committee is said to be studying the possibility of using severance pay to cushion dismissals—a practice common in most developed economies. That would require an overhaul of the unemployment-benefit system. At present laid-off workers receive less than in other rich countries, and for a shorter time. An overhaul would encourage firms to offer more permanent positions. The opposition Democratic Party of Japan has pledged to ensure equal pay for equal work, regardless of what sort of contract an employee has. This could goad Mr Abe into action.
Mr Abe suggests that his reformist credentials would get a boost from an early agreement on the Trans-Pacific Partnership (TPP), a free-trade grouping that includes America. He calls himself “the strongest leader pushing for an early conclusion” of TPP negotiations and says he has given clear instructions to Japan’s trade negotiators to be flexible. There are now signs that, despite a gap between America’s and Japan’s positions on trade in cars and agricultural products, a deal may be in the offing.
If it happens, the boost to Japan’s economy would be huge. High import duties combined with domestic protection mean that the Japanese have to spend on average 14% of their household budgets on food, compared with 9% for Britons and 6% for Americans.
Thorough reform of JA would help. It started as a support network for farmers, especially part-time ones. But it has swollen into a massive bureaucracy that sucks profit from farmers who depend on it for distribution, seeds and finance. It is impressive that Mr Abe is even considering reform of JA—it is a powerful political force. A bill aimed at getting this started is due to be considered by the Diet early next year. Mr Abe’s willingness to push it through will be a test of his post-election gumption.
Another test will soon come over reform of the electricity market, which is badly needed to bring down high prices. Mr Abe says that for decades politicians have done nothing about either this or JA. Winning the election, he says, should lend his government the strength to deal with both. His plans include breaking up Japan’s powerful regional energy monopolies by requiring separate control over power-transmission and generation. Retreat would be hard for Mr Abe: one reform bill has already passed the Diet.
Mr Abe hopes that public support will help him overwhelm resistance from pressure groups. The extent of this will be difficult to gauge. Many Japanese agree in principle on the need for reforms. Yet they are far less interested in the nitty gritty of implementing them: their immediate impact is often unclear. The media tend to reflect the views of vested interests such as pharmacists, doctors and farmers. And, thanks to a skewed electoral system, the elderly in rural areas, who tend to resist change, have outsized influence. In some parts of Japan, a farmer can have twice the voting clout of a city-dweller because of falling populations in rural districts. On November 26th the Supreme Court ruled that last year’s election for the upper house of the Diet, where disparities are wider still, was held in a state of “unconstitutionality”. Mr Abe has, however, been slow to tackle this.
Some politicians have misgivings about the wisdom of holding a snap poll when Abenomics seems to be in trouble, and grumbling about the economy is rising beyond the capital. “The oil is in the fields already and any wrong-headed comment by the prime minister or his ministers could set it alight,” says one LDP member of the Diet. Voter turnout is likely to be low. But with or without a mandate, it is time for Mr Abe to take up his mission and stake his all on change.
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