Fumio Kishida, the new prime minister of Japan, rejects “neoliberalism”. Promising to revamp the so-called Abenomics programme of his predecessor, Shinzo Abe, Kishida has said he will create a capitalism in which a broad middle class enjoys the fruits of economic growth, with wage rises for all. It certainly sounds nice. But whereas Abenomics was a coherent, logical programme, and provided the platform for eight years of stable government, Kishidanomics, at least so far, is a set of desirable goals without a plan to achieve them.
In a recent interview with the Financial Times, Kishida said that Abenomics had raised gross domestic product, corporate earnings and employment, but did not achieve lift-off in earnings for the average worker. “I want to achieve a virtuous economic cycle by raising the incomes of not just a certain segment, but a broader range of people to trigger consumption,” he said. “I believe that’s the key to how the new form of capitalism is going to be different from the past.”
It is important to note, first, that Abenomics was hardly “neoliberal” on most definitions of that highly elastic word. The initial fiscal stimulus in Abenomics was not neoliberal; nor was the decision to fund free childcare and high school education. A neoliberal might cheer the excellent trade deals Abe negotiated, but decry his aggressive pressure on private companies to raise wages. The kind of neoliberalism Kishida disdains belongs to an earlier era of Japanese politics, when Junichiro Koizumi privatised the post office and deregulated casual labour.
What made Abenomics work was the understanding that, first and foremost, Japan’s ageing economy struggles to maintain adequate demand. Ultra-low interest rates and stimulative fiscal policy helped to do that, which was what made Abenomics a success on growth and employment. Kishida has signalled he intends to continue those policies for now. If he truly hopes to raise wages, however, he should continue Abe’s macroeconomic framework until the Bank of Japan can sustainably hit its inflation target. No amount of exhortation or tax incentives will raise wages if companies do not believe they will enjoy strong demand for their products.
The further question, then, is whether there is anything new Kishida can do to achieve his goal of a fairer distribution of income. The answer is yes — but the policies that would work may not be politically palatable to him or anyone else in the ruling Liberal Democratic Party.
If you care about distribution, the obvious answer is to redistribute. There is a strong case for building on Abe’s support for childcare and education, in order to lower the cost of raising children in one of the fastest-ageing countries on the planet. But with Japan’s elderly population requiring ever higher taxes to pay for healthcare and pensions, the public appetite to spend on anything else is limited.
Kishida could also look at other areas relevant to income distribution, such as competition policy, or the inequalities generated by an education system that often requires large investment by parents to get children into the best schools and universities. So far, however, Kishida has not suggested anything of this sort. If his vision is enough to secure victory in this month’s general election then he will at least gain the time to spell out what “a new form of capitalism” actually means. But in a country with economic challenges as great as Japan’s, the prime minister will learn swiftly that cheerful rhetoric is the easy part — it provides no substitute for a concrete policy plan.
