Fumio Kishida, the new Prime Minister of Japan, rejects “neoliberalism”. Kishida promised to revise the so-called Abenomics program of his predecessor Shinzo Abe, saying he would create a capitalism in which a broad middle class enjoys the fruits of economic growth with wage increases for all. Definitely sounds nice. But while Abenomics was a coherent, logical program and provided the platform for eight years of stable government, Kishidanomics, at least so far, is a set of desirable goals with no plan to achieve them.
In a recent interview with the Financial Times, Kishida said that Abenomics has increased gross domestic product, corporate profits and employment, but has not achieved an increase in income for the average worker. “I want to achieve a positive economic cycle by increasing incomes not just of a specific segment but a wider range of people to stimulate consumption,” he said. “I think that’s the key to how the new form of capitalism will differ from the past.”
First of all, it is important to point out that abenomics was hardly “neoliberal” in most of the definitions of this highly elastic word. The initial fiscal stimulus in Abenomics was not neoliberal; Neither does the decision to fund free childcare and higher education. A neoliberal may applaud the excellent trade deals Abe negotiated but deny his aggressive pressure on private companies to raise wages. The neoliberalism that Kishida despises belongs to an earlier era of Japanese politics when Junichiro Koizumi privatized the post office and deregulated casual workers.
What made Abenomics so successful was the realization that Japan’s aging economy is primarily struggling to maintain adequate demand. Extremely low interest rates and stimulating fiscal policies contributed to this, making Abenomics a success in terms of growth and employment. Kishida has signaled that he wants to continue this policy for the time being. However, if he really hopes to raise wages, he should maintain Abe’s macroeconomic framework until the Bank of Japan can sustainably hit its inflation target. No admonition or tax incentive will raise wages if companies don’t believe their products are in high demand.
The further question then is whether Kishida can do something new to achieve his goal of a more equitable distribution of income. The answer is yes – but the policies that would work may not be politically appealing to him or to anyone else in the ruling Liberal Democratic Party.
If distribution is important to you, the obvious answer is redistribution. There are strong arguments for building on Abe’s support for childcare and education to lower the cost of raising children in one of the world’s fastest aging countries. But with Japan’s elderly population demanding higher taxes on health care and pensions, the public willingness to spend on everything else is limited.
Kishida could also look into other areas relevant to income distribution, such as competition policy or the inequalities created by an education system that often requires large investments by parents to get children into the best schools and universities. So far, however, Kishida has not proposed any such thing. If his vision is sufficient to secure victory in this month’s parliamentary elections, he will at least buy time to explain what “a new form of capitalism” actually means. But in a country facing economic challenges like Japan, the prime minister will quickly learn that cheerful rhetoric is the easy part – it does not replace a specific political plan.