The best political slogans are simple and direct: “It’s the economy, stupid,” coined by James Carville, an adviser to former US president Bill Clinton, or former British prime minister Tony Blair’s “tough on crime, tough on the causes of crime.”
Japanese politicians typically do not excel at these sound bites. That is what made former Japanese prime minister Shinzo Abe’s “three arrows of Abenomics” such a standout.
Using a simple folk tale, it explained a complex recipe of monetary, fiscal and supply-side solutions intended to revive the Japanese economy, resonating with investors at home and abroad.
Illustration: Yusha
Japanese Prime Minister Fumio Kishida early this month launched what he called the “grand design” for his “new form of capitalism,” a doctrine he has promoted since taking office in October last year.
The draft policy outline is many things, but simple and direct is not among them. Watered down, muddled, confusing and a bit confused, Kishida’s flagship economic policy could learn a lot from Abe’s three arrows.
The grand design is laid out in a 34-page outline of policy recommendations by a panel Kishida formed to flesh out his concept of new capitalism.
That is what Kishida calls his overarching economic thesis, which, in essence, rejects the neoliberal consensus of looser regulation and giving greater power to markets — the standard suggested recipe for revitalizing Japan’s economy in the past two decades.
Instead, it emphasizes greater government cooperation and oversight, as well as the redistribution of money to workers to address the growing gap between rich and poor.
The initial reaction to Kishida’s new capitalism was unenthusiastic. Stocks tanked soon after his appointment in an event dubbed “Kishida shock.” His suggestion of raising capital gains taxes, focus on redistribution and seemingly sniffy attitude toward dividends gave the markets cold feet, with just 3 percent of investors in one January poll saying they supported him.
One of Kishida’s most revealing remarks came in February, when he spoke about company profits being “lost” to shareholders in the form of dividends. Kishida and his lieutenants have since sought to walk back the perception that he is anti-market, with the prime minister’s speech in London last month pitching his pro-market views and asserting his credentials as a former banker.
This walkback seems evident in Kishida’s grand design, his latest attempt to better articulate his vision and transfer it into actual policies.
It begins by dramatically pitching new capitalism as the successor ideology to the welfare-state capitalism and neoliberalism that have dominated the post-World War II period, and warns of the damage that has been done in the past few years by giving too much power to markets.
However, leaving the merits of that vision aside, the actual policies proposed in the grand design fall between two stools. There is little by way of concrete policies to lift wages, something Abe failed to deliver. Missing is any reference to raising capital gains taxes, with the strategy instead promising to boost household investment in assets through tax-free accounts — although Kishida muddied the waters further by telling parliament that a capital gains tax increase is still under discussion.
There is a hodgepodge of sound policy ideas, such as boosting support for start-ups, and investment in growth areas such as artificial intelligence and quantum computing, as well as more faddish concepts such as Web3, non-fungible tokens, special purpose acquisition companies and the metaverse.
A long-held goal to turn Japan into a financial hub is given all of nine lines of text.
What does this mean? Has Kishida, a self-proclaimed “good listener” who likes to travel the country to hear voters’ feedback, adjusted his policies after they initially fell flat? Is he, as many suspect, waiting until after the Japanese House of Councillors election next month before showing his hand on potentially unpopular issues such as taxes?
No one is quite sure. As a result, the reception has been muted. The left-leaning Tokyo Shimbun daily attacked the policy package, saying Kishida’s “distribution policies have taken a major step backward.”
The right-wing Yomiuri Shimbun does not like it either, accusing it of further deepening the confusion around his original policy.
Good political messaging is not easy. Abe made similar errors when he launched a long-since-forgotten second quiver of Abenomics arrows in 2015, a muddled mess of narrowly focused childcare and social security steps. They failed to resonate with the public and were quickly discarded.
For now, Kishida is flying high in the polls, but it is precisely that popularity, enhanced by his strong stance on the Ukraine war and his general lack of baggage, that gives him an nearly unprecedented platform to enact some of the hard changes that Japan needs.
There are good ideas in his new capitalism. Kishida is right to focus on lifting wages — particularly with inflation now finally rising. He is correct, too, to look for a new policy recipe and not simply ape past approaches, and the focus on “stakeholder capitalism” could both align with global trends and offer some of the best of Japan’s approach to the world.
However, too much of the concept’s first incarnation last year felt like solutions for another country, with a focus on problems such as corporate short-termism and excessive shareholder payouts that mostly plague US companies, not Japan’s. Now, the grand design has resulted in a solution that feels a little too Japanese — with Kishida supporters and critics saying it feels too close to parts of Abenomics.
Abe’s initial three arrows might not have fixed Japan, but the policy was successful in halting deflation and putting Japan on a growth course.
While Kishida comes from different ideological stock, he still needs to find a way to distill his vision into clear messaging and policies that workers and businesses can embrace.
Gearoid Reidy is a Bloomberg News senior editor covering Japan. He previously led Bloomberg’s breaking news team in North Asia and was the Tokyo deputy bureau chief.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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