Northeast Asia | How to save Japan’s competitiveness
Japan's Prime Minister Shinzo Abe announces a snap election at a news conference in his official residence in Tokyo, Japan, September 25, 2017. REUTERS/Toru Hanai

Is Abenomics over?

Japan's continued slide in global competitiveness rankings is what the winner of the October 22 general election should focus on. Some suggestions.

September 29, 2017 12:20 PM (UTC+8)

Tokyo Governor Yuriko Koike joining forces with Japan’s main opposition party has pundits pondering what two weeks ago seemed unthinkable: life after Shinzo Abe.

Let’s not get ahead of ourselves. Koike, a popular maverick of a politician, has a long way to go to the prime minister’s office.

Abe’s Liberal Democratic Party has run Japan with only two brief interruptions since 1955. It has locks on older, rural voters, key industries from agriculture to energy and business lobbies. The LDP is extremely well financed, skilled at cowing the media and fights dirty.

At the same time, neither the main opposition Democratic Party nor the new one Koike just joined, the Party of Hope, has staked out positions that differ markedly from the LDP’s.

Even if the Democratic and Hope crowds merge, they still need clear, unique and winning ideas offering consideration daylight from Abe’s.

Still, the specter of a beat-Abe union instantly shifted attention from an inevitable LDP win in the October 22 snap election to a post-Abe era.

Still, the specter of a beat-Abe union instantly shifted attention from an inevitable LDP win in the October 22 snap election to a post-Abe era.

Whether that starts on October 23 or 12 months from now, the conversation has moved on to what’s next.

A good place to start: Japan’s continued slide in global competitiveness rankings.

Since December 2012, Abe has pledged to increase innovation and productivity, cut red tape, reduce corporate taxes, loosen labor markets and ease the basic processes of doing business.

Twelve months before Abe moved into the prime minister’s office, Japan ranked 5th in the World Economic Forum’s Global Competitiveness Report, right behind Germany.

In the latest one, released this week, it’s fallen to 9th place. It’s quite a dubious honor for the land of Abenomics and reflation to trail a United Kingdom reeling from its Brexit divorce from Europe.

Japan also has fallen considerably in the World Economic Forum’s gender equality index, to 111th from 98th place finish before Abe took over.

Tokyo has plummeted in press-freedom ranking by Reporters Without Borders – to 72 from the 22 Abe inherited. That puts Japan in the same transparency neighborhood as Croatia, Malawi and Hong Kong, where China is clamping down on media autonomy.

For all Abe’s efforts to tighten corporate governance, meanwhile, Toshiba’s accounting shenanigans, Takata’s deadly airbags and Tokyo Electric Power Co.’s glacial cleanup efforts at Fukushima (and fleecing customers to pay for its incompetence) remind us Japan Inc. answers to no one. Least of all a ruling party – Abe’s LDP – beholden to corporate vested interests for cash and votes.

A Prime Minister Koike will have do better, and fast, if she gets the chance to lead. Here are five ways Koike, or whomever else succeeds Abe, can raise Japan’s global game.

Catalyze a startup boom.

With the Bank of Japan’s aggressive easing and a weaker yen, Abenomics set out to reanimate an economic model that no longer exists. The strategy worked wonders in 1987, but it’s been superseded by the forces of globalization and the rise of China.

Abenomics seeks to protect jobs at the top of corporate food chain, not create new ones from the ground up. Japan’s next leader must rejigger taxes to empower entrepreneurs to create the next Google or Tesla. Forget gimmicks like “special enterprise zones.” Let’s morph the entire nation into one with regulatory incentives. Tax holidays for startups and venture-capital efforts, anyone?

Make “womenomics” a reality.

Abe talks of making the other half of the population “shine.” Yet his uncreative policy mix relegates too many women to “non-regular” jobs that pay less.

As Goldman Sachs famously estimates, Japan’s annual output would jump 15% if the female labor-participation rate matched men (about 80%). Equally important, Tokyo must ensure female labor isn’t essentially exploited.

That means putting women in key cabinet positions like foreign affairs, finance or chief secretary. Why not also force change upon Japan Inc. via quotas and steep penalties for patriarchal stubbornness? Perhaps Koike, Tokyo’s first female governor, is just the politician to tackle institutionalised sexism.

Shaking up the bureaucracy.

Prime ministers don’t run Japan, it’s often said, career ministry staffers do. Tokyo must wrestle power away from these undemocratic and gridlock-inducing fiefdoms.

Streamlining decision-making and replacing seniority-based promotions with a more meritocratic system would help. So would shuffling bureaucrats into different ministries every few years, reducing opportunities for freelancing.

Tokyo must end the corrupting practice of “amakudari” that allows civil servants to scam cushy gigs in industries they regulate. Past prime ministers who tried to upend the change-averse bureaucracy –Junichiro Koizumi and Naoto Kan – encountered epic pushback. It’s time for a far more activist assault.

Make renewables big in Japan.

Abe’s party is a creature of the “nuclear village,” the nexus of pro-reactor lawmakers, investors and academics. It’s Tokyo’s version of the military-industrial complex that holds tremendous sway in Washington.

This tunnel vision limits Japan’s share of the biggest industry of the century: inventing ways for China, India, Indonesia and others to avoid choking on rapid growth.

The radiation leaking 150 miles from Tokyo in Fukushima shows why seismically vulnerable nations should rethink their reactors. But the economics of Tokyo playing a leading role in the renewables space hasn’t dawned on Abe. Japan’s next leader must reenergize its potential – literally.

Show Toyota who’s boss.

With a nearly $60 billion cash pile, investors jokingly call Japan’s most important multinational “Toyota Bank.” It’s an all too common theme: executives making tens of billions of profits off Tokyo’s corporate-welfare policies hoard it rather than fatten paychecks.

It’s time Japan played hardball, taxing excess cash on balance sheets.

It’s time Japan played hardball, taxing excess cash on balance sheets.

The BOJ could penalize companies and banks hoarding government bonds rather than investing in new growth industries or making loans. Why not use the bully pulpit to name and shame the most selfish and irresponsible CEOs tarnishing the Japan brand?

Koike’s meteoric rise is pumping new life into Japan’s staid politics. If nothing else, it’s fascinating to see two proteges of former Prime Minister Junichiro Koizumi, still Japan’s biggest reformer in decades, pushing one other out of their comfort zones.

The bottom line, though, is that Abenomics is a disappointing, spent force no matter what happens October 22.

It’s too much about short-term monetary and fiscal sugar highs, too little about structural changes to a rigid system.

It’s heartening that the conversation is shifting to what – who – comes next. That includes, possibly, a member of Abe’s party.

For Japan’s competitiveness, the day it has a leader not just with a vision but the courage to implement it can’t arrive soon enough.

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