Abe has a bad case of the slows
What else can be said about a prime minister who pledged in June 2013 to provide specifics on how he planned to make Japan relevant again - only to wait until June 2014 to reveal them? If Abe wonders why stock markets yawned this week when he unveiled his deregulation agenda, that lack of urgency provides a partial explanation. Two other reasons: policy vagueness and a lack of audacity.
Japanese chief executives are hoarding $2.3 trillion of cash not because they’re selfish, but because they’re wary. Abe needs them to boost wages and unleash a virtuous cycle of increased consumption and higher prices. But the plan that was supposed to inspire them - titled “Strategy for Reviving Japan” - essentially amounts to a long list of ambiguities. Abe has shied away from the tough reforms of agriculture, immigration, energy, education, and entrepreneurship that are needed to shake Japan out of its lethargy. His administration has made no effort to wrest control from the insular fiefdoms of Tokyo’s bureaucracy.
Abe’s 120-page manifesto has me thinking of China. Back in 2007, Standard Chartered economist Stephen Green used the phrase “China years” to indicate the different speed at which the mainland was operating: In the same way that dogs age seven times as fast as humans, China accomplishes in a few months what it takes other economies years to do. In that context, for any country to adopt a slow and deliberate pace of reform is to be left behind.
Look no further than Washington. As U.S. lawmakers debate whether high-speed rail is socialism, China is building vast networks domestically and hawking bullet trains overseas. Japan wonders whether it should increase English-language education, as Chinese-student applications overwhelm universities from Boston to Southern California. In Europe, officials who claim they fixed their debt crisis forget that China’s money helped the euro survive.
Viewed through the lens of China years, Abenomics has a speed problem. No one doubts the power and determination of the vested interests aiming to halt any opening of market access in Japan. That’s why Abe did the easy things first: monetary and fiscal pump priming. But for a popular Japanese leader who’s managed to last more than 12 months, Abe’s continued slow-but-steady approach won’t do. Lucio Vinhas de Souza of Moody’s Investors Service worries that the “uncertain and staggered timeframe for implementation of these structural reforms exposes the strategy to significant implementation risks.”
To Richard Katz, publisher of the New York-based Oriental Economist Report, it’s ominous that Abe’s first big reform step is getting the $1.26 trillion Government Pension Investment Fund to buy the Nikkei. “Having government-controlled pension funds purchase more stocks - in a market that is no higher than it was almost 30 years ago - has more to do with boosting stock prices and thereby Abe’s approval rating, than with helping pensioners,” Katz writes in Foreign Affairs. “The same is true of corporate income tax cuts. Firms are hoarding lots of cash which they choose not to invest in Japan. Giving them more cash won’t create more investment.”
I was in Seoul when Abe unveiled his plan earlier this week. When I asked Korean officials about it, they all answered with some variation of the same idea: Abe is acting at “Japanese speed.” The difference between Japan and Korea can be measured by the different responses to the Sewol and Fukushima disasters. Since the April 16 ferry sinking that killed more than 300 people, most of them schoolchildren, Korea’s prime minister has resigned, President Park Geun-hye has reshuffled her cabinet, the Coast Guard was disbanded, the nation’s regulatory system is being rewritten, crisis response and prevention procedures are being rethought and trials have already begun for crew members, some of whom are getting life sentences - all in two months.
Thirty-nine months after an earthquake precipitated a made-in-Japan nuclear crisis, no major officials have been fired or gone to jail, and Japan’s corrupt nuclear-industrial complex remains largely intact. Far from being nationalized, Tokyo Electric Power Co., whose negligence led to the mess, is angling to restart nuclear reactors. Abe is too busy meddling with the constitution, trying to refight World War II and hawking nuclear technology to India and Turkey to plug radiation leaks at Fukushima.
Yes, Japan likes its change very, very slow. That’s a given. But China’s increasing role on the world stage makes gradual restructuring defeatist for the world’s most-indebted and fastest-aging nation. Sure, it’s possible bubble-ridden China may crash. That doesn’t change the fact that the changes at the core of Abe’s economic program would have been far more potent had they been implemented 12 or 15 years ago, never mind 12 months ago.
Just as there’s a first-mover advantage, there’s a slow-mover disadvantage. The steps Abe is taking to empower women, open up corporate governance and create more flexible labor markets are nice. But they’re obvious moves that other developed nations adopted decades ago. Japan needs much more - and fast.
*The author is a Bloomberg View columnist based in Tokyo.
By William Pesek