How to give Japan a second wind
Anytime I moderate a discussion on Japan, I ask panelists this: If Shinzo Abe were sitting before you now, what steps would you recommend the prime minister take to hasten Japan’s resurgence?
Almost without fail, each mentions his or her favorite elements of the “third-arrow” reforms Abe’s already pledged. This phase of his plan, which focuses on deregulation and some degree of structural reform, is the most vital. With the first two - monetary expansion and fiscal stimulus - having been fired, the emphasis is now supposed to shift to lower business taxes, looser labor regulations and better corporate governance. At which point, I press panelists: “OK, but what’s next? What’s your fourth arrow?” Typically, I get blank stares.
Abenomics, as I’ve long argued, is nothing new or imaginative - just things Japan should’ve done 10 or 15 years ago. Even if Abe’s reforms were to be fully implemented, they probably wouldn’t suffice to revive the Japanese economy. Here’s what I’d like to see the prime minister add to a fourth arrow:
Support for a startup boom. The weak yen is great for Toyota and Honda, but Japan would get greater mileage from encouraging youngsters like Yoichiro Mikami. The 16-year-old dropped out of high school to launch a crowdfunding start-up that helps raise money for other students looking to eschew the salaryman career track.
No, I’m not recommended mass truancy. But while Abe’s policies and proposed tax cuts favor companies that employ tens of thousands, they offer little for young Japanese with a laptop and a dream. Japan could stand to build fewer roads in Shikoku or dams in Hokkaido and instead create a few multibillion-dollar venture capital funds. Rather than promote special-enterprise zones that tend to be more gimmick than growth creator, Abe should give promising startups a years-long holiday from taxes and red tape.
The end of “Amakudari.” Many look askance at the revolving door that shifts Wall Street bankers into top Washington jobs and back. This corrupting practice is so prevalent in seniority-obsessed Tokyo that Japanese have a name for it: Amakudari, or “descent from heaven.” Bureaucrats vying for cushy jobs and lavish pay in industries they oversee obviously have their priorities skewed; their resistance has long impeded deregulation of everything from trade to energy to labor to transportation to education. Tokyo should forcibly shuffle civil servants into different ministries every few years.
Smart immigration. Immigration remains a third-rail issue in homogenous Japan. But why not increase imports of strategic talent like Singapore does? This idea has even been championed by former Tokyo Gov. Shintaro Ishihara, a nationalist known more for xenophobic comments than global thinking. If Japan won’t open the floodgates, the country could at least welcome, to use Ishihara’s word, “intelligent” people with specific skills and experience. Let’s make a list of the kinds of talent needed, draw up targets, and issue work visas for a few thousand entrepreneurs, scientists and engineers here and few thousand artists, health consultants and other outside talent there - and then add a zero.
A rethinking of energy policy. For such a seismically-active nation, Japan is too fixated on nuclear power. As Abe’s mentor, former Prime Minister Junichiro Koizumi, has been arguing, new energy sources aren’t just Japan’s destiny, but the next potential boom industry. Tokyo should set aside reward money of, say, $10 billion to incentivize Japan Inc. to dream up replacements for fossil fuels. Before long, China and India will be making great cars and electronics. Japan can make, and sell at great profit, the means to power those industries.
Courage on TPP. Abe gets points for signing into the Trans-Pacific Partnership at the risk of roiling key vested interests like agriculture. But given doubts about Barack Obama’s ability to get any deal past the U.S. Congress, Japan has resisted cuts in import tariffs on rice (as high as 778 percent), sugar (328 percent) and other so-called sacred products. Tokyo must stop worrying about giving away too much to trade partners and focus on the growth, efficiency and productivity gains Japan would enjoy by opening up.
Quotas for women. Abe’s plan to require businesses with 300-plus employees to establish targets for hiring women and getting them into management positions is a good start. But the policy is rife with escape clauses. Formal and binding quotas akin to Norway’s would have more teeth. Tokyo should at least start mandating leadership roles at the public-sector level and expand from there.
One could argue that Abe has enough to juggle already without adding more controversial measures to his agenda. But with his still-enviable political support, he’s also got the best chance in a decade to right Japan’s economy. This is no time to hesitate.
*The author is a Bloomberg View columnist based in Tokyo.
by William Pesek