Kishida’s “new capitalism” raises fears of a rollback in economic reforms
TOKYO – New Japanese Prime Minister Fumio Kishida hopes to implement his concept of “new Japanese capitalism” under which he has campaigned to be leader of the ruling Liberal Democratic Party. While he is committed to changing the neoliberal policies left in place by his predecessors, it is unclear exactly what type of reform he is aiming for.
He noted that while deregulation and structural reforms since Prime Minister Junichiro Koizumi have led to economic growth, they have also created inequalities and social divisions. Kishida wants to implement a “Reiwa income doubling plan”, referring to the current Reiwa era under Emperor Naruhito and the 1960 income doubling plan of former Prime Minister Hayato Ikeda.
Kishida said that the Abenomics, the economic program implemented by former Prime Minister Shinzo Abe of monetary easing, fiscal stimulus and structural reforms, had strengthened the economy and he pledged to continue in these three areas.
“We will not give up on putting order in the public finances of Japan, but we must put the order in the right order”, he declared during his campaign for the leadership of the PLD.
As the country continues to fight COVID-19, Kishida has said he will pursue an active fiscal policy, promising a multibillion yen spending program by the end of the year. He also pledged government grants to help small and medium-sized businesses.
In the first three years of his administration from 2012, Abe focused on regulatory reform, believing that the profits of large Japanese companies would trickle down to the rest of society. But from the middle of his tenure as prime minister, his administration has gone through a “virtuous cycle” of growth and distribution.
As part of this policy, he called on companies to raise wages by at least 3% to stimulate economic expansion and to treat regular and non-regular staff equally. It has also implemented structural reforms to combat the declining birth rate and the aging of the population as part of its “dynamic engagement of all citizens”.
Kishida plans to adopt and expedite the “distribution” element of the revised Abenomics, but details of these policies have not been released.
At the same time, Abe’s administration was already increasingly concerned that Japan could cope with a rising China while relying entirely on the market and the economy. Some form of “state capitalism”, or cooperation between industry and political leaders, with the application of a keen sense of administration, would be necessary.
For this reason, officials from the Ministry of Economy, Trade and Industry have been tasked with managing the policy. Kishida, like his predecessor, will push for economic security and “free and fair distribution of data.” He will appoint Takashi Shimada, former senior METI official, as executive secretary for political affairs. In these general policies, there is a strong feeling that Kishida is acting as Abe’s successor.
However, Kishida will abolish the Growth Strategy Committee, a group that also includes Heizo Takenaka, professor emeritus at Keio University and leader of Koizumi reforms. In her place, Kishida will create a committee for a new Japanese capitalism, an interim name, to develop a vision for a post-pandemic economy and society. The Cabinet Office Regulatory Reform Promotion Council will also be renamed the provisionally appointed Digital Extraordinary Administrative Research Council.
The future of the National Strategic Special Zones Advisory Council, which reports directly to the Prime Minister, is also in question. Takenaka and others have promoted the “super city” idea of urban development through bold regulatory reform, but this shift from neoliberalism could be fraught with pitfalls.
Kishida will face a lower house election on October 31. If he remains in power, he will have to deal with the 2022 fiscal budget in December. The Diet’s regular session will be held in the first half of 2022, followed by an election to the upper house this summer. It will only be after this upper house election that Kishida will be free to work on his own policies.
For now, Kishida’s politics can be symbolized by his emphasis on tax distribution. He wants to break down the 100 million yen ($ 899,000) “barrier” at which the burden of taxes on income and residents peaks.
Taxes on wages and salaries gradually increase to 55%, but gains from stock transfers and dividends are taxed at the flat rate of 20%. Kishida believes that this low tax on investment income benefits the rich and increases inequality.
Kishida, on the contrary, wants to create a “virtuous cycle in which increasing income for a wide range of people stimulates consumption and acts as a catalyst for the next stage of growth.” Another new committee, tentatively named the Public Price Valuation Review Committee, will be set up to speed up wage increases for workers like caregivers and child care staff, which are determined by the government. . Kishida also called for a “revival of the Reiwa middle class” with more support in the costs of education and housing for families with children.
During the election campaign for the presidency of the LDP, Kishida strongly opposed the proposal of his opponent Taro Kono to fully fund basic pensions through the consumption tax. Instead, he proposed the concept of “social insurance for all workers”.
This would allow anyone working for a company, whether full-time or part-time, to enroll in the company’s employee pension and health insurance plan, and is considered part of a company. growth strategy to ensure future security. It will also increase the burden of insurance premiums on businesses.
Taro Miyamoto, professor at Chuo University and expert in social protection policy, explains in his recent book “The Politics of Poverty, Elder Care and Child Care”, that neoliberal policies in Japan are not motivated by a coherent ideology. or a specific policy. Obligate. He sees a “more structural, deeply rooted” bias at work.
One of the challenges lies in the chronic problems of Japan’s public finances. The country has the largest long-term debt stock of any major country, and its spending on social protection is expected to increase as its population ages. The Ministry of Finance is doing everything possible to limit spending.
On the other hand, while Japan’s tax rate is the lowest among major countries, its people feel heavily taxed. They harbor a mistrust of politicians and civil servants and fail to see that the taxes they pay will be redistributed as social assistance. As a result, policies that increase taxes are difficult to implement.
Kishida said he would not increase the consumption tax for a decade. If the government refuses to give up on consolidating Japan’s public finances, it is clear that spending will have to be brought under control. It should also be noted that supply-side reforms aimed at increasing growth were left out of Kishida’s political commitments during the LDP leadership race.