Japan’s ‘new capitalism’ sounds a little like China’s ‘common prosperity’
Japanese Prime Minister Fumio Kishida’s Liberal Democratic Party scored a stronger-than-expected victory in parliamentary elections Sunday, preserving the party’s legislative majority and awarding Kishida a solid mandate for his political and economic agenda.
But the shape and direction of that agenda remain a matter of considerable puzzlement despite—or perhaps because of—Kishida’s efforts to explain it.
Kishida, a soft-spoken former banker, became prime minister last month when LDP colleagues chose him to replace Yoshihide Suga, who was widely criticized for bungling the pandemic and plowing ahead with the Tokyo Olympics even as the virus spread.
In the weeks before he took over, Kishida proclaimed his determination to forge a “new capitalism” that would raise taxes for the rich and stop coddling big corporations and their shareholders. He vowed a new capital gains tax and spoke of bold measures to “redistribute” income to ensure that the benefits of growth are shared by a broader swathe of Japanese society.
In an interview with the Financial Times days after taking office, Kishida delivered a blunt attack on the economic policies of Suga and his predecessor Shinzo Abe. “Abenomics clearly delivered results in terms of gross domestic product, corporate earnings and employment,” Kishida told the FT. “But it failed to reach the point of creating a ‘virtuous cycle.’…I want to achieve a virtuous economic cycle by raising the incomes of not just a certain segment, but a broader range of people to trigger consumption.”
In the interview, Kishida also decried the evils of excess regulatory reform, “neoliberalism,” and what he called “market fundamentalism.”
Kishida’s rhetoric provoked alarm among global investors—and infuriated many Japanese business leaders. The Japanese stock market, which usually rallies on the appointment of new prime ministers, tumbled into an eight-day swoon that was quickly dubbed the “Kishida shock.”
“Does [Kishida] even understand how capitalism works?” tweeted Hiroshi Mikitani, chief executive of Japanese online retail giant Rakuten.
On social media some critics suggested Kishida’s comments sound almost as if they were cribbed from recent speeches of China’s President Xi Jinping—a Japanese echo of the Chinese Communist Party’s call for “common prosperity.”
Kishida later backed off on his proposal for a capital gains tax, saying it would have to wait until the economy is stronger. He’s also toned down his criticisms of Abenomics. (Abe remains a powerful force in the LDP, and it’s telling that Kishida appointed Sanae Takaichi—who served as Abe’s economy minister and was Abe’s preferred candidate in the party’s leadership race—as the party’s policy chief.)
The consensus among political experts in the post-election press coverage appears to be that Kishida is unlikely to diverge radically from his predecessors’ economic policies, at least until an election in Japan’s upper house of parliament next year.
Turnout was low for Sunday’s election. Still, Kishida’s populist posturing seems to have played well with voters. Japanese media had predicted that the LDP was in danger of losing its simple majority in the lower house. Instead, the party claimed 261 seats—a decrease from the 276 it held previously but enough to retain control of the 465-seat lower house even without its coalition partner, the Komeito.
Paradoxically, Sunday’s victory may ease pressure on Kishida and the LDP to push through a big year-end stimulus package to bolster the economy. The Komeito had pushed during the election for 100,000 yen cash handouts for every household member aged 18 or under.
Japan’s economy is not, by any meaningful definition of the term, “neoliberal.” The reality is that tackling the primary challenges that confront the world’s third-largest economy—an aging, shrinking workforce, and the lack of domestic demand—can’t be solved by raising taxes or backtracking on deregulation, and remain far more complicated than its new prime minister’s campaign fulminations suggest.
More Eastworld news below.
This edition of Eastworld was curated and produced by Nicholas Gordon. Reach him at email@example.com.
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Markets and Movers
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