Abenomics for Japan's economy
Abenomics may be vital to securing a real and sustained revival in the world's third largest economy. But can Japan's Shinzo Abe defeat the country's legendary vested interests?
Since unveiling his economic reform plan, dubbed “Abenomics,” after returning to office two years ago, Japanese Prime Minister Shinzo Abe (pronounced “ah-bay”) has been dogged by doubts about his commitment to serious structural reform.
His early moves of fiscal stimulus and monetary easing gave a short term boost to the world’s third-largest economy, but it fell back into recession in 2012 before emerging last quarter with a 2.2 percent growth rate.
For political watchers, the issue never was about economic policy, per se, but rather about Abe’s willingness to formulate, articulate, and push through reforms that would loosen up the labor market, promote competitiveness, and take on Japan’s legendary vested interests.
The doubt was that he would do so, and thus would be fated to suffer a loss of public support, despite having the most plausible overall plan for jump starting Japan’s lethargic economy.
Last week, however, Abe asserted himself in what he called the “most drastic reform since the end of the war,” in announcing that Japan’s Central Union of Agricultural Cooperatives would no longer have the right to audit cooperative farms, which has been a tool to prevent cooperatives from flexibly responding to market incentives, and that the union would also be turned into a general, not government-protected, association.
In addition, Abe is pursuing changes to laws that restrict the selling and transfer of farm land, so as to encourage consolidation among the tiny plots of rice paddies or fruit growers, again to increase efficiency.
Agriculture has long been perhaps the least efficient and competitive of Japan’s major economic sectors, in no small part due to the political arrangements that allow the country’s tiny slice of farmers an outsized voice in elections.
As the number of farmers decreases however, their political influence is also waning, and Abe has seized on one of the most obvious means of increasing efficiency.
The real significance of Abe’s move, however, is political. Surviving fluctuating approval ratings and emerging victorious from a recent snap election, Abe has cleared the decks for actual policy change, which will only come about if he wants it to. He has tackled one of the great vested interests in Japan and made clear that the specter of serious structural reform is fast approaching.
As many Japanese media outlets noted, this is just the beginning, but it is a needed first step. The rest of Japan’s economy should be on notice, which is a good thing.
With four more years left in office, Abe may start finding unlikely allies in promoting competitiveness, especially if they see the writing is on the wall.
Michael Auslin is a resident scholar and the director of Japan Studies at the American Enterprise Institute (AEI), where he specializes in Asian regional security and political issues. Before joining AEI, Auslin was an associate professor of history at Yale University. His articles can be read here
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