Specifics toward policy aside, it is hard not to be mightily impressed by the practiced hand apparent in the new Abe/Aso government. These guys seem to know how to govern. Part of
English: Japanese Prime Minister Shinzo Abe at the G8 summit in Heiligendamm. (Photo credit:... [+]
this impression is the contrast with the first months of each of the three previous Democratic Party of Japan (DPJ) governments, and especially the first, headed by Hatoyama Yukio as prime minister, that began in Septemer 2009. The last, headed by Noda Yoshihiko, was a great improvement, showing that the DPJ had climbed the learning curve. But there was still the sense that beneath the more confident and apparently purposeful surface chaos reigned.
Not so with PM Abe Shinzo and his alter-ego, mentor, and (in a relationship resembling that of Dick Cheney and George W. Bush) possibly master, deputy PM and finance minister Aso Taro. These men seem firmly in charge and settled on a concrete (no public works spending pun intended) agenda for reviving Japan’s economy.
Abenomics--the sobriquet attached the Abe/Aso program for Japan’s economic revival--is being presented in Japanese symbolism as “three arrows.” The three arrows are 1. the pressuring of Bank of Japan into launching unprecedented aggressive monetary easing and setting a target of 2% inflation to support a target of 2% real GDP growth (4% nominal growth); 2. a blowout deficit-financed supplemental government budget filled with new public works spending; and 3. a program of reforms to achieve growth through stimulating private investment.
The first two “arrows”--widely acknowledged as crude Keynesianism (Paul Krugman has reportedly praised the approached for this reason)--are controversial, not least because, if they work at all, they will be fraught with unintended consequences. (See my earlier post presenting dire scenarios for Japan’s currency, stock, and, especially, JGB market, by Kyle Bass and Martin Feldstein.) Abe is already seeking to assuage market and academic concerns, saying that monetary and fiscal stimulus is a short term necessary, not a medium- to long-term strategy.
It is the “third arrow” then--Abenomics’ reform program for promoting private sector investment-led growth--that is by far the most strategically important. Indeed, it is vital and imperative.
This reality cannot be overemphasized. To return to stable, relatively rapid growth, Japan’s economy and markets must become more flexible and competitive. Government restrictions, anticompetitive and onerous laws and regulations, multitiered, bureaucratic interference and inflexibility, relatively high taxes--all these obstacles to free market exchange and competition have sapped profitability, international competitiveness, and growth from vast swaths of Japan’s economy. If these obstacles cannot be substantially lowered or removed it is hard to see how Japan can avoid further economic marginalization.
An article in the February 3 Nihon Keizai Shimbun analyzes how the Abe/Aso government constructing Abenomics’ “third arrow.” To draft its reform agenda the Abe/Aso government is tasking three key bodies, two of which are new. They are: 1. the Council on Economic and Fiscal Policy, chaired by the prime minister; 2. the Industrial Competitiveness Council, also chaired by the prime minister; and 3. the Regulatory Reform Council, chaired by a retired executive from Sumitomo Corporation who will report to the minister for administrative reform (currently a formidable woman bengoshi named Inada Tomomi).
The new councils are the latter two. The Industrial Competitiveness Council held its first meeting on January 23. The Regulatory Reform Council, established on January 23, held its first meeting on January 24.
Much fanfare--and hope--attended the inaugural meetings of these two new councils. The meetings themselves were largely photo ops and fora for introducing the councils’ raison d’etre and their near term deliverables. The Abe/Aso government is asking for delivery by end June of high-level policy proposals that--when fleshed out and passed as legislation--will become the substance of the “third arrow” economic revitalization program.
The Industrial Competitive Council private sector members include Takenaka Heizo, economics minister in the Koizumi governent, Mikitani Hiroshi, CEO of Rakuten Corp., the presidents of Takeda Pharmaceuticals, Mizuho Financial Group, Lawson, and the chairmen of Toray Industries, and Komatsu Corp.
The Regulatory Reform Council’s 15 members are more in the traditional mold of academics and research institute representative with a few business representatives. This council’s secretariat is the Regulatory Reform Promotion Office within the Cabinet Office. The Regulatory Reform Promotion Ofice will provide not only staff and administrative support, but also liaison and political support as the council’s proposed reforms meet expected opposition from affected ministries.
A great deal--possibly Japan’s economic future--may be riding on the work of the three councils--the quivers from which will be drawn Abenomics’ “thrid arrow.”
