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  • Aug 28, 2014
  • Updated: 12:54am
BusinessEconomy

Shinzo Abe: Economy is Japan's priority

Shinzo Abe may want to talk tough with China over disputed East China Sea islands, but he would do well to address domestic issues first

PUBLISHED : Wednesday, 19 December, 2012, 12:00am
UPDATED : Wednesday, 19 December, 2012, 2:37am

Japan's disillusioned voters on Sunday gave Shinzo Abe and his Liberal Democratic Party a handsome majority to pursue whatever policy they wish unhindered by opposition sniping or spoiling in parliament.

But if Abe uses his time and energy, as he has suggested he might, to get tough with China over disputed uninhabited islands in the East China Sea, he risks opening old war wounds with their deep scars and could seriously damage Asia and the world, as well as Japan itself.

When he takes over tomorrow Abe's priority should be the economy. He has already got a plan - Abenomics - it has been called. But there is nothing really new about it, a mixture of a massive public works and construction spending programmes along with pressure on the Bank of Japan to vigorously pursue monetary easing as a way out of the deflation and recession into which Japan has fallen.

Such a policy would be reckless, a policy "to print and spend", as Robert Feldman of Morgan Stanley called it. It would be a gamble that would do nothing for Japan's budget deficit or the country's mounting debts, already 240 per cent of gross domestic product, or twice the level they do in Greece.

Japan does need to spend money on infrastructure, but it is on the tedious but important tasks of checking and repairing ageing tunnels, roads and bridges that are bearing the strain of heavier traffic than they were built to withstand.

Politicians keen to show they are doing something prefer glamorous new projects such as new express railway lines to remote parts of the country, swanky town halls in the countryside and bridges connecting rural islands.

I remember many sessions at the Ministry of Finance in the early 1990s when the officials rolled out massive public spending on a series of supplementary budgets to boost the then faltering economy.

The first time it happened it was exciting, wow, trillions of yen to lift the economy. But by the fifth time in 18 months, it became hard to keep track of how many projects were fresh and how many were recycled.

Big spending projects also kept the construction industry occupied and happy to bankroll politicians. Someone should do a doctorate examining how many kilograms of concrete and how many trillions of yen it takes to create a billion yen of corrupt money. Suffice to say that the once beautiful Japanese countryside is littered with concrete and shotcrete (its spray-on equivalent), and most rivers have been dammed to trickles.

Abenomics would mean small immediate gains at the loss of long-term reforms of the economy. The policy did not work in the 1990s and the economy is in a more parlous state today. Leading Japanese companies, including Sony, Panasonic and Sharp, battered by the high yen, are losing their way to nimbler competitors from South Korea, Taiwan and China.

Pushing monetary policy hard might have the beneficial impact of causing a welcome fall in the yen, but a policy of spending money that the government does not have could risk the fall of the palace of cards built on debts.

For all the doom and gloom, Japan's is still the world's third-largest economy and has the advantages of a well-educated, hard-working, literate and numerate population, a good hi-tech base and established companies with an international presence.

What is needed are reforms to restore Japan's competitive edge and tackle the drains on the country's finances.

Reform will not be easy because it means acting tough with powerful vested interests and ultimately breaking up the cosy club of leading bankers, bureaucrats, businessmen - and they are virtually all men - and politicians allied with key interests like construction and agriculture, which steadfastly do not want to change.

The IMF has suggested that giving Japanese women the same active role in the economy that women have in other rich countries would give a tremendous boost to the economy. The IMF probably underestimates the boost, but overestimates the political and institutional difficulties of achieving it.

Nippon Keidanren, the powerful club of leading business companies, reported last year that if career hiring for executive positions in member companies were gender blind, then 70 per cent of the jobs would go to women; but only 12 per cent of those hired are women.

Japan's so-called lifetime employment system means just that - someone joins fresh out after his undergraduate degree and remains for life, moulded by the company practices, working 9am to 9pm days or longer, perhaps taking the small holidays he gets with other employees.

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