PM Kishida’s New Capitalism

By Ichiro Suzuki Fumio Kishida rose to the helm of the ruling Liberal Democratic Party near the end of September and then a month later led the party advocating “New Capitalism” to election results that wildly beat expectations. Prime Minister Kishida thinks his policy is going to lift the Japanese economy to a new level of prosperity. What he means by New Capitalism is not entirely certain, but he appears to believe distribution of wealth is as important as creation of it but wealth has to be created in the first place to distribute it. (In contrast, the opposition believes wealth has to be distributed aggressively with scant interest in creating it.) His belief was a departure from neo liberalism and the Washington consensus that defined economic policy in the late 20th century and early years of the 21st century. He thinks that neo liberalism has gone too far and that more has to be given to average households. From one perspective this is in line with a new global trend as neo liberalism has lost its luster after the 2007-09 Global Financial Crisis. After the coronavirus’ assault on the global economy. Governments both in the U.S. and the U.K. have shifted the gear to turn away from small government. The U.K. in particular has made this move under a Tory government. The problem for Japan, however, is that neo liberalism did not go far enough. The LDP is as much capitalists as the Chinese Communist Party is communists. Restructuring of the economy to fit it to the needs of the 21st century was never fully implemented. Former PM Abe’s economic policy, Abenomics, didn’t shoot the third arrow of deregulation while he went ballistic on fiscal and monetary policies that are relatively painless compared to deregulation. If the third arrow was really shot, the Japanese economy today would have been enjoying higher growth rates and more visible inflation outside of food and energy. They didn’t do it, or they blew a chance to do it. Now the tide has turned. The Anglo-Saxon world is advocating a kinder, gentler capitalism. This could be the moment that LDP politicians have been waiting for. Since its foundation in 1955, the Liberal Democratic Party has never pursued small government. In the early decades of the party, the Japanese economy always gave aplenty to distribute. Japanese voters were given a choice and between a big government and an even bigger government that the oppositions offered. Is the world catching up with the LDP? Definitely not. The LDP continues to lead the pack with its embrace of relatively big government with a strong penchant for intervention. On top of a large supplemental fiscal package, PM Kishida is now asking corporations for 3% wage hikes next spring. This sounds more like New Socialism. The same is true with the rise of stakeholder capitalism in the West in recent years. Some politicians and dignitaries of the Japan Business Foundation (Keidanren) must be gleeful as shareholder capitalism is under attack. Japan has always been a land of stakeholder capitalism, never fully embracing shareholders’ interests. Now they openly talks about negative aspects of shareholder capitalism that they say has gone too far. Japan’s embrace of shareholder capitalism has always been half-hearted and soulless. Activist investors are always painted as greedy short-termists. While there is some truth to this view, most of the time activists have their points and legally hold the same rights as other shareholders. Nonetheless, activists have always been intensely vilified. Corporate Japan’s management team must be joyed with this recent trend. It gives an excuse for not doing whole-hearted reform, which they had hoped they didn’t have to do. Not serving interests of shareholders of all kinds is one of the reasons behind lack of corporate shake-ups, holding down the Japanese economy for so long. The world is moving to the direction that Japan’s establishments find more comfort. While they are feeling relieved with recent trends, this defeats the purpose of PM’s Kishida’s “New Capitalism” About the author: Mr. Suzuki is a retired banking executive based in Tokyo, Japan.