Fumio Kishida, the current Japanese leader, last week launched what he called the “Grand Design” for his “New Form of Capitalism,” a doctrine he has promoted since becoming Japan’s leader in October. The draft policy outline is many things, but simple and direct isn’t among them. Watered down, muddled and both confusing and a bit confused, Kishida’s flagship economic policy could learn a lot from the Three Arrows.
The Grand Design is a 34-page outline of policy recommendations by a panel Kishida formed to flesh out his concept of New Capitalism. That’s what Kishida calls his overarching economic thesis which, in essence, rejects the neoliberal consensus of looser regulation and giving greater power to markets, which has been the standard suggested recipe for revitalizing Japan’s economy for the past two decades. Instead, it emphasizes greater government cooperation and oversight, as well as redistribution of cash to workers to address the growing gap between rich and poor.
The initial reaction to New Capitalism last year was unenthusiastic. Stocks tanked soon after his appointment in an event dubbed “Kishida Shock.” His suggestion of raising capital gains taxes, focus on redistribution and seemingly sniffy attitude toward dividends gave the markets cold feet, with just 3% of investors in one January poll saying they supported him.
One of Kishida’s most revealing remarks came in February, when he spoke about company profits being “lost” to shareholders in the form of dividends. Kishida and his lieutenants have since sought to walk back the perception that he’s anti-market, with the prime minister’s May speech in London pitching his pro-market views and asserting his credentials as a former banker.
This walkback seems evident in the “Grand Design,” Kishida’s latest attempt to better articulate his vision and transfer it into actual policies. It begins by dramatically pitching New Capitalism as the successor ideology to the the welfare-state capitalism and neoliberalism that have dominated the post-war period, and warns of the damage that’s been done in recent years by giving too much power to markets.
But leaving the merits of that vision aside, the actual policies proposed in the Grand Design fall between two stools. There’s little by way of concrete policies to lift wages, something Abe failed to deliver. Missing is any reference to raising capital gains taxes, with the strategy instead promising to boost household investment in assets through tax-free accounts — though Kishida muddied the waters further by saying in parliament a capital gains tax hike is still under discussion.
There’s a hodge-podge of sound policy ideas, such as boosting support for startups and investment in growth areas such as AI and quantum computing, as well as more faddish concepts such as web3, NFTs, SPACs and the metaverse. A long-held goal to turn Japan into a financial hub is given all of nine lines of text.
What does this mean? Has Kishida, a self-proclaimed “good listener” who likes to travel the country to hear voters’ feedback, adjusted his policies after they initially fell flat? Is he, as many suspect, waiting until after the upper house elections scheduled for next month before showing his hand on potentially unpopular issues like taxes?
No one is quite sure. As a result, the reception has been muted. The left-leaning Tokyo Shimbun attacked the Grand Design, saying Kishida’s “distribution policies have taken a major step backward.” The right-wing Yomiuri Shimbun doesn’t like it either, accusing it of further deepening the confusion around his original policy.
Good political messaging isn’t easy. Abe himself made similar errors when he launched a long-since-forgotten second quiver of Abenomics arrows in 2015, a muddled mess of narrow-focus child-care and social security steps. They failed to resonate with the public and were quickly discarded.
For now, Kishida is flying high in the polls. But it’s precisely that popularity, enhanced by his strong stance on Ukraine and his general lack of baggage, that gives him an nearly unprecedented platform to enact some the hard changes that Japan needs.
There are good ideas in New Capitalism. Kishida is right to focus on lifting wages — particularly with inflation now finally rising. He’s correct, too, to look for new policy recipe and not simply ape past approaches. And the focus on “stakeholder capitalism” could both align with global trends and offer some of the best of Japan’s approach to the world.
But too much of New Capitalism’s first incarnation last year felt like solutions for another country, with a focus on problems such as corporate short-termism and excessive shareholder payouts that mostly plague US companies, not Japan’s. Now, the Grand Design has resulted in a solution that feels a little too Japanese — with both Kishida supporters and critics saying it feels too close to parts of Abenomics.
Abe’s initial Three Arrows might not have fixed Japan, but the policy was successful in halting deflation and putting Japan on a growth course. While Kishida comes from different ideological stock, he still needs to find the way to distill his vision into clear messaging and policies that workers and businesses can embrace.
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Gearoid Reidy is a Bloomberg News senior editor covering Japan. He previously led the breaking news team in North Asia and was the Tokyo deputy bureau chief.
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