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Commentary: Is Japanese-style ‘state capitalism’ acceptable?

  • 2015-12-08 15:00:00
  • , Nikkei
  • Translation

(Nikkei: December 8, 2015 – p. 17)

 

 There seems nothing wrong about public-private collaboration, but what the government has been recently attempting with this is to create Japanese-style “state capitalism.” It is demanding businesses add to their capital outlays, as well as raise wages. Some companies are even being asked to lower prices. It seems the very fabric of corporate management is falling under direct government control.

 

 A session of the public-private dialogue that the government has recently organized turned absurd. Sadayuki Sakakibara, chairman of the Japan Business Federation, widely known as Keidanren, announced that member firms are expected to ramp up their capital spending by 10 trillion yen over the next three years and to raise next year’s wages above this year’s levels. Apparently, he could not resist the strong requests from the government of Prime Minister Shinzo Abe, which in return mapped out plans to lower the effective corporate tax rate to the 20% range. The private sector was forced to ally with the government. This suggests a resurgence of prewar regimes, such as the Imperial Rule Assistance Association and the Greater Japan Industrial Patriotic Association.

 

 The government tries to increase wages to fight deflation and create a virtuous cycle of growth. That attempt is understandable. Japanese businesses have little choice but to follow a “negative price and income policy” due to their conformist social culture.

 

 But it does not make sense for the government to interfere in investment decisions by individual companies. Can Sakakibara promise the government an outlook for private capital spending? Corporate executives carefully analyze demand and costs to make investment decisions—decision that can determine the future of their companies. If they make a wrong decision, they will be held accountable for putting their firms at risk. The Keidanren chairman can’t be held accountable for each company.

 

 Taizo Ishizaka or Toshio Doko, legendary chairmen of the business lobby group, would have rejected the government’s requests and instead explained to the government what it should do.

 

 Taxation system reform should come first. Japan’s corporate tax rate is extraordinary high, while the sales tax is too low. This distortion was responsible for the country’s decades-long economic stagnation. Lowering the corporate tax should be hailed as progress, but this only means that the rate is finally approaching the levels in other Asian and in European countries.

 

 Japan’s debt to gross domestic product ratio is the highest among industrialized countries. It has no time to waste to rectify the situation. Fiscal integrity cannot be achieved by only relying on increases in tax revenue. Regulations must be eased to foster entrepreneurs and venture firms. Japan trails the U.S. and Germany in taking advantage of the Fourth Industrial Revolution.

 

 What is most important is to have a global strategy. The government’s initiative to create a society that dynamically engages one hundred million plus people sounds like statism. Foreign investment should be encouraged and foreign nationals utilized. The consolidation of the Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership is Japan’s mission.

 

 If the government continues to interfere with companies, undermining their vitality,

 it will not be able to urge China, the home of state capitalism, to carry out reforms.

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