By Matsuo Yohei and Fujita Yuki
On Oct. 26, Prime Minister Kishida Fumio held the first meeting of a panel that he has set up to discuss a “new form of capitalism.” With the U.S. and Europe facing social gaps and divisions as a result of excessive competition, moves to question capitalism are spreading worldwide. In Japan, the market competition mechanism to promote industry growth failed to function, leaving the nation’s economy long stagnant. The Kishida administration will not be able to envisage a growth path by merely changing the name of the panel and applying proposals in the U.S. and Europe to Japan.
At the meeting, Kishida instructed panel members to come up with an urgent proposal on issues such as digital and green energy technologies by early November.
Minister of State for Economic and Fiscal Policy Yamagiwa Daishiro, who oversees the panel, explained at a press conference that the economic stimulus package worth tens of trillions of yen, whose formulation PM Kishida has instructed, “will be included” in the urgent proposal. If discussions take a short-sighted approach and only focus on the economic package, the vision of “building a new form of capitalism” may fail to produce results.
This was not the first time for Kishida to propose the creation of a “new form of capitalism.” When he campaigned for the Liberal Democratic Party presidency in 2020, he called for reviewing capitalism to address social gaps and divisions. Nonetheless, he has yet to specify a vision even after taking office. What he means by “new form of capitalism” remains unknown.
Reviewing capitalism has become a global phenomenon. In the U.S. and Europe, the concentration of wealth in a select group of the well-to-do is accelerating social division. Global warming is also spurring discussion on sustainable capitalism. Handouts prepared by the staff of the panel’s secretariat introduced proposals for the “new capitalism” advocated by global scholars.
Meanwhile, other countries are shifting their policy focus to redressing social inequalities. The U.S. Biden administration has announced a large-scale infrastructure project, which will be financed by increasing taxes on the well-to-do. In Germany, the new administration, which will be inaugurated in December, is committed to raising the minimum wage and closing income disparities.
It is hard to say that these overseas examples can prove effective in Japan. According to the Organization for Economic Development and Cooperation (OECD), the one-percenters in the U.S. own 40% of the nation’s total wealth, whereas in Japan they only control 11% of the nation’s wealth. The income gap in Japan is small compared with those in the U.S. and U.K. where labor market mobility is high. Japan’s real average annual income has leveled off over the past three decades. The lack of growth, which generates money for wealth distribution, becomes a drag on society.
The government failed to lift the nation’s economy out of low growth several times. Abe Shinzo launched the Council on Investments for the Future when he came into office in 2012. And his successor Suga Yoshihide followed suit and discussed growth strategies at his Committee on Growth Strategy. Japan’s GDP grew only 2% between 2012 and 2020, whereas the U.S. and Europe saw growth of 14% and 4%, respectively, during the same period. Growth strategies laid out by the two Japanese leaders did not spur private competition or stimulate innovation.
Capitalism can stimulate corporate metabolism through market competition. In the case of Japan, competition is not having the hoped-for effect. And the lack of dynamism that should encourage companies to shift to value-added fields, such as digital and green technology, has become a more serious issue.
Prime Minister Kishida did not mention “reforms” in his policy speech delivered at the Diet. He must present a vision for drastic reform to realize a “virtuous cycle of growth and distribution” and promote competition in the private sector. (Abridged)