You know capitalism is struggling when one of the system’s greatest beneficiaries – Japan – starts calling for its renewal. “New capitalism” was the slogan Kishida Fumio ran on in his successful bid to replace the unpopular Prime Minister Suga Yoshihide, who resigned last fall. The defenders of neoliberalism warned that “Kishida’s new capitalism is in fact plain old socialism.” The Japan Communist Party, on the other hand, dismissed the concept as nothing but a “continuation of a bankrupt neoliberalism.” So, which is it?
Although all the details are not fully finalized, Kishida’s new capitalism is definitely not socialism, but not quite neoliberalism either. In fact, one of the remarkable aspects of Kishida’s young premiership is his blunt criticism of neoliberalism. It is remarkable because his Liberal Democratic Party (LDP) is the very party that brought neoliberalism to Japan in the late 1990s and early 2000s. In his most recent policy speech, Kishida criticized “the neoliberal way of thinking that all will go well if only left to the markets.” This is quite a different tone from the market-friendly appeals his party has repeated over the past two decades. But breaking with neoliberalism will require a resolve to confront capital and political opponents. As we will see, it is doubtful that Kishida has what it takes to do so.
Back to the Golden Age
Kishida’s new capitalism resembles traditional redistributive economics as it contains a strong emphasis on wage growth and tax policy. In other words, this new capitalism is actually not new at all, but an old model from the much celebrated “golden age of capitalism” in the 1960s – a time when wages and productivity rose hand in hand. These years were particularly golden in Japan. Not only did GDP growth average double digits, but workers’ income also doubled between 1960 and 1967 thanks to a successful income doubling plan by the LDP government.
Kishida seeks to recreate this coprosperity between capital and labor by creating what he calls a “virtuous cycle of growth and distribution.” His newly established New Capitalism Realization Headquarters explains this virtuous cycle in the following way: “consumption is expected to increase through distribution to employees in the form of wages, which then stimulates demand, leading to improvement in corporate earnings and sustainable growth.” In other words, the cycle is predicated on increased wages.
An Exploited Workforce
This is certainly much needed as Japanese wages have been virtually stagnant since the collapse of Japan’s bubble economy more than three decades ago. Whatever wealth disillusioned Japanese workers manage to accumulate is generally not spent on goods and services, but rather saved in anticipation of yet more difficult times. To counter this trend of low spending, Kishida has said that he will create an income doubling plan akin to that of the 1960s. In recent months, he seems to have gone away from such easily verifiable goals, but raising wages is nonetheless at the heart of his new capitalism.
One especially positive aspect in Kishida’s policy plans is support for Japan’s ubiquitous irregular workers. Japan was once known for its culture of life-long employment, but that changed with the introduction of neoliberal labor reforms in the 1990s. Life-long employment is today nothing but a distant memory. Currently, almost 40 percent of Japan’s work force is engaged in irregular work. Japanese capitalism depends on hyperexploitation of people who cannot find stable employment.
Needless to say, irregular workers suffer from higher job insecurity, less desirable working hours, and far lower wages than their regular co-workers despite often doing similar tasks. This exploitative system is particularly unfair to women – 50 percent of female workers are employed in irregular jobs versus only 22 percent of male workers, and this is one reason why women earn on average 43 percent less than men. Kishida’s New Capitalism Realization Headquarters promises to deal with the predicament of Japan’s irregular workers. It has pledged to ensure stronger job protection and “equal pay for equal work between regular and non-regular employees.” This pay equity principle is actually stipulated in Japan’s labor law, but since no government ministry is mandated with enforcing it, violations abound. Stricter governmental enforcement would improve the situation for millions of unfairly treated irregular workers.
The Kishida government has also stated that it aims to raise Japan’s hourly minimum wage to 1,000 Japanese yen ($8.7). It currently averages 930 yen ($8) across Japan’s prefectures, so the increase is modest, but in Japan’s poorest prefectures the jump would be significant. While policies aimed more directly at increasing regular work would have been ideal, improving the pay and work conditions for Japan’s irregular workers should certainly be welcomed.
There are, however, two major challenges to Kishida’s redistributive economic project. The first comes from the Japanese corporate sector and the second from political rivals in his own party.
The Corporate Challenge
The first roadblock to a more worker-friendly capitalism is naturally the capitalists themselves. You can try to renew capitalism all you want, but you will never transcend its zero-sum nature. Higher wages for workers must necessarily mean lower profits for capitalists, at least in the short term. Capitalists will therefore resist any effort to strengthen the position of labor. This means that wage increases will not happen without either incentives or compulsion. So far, the Kishida government has been reluctant to put pressure on capital.
Kishida’s main problem is his naive faith in capitalism’s ability to meet social needs at the expense of profit. For example, in his aforementioned policy speech, he stated: “In recent years, the rate at which wages have increased has been on the decline, but I hope we will reverse that trend all at once and wage increases suitable for an era of a new form of capitalism will be realized.” Needless to say, no amount of “hope” will actually lead to increased wages. As a former banker with chummy relations to the business community, it is highly unlikely that Kishida will use state power to pressure companies into raising wages.
Kishida’s lack of resolve to confront capital has already been demonstrated. One of his campaign promises was an increase in the capital gains tax, but he withdrew these plans as soon as the stock market started reacting negatively. Kishida seems more comfortable pursuing wage increases through carrots than sticks. He could, of course, tax companies that hoard money, as one of his opponents suggested in the election campaign. But Kishida has chosen to instead incentivize the private sector by giving tax breaks to wage-increasing companies.
It is possible that such incentives could nudge companies to increase salaries somewhat. This would certainly be a welcome departure from the long trend in corporate Japan of stagnant wages despite increased profitability. It should be noted, however, that one of Kishida’s predecessors, Abe Shinzo, tried offering such tax breaks throughout his long time in power, but without much success. When Abe left office in 2020, monthly wages had only increased a measly 1,100 yen from when he took office eight years earlier. This is what happens when you rely on the kindness of capital.
In Japan’s protracted situation of low growth, it is more profitable for companies to hoard money than invest it in the real economy or increase wages. If Kishida wants Japanese companies to redistribute their profits, he needs to rid himself of his rosy view of existing capitalism and take a more combative approach toward capital. But judging from his attitude so far, this seems highly unlikely to happen.
The Political Challenge
The second major obstacle to Kishida’s new capitalism is political. More specifically, the obstacle is Abe, Japan’s longest-serving prime minister (2012-2020) who wields enormous power inside the LDP and might use it to derail Kishida’s project. After stepping down due to health reasons, Abe eventually became the leader of the biggest faction inside the LDP. In the faction-centered world of LDP politics, this means that Kishida will be heavily dependent on Abe’s approval to effectively implement policies.
Unfortunately for Kishida, Abe has expressed displeasure with the new capitalism approach. Abe worries that it departs too much from his own pro-business policy, popularly dubbed “Abenomics.” In a recent TV interview, he stated that Kishida “should not change Abenomics” and warned that “if [new capitalism] is perceived as smacking of socialism, the market will react negatively.” Given Abe’s clout in the LDP, this poorly veiled criticism is bad news for Kishida’s prospects of success. Abe has promised support for Kishida, but tensions are clearly brewing under the surface.
One emerging difference between the Abe and Kishida governments is the monetary policy by the Bank of Japan (BOJ), Japan’s central bank. In 2013, Abe handpicked Kuroda Haruhiko as BOJ governor and tasked him with depreciating the yen in order to boost Japanese exports. Kuroda succeeded in depreciating the yen 30 percent versus the dollar and exports did increase somewhat, but far from the expected level. While a weak yen was good for exporting manufacturers and the stock market, it imposed hardships on Japan’s households as imports and thus many household commodities became more expensive. However, after the inauguration of the Kishida government, Kuroda seems to have had a change of heart, acknowledging that the household suffering caused by a weak yen might outweigh the (meager) trade benefits. Kishida and Kuroda have signaled that they will aim to strengthen the yen in order to boost household purchasing power, thus breaking with the export-centered Abenomics and its insistence on yen depreciation.
When Abe warned Kishida not to depart from Abenomics, this was the kind of policy he was referring to. A notoriously thin-skinned Abe sees this as an attack on the legacy of Abenomics and looks poised to use his kingpin status in the LDP to sabotage Kishida’s agenda. This would be unfortunate for the average Japanese household, but as Forbes correctly pointed out, “Such pettiness – and sabotage – would be in keeping with the LDP’s factional ways.”
The main grievance Abe has with new capitalism is that it, at least in his view, prioritizes distribution over growth, whereas Abe thinks the order should be reversed. “In order to redistribute, there must first be capital, and therefore there must be growth,” he insists. This view ignores the fact that Japanese companies, particularly the large ones, have enjoyed considerable growth under Abenomics, but largely chosen to hoard the profits instead of investing or raising salaries. But as long as Abe feels that his personal legacy is threatened by Kishida’s new capitalism program, we can expect him to try to derail the project. Abe’s enormous influence in the LDP is likely to make him a far more formidable political obstacle to Kishida’s economic policies than Japan’s notoriously weak opposition parties.
Resolve Required
Kishida’s new capitalism is not particularly new, but it is a welcome step away from Japan’s disastrous flirtation with neoliberalism over the past two decades. If successfully implemented, it would ease the burden of Japan’s workers, particularly the irregular ones. The program is hardly revolutionary, but Kishida is quickly learning that even the most modest tinkering with capitalism results in fierce blowback by capitalists who perceive their interests to be threatened. Kishida faces the additional difficulty of being dependent on support from a former prime minister who happens to command the largest faction in his party. If Kishida does not have the resolve to withstand these corporate and political pressures, his new capitalism will have little chance of success.