James Carville’s simple refrain, “It’s the economy, stupid,” made during Bill Clinton’s campaign for president in 1992, is applicable to most nations around the world. Carville’s mantra holds that successful economic policy is the principal source of popular support and political success. In other words, achievements in domestic policy that pay special attention to pocketbook issues drive political longevity for leaders and their political regimes. By corollary, most foreign policy initiatives, success or failure, will only have a marginal impact on citizens’ attitudes towards their leaders.
Japan is no exception to this dictum. Former Prime Minister Abe Shinzo learned this the hard way during his first stint in office from 2006 to 2007. But he took lessons from that experience in his second term from 2012 to 2020, becoming the longest serving prime minister in modern Japanese history. Unfortunately, it appears that current Prime Minister Kishida Fumio is emulating Abe’s approach to politics during his first term rather than learning from his second term. If Kishida continues down this path, he will likely suffer the same fate and ignobility as Abe did during his first turn at the premiership.
Contrary to his later success, Abe’s first term was one of the shortest tenures for a post-war Japanese prime minister, lasting only 366 days over 2006 and 2007. His premiership was rather quickly terminated after becoming engulfed in multiple domestic scandals and ministerial gaffes. On the economic front, Abe also had little to show for his time in office. There were a number of proposals but they lacked resolute political support from the administration and thus never came to fruition.
Nevertheless, Abe was quite active in foreign and defense affairs, albeit within a very hawkish framework. He conducted successful diplomatic missions to China and South Korea, elevated the Defense Agency to the Defense Ministry, and passed a contentious law on how to conduct a referendum on constitutional change. Despite these significant victories, the public’s dissatisfaction with his domestic agenda sealed his electoral demise. In August 2007, Abe’s Liberal Democratic Party suffered an historic loss in the upper house election. Shortly after, Abe resigned – officially for health reasons, but it was clear his ability to govern was irreparably damaged.
The contrast between his first and second administrations could not be greater. Abe made an improbable yet triumphant return to the premiership in 2012. He recorded a landslide victory over the then-ruling Democratic Party due to their perceived chaotic and incompetent governance. The election win was achieved on the back of a creative and promising economic message based on an expansive monetary policy. This quickly evolved into his now famous economic three arrow strategy, dubbed Abenomics.
With a large majority in parliament, Abe reached peak neo-conservative ideology with a visit to the controversial Yasukuni Shrine and embarked on a complete reconception of Japan’s security and defense policy. His reforms gave Japan the ability to project political and military power beyond its borders for the first time since World War II via the new collective defense security law. Notwithstanding significant public opposition to these wholesale changes of Japan’s security and foreign policy, Abe withstood the pushback and indeed thrived using his economic initiatives as a shield.
Abe understood that a singularly foreign policy-focused administration – like his first term – would be unacceptable to the public. In fact, Abe deftly used his economic messaging as cover for his security policy, especially during electoral campaigns.
Kishida’s Woes
Fast forward to the current Kishida administration, which is mired in the same types of scandals and gaffes as Abe’s first term. The four resignations Kishida has seen almost match the same number as Abe’s first cabinet (five) at that time. The latest to resign is Reconstruction Minister Akiba Kenya, over a political funds scandal.
Separately, Kishida and the LDP have been embroiled in a scandal involving the party’s deep links to the Unification Church, which is accused of aggressive and predatory sales practices. This was the main reason given by Abe’s assassin for his actions. Economy Minister Yamagiwa Daishiro resigned over his ties to the Unification Church.
Kishida has paid a heavy political price for his ineptitude in handling these crises. Rather than resolving them quickly and efficiently, he let the scandals fester, allowing the opposition to grill him in parliament and the media to have a field day.
On the economic front, Kishida has yet to take a significant step on his signature policy of constructing a New Capitalism, other than just calling for voluntary corporate wage hikes for employees. Despite sounding the alarm on wage growth and demographic issues, the details of his new policy remain unexplained and vague.
However, the underlying goal – to rectify disparities in wealth and raise wages, especially for the middle and working classes – has much resonance among the public. Equally important, high wages would spur robust consumer demand, thereby repairing Japan’s three decade-old deflationary economy. A virtuous cycle of demand-pull inflation – as opposed to the current transitory cost-push inflation – underpinned by rising wages is the holy grail that outgoing Bank of Japan Chief Kuroda Haruhiko has sought yet never found. The main problem has been the administration’s inaction on these issues.
Tackling Japan’s Economic Malaise
In order to raise wages, Kishida needs to move in four areas. First, he needs to reform the country’s rigid labor markets, which constrict the movement of labor in and out of full-time employment. Japan’s labor system is based on a seniority system and long-term employment contracts, making it difficult for corporations to shed staff. To control for this problem, corporations have opted for hiring part-time workers instead of full-time ones. Close to 37 percent of the workforce are now considered non-regular workers. They suffer from tremendous wage disparity, lack of training and inferior benefit packages.
Second, declining labor unionization needs to be reversed to strengthen the bargaining and political power of labor. As Richard Katz explains, “three of the four countries where labor’s share of national income declined the most were Japan, the U.S., and Korea, the three countries with the smallest share of the workforce covered by collective bargaining agreements.”
Third, legislated larger minimum wage hikes should be on the table. Smaller increments have already been implemented, with minimum wages rising to 961 yen ($7.40) per hour last August under a plan to increase wages by 2 to 3 percent until they reach the goal of 1,000 yen at some point in the near future. However, the plan should be more ambitious, with higher increments at a faster pace with a target well above 1,000 yen. Higher minimum wages would spur greater productivity while weeding out those companies that cannot innovate to pay the higher wage costs.
Finally, Kishida should vigorously pursue Abe’s policy of making “women shine in society.” This issue is the key to help solving not only the low wage problem but also the declining population challenge. Abe did little in furthering women’s social standing but can be given credit for at least prioritizing the workplace gender gap and making it a well-recognized issue.
Kishida took a small step last June by making companies publish their data on gender wage disparities, but this falls far short of what is necessary. Women make up the vast majority of the non-regular employed workforce and as a result suffer from a large disparity in wages vis-à-vis their mainly regularly employed, higher-paid male counterparts.
By solving the part-time employment and low-wage issues, in other words, Japan can also address both its gender gap and its depopulation challenges. If women can move into full-time employment and receive higher incomes, they may begin to have a more positive outlook on getting married and having families. Currently, stuck in low-wage employment, women have neither the interest nor the means to raise a family. Of course, improvement in female wages alone is insufficient and would need to be accompanied by a battery of other family support policies to enable women to work full-time. Kishida has recently announced intentions to deploy such policies. Going forward, words need to be matched with deeds.
Learning the Wrong Lessons From Abe’s Foreign Policy
The lack of progress on these mounting domestic challenges has led not surprisingly to dismal cabinet poll ratings. Kishida’s cabinet is now in what some view as a danger zone, with an approval rating stuck under 30 percent.
Kishida’s response, not unlike Abe’s, has been to delve into foreign and security policy, hoping that success there will boost his standing with the public. Indeed, as Michael Bosack has noted, Kishida’s main survival strategy of 2023 is to “highlight global instability and the need for strong defense.” His recent whirlwind trip to G-7 countries and his proposed trip to Ukraine are precisely in line with this thinking. Yet this emphasis on foreign and security policy will be unconvincing to the voters given their concern with the seemingly never-ending controversy in domestic political affairs and the current state of the economy.
Kishida’s assertive stance on foreign affairs parallels Abe’s narrative during his first term and the start of his second. The public’s anxiety over Russia’s invasion of Ukraine and a potential duplication of that by China in Taiwan has transformed the Kishida’s previously dovish agenda into a retread of Abe’s first and early second term. Once again, however, Kishida is learning from the wrong period of Abe’s tenure.
In his final three years, Abe’s foreign policy evolved into a pragmatic program of engagement and diplomacy with China, culminating in a planned visit to Japan by President Xi Jinping that unfortunately never materialized due to the advent of the COVID-19 pandemic. But Kishida’s policy has mimicked the more discordant earlier years of Abe’s foreign policy and the current tenor of the Biden administration in the United States.
Kishida may believe this will win him votes. Yet, beneath the surface, public backing of the policy is not so solid, as evidenced in the public backlash to his proposal to raise taxes to pay for the planned increase in defense spending to 2 percent of GDP. Kishida was forced to postpone any time horizon for the tax rise, given the intense opposition to it.
At a deeper level, Kishida’s zealous foreign policy is problematic in itself. Traditionally, Japan adeptly straddled the divide between vigorous engagement with China, especially in economics and trade, and its strong military alliance with the United States, which it viewed as vital to ensuring the peace and stability of the region. There has always been a stable tension, refracted throughout the region, derived from Japan’s approach to China of simultaneously pursuing economic cooperation and security competition.
Yet, this middle ground has decidedly shifted toward competition and possible confrontation. Indeed, as has been seen with the “chip wars,” economics has collapsed into politics as all facets of the China-West relationship are now seen through the security lens. A course correction is needed not only by Kishida but also the Biden administration as the security context escalates, entrapping all third parties and nations in a Manichean choice between siding with either democracies or autocracies.
This does not mean Beijing is blameless for these tensions. China is not a benign actor and has engaged in subterfuge and security creep, seizing fragments of territory in the South China Sea and on India’s borders while reneging on its international responsibilities in Hong Kong. Notwithstanding these affronts to international peace, China has benefited from the global order and seeks to reshape it rather than destroy it.
Furthermore, the challenges confronting China in economics (slow growth), demographics (a shrinking population), and internal politics (the slide into dictatorship) mean the China threat as construed by both Kishida and Biden is overwrought. It should be calibrated again with Japan at the center of security and stability in the region. Smart diplomacy will be required in order to return the region to its prior equilibrium.
The Way Forward
To do this, Yoichi Funabashi’s concepts of quiet deterrence and national power are useful to consider. Quiet deterrence is akin to Theodore Roosevelt’s diplomacy of “speak softly while carrying a big stick.” Japan should upgrade its defense capabilities, but without fanfare. The goals should be first to counter China’s stealth strategy and, second, to avoid provoking Beijing outright.
However, quiet deterrence is not only about military prowess but also economic, scientific, and technological power. These together make up national power and underpin defensive force. Without a strong domestic economy propelled by its scientific and technological capabilities, a country cannot secure its own defense, let alone project power. The Biden administration has understood this in its push for a “foreign policy for the middle class” – a full-fledged plunge into industrial policy and a retooling of the United States’ computer chip sector.
Abe also understood that a strong economy would pay electoral dividends while providing the financial means to support his assertive foreign policies. Kishida should internalize this dynamic and focus on reforming the economy.