Is Kishida’s ‘New Capitalism’ Japan’s New Political-Economic Doctrine?

When Japan Prime Minister Fumio Kishida announced his ‘New Capitalism’ doctrine, it was meant to reduce the excesses of neoliberal policies put in place since the Koizumi government (2001-2006). The policies distorted market competition. They were believed to have brought prosperity to big businesses and the wealthy while not benefitting small and medium enterprises (SMEs), which form the majority of Japan’s business sector. Kishida’s ‘New Capitalism’ therefore aims to address concerns among Japanese society about growing inequalities and their preference for egalitarianism and social stability. It seeks to provide pandemic support for vulnerable SMEs and subsidies for companies entering into new industries.

‘New Capitalism’ selectively integrates with and refines some aspects of Abenomics. Named after former Prime Minister Shinzo Abe, Abenomics focused on flexible fiscal policies, increased money supply and longer-term structural reforms. The Kishida government is keen to continue Abenomics’ efficacy in pushing up stock prices through monetary easing. But Kishida wants to mitigate these policies’ unintended outcome, whereby cash reserves of Japanese companies increased but real wages were not recycled back to the workers.

Kishida has set up a ‘New Capitalism’ panel comprising state and business representatives to discuss Japan’s wealth redistribution while balancing the need for economic growth. The panel is also tasked to look into human capital investments and develop a vision to steer the government’s economic policies. Its 15 members represent diverse gender, demographic, and interest groups, including seven women and all cabinet members. It also includes representatives of industry groups such as Yoshino Tomoko, President of the Japanese Trade Union Confederation (Rengo), and Shibusawa Ken, descendant of Shibusawa Eiichi, the father of Japanese capitalism.

Shibusawa Ken has especially suggested expanding the wealth focus to include improving the quality of life for the Japanese people. His ideas align with Kishida’s preference to set up a new universal social security system, improve productivity by harnessing human capital, and reduce carbon footprints of industrial-economic activities.

In accordance with this thinking, intangible improvements are as important as quantitative benchmarks like salary increments. This involves policies that require the private sector to protect the environment and individual rights. Some policies that Kishida is considering to implement are rewarding tax incentives to firms that pay more to their employees and ensure greater rights protection for subcontractors. Multinational firms often use their dominance to gain unfair advantage in their deals with these subcontractors.

Kishida’s ‘New Capitalism’ therefore aims to address concerns among Japanese society about growing inequalities and their preference for egalitarianism and social stability.

Kishida’s plans sound plausible in theory. But he needs to mobilise support from a wide swathe of interest groups in Japan for the implementation of ‘New Capitalism’. In this context, the fall of stock prices, after Kishida announced his election pledge to reform the taxation system, reflected investors’ anxieties over his government’s tax policies. This has led to Kishida’s clarification after he assumed office in October 2021 that he did not intend to impose higher taxes on stock gains as a component of his tax reforms in fiscal year 2022. This immediately placated the business sector, investors and wealthy individuals, who derive most of their income from stocks and are paying less taxes compared to to lower-income individuals under the current income tax system.

Funding for ‘New Capitalism’ initiatives is another potential constraint for the Kishida government. It may rely on government bonds, taxation on stock transfers/dividend gains (currently at a flat rate of 20 per cent ), income taxation at 55 per cent, or tax incentives to companies that increase their workers’ salaries. It may also be a combination of all these measures and others that may be formulated in the future.

Besides, the redistribution of wealth requires an advanced and sophisticated system of calibrating apportionment of monetary benefits to different income groups and different categories of companies within Japan. The newly established Digital Agency is therefore tasked to build digital systems and technological solutions for more effective allocation of monetary benefits to the Japanese people.

A key measure of success for ‘New Capitalism’ will be Japan’s post-pandemic economic recovery and growth. This in turn will involve Japanese foreign investments, including in Southeast Asia. At this, an immediate task for the Kishida government is to repair Southeast Asian supply chain disruptions caused by the pandemic and strengthen them even further to buttress Japan’s economic growth. Towards this end, Japan has relied on multilateral trade deals, economic aid and infrastructure funding to maintain its well-established position in the regional production networks and reinvigorate its economic investments in Southeast Asia.

Japan remains committed to its Quality Infrastructure Investment initiative and the Partnership for Quality Infrastructure in collaboration with the Asian Development Bank (ADB). Japan was a major provider of emergency financial relief and vaccine donations to Vietnam, Thailand, Malaysia, Indonesia and the Philippines in 2021. The Kishida government will likely continue this track record.

On a concluding note, to undergird ‘New Capitalism’ implementation at home, the Kishida government will want to be pragmatic and stability-seeking in its foreign relations despite rising geopolitical tensions in the region. As an experienced former foreign minister with a track record of resisting revision of the pacifistic Article 9 of the Japanese Constitution, Kishida has the political wherewithal to project Japan as a benign major power to augment constructive political-economic relationships with Southeast Asian states.

2022/28