“Abenomics: The Delusion of a Backward-Looking Mind”

December 4th, 2013 by Noriko Hama, Kyoto

Japan has a problem. The problem is called “Abenomics”. “Abenomics” is actually not “Abenomics”. It is “Ahonomics”. “Aho” is a Japanese word meaning “silly”, “stupid”, “idiotic” and so forth. You get the general idea. I have been trying to make the word “Ahonomics” catch on ever since I thought of it. Indeed I have succeeded to some extent since the word made it onto the short list for “The Word of the Year” award which is given out by a well-known publisher in Japan at each year-end.

“Abenomics” is “Ahonomics” for a variety of reasons. Let me focus on just one for this piece. It is targeted at the wrong problem. And it is applying wrong and dangerous tactics to solve this wrong problem.

The Abe government thinks that what the Japanese economy lacks is growth. This is wrong. For one thing the Japanese economy has actually been growing albeit very modestly for much of the past decade. Moreover, it is already a very large economy. It is also a mature economy with more than enough socio-economic infrastructure to keep it functioning smoothly. It is also a very rich economy. It really does not need to keep on growing faster to make ends meet.

Yet for all these accomplishments it is not a perfect economy. Far from it. It has one very pointed issue that needs to be addressed. This is the issue of what I would like to call poverty in affluence. Japan is immersed in all this affluence. Yet in the midst of it, we have growing numbers of people who are the working poor. Who suffer harsh working conditions. Who live highly precariously under short-term labour contracts whose terms are apt to infringe on codes of human rights protection. Recent figures have it that 16% of the working population in Japan lives below the poverty line. The countries with the lowest rate of poverty are Denmark and Sweden both with only 5.3% of the working population falling below the poverty line. Their low rates of poverty do them much credit. By comparison, for the Japanese economy with its maturity and affluence to have a poverty ratio that is three times as large as those of the Nordic nations is a very strange state of affairs.

Not only is this strange. It is scandalous. Not only is this strange and scandalous, it is also bad for the economy. Mr. Abe claims he wants to get rid of deflation in Japan. He will never accomplish this if he does not pay attention to this issue of poverty. With this many people living in poverty there is no way that Japan could ever get out of the deflationary cycle.

So how do you go about resolving this problem. The obvious answer is redistribution. Japan’s affluence is not being distributed properly. There is too much concentration of wealth. Japan’s rising Gini index indicates this. Policies need to be put in place which can redistribute the overall wealth in our hands in a more equitable fashion.

There are two very immediate ways in which this redistribution can be achieved. One is to raise wages. The other is to raise interest rates. Wage increases speak for themselves. People need to be paid more if they are to spend more. For the sake of fairness it has to be said that the Abe government has been working on this. But only through cajoling and bullying companies to raise headline wage rates. This would only drive companies to resort more extensively on short-term low paid labour.

For interest rates to start earning some money for ordinary small investors is also important. People’s deposits should reap soe interest for them. But this is not going to happen under a monetary regime which sticks with zero interest rates. Yet Japan’s monetary policy will never be able to stop the quantitative easing and the zero interest rates that go with it. This is because this great monetary easing is the only thing that is standing between the Japanese government and bankruptcy. Team Abe at the Bank of Japan has gone out of its way to turn the BOJ from a central bank into a spcialised money lender for the Japanese government. The BOJ might as well stop calling itself a central bank since propping up the government is all that they seem interested in these days.

Yet another name I have for “Abenomics” is “Dopingnomics”. It is an attempt to inject all kinds of questionable substances into the Japanese body economic so that it can start running at top speed again on the strength of very artificially pumped up muscles.

One wonders what all this is really in aid of. The suspicion deepens that it is all about “Fukoku-Kyohei”. “Fukoku” means a rich country. “Kyohei” means a strong military. Is there a hidden agenda here of building up a nation that can go to war again ? Indeed this agenda seems to become less hidden and more apparent by the day as Mr. Abe bulldozes his official secrets act through parliament.

 

 

 

 

 

 

Noriko Hama
Professor & Dean at Doshisha Business School, Kyoto

 

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