Japan’s blurred vision for future of capitalism

The best political slogans are simple and direct: Think “It’s the economy, stupid,” or former UK leader Tony Blair’s “Tough on crime, tough on the causes of crime.”
Japanese politicians don’t typically excel at these soundbites. That’s what made former Japanese Prime Minister Shinzo Abe’s “Three Arrows” of Abenomics such a standout — using a simple folk tale, it explained a complex recipe of monetary, fiscal and supply-side solutions intended to revive Japan’s economy, resonating with investors both at home and abroad.
Fumio Kishida, the current Japanese leader, launched what he called the “Grand Design” for his “New Form of Capitalism,” a doctrine he has promoted since becoming Japan’s leader in October. The draft policy outline is many things, but simple and direct isn’t among them. Watered down, muddled and both confusing and a bit confused, Kishida’s flagship economic policy could learn a lot from the Three Arrows.
The Grand Design is a 34-page outline of policy recommendations by a panel Kishida formed to flesh out his concept of New Capitalism. That’s what Kishida calls his overarching economic thesis which, in essence, rejects the neoliberal consensus of looser regulation and giving greater power to markets, which has been the standard suggested recipe for revitalising Japan’s economy for the past two decades. Instead, it emphasizes greater government cooperation and oversight, as well as redistribution of cash to workers to address the growing gap between rich and poor.
The initial reaction to New Capitalism last year was unenthusiastic. Stocks tanked soon after his appointment in an event dubbed “Kishida Shock.” His suggestion of raising capital gains taxes, focus on redistribution and seemingly sniffy attitude toward dividends gave the markets cold feet, with just 3% of investors in one January poll saying they supported him.
One of Kishida’s most revealing remarks came in February, when he spoke about company profits being “lost” to shareholders in the form of dividends. Kishida and his lieutenants have since sought to walk back the perception that he’s anti-market, with the prime minister’s May speech in London pitching his pro-market views and asserting his credentials as a former banker.
This walkback seems evident in the “Grand Design,” Kishida’s latest attempt to better articulate his vision and transfer it into actual policies. It begins by dramatically pitching New Capitalism as the successor ideology to the welfare-state capitalism and neoliberalism that have dominated the post-war period, and warns of the damage that’s been done in recent years by giving too much power to markets.
But leaving the merits of that vision aside, the actual policies proposed in the Grand Design fall between two stools. There’s little by way of concrete policies to lift wages, something Abe failed to deliver. Missing is any reference to raising capital gains taxes, with the strategy instead promising to boost household investment in assets through tax-free accounts — though Kishida muddied the waters further by saying in parliament a capital gains tax hike is still under discussion.

—Bloomberg