Leading economist tells Shinzo Abe of challenges to Abenomics

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Not many leaders call on international experts to bring them bad news. Yet Japan’s prime minister Shinzo Abe this week invited one of the world’s leading economists to talk to him “candidly” about Japan’s situation in the world.

The message from the Nobel Prize winning economist Joseph Stiglitz was not encouraging.

“A few years ago, no one would have anticipated that the global economy would be as weak as it is today,” he said at the prime minister’s office. “When economic circumstances change, you have to adapt your policy.”

Professor Stiglitz also urged Mr Abe not to raise Japan’s consumption tax, or sales tax. That is a contentious issue as it is closely linked to Abenomics. A higher consumption tax should mean more government income. But it can become a drag when the economy is close to recession.

Mr Abe’s meeting with Professor Stiglitz was not primarily about tax or domestic Japanese politics. It was more about how the changes to the global economy will affect Japan. In particular, the slowdown in Chinese growth and the knock-on effect of low energy prices.

Mr Abe was not the only person listening to Professor Stiglitz. The Economic and Fiscal Policy Minister Nobuteru Ishihara, the Chief Cabinet Secretary Yoshihide Suga and the Bank of Japan Governor Haruhiko Kuroda all attended the seminar.

More experts are due in Japan for similar top levels meetings soon, including another world-class economist, Paul Krugman.

Japan’s leaders may be prepared to listen to the opinion of foreign experts but they do not find it easy to change their policies in the wake of their advice. That is partly because the the civil service is so slow at implementing policy change.

Foreigners who study Japan’s economy nearly always prescribe reform – sometimes radical reform. But resistance to reform is strong, particularly among elderly conservative Japanese people who support Mr Abe and his ruling party, the LDP.

The Economist magazine uses its voice to encourage more reform in Japan. This week, its analysis of Mr Abe’s political challenges warned that voters will blame him if the economy does not recover as he has promised.

The Economist believes that Mr Abe’s primary political goal is the reform of the constitution, in particular Article Nine which commits Japan to pacifism. It says in order to change this, Mr Abe needs the overwhelming support of both the upper and lower houses of the Japanese parliament. He could then put the issue to the country in a referendum.

But the Economist says that such a move would cause deep alarm among many Japanese people. That may not be a point of view that Mr Abe wishes to hear.

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