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Fumio Kishida, Japan's prime minister, departs after a news conference at the prime minister's official residence in Tokyo, Japan, 24 May 2022 (Photo: Kiyoshi Ota/Pool via Reuters).

Author: Richard Katz, Carnegie Council for Ethics in International Affairs

For six long months, the Kishida administration, aided by outside advisors from universities and new companies, toiled to translate Prime Minister Fumio Kishida’s mantra of a ‘new form of capitalism’ into concrete policies. The rather hollow end product that the Cabinet approved on 7 June 2022 must have disappointed many of the participants.

When it came to the foundational principle — that healthy growth and a more equal distribution of income needed each other — Kishida surrendered to critics in the ruling Liberal Democratic Party (LDP) and financial markets who wrongly accused him of promoting socialism. In reality, promoting redistribution to reduce inequality and improve consumer demand is a longstanding ingredient in the standard macroeconomic recipe.

Some critics claim that rather than distribution measures, Kishida would achieve better wage growth through reforms that enhanced labour productivity. While that’s necessary, it is no longer sufficient to boost wages. Wages in the last few decades have stopped increasing in proportion to productivity growth in many countries. This wage gap is worse in Japan than in other rich countries.

The result is a Japanese policy document full of rhetoric about attaining a ‘virtuous cycle of growth and distribution’ — with few substantive measures to achieve it. It is equally weak on how to achieve its growth-boosting goals, such as the declared objective of a tenfold increase in start-up companies.

Kishida’s surrender began just after his inauguration in October 2021. During the ‘Kishida shock’, stock prices fell in response to his call for higher capital gains and dividend taxes so that multimillionaires would no longer pay lower tax rates than upper-middle class citizens. Kishida quickly withdrew.

The backpedalling continued, when Kishida decided that he could not afford to offend Keidanren, the big …continue reading