Source: National Tax Agency, Cabinet Office Note: see below on Covid cash in 2020
This is my piece in a compendium of articles in Japan Focus examining Shinzo Abe’s legacy, available at https://apjjf.org/2022/16/McNeil.html. The charts here do not appear in the original Japan Focus piece.
The most basic task of a political leader is to leave his country better off than he found it—or at least no worse. By this minimal goal, former Prime Minister Abe Shinzo failed miserably. For years, voters bought his electoral tactic of announcing one lofty economic goal after another without offering the measures needed to achieve them. Today, however, Abe’s failure is so widely recognized that current Prime Minister Fumio Kishida poses his ‘new capitalism’ agenda as a thinly veiled corrective to Abenomics.
Like so many of his predecessors, Abe promised to restore Japan’s real (price-adjusted) gross domestic product (GDP) growth to 2 percent per year. He did not even come close. Initially, it looked like Abenomics was working, with GDP rising at a 3.2 percent annual pace from the fourth quarter of 2012 to the first quarter of 2014. This gave Abenomics unwarranted credibility. In reality, GDP enjoyed that temporary spurt mainly because that is what economies do after a long slump. When Abe returned to power, GDP was no higher than it had been seven years earlier and so enjoyed a cyclical uptick, just as in previous instances during the period since 1991 known as the three ‘lost decades’, when annual GDP growth averaged less than 0.7 percent. Then, in April 2014, Abe put a damper on growth by hiking the consumption tax from 5 percent to 8 percent. In a healthy economy, this would have caused nothing more than a brief sag in growth. In Japan, by contrast, the hike suppressed growth for years, especially because it was followed by a second increase in 2019. As a result, from early 2014 to the end of 2019, i.e., before Covid-19 struck the economy, GDP grew at a barely visible annual 0.2 percent pace, just one-tenth of the pace Abe had promised.
GDP growth is, of course, just a means to an end: growth in living standards. Under Abe, the opposite happened. Living standards continued the decline that had begun in the mid-1990s. Among regular workers, real wages per hour fell 4 percent from 2012 to 2018. Meanwhile, according to official data (Japanese Statistics Bureau Labor Force Survey 2020), 82 percent of the growth in jobs consisted of low-paid non-regular jobs. This further lowered wages because, as of 2020, while the average regular worker earned ¥2,500 per hour, temporaries got just ¥1,660 and part-timers a stingy ¥1,050, according to government figures (Japan Macro Advisors 2020). Abe’s response was to futilely ask companies to hike wages. To get real results, he could have enforced Japanese laws that require equal pay for equal work between men and women as well as between regular and non-regular workers, by mandating the Labor Ministry to investigate and prosecute violations of the law. But he chose not to do so.
At the same time, Abe continued the post-2000 trend of cutting government spending on social security for the aged. During his tenure, social security per senior fell another 8.6 percent (Cabinet Office 2020, see chart below).
Source: Cabinet Office
He also continued the policy of shifting the share of national income from people to corporations, by cutting the top income tax on companies from 38 percent to 30 percent while doubling the consumption tax to 10 percent (see chart at the top; the impact of the 2019 tax hike does not yet show up in the 2020 figure, due to Covid, which caused a big drop in consumption and also led to a 12 trillion yen government cash handout to households that raised disposable income by about 4 percent).
Like his predecessors, Abe offered the ‘trickle down’ theory that corporations would use the tax cut to invest more and raise wages. In fact, as shown by data presented to a meeting of Kishida’s Council on New Capitalism, between 2000 and 2020, the combined yearly profits of Japan’s few thousand largest corporations almost doubled, but their compensation to all workers combined fell 0.4 percent and their capital investment fell 5.3 percent (Tokyo Foundation for Policy Research 2022).
When confronted by such facts, Abe’s supporters point to the growth of female employment as a major achievement of his ‘womenomics’. However, that is little different from the experience in most rich countries: when men suffer from wage austerity, more wives join the labor force to maintain family incomes. Under Abe, 75 percent of the growth in female employment was in low-paying, dead-end non-regular jobs. Abe himself admitted that his 2013 promise to raise the female share of company managers to 30 percent in just seven years—a repeat of a goal Tokyo had set ten years earlier—was a flop. So, in 2015, he halved the goal to 15 percent, a target still far on the horizon (Japan Times 2015; Mainichi 2020).
Abe’s defenders also point to the end of deflation. However, Abe had always claimed that achieving 2 percent inflation—something the Bank of Japan governor said he could do in just two years (Reuters 2013)—would restore growth and it has not done so. So, when Tokyo failed even to come close to the 2 percent inflation target, Abe’s supporters changed their mantra and now claim that just ending price declines is good enough. In any case, the way that Abe overcame inflation was yet another blow to living standards. Healthy inflation is a result of robust domestic demand. By contrast, 93 percent of the price hikes during the Abe years stemmed from import-intensive products, like food, energy, apparel, and footwear (author calculations based on Consumer Price Index data, see Japan Statistics Bureau Consumer Price Index 2022). That’s because Abe’s campaign to weaken the yen raised the price of imports. This kind of inflation simply shifts income from Japanese consumers to foreign producers, while raising profits at Japan’s big multinational companies.
Abenomics would have helped Japan if Abe had truly pursued his promise of structural economic reforms, i.e., the ‘third arrow’ of the so-called three arrows of Abenomics. That, however, would have required stepping on powerful toes and, despite Abe’s unprecedented domination of the Diet, he chose not to spend his political capital in pursuit of reform. Perhaps that is because he believed his own hype that conquering deflation would be a painless path to growth. To take just one example, consumers pay high food prices because the mammoth Japan Agriculture (JA) cooperative is immune from the Anti-Monopoly Law. Abe claimed to have initiated a drastic reform of the JA, but, in reality, he ignored the advice of his own advisory council to break up the cooperative. Instead, he worked out a deal that the head of JA, Akira Banzai, more or less admitted would not result in any substantial change (FCCJ 2015). Hollow measures like this were the hallmark of Abe’s ‘third arrow’ efforts.
There was one more thing Abe got wrong, but fortunately so in this case. Abe claimed that Abenomics was Japan’s ‘last chance’ to revive. In reality, countries have lots of ‘last chances’. Japan’s continued corrosion under Abe does not mean that it cannot revive; it merely means that Abe blew his opportunity.
Cabinet Office. 2020. ‘Transfers from General Government to Households (Social Security Transfers).’ Annual Report on National Accounts for 2019.
Foreign Correspondents Club of Japan. 2015. ‘Banzai, Green & Bancel: JA and International Group on Abe's JA Reform Plans.’ YouTube, 12 February.
Japan Macro Advisors. 2020. ‘Wages and Hours Worked.’ Japan Macro Advisors website (no longer online).
Japan Times. 2015. ‘Japan Drastically Lowers Its Goal for Female Managers in Government and Private Sector.’ Japan Times, 25 December.
Japanese Statistics Bureau Labour Force Survey. 2020. ‘Historical Data Table 9: Employed Person by Age Group (Ten Year Group) and Employee by Age Group (Ten-Year Group) and Type of Employment - Whole Japan.’ Japanese Statistics Bureau website.
Japanese Statistics Bureau Consumer Price Index. 2022. ‘2020-Base Consumer Price Index Monthly.’ Japanese Statistics Bureau website.
Mainichi. 2020. ‘Japan Gov't to Push Back 30% Target for Women in Leadership Positions by Up to 10 Years.’ Mainichi, 26 June.
Reuters. 2013. ‘BOJ Kuroda: Japan to See 2 pct Inflation Toward Fiscal 2015.’ Reuters, 5 December.
Tokyo Foundation for Policy Research. 2022. ‘Changing Corporate Behavior to Jump-Start the New Capitalism: The North Wind Versus the Sun.’ Tokyo Foundation website, 10 March.
Thank you very much for elaborating, Richard.
"...between 2000 and 2020, the combined yearly profits of Japan’s few thousand largest corporations almost doubled, but their compensation to all workers combined fell 0.4 percent and their capital investment fell 5.3 percent"
Do you happen to have any data or general assumptions on where all that money went?