HONG KONG (Reuters Breakingviews) – In 1883 German philosopher Friedrich Nietzsche wrote of a character he called âthe last manâ. The opposite of his ideal âUbermenschâ, last men are so enervated and addicted to comfort, they lose their ability to dream and their will to compete. To Japanese conservatives, Nietzsche might have been describing Japan during the lost decades that followed the bursting of its financial bubble in the early 1990s: a pacifist, embarrassed, ageing irrelevance overshadowed by rising China. Until Shinzo Abe came along.
In âThe Iconoclast: Shinzo Abe and the New Japanâ Tobias Harris delivers an engaging review of the extraordinary career of Japanâs longest-serving prime minister. He was the heir to a conservative political dynasty, he dragged the country out of deflation, partially remilitarised it, and reconfigured the state in the process. Harris, an analyst at Teneo Intelligence who briefly served as private secretary to Japanese politician Keiichiro Asao, delivers a positive, nuanced assessment. However, readers less grounded in Japanâs political history might benefit from some background reading before wading in. (Who, exactly, were the âright-wing socialistsâ?)
Abe, who announced his retirement for health reasons in August, reinforced Tokyoâs position as Washingtonâs premier ally in Asia, and managed the relationship with a semi-hostile Donald Trump surprisingly well. When the White House abandoned the Trans-Pacific Partnership trade pact, Abe took the lead, ratifying a deal that lowered trade barriers between major economies in Asia and the Americas. He reinforced Japanâs position as a source of investment and aid to poorer neighbours as an alternative to Chinaâs âBelt and Roadâ initiative.
Abe has handed the reins to Yoshihide Suga, a long-time ally who helped craft the combination of unorthodox monetary policy, fiscal stimulus and reform that came to be known as Abenomics. The new prime minister has also inherited plenty of problems. Covid-19 hammered Japanese economic activity and output is now no larger than it was when Abe took power in 2012. Having turned the central bank into a money-printing machine, pushed interest rates into negative territory, and inflated public debt to 240% of GDP, Japan once again faces the depressing risk of deflation.
Abe did not start out as an economic reformer. His aim was to restore Japanese peopleâs pride, sorely battered by the countryâs defeat in World War Two and the subsequent U.S. occupation. He wanted Japan to have the sort of global respect it enjoyed after the Meiji Restoration that restored imperial rule in the late 19th century, when the country industrialised, its military defeated Russian forces, and its woodcuts inspired French Impressionists. For Abe that goal meant less dwelling on past war crimes. It also meant legal revisions to allow Japanese troops to come to the aid of allies and support international peacekeeping operations. Both would cause diplomatic headaches.Â
Abeâs renaissance required a stronger state centred on a powerful prime minister who could drive painful economic and political changes to enable the attitude shift he wanted. He continued his predecessor Junichiro Koizumiâs push to end the system by which the Liberal Democratic Party â in power more or less since 1955 â diverted resources and investment to inefficient companies and regions in exchange for electoral support. He also increased the governmentâs influence over the Bank of Japan, which was reluctant to aggressively reflate prices. And he pushed through contentious reforms to corporate governance and labour markets.Â
Today the BOJ is pushing the limits of monetary orthodoxy, accumulating vast piles of domestic stocks and bonds while vainly trying to hit a 2% inflation target. It became, Harris says, âan arm of the Abe administrationâ. More women and immigrants have joined the workforce, and Japanese companies have grudgingly tried to improve returns to shareholders. But while the efforts revived inflation and investment for a time, progress proved frighteningly easy to reverse.
Abe also suffered setbacks. His attempts to get control of spiralling public debt through a consumption tax hike backfired. While corporate governance has improved in selected areas, executives remain hesitant to invest spare cash or hike wages. Years of negative interest rates have wrecked local banks, and the pandemic uncovered stubborn pockets of official inefficiency. Although inaction would have been worse, the jury remains out on Abenomicsâ effectiveness.
Nor did Abe restore Japanese peopleâs interest in reproduction. The country remains at the wheezing edge of a demographic crisis that immigration and robotics can ameliorate but not solve. In âExtreme Economiesâ, Richard Davies pointed out that some towns in Japan are disappearing so quickly that one-fifth of local elections were uncontested due to a lack of candidates.
Harris believes that while Japanese people were pleased with the stability Abenomics delivered, they were less enthused by Abeâs push to unleash the military or revive patriotic fervour: âI donât think Japanese people want to be enlisted in a great national mission.â The question is whether the state can enlist them in anything else. Other ageing societies in Asia and Europe face the same conundrum.
Abeâs legacy will serve Prime Minister Suga well as he pushes forward with technical reforms. Yet itâs hard to rally a nation around monetary easing and policy rationalisation. Japan may be the first developed country to discover the cost of economic malaise, but there are plenty of other last men.
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– âThe Iconoclast: Shinzo Abe and the New Japanâ, by Tobias Harris, was published in August by Hurst.
– For previous columns by the author, Reuters customers can click on [SWEENEY/]
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(Editing by Peter Thal Larsen and Oliver Taslic)
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