Last week, I reviewed the international security and diplomacy elements of Prime Minister Kishida’s 2023 policy speech before the Japanese legislature. This time around, I will finish up a review of the speech by looking at his domestic policy pronouncements.
As a reminder, you can watch the speech in its entirety and read a full transcript on the Prime Minister’s web site. At this time, both the video and transcript are in Japanese only, although I expect an English translation to appear at some point.
While the Kishida administration’s defense-related announcements dominated the news cycle in the weeks leading up to his speech, the biggest announcements by far were in the domestic sphere. From what I can tell, this is typical Kishida. Former Prime Minister Abe had put a major focus on strengthening Japan’s place on the world stage, but the current Prime Minister looks to transform Japan through domestic action. This isn’t surprising, since many of the difficulties Japan faces stem from internal pressures, most notably its declining birthrate and aging population, plus its decades-long struggle with economic stagnation.
A New Capitalism / 新しい資本主義
In the face of these societal concerns, Kishida broaches the domestic policy front with a bold assertion: The current collection of business systems has produced Japan’s economic woes, not to mention its impact on climate change and inequality. Therefore, it must be supplanted with a “New Capitalism,” one based on an awareness of the existing systems’ foibles. In Kishida’s mind, this new structure will work to create a sustainable and inclusive economy and society.
If you think that doesn’t sound like the staid, conservative, right-leaning Liberal Democratic Party line, you are correct. Once Kishida took office just over a year ago, he immediately began pronouncing policies that sounded like they were written by his left-of-center colleagues, particularly on domestic social matters. Despite his doubling of the defense budget, he is perceived as dovish on defense matters. On the domestic front, his non-traditional leanings are more obvious. It was therefore not too surprising to hear him insist on a new form of capitalism that isn’t that far off from democratic socialism.
His New Capitalism plan has three major components, and despite what he said about sustainability and inclusivity, the first of these three planks is all business. The stated goal is to achieve “structural wage increases” while at the same time keeping inflation in check, or at the desirable 2% annual rate. While the specifics of his plan are business-friendly, his insistence that businesses “properly” pass profits on to their employees reveals his left-leaning preference for government to set the course for the business community. That’s not to say that businesses in Japan disagree with him. But at least over the past decade or two, it has been difficult to convince corporations that they should translate profits into wage increases, given the instability in the economy at large.
The government will set an example by rolling out wage increases to public workers that exceed the rate of inflation. If the private sector follows suit, the hope is this this will begin a cycle of salary advancements for the foreseeable future. In addition to this direct investment, the government will work on multiple changes to economy-facing policies.
- New guidelines for small, medium, and large businesses that will encourage training and skills development, leading to improved productivity, and eventually higher wages. Of particular note was his emphasis on a “diverse human resource environment” (多様な人材). While the term is a bit vague, this may refer to the immigrant community, mainly East and Southeast Asians who can get stuck in part-time or low-paying jobs. Such workers should be increasingly directed to “growth fields” through training programs and advancement opportunities.
- A resetting of how businesses think about workers. The Prime Minister called on corporations to “be ready to accept” both new recruits and anyone who “wishes to work or change jobs,” regardless of gender or age. Instead of focusing on seniority, business should seek merit-based, “Japanese-style” wage and advancement policies, “where employees are properly evaluated and rewarded.” To this end, the administration will release guidance for such changes in June, seeking to impact both the traditional full-time employee community and those “diverse human resources” mentioned above.
- GX, or “Green Transformation.” Japan will invest in industries that provide a stable energy supply paired with economic growth via public-private partnerships. Specific investments will be in “growth-oriented carbon pricing,” energy conservation, development of hydrogen and ammonia, and research in nuclear power and renewable energy processes. The public has looked down on nuclear power since the 2011 tsunami, but Kishida announced plans to extend licenses for existing, older power plants while at the same time encouraging new nuclear technologies.
- DX, or “Digital Transformation.” This is a continuation of the policies announced under the prior Suga administration, that of replacing 40,000 outdated, floppy-disc-friendly laws and regulations with modern digital alternatives. Central to that goal is the continued rollout of the My Number Card system, now in the hands of 85 million residents.
- Investments in innovation-focused research. “Japanese innovations bring hope to the world.” To this end, Japan will encourage new developments in semiconductors, quantum tech, AI, communications, biotech, space research, and ocean research. At the academic level, it will bolster science and engineering departments, and encourage both inbound and outbound graduate programs. Japan will also invest in business R&D, targeting a ten-fold increase in startups over the next five years. Part of this growth will occur through more favorable tax changes.
- Opportunities for household investments. New policies will make it easier for families to invest more of their savings through NISA accounts, doubling total investments over the next five years. Business can draw from this investment pool to development new industries and opportunities.
Child and Childcare Policies / こども・子育て政策
The second major plank of the Prime Minister’s domestic policy hopes deals with child-rearing. With the number of births falling below 800,000 for the first time last year, “Japan is at a critical juncture,” and Kishida ponders whether it will “be possible to maintain social functions” in such an environment.
To combat this trend, he announced plans for a “child-first economic policy.” Unfortunately, he was sparse on details, saying little more than that he would build upon existing child and family reforms through a doubling of the budget for those efforts. The only concrete change he offered was a system of “new scholarships for higher education,” something that doesn’t really help young families until their kids are grown. His goal of “allowing families to raise children with peace of mind” is laudable, but the speed at which he passed through this section of speech could be seen as a lack of completed plans.
Building an Inclusive Economic Society / 包摂的な経済社会づくり
In the final part of the speech, the Prime Minister looked to a society “where everyone can find purpose regardless of age, gender, or physical condition.” And that’s great, except that the remaining policy details were specifically crafted to “bring out the power of women, youth, and rural areas.” That’s also great, but it’s a different list.
The employment situation for women in Japan is complicated, to be sure. Kishida’s administration will introduce new policies that address wage gaps and promotion disparities between the sexes. New childcare-leave programs will also be added. He mentioned policies to advance young households, but they are all just repeats of things from earlier in the speech. He also spoke as an aside about the problems of loneliness (孤独) and isolation (孤立), trends that push young people, especially young males, to become “hikikomori.” The current Diet session would work to pass bills that help people experiencing these issues, hoping to restore them to productivity.
Bringing life back to rural areas through “regional revitalization” appeared to be the most developed of his inclusive-economy plans. He listed a wide array of policy objectives, covering tourism, food security, agricultural profitability, an expanded four-lane highway system, revamped local transport systems, new “digital garden city” infrastructure to encourage telework opportunities, support for Level-4 self-driving vehicles, and updated regulations that support local businesses.
Prime Minister Kishida’s view that Japan is at a crossroads is accurate. Demographic and economic concerns abound, and the international neighborhood is not getting any safer. Will his 2023 policy announcements make a difference? That’s hard to say. Many of his specific plans amounted to little more than throwing new money at old problems, money that taxpayers don’t have readily available.
Yet there were encouraging points as well. His focus on the human factor may be idealistic, but his policies that attempt to involve more individuals in solving the problems are a step in the right direction. If his regulatory changes can produce a more dynamic business and social environment for young families, foreign workers, and rural businesses, “a Japan where everyone can shine” (全ての方々が輝ける日本), the nation might actually be able to reverse some of the trends that have plagued it since the turn of the century.
[Image Credits: Japan House of Representatives]