Abe’s plan for “An undertaking of great advantage”

Japan’s Shinzo Abe has concocted what must be the perfect economic plan for our times: just a positive intention backed by no timeline and few details. The prime minister on Thursday unveiled a plan to increase the size of Japan’s economy by 22 percent to 600 trillion yen (US$5 trillion). Perhaps wisely, Abe did not say by when, especially given that Japan’s economy is not far off its size of 20 years ago, much less that it is only about 6 percent bigger than it was when he took office three years ago. As for how this growth would be achieved, we are almost none the wiser. Abe presented a pastiche of laudable goals: increasing the birth rate and making Japan a better place for those with children or caring for elderly relations, but he was extremely parsimonious with details. It was the government policy equivalent of the stock prospectus during the South Sea Bubble which advertised for subscribers to “A company for carrying on an undertaking of great advantage, but nobody to know what it is.” Except this time, rather than not knowing what “it” is, we have no idea when we will get “it” and none about how, exactly, “it” will come to pass. It may well be that Abe’s goals are no more than waiting around for the official government projections to come through, meaning that we’d hit 600 trillion yen in 2020, mostly courtesy of inflation rather than growth. To be fair to Abe, this plan, if we can grant it that title, is at least seeking to address the great weakness that is very likely behind the comparative failure of his and his predecessors’ economic plans: Japan’s demographic contraction. Unlike yen, the Bank of Japan cannot print babies, and as Japan, at least for now, seems to view large-scale immigration as unacceptable, an attempt to raise the birth rate is at least a shot in the right direction. Abe said his plan is to raise the birth rate from 1.4 to 1.8 children per woman, stabilizing population at 100 million in 50 years, down from 127 million today. Sweating the (wasting) assets None of this should do much to distract from Japan’s current malaise. The economy shrank in the three months to June and is expected to grow by about 1 percent this year and perhaps 1.5 percent next. That’s if Japan manages to avoid fallout from the continuing issues in China. Abe is right, however, to try to move the focus away from cyclical issues and towards structural, longer-term ones. Conventional and unconventional monetary and fiscal policy have not worked to create sustainable growth in Japan, and arguably were doomed from the start by a peaking and now shrinking population. In that context, Abe’s plan, threadbare on details as it is, makes a certain amount of sense. His emphasis was on creating social conditions which will encourage people to have children and hopefully allow those faced with aging parents to remain in the workforce. “The flag I want to fly is that nobody quits work for care,” Abe said. “I want to create a society where work and care go together.” That’s not been the Japanese experience, with its emphasis on bruisingly long hours, not to mention the tremendously long commutes many face. To increase productivity in the absence of population growth will require an increase in labour force participation by women, 70 percent of whom stop work for an extended period, often more than a decade, on the birth of their first child. These are fine ideas – making work more family friendly – but given that there is no detail, and that Japan has a poor track record of reforming workplace culture, it is probably best for investors, at least, to assume that little will change. View Abe’s plan as an attempt at an old-fashioned business strategy: sweating the assets. Given that the assets, people, are diminishing in number, then if you want growth, or something like it, you are going to have to get more from what remains. That’s a strategy, not a plan.