Media  Global Economy  2013.07.23

Growth strategy of "Abenomics"

English translated version of "Business Prospect" on NHK Radio Channel 1 on June 11, 2013

1. The Abe administration has announced the so-called "third arrow" of its "three-arrowed" policy programs aiming to generate strategic economic growth. This has been preceded by the "first and second arrows" concerning aggressive monetary policy and major fiscal spending. What are your thoughts on this third set of policy programs?

Let me begin with the points that I can appreciate in the so-called "third arrow" bid. Rather than policies promoting economic growth, I would think that former administrations led by the Democratic Party of Japan (DPJ) prioritized policies aiming to rebalance the benefits and burdens among the people and to correct the income gap. This was because the DPJ-led government intended to overturn the market-driven economic policy adopted by the previous Koizumi administration, which was criticized as having exacerbated inequality among citizens. Apart from their superficial policy objectives and the resultant effects, some of the DPJ's policies, such as the child allowance and individual household income support for agriculture, seem to have put the main focus on income redistribution.

On the contrary, I have the impression that the Abe administration emphasizes more economic growth over income redistribution. In other words, it aims to increase the size of the economy, boost the nation's income, and then increase the income of the poor. Thus, it is striving to rescue Japan from deflation and low growth. This has something in common with the Ikeda administration, which was formed in 1960 after the Kish administration was overturned by public protest over Japan-US security arrangements. The Ikeda administration derived a variety of policies to develop the economy while avoiding as much as possible policy options leading to political conflict. Now the Abe administration seems to be driving defensively by focusing on economic growth and avoiding a controversial political agenda, such as constitutional reform, at least up until July when the Upper House election takes place. Many of its slogans are similar to what we saw with the Ikeda administration's successful and reminiscent income-doubling plan.

I can value the Abe administration's policies stressing economic growth. The so-called "first arrow" concerning monetary easing and the "second arrow" increasing public spending are policies aiming to bring current ill-performed economy to the production possibility frontier, that is, economic capacity or potential. The "third arrow" represents a growth strategy aiming to enhance economic capacity itself. I was actually asked many questions by foreign investors last week on my evaluation of the Abe administration's growth strategy. I was never asked this kind of question during the DPJ-led government. I understand that the so-called "three-arrowed" policy programs have drawn attention around the world.

2. What points in the Abe administration's growth strategy do you not evaluate positively?

Its growth strategy sets many numerical targets for various sectors in terms of increasing income and promoting exports, etc. Examples include: reviving private investment of 70 trillion yen within 3 years; increasing infrastructure exports to 30 trillion yen in 2020; doubling the balance of foreign direct investment in Japan; increasing exports of agricultural, forestry and fishery products and food products to 1 trillion yen; pushing at least 10 Japanese universities up into the world's top 100 universities within 10 years; and increasing per capita income by 1.5 million yen in 10 years. In addition, we can see many policy measures listed in its growth strategy. However, it is difficult to recognize any clear links between the numerical targets and policy measures. In other words, despite the list of many seemingly good measures it is not clear how the targets can be achieved with these measures. The Abe administration has not provided any adequate explanations on this point. If the government feels that any policy measure can lead to success to a certain extent if the policy direction is right, it risks committing inefficient governance.

I have another point of anxiety. Prime Minister Shinzo Abe stated that "it is regulatory reform that is given highest priority to successfully achieve growth strategy. I am very much determined to fight against any 'rocky mass' (i.e. great obstacles) unflinchingly if necessary to realize growth." However, he has not made any bold and in-depth policy proposals on difficult issues. For example, with respect to agriculture, he has not provided an answer to the question of whether stock corporations are allowed to own farmland. With medical services, under the current legal framework, when a patient wants to be treated with the most advanced medical technologies that are usually not covered by the public insurance, he is required to pay the full and entire costs for all treatments provided, and the government does not pay any costs even for those treatments covered by public insurance. He has not provided an answer to the question of whether the government will permit so-called "mixed treatments," i.e. treatments partially covered by public insurance and partially paid at a patient's expense. These are examples of the issues which can be called a "rocky mass."

I was asked by foreign investors whether the Abe administration would fight these real obstacles. They understand that the Abe administration will not clarify its position on these controversial issues before the Upper House election, but are concerned about his resolve after the election.

3. With respect to agriculture, the growth strategy sets a target of doubling farmers' income. Do you think this is feasible?

Prime Minister Abe's growth strategy aims to double farmers' income over the next 10 years through various policy measures. One of them is to create the so-called "sixtiary industry," meaning combining agricultural production as the primary industry with secondary and tertiary industries, such as processing, distribution, catering and restaurants, and agri-tourism, thus increasing the added-value of agricultural products. Other policy measures include doubling exports and establishing a new public body called the "farmland accumulation bank," which borrows and accumulates farmland to rent out to agricultural actors. Income is calculated by multiplying the price by sales and deducting costs. The idea of the growth strategy is to increase the price by creating the "sixtiary industry," enhance sales through exports, reduce costs by accumulating farmlands and expanding farm size, and thus increase an income.

However, regrettably, these policy measures cannot double farmers' income because they merely remake or redecorate measures that have already implemented without any meaningful effects. Abe's first cabinet (2006 - 2007) urged doubling exports of farm products, but until now exports have actually declined. Unsellable things cannot be sold no matter how great the sales promotion is. What is needed is to improve price competitiveness. Costs can rightly be reduced accumulating farmland. However, not much farmland is available to full-time farmers who want to borrow it because the rice paddy set-aside program keeps the price of rice higher, allowing smaller farmers with high costs to continue farming.

Enhancing exports is the correct policy since it is the only way to double farmers' income amidst a shrinking domestic market due to a declining and aging population. Japanese rice is the prominent qualitative product in the world. Its exports are steadily expanding. Abolishing the rice paddy set-aside program would reduce the price of rice, enhance export competitiveness, and therefore increase the farmland leases and reduce costs. This is the only way to double farmers' income. Remodeling ineffective past policies on the surface is not effective. It is not too much to say that the future of Japan's agriculture rests on whether we can successfully destroy the solid "rocky mass" of the rice paddy set-aside program, which is one of the central pillars of Japan's postwar agricultural policy.

(This article was translated from the Japanese transcript of Mr. Yamashita's speech in the "Business Prospect" session of the radio program "First in the Morning News" broadcast by NHK Radio Channel1 on June 11, 2013.)