Abe's Regulatory Reform Show

Updated : 04.11.2016 / Category Sentaku in The Japan Times

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Just as doubts grow over Prime Minister Shinzo Abe's economic policies dubbed Abenomics, many say that regulatory reforms will be the only way to revive Japan's economy. However, a sense of disappointment is already spreading in many quarters over a new government panel launched in September under Abe's initiative to promote such reforms.

Abe has long vowed to destroy what he calls "bedrock regulations." Such a pledge may raise some hopes if it signals that Abe really means a departure from his heavy dependence on Bank of Japan's monetary easing to shore up share prices. But a quick look at the names of 14 members of the panel gives rise to skepticism that Abe is merely seeking to keep the stock market afloat by feigning an image of his administration willing to tackle regulatory reforms—and that he has no resolve at all to fight the rigid government regulations.

After returning to power in 2012 with his Liberal Democratic Party's victory in the 2012 election, Abe proceeded to create one advisory panel of experts to the government after another at the initiative of his Cabinet secretariat. One of them was the predecessor to the new regulatory reform panel launched last month.

Five of the 15 members of the previous panel were reappointed to the new one. They are: Hiroko Ota, a professor at the National Graduate Institute for Policy Studies who had served as minister for economic and fiscal policy during Abe's first stint in office; Junji Annen, a Chuo University professor well versed in energy issues; Izumi Hayashi, a lawyer; Yasufumi Kanamaru, chairman of Future Corp., who once sat on one of Abe's advisory councils and advocates agricultural reform; and Hiroyuki Hasegawa, deputy chief editorial writer of the Tokyo and Chunichi newspapers. They are all close associates of Abe—as is often the case in Abe's selection of people in the key positions of his administration.

In the first place, Abe's economic policies have been diametrically opposed to regulatory reforms. While regulatory reforms may include both easing of existing regulations and introduction of new regulations, they are basically meant to reduce government intervention in private-sector economic activities. But contrary to this axiom, the Abe administration frequently seeks to intervene in the management of private-sector businesses, applying pressure to invest more of their retained earnings and to hire more employees.

The same can be said of the huge volumes of shares in private-sector firms being purchased by the Bank of Japan and the Government Pension Investment Fund (GPIF). While officials say those measures are meant to further ease the monetary policy and secure bigger returns on the pension fund, these steps have given rise to criticism that the government is manipulating share prices through the central bank and the GPIF. It has also become a common scene for many top business leaders to accompany Abe on his overseas tours as the prime minister tries to sell their products and services on the strength of his visits.

Whereas regulatory reform and structural reform are normally positioned within "neoliberalism," scholars like Keishi Saeki, professor emeritus of Kyoto University, have dubbed Abe's economic policies "neo-mercantilism." It should be noted that what seems like excessive state intervention under Abe permeates not only the economic sphere but social policies in general, including education.

In that sense, Abe calling for the elimination of bedrock regulations contradicts what he's actually pursuing. Yet, he has no choice but to keep advocating the reforms—in order to keep shoring up the stock market. Share prices would plummet if investors give up on Abe as not serious about implementing a strategy to generate growth—that's what he's scared of the most. In fact, the stock market plunged in June 2013 when his administration released the outline of its growth strategy, triggering disappointment among market players that he failed to touch on difficult reforms.

On the other hand, should the experts panel propose such drastic reforms that Abe could not implement them, his leadership would be thrown in doubt and share prices could go down as disappointed investors dump them. That is why members of the reform panel have been chosen from among people who Abe and his office can control—so that they would come up with half-hearted proposals that would both sustain Abe's leadership credibility and his reformist image.

Ota, who chairs the new panel, has been in the limelight as a champion of structural and regulatory reforms since 1993, when she was tapped by then Prime Minister Morihiro Hosokawa to his private advisory board. But the main reason that she has been cherished among politicians and bureaucrats is her skills at coordinating divergent opinions, rather than her scholastic expertise. In other words, she was most suited for the role of guiding and wrapping up discussions along the script prepared by the government and the party in power.

A problem that cropped up this time is that she is so preoccupied with her duties as outside director of Panasonic Corp. and board chairwoman of the Mizuho Financial Group Inc. that she cannot spare much of her time and energy to her work at the panel. The result will likely be even greater reliance than before on the bureaucracy.

Also worthy of note is the connection of some of the panel's members to the Nippon Ishin no Kai party founded by Toru Hashimoto. Eiji Hara, formerly with the Economy, Trade and Industry Ministry, was once tapped as Hashimoto's brain while he was mayor of Osaka and served as special adviser to the municipal government. Professor Ryuichi Morishita of Osaka University was a member of a panel that comprised a part of Hashimoto's failed scheme to reform the administration of Osaka city and prefecture. Their selection on the panel has led some to speculate that the reform panel may serve as a catalyst for Abe to seek the cooperation of Nippon Ishin in his bid for amending the Constitution.

Keio University professor Heizo Takenaka, a mentor of Ota, once preached a "golden rule" for implementing reforms when he was serving as economy and fiscal minister in the administration of Prime Minister Junichiro Koizumi. Under that formula, an advisory panel to the administration makes tough proposals, which would draw the ire of politicians and bureaucrats but attention from the public, and the prime minister makes a "political decision" to adopt them, thereby impressing the public that the final power rested in the prime minister's office.

Both Abe, who served as chief Cabinet secretary to Koizumi, and Ota are well aware of the formula. It may be for this reason that Abe resorts to creating one advisory panel after another.

The problem, however, is that the main venue of discussions over labor regulations—which was deemed the biggest challenge in regulatory reforms—have shifted to another panel created by Abe on "work-style reforms," leaving the regulatory reform panel with few other agenda of discussion—except perhaps agricultural reforms.

Regulatory reform has been on the political agenda for the past quarter century. It now seems that the menu for reforms have all been explored—and waiting for political decisions to implement them. There does not seem to be much sense for the government to keep organizing talks at advisory panels whose members include puppets of bureaucrats or people whose research or business interests are linked to regulatory reforms.

When the Democratic Party of Japan-led administration attempted to review and streamline the government's bloated spending programs, the LDP jeered the move as a "political show." That same criticism can now boomerang to the Abe administration's "regulatory reform show."

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This is an abridged translation of an article from the October 2016 issue of Sentaku. The original article can be found here.