First Results of Abenomics: Growth and Social Equality

Interview

One year has passed since Prime Minister Shinzo Abe took up his new economic policy, already labeled Abenomics, which was meant to make a landmark along the path to the revival of Japan's economy. We asked Irina Timonina, Doctor of Economics, Dean of International Relations Department at Presidential Academy of Economy and Business Administration, possible changes in Russian-Japanese relations and some other related issues.

Interview

One year has passed since Prime Minister Shinzo Abe took up his new economic policy, already labeled Abenomics, which was meant to make a landmark along the path to the revival of Japan's economy. We asked Irina Timonina, Doctor of Economics, Dean of International Relations Department at Institute for Business and Business Administration of Presidential Academy of Economy and Business Administration and Professor at MSU Institute for Asian and African Studies, to analyze its initial results, possible changes in Russian-Japanese relations and some other related issues.

What is Japanese Prime Minister Shinzo Abe intending to rectify with his new economic policy and what are the core traits of Abeconomics?

Upon election, Shinzo Abe received an economy battered by grave economic problems, some of them structural, including a large national debt, deflation, a low growth rate, and a loss of competitiveness in several sectors. Japan fell to third in the global economic hierarchy after the U.S.A. and China, and also yielded its economic leadership in Asia, at least formally as seen in the statistics.

In general, Abenomics, i.e. Tokyo's current economic strategy, aims both at overcoming current problems like deflation and national debt, and at attaining the long-term goals of reforming the entire economic structure and building a hybrid model that would rest on domestic demand and foreign markets. Besides, Japan would like to modify its outreach abroad by increasing traditional exports of infrastructure systems and solutions.

Photo: Irina Timonina

Mr. Abe's methods combine continuity, innovation, flexibility and the adaptation of proven techniques to the changing environment. For example, irrespective of the budget deficit, the government is softening budget policies and increasing public spending to boost investment and demand at home.

As for the budget regulation – economy stimulation dilemma, which loomed large for the United States and European countries during the 2008-2010 economic crisis, Tokyo is leaning towards incentives. Of course, Mr. Abe appears rather daring by simultaneously raising the consumption tax and cutting corporate taxes, the highest in the industrialized world, in order to attract domestic investments.

The strategy also suggests improving the efficiency of Japan's overall economic potential, among other things by shifting human and financial resources into the most productive and promising sectors.

Hence, a drive against market overregulation is on the agenda, along with the removal of administrative barriers to business. For instance, the Industrial Competitiveness Enhancement Act of December 3, 2013 is aimed at eliminating excessive regulation and other hurdles to business consolidation, as well as at stimulating investments.

Basically, Japan's new economic strategy is supposed to balance economic growth with improvements in the quality of life, i.e. to create conditions for its citizens so that they could take advantage of opportunities for self-realization alongside achieving economic growth. In other words, it sets about creating economic growth without additional inequality.

How would you assess Tokyo's interim results? Was last year a success?

On the whole, Mr. Abe's policy has brought some gains, generating positive expectations for market participants as shown by higher stock indexes in late 2013. The past year's growth rate also appears encouraging. Alongside the labor market, industrial output, investments and business profits are on the rise, while bankruptcies are decreasing.

Notably, in anticipation of the higher consumption tax, more money went towards housing construction – 19.4 percent higher last September year on year.

Photo: Ritchie King / qz.com
Abenomics

In early 2014, the Japanese economy looks somewhat better than in many other industrialized countries.

However, deflation is still a problem. To this end, on January 9, 2014, Japan's Central Bank said it was ready to extend the relaxation of monetary policies if the attained deflation figures differ from the forecasted two-percent level.

Exports are sluggish, which means that in 2013 the balance of trade deficit should grow despite the yen's lower exchange rate.

Figuratively, the situation is stabilizing but the economy is hardly on a sustainable growth trajectory. Necessary structural changes will obviously take years. However, Mr. Abe's political will instills certain optimism, along with his realistic assessment of the situation during his New Year's address to the nation. Mentioning positive economic shifts, the prime minister underlined that the country was only halfway towards beating deflation and that he was determined to step up efforts towards reviving the Japanese economy.

Could Abenomics affect the economic environment of the Asia-Pacific Region?

There are two aspects of Mr. Abe's strategy that may influence Asia-Pacific, primarily the Asian macro-region.

First, Tokyo is changing its approach to institutionalized integration, now striving for international partnerships and advancing various initiatives, first of all in Asia and the APR. In particular, Japan will participate in the Trans-Pacific Partnership negotiations. Having lost its leadership position in Asia by all formal indicators and possibly dropping into third place after India, Japan still possesses enormous economic potential in view of its combined qualitative and quantitative resources, which alone makes it an active player in the Asia-Pacific economic integration process.

Second, Japan seems to be repositioning itself within the regional and global markets, definitely intending to change its export structure and it's model of interaction with economic partners. In terms of exports, the country is willing to switch over from goods to systems and solutions for social and industrial infrastructure in such areas as energy, transportation, healthcare, education and social welfare, using its regularly updated advantages as prescribed by Tokyo's strategic guidelines. However, competition in social services sectors like healthcare and education is fierce, the main rivals being Asian emerging economies.

At the same time, Japan may as well employ a demonstration effect, offering other countries, primarily in Asia, a socio-economic model providing comfort, security, acceptable equality, as well as access to amenities and opportunities accompanying economic progress.

Could the new Japanese economic policy produce fresh opportunities for Russia and new openings for bilateral business cooperation?

Proceeding from our previous topic, I should say that economic interaction between the two countries could be promising in the development of urban infrastructure, for example smart cities, in various regions of Russia. The issue was discussed during Mr. Abe's visit to Moscow in April 2013, and such projects are already taking shape.

Besides, the two sides seem eager to cooperate in advanced technology, energy and other areas.

Japan's economic strategy, including its still unmentioned foreign trade sector, opens up significant opportunities for the so-called creative products including fashion, design, movies, music, anime, games, cuisine, etc., which might facilitate cultural exchanges between the Russians and Japanese.

Interviewer: Anton Tsvetov, RIAC Program Coordinator