Higher wages cure epidemic recessions

MITO, Japan (AP) – Fumio Kishida, the soon-to-be prime minister of Japan, says he believes raising incomes is the only way for the world’s third-largest economy to grow again.

Nearly a decade after Prime Minister Shinzo Abe vowed to “make Japan great again”, Japan is on hold, crippled by the pandemic and chronic problems such as an aging and shrinking population, rising inequality and stagnating incomes.

Topping Kishida’s to-do list is another heavy dose of government spending to help Japan recover from the shock of COVID-19.

Kishida says he wants to promote a “new capitalism” that is more equitable, with a fairer distribution of national wealth – the only way to get thrifty Japanese families to spend more.

“Unless the fruits of growth are properly distributed, a ‘benign cycle of growth and distribution’ cannot be achieved,” he told reporters after being overwhelmingly elected leader of the ruling Liberal Democratic Party on Wednesday. “I would like to take economic measures to increase the incomes of many of you.”

Despite his ambitious talk, Kishida is seen as an establishment choice rather than a reformer. He is a former banker and a powerful member of the political elite: his father and grandfather were also politicians.

Analysts say Kishida, who is almost certain to be elected prime minister by parliament on Monday, is unlikely to stray too far from Abe’s playbook for big doses of stimulus. Nor does the current prime minister, Yoshihide Suga, who is stepping down after one year in office.

Kishida’s top priority? “The economy,” he told national broadcaster NHK.

He said he plans to propose a spending package worth several hundred billion dollars soon.

Naoya Oshikubo, chief economist at SuMi TRUST, said his support for housing and education subsidies should boost consumer spending. And he expects “a tailwind for the stock market, as he will make it clear that the economic policies of former Prime Minister Abe will continue.”

Under Kishida, the Bank of Japan is likely to stick with its years-long effort to stimulate growth by keeping interest rates close to zero – making borrowing cheap – by pumping trillions of yen (hundreds of billions of dollars) into the economy through asset purchases.

The benchmark Nikkei 225 index fell 0.4% in morning trading on Thursday after data showed factory production and retail sales weakened in August as the country slumped to combat the pandemic.

Stock prices are near three-decade highs, but that wealth is not up to the average Japanese. Their inflation-adjusted incomes are declining. Meanwhile, jobs are becoming less secure as companies increasingly rely on part-time workers and contract workers to keep costs down – the average minimum wage in Japan is just 930 yen (US$8.30), while the cost of living is higher than it is It is in many western countries.

The number of families relying on meager welfare benefits in Japan has risen during the pandemic, and poverty has increased, especially in families headed by single mothers. Kenji Hashimoto, a professor at Waseda University, says that what he called the “lost generation” during Japan’s long years of stagnation has become a “lower class” representing about four in ten Japanese.

He and other experts believe the post-World War II formula that made Japan an industrial power obsolete.

Kishida, a soft-spoken pragmatist, has not elaborated on his vision of “new capitalism” and it is not clear if he has a comprehensive strategy for tackling the long-term problems holding back growth.

This means that other party leaders, the central bank and the bureaucracy may have more influence and could thwart big changes such as labor reforms that economists say are holding back productivity improvements.

With nearly a third of the population aged 65 or older, health care and pension costs are rising exponentially, and ordinary families are bearing an increasing share of the bill. Kishida says the sales tax, now at 10%, should not be raised for nearly a decade to avoid eliminating a rebound in demand.

Corporations have a growing share of wealth, hoard their profits and pay less taxes: As of June 30, 2020, Japan’s total retained earnings of companies were nearly 460 trillion yen (about $4.2 trillion)

Poverty is generally hidden in rich and orderly Japan, and homelessness is not as widespread or visible as in the United States and some other countries. But living standards are declining and will continue to fall unless the value of labor per capita rises with the decline in population. Economists say that higher productivity is also key to higher wages.

Despite the famous efficiency of manufacturers such as Toyota Motor Corp. However, Japan ranks 21st out of 36 countries in the Organization for Economic Cooperation and Development. Its hourly productivity was under $50 in 2018, compared to about $75 an hour in the United States and about $102 in Ireland.

Kishida didn’t say much about the productivity problem, though he did start early on one area of ​​reform: what the Japanese call “digitization.”

The slow and sluggish handling of epidemic relief and vaccination payments pushed home the urgent need to modernize data sharing and public services in Japan. A new digital agency was launched on September 1 to lead a shift away from relying on fax machines, handwritten documents and ink stamps, helping to simplify routine procedures.

Such changes are necessary but won’t fix the economy, Richard Katz, editor-in-chief of The Oriental Economist, said in a recent online briefing.

“There is a whole set of challenges,” he said. It is solvable but this needs a prime minister who has the will to act and has a strategy.

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