Up and Down on the Abe reform agenda

Though it seems like everyone and his brother (including myself) are writing off Abe as a dishonest hack who might be replaced after the July upper house elections, not everyone sees it that way. I thought I’d take a quick look at some of my favorite opinionated pundits to see who’s up and down with Abe’s performance, particularly in the realm of the reform agenda (something we don’t hear too much about these days:

Up — Robert Feldman of Morgan Stanley:

Brilliant, Mr. Abe, Brilliant!
February 01, 2007

By Robert Alan Feldman | Tokyo

Political commentary on PM Abe has been unrelentingly negative. Indeed, there seems to be a bandwagon effect, as more and more pundits jump in to criticize. Unseen by these pundits, however, is a revolutionary change in the process of government. Policy competition within the government is emerging and seems to be a permanent feature of governance. Prior to PM Koizumi’s tenure, policy areas were typically monopolies. One ministry had control of the agenda for a given area. By gentlemen’s’ agreement, other ministries did not move beyond their jurisdictions.

Under PM Abe, competition between the PM’s Office and the bureaucracies has become the standard. Now, from the very start, PM Abe has formed special committees of non-government experts to deal with a broad range of issues. Examples areas include labor policy, agricultural policy, education policy, innovation policy, and — most interestingly — financial sector reform policy.[1] Action in the latter area has accelerated sharply over the last few days, and points to what we can expect in other areas.

[Feldman then describes the series of events that have led to the formation of competing committees — one in the Council on Economic and Fiscal Policy (a cabinet advisory body intended to take initiative of the budgeting and policymaking agenda away from the bureaucrats), and one in the Financial Services Agency (who currently has jurisdiction in this area)]

Now that both committees exist, they will have to compete in the public eye. Both will release materials and minutes, so that investors and the public can follow the debate closely. Moreover, since PM Abe’s committee has been formed under the CEFP, the matter will have to be discussed in that committee, under his own chairmanship. Naturally, both committees take the debate seriously.

The next phase of the debate is gathering opinions from the public. Both committees are eagerly seeking advice from around the world. Indeed, a friendly competition has emerged to see which committee can come up with the best plan. Expert witnesses will be called by both committees, and the press will notice.

Even more important could be the effect on confidence [in the market that sparked by the “intelligent policies” that Feldman is sure will result from this policy competition] in the Abe government itself. The government has already scored major wins in foreign policy, but a clear victory on reform has yet to emerge. The financial system debate is a major opportunity. The conclusion will not be far off. The PM’s own subcommittee on the issue is reportedly scheduled to submit its ideas by the end of March. The FSA committee cannot lag far behind, for fear of losing the battle.

Comment: This is very encouraging as this policymaking style is a similar of Koizumi’s smart management of reform campaigns: Take a sector that is in dire need of reform (in this case Japan’s financial markets), take up bold reform measures at the cabinet level, and then spark competition among agencies to try and work out the best policy. This is similar to Koizumi’s tactics that resulted in privatization of the highway public corporations and Japan Post — two interrelated sources of waste in the economy and a drag on public resources. Of course, “international competitiveness” for the financial sector is a relatively small issue compared to the quixotic goals of the Koizumi years.

Abe should focus on making sure the priority reforms from the Koizumi era don’t get watered down now that they have entered the implementation stage. So far, things don’t look so great. The highway companies could be getting a taxpayer bailout soon, and the “privatized” postal entities, which will remain under government ownership for at most 10 years starting in October, will be permitted to release new products using their numerous competitive advantages (including an implicit government guarantee and a massive distribution/sales network) to release new products to compete with private companies, in the name of achieving a successful IPO — a clear case of unfair pressure on the private sector. A recent Asahi editorial helps make the case for releasing new products as soon as possible. It dismisses concerns of unfair competition by explaining that “[t]he idea is to allow the new subsidiaries to branch out into areas where they can compete on an equal footing with other private companies based on market principles,” and warns that if the privatized companies “have no new source of revenue, they will simply weaken.” The way I see it, so what if they weaken? This is one of the paradoxes of the postal privatization plan — why was it necessary to “privatize” a massive government entity with a basically unsound business model? It would have made more sense to phase out the postal service’s savings and insurance operations. But now that the companies are about to become officially private, they shouldn’t be allowed to pressure the private sector while they still enjoy unequal competitive advantages.

Also, I wouldn’t be too quick to say that smart management in this area will help Abe out. He’s under constant attack for just about every other initiative. Koizumi at least prioritized the reform agenda and found a way to balance that and his less popular policies and maintain the public’s trust. Abe can’t seem to find a friend these days.

Down — PESEK:

Why Abe Won’t Be Japan’s Answer to Ronald Reagan: William Pesek

…Abe is unlikely to succeed on the economy. Nor is he likely to boost Japan’s confidence, at least not with the strategies he’s currently employing.

One can argue whether Reaganomics is best for Japan. Reagan’s “trickle-down economics” and cuts in welfare spending favored the wealthy, widening the gap between rich and poor. He built up a massive public debt and his deregulation efforts arguably contributed to the U.S. savings and loan crisis.

In fact, looking at Japan right now, it seems Reaganomics is gaining some traction. Stocks are up, the yen is at four-year lows, corporations are enjoying record profits, production is booming, and yet middle-class households have concerns about the future and aren’t increasing spending.

As a conservative, Abe isn’t likely to deviate from Koizumi’s free-market philosophies. The trouble comes in the area of implementation. Koizumi was always a big-picture, macroeconomic guy; his plans were a broad blueprint for how Japan needs to change, and he put the issue on the front burner.

What Japan needs now is an economics wonk to get under the hood and engineer a major tune-up. Other than choosing Koji Omi, a tax-policy expert, as his finance minister, Abe has dropped few hints he’s the micro-economy man that Japan needs. In fact, the question doesn’t seem to be whether Abe will accelerate Japan’s economic upgrade, but if he can keep the ruling Liberal Democratic Party from returning to its sclerotic tendencies.

Abe can only do as much as his party allows him, and his support is sliding. A Sankei newspaper survey this week showed Abe’s approval rating (39.1 percent) fell below his disapproval rating (40.9 percent). Two members of his Cabinet have already resigned in separate scandals. Another, Health Minister Hakuo Yanagisawa, has come under criticism for calling women “baby- making machines” in a Jan. 27 speech.

Abe’s growing unpopularity appears to be sharpening his attention on non-economic issues — like his “beautiful country” campaign.

Comment: While it seems like this article’s argument got a little muddled (I mean, wasn’t Koizumi Japan’s answer to Reagan?), it’s clear enough that the economic issues have taken a backseat in the public agenda. Abe needs some good news, so a focus on economic issues would seem to be in order. However, the amazing amount of criticism that the Abe government is taking over these scandals is crowding out everything else, including the “beautiful country” agenda. Even the enormous flap over falsified health TV programs doesn’t seem to have distracted the media much from the “birthing machines” comment or any of the other gaffes/political funding scandals etc.