Japan’s new proposed national strategy has to overcome the domination of imported neoliberalism – Part 1

My colleagues and I at Kyoto University met the night before I flew back to Australia this year to discuss the on-going research collaboration, which will define part of my work over the next few years. I hope we can announce a major event in Kyoto or Tokyo in October or November 2025 to disseminate the first stage of the research results. The topic is broadly characterised by the working title – The Future of Japan – Challenges and Opportunities – and aims to articulate the contemporary challenges facing Japan – juxtaposing the mainstream framing (with associated economic narratives) with a framing based on Modern Monetary Theory (MMT). It is a very broad project and we will have to work over the next few months to make it tractable. The Project aims to develop an alternative blueprint for economic development, one that is centred on advancing the needs and aspirations of the people and moving away from a compliance to the corporate needs. My contribution will draw on the current work I am doing on degrowth and delinking (breaking the yoke of Colonialism in poorer nations) and explore the notion that Japan can actually take ‘advantage’ of its shrinking population to demonstrate how key degrowth strategies can actually be implemented. We will also be running at odds to the Japanese government’s recently announced (October 2024) – JIIA platform – which is the government’s major national strategy statement. The fact that the current government thinking is a reflection of its neoliberal leanings, which have not served the nation well, stands in contrast to the ‘opportunities’ we identify once we adopt an MMT lens. Here is a bit about that thinking and, of course, over the next year (at least), I will periodically update readers with the progress of our work.

The JIIA platform was launched by – The Japan Institute of International Affairs – which is “a private, nonpartisan policy think-tank focused on foreign affairs and security issues”.

British readers will know about – Royal Institute of International Affairs (a.k.a. Chatham House) – which served as the model for the JIIA, which was established in 1959.

The current chairman used to run the – Ministry of Foreign Affairs – and was also the Japanese Ambassador to the US.

The Institute is effectively the research arm of the Japanese government’s Foreign Ministry, which highlights the close links between private interests and government in Japan, and that, in itself, is an interesting research topic.

A simmering tension among policy makers and corporate types in Japan at present is the fact that the German economy surpassed Japan as the third-largest economy.

I struggle to understand why this is an issue but it is.

Both the German and US economies are in terminal decline anyway, and worrying about relative positions doesn’t make sense.

Those that are worried are now increasingly paranoid about India’s progress, which will become 4th largest economy in the coming year.

Part of the swing in relative sizes relates to the recent depreciation of the yen, which has value impacts on some GDP (traded) components.

But there are structural factors at work including the ageing and shrinking population, the dependence on imported raw materials, and the rise of China as an export force in manufacturing that Japan has traditionally excelled in.

Some commentators are declaring that we have reached – “Peak Japan” which will now be defined by a period of decline in global position (Source).

One might consider that to be the mainstream position although there are notable dissenters who argue that Japan has never been better placed to influence global outcomes.

Part of my current research is seeking to work through the literature on this issue.

The mainstream position is clearly thinking in those terms though and this has motivated the introduction of the JIIA platform, which was launched by the JIIA Institute on October 1, 2024.

I followed the release closely.

The – Establishment of a New JIIA Platform: Proposal for a National Strategy:

… aims to build a strategic base for interactions and exchanges of ideas among government officials, corporate representatives and academics, and to deliver policy recommendations. In the first phase starting in October, we will assemble high-level wisdom from political, governmental, business, and academic circles to discuss the path Japan should take, and we plan to compile the knowledge gained from these discussions into a national strategy.

This approach is uniquely Japanese – marrying the ambitions and insights of the elite groups in the country – government, business, the academy – which are all closely linked with the widespread acceptance of the ‘revolving door’ whereby people in one sector move seamlessly between the other elite sectors.

Yes, this sort of elite mobility is found in most countries that I know about but it is highly developed and promoted in Japan.

The release echoes the previous developments in modern Japanese history where this sort of ‘grand vision’ that brings the elites together in a cooperative manner has occurred.

The classic example, which I have read a lot about was the famous – Income Doubling Plan – that “was a long-term economic development plan initiated by Japanese prime minister Hayato Ikeda in the fall of 1960.”

The government at the time set the goal “for doubling the size of Japan’s economy in ten years through a combination of tax breaks, targeted investment, an expanded social safety net, and incentives to increase exports and industrial development.”

GDP growth of 7.2 per cent per annum over a decade was required and over the course of the plan, the average annual rate of growth was in excess of 10 per cent, which means they reached their goal in 7 years.

At the time, there was considerable social instability in Japan as the citizens were becoming increasingly resentful of the – Treaty of Mutual Cooperation and Security between the United States and Japan – (or US-Japan Security Treaty), which followed Japan’s defeat and surrender in World War 2.

The Treaty was founded in 1960 provided the framework for the contentious US military bases throughout Japan and was a revised version of the original peace agreement that was signed in 1951.

It was clear that the Japanese citizens were not enamoured by the sell-out of Japanese interests to advance the US ambitions.

That resentment expressed itself in the famous – Anpo protests – which saw large-scale national protests in 1959 and 1960 against the treaty and the ongoing military presence of the US in Japan.

There had been incidents in the 1950s of US soldiers abusing and killing locals around the bases.

The peak protests in June 1980 brought the Tokyo area around parliament to a standstill and police killed one protester.

The then Prime Minister resigned as a result of the pressure from the people who were against Japan’s involvement in the Cold War as a sort of US ‘bunny’.

Further, the memories of pre-WW2 authoritarian Japan were still redolent and many Japanese citizens did not want a return to that state.

The government mistakenly tried to legislate a new law which proposed to expand police powers of arrest and search as a response to their anticipation that the treaty revision would invoke widespread protest.

Overall, the protest movement became very organised and a potent political force, which forced the government to divert attention away from foreign policy, and, instead, promote a new domestic vision for Japanese society, that was still ravaged by the misguided Imperial military ambitions.

Hence, the new Prime Minister – Hayato Ikeda – who replaced the disgraced conservative PM – Nobusuke Kishi – proposed the ‘growth’ diversion that became the Income Doubling Strategy.

It was a grand ‘nation building’ strategy that emphasised large-scale public investment in “water, education, transportation, and many other social utilities” and replaced the bias of the first post-War governments which had concentrated on providing massive handouts to the corporate sector (under US guidance).

It also marked the export emphasis that defined modern Japan after this period.

The government sought to invest in technological partnerships with companies to increase productivity in all sectors – manufacturing, farming and shift workers from the poor rural areas into the burgeoning urban localities.

Urban planning and a widespread social housing strategy became very sophisticated to ensure the migration from rural-to-city did not create ghettos.

The success of the plan created the ‘growth’ mentality of the 1960s through to the late 1980s.

Neoliberalism perverted that growth mentality in the 1980s by promoting the financial sector and speculative behaviour, which finally burst in 1991 as property prices collapsed.

And that mentality has also defined the so-called ‘lost decades’ period that followed the bubble burst.

So Japan still hankers for a return to their glorious period of the 1960-on, before the lost decade period.

When I have given presentations in Japan, I am often confronted with the ‘lost decade’ narrative.

But in my published work – mostly in the Japanese language – I have pointed out that it is highly misleading to just focus on the single GDP growth rate (which has been very low since the 1990s) because over the same period the population growth has been very low then negative.

In per capita terms, Japan has not looked like a basket case, if our benchmark or yardstick is material growth.

They simply don’t have to grow as quickly as, say, Australia to maintain material prosperity because they have a declining population.

Australia’s population growth is nearing 2 per cent at the moment, which means that GDP growth has to be north of 3 per cent for per capita growth.

The thing that caught my attention about the Income Doubling Plan was that it was a collaborative and inclusive strategy engineered by the national government which sought to lift all the ‘boats’ in society rather than just promote the interests of the corporate sector.

It was anti ‘trickle down’ – and embraced the inputs and interests of the elites as well as the citizenry.

I compare that with the grand plans of the Western nations after World War 2, which had elements of the Japanese approach – for example, wide-scale public investment and the development of social security systems, but which still were riven with class struggle as labour and capital each sought to take greater real income shares at the expense of the other.

The post WW2 period in Australia was marked by intense distributional conflicts manifesting as relatively high rates of industrial disputation and a lot of corporate lobbying of government aimed at undermining the power of the burgeoning trade union movement.

Government was a mediator in the class conflict – trying to keep both parties from destroying each other.

In Japan, the government saw itself as a partner in a grand coalition to bring all interests together.

That was a major difference and informs the sort of approach I am taking in the project I mentioned at the outset.

The collaboration between the sectors in the growth period in Japan was called Gosō-sendan Hōshiki or the Convoy System, and it sought to protect small and medium-sized businesses from predatory behaviour of the large export corporations.

It was an inclusive approach.

I have been reading the 1995 book by Japanese author and journalist Yasuharu Ishizawa – Za MOF: Ōkura-sho Kenryoku to Demokurashii (MOF: The Power of the Ministry of Finance and Democracy) – which details how this System operated.

As Japan embraced neoliberalism in the 1980s, and, especially in the 1990s, the Ministry of Finance radically altered rules pertaining to access to finance and regulative structures in the banking sector.

The Japanese government was pressured by the likes of the IMF and returning PhD graduates from the US who began to dominate the policy making bureaucracy into pushing this ‘free market’ approach.

It was argued that Japan was a sclerotic society unwilling to change.

But an examination of the dynamics of Japanese policy making in the post WW2 period demonstrated that ‘Western’ view is highly inaccurate.

The problem is that the Western neoliberal influences were imported as the elites sought to appear connected with world developments.

The regulative controls that had allowed for the inclusive growth to occur were largely abandoned and the cooperative inclusive strategy gave way to a more individualistic free-for-all.

That history is important in understanding how we assess the JIIA strategy and its likely success.

The J11A plan envisages, in the first instance, a grand dialogue between government, business and the academy as a precursor to the development of a national strategy.

That phase “is scheduled to last three years”.

The challenge, however, is that Japanese society has changed quite markedly during the neoliberal period, and it remains to be seen whether they can actually revisit the inclusive approach that marked, for example, the Income Doubling Plan design and execution.

There is a lot that will have to change to make that possible.

Conclusion

I have only scratched the surface of all this and I will have more to write in future posts.

That is enough for today!

(c) Copyright 2024 William Mitchell. All Rights Reserved.