Making Real a Growth Agenda for Japan

I am grateful to Dr. Masao Nishikawa for the invitation to speak here today. I’m a little intimidated coming here. It was just said that the history of ESRI is short. Perhaps so in count of years, but the Institute’s impact is large. We all were inspired by what Koichi Hamada achieved during the early years of the Koizumi cabinet. We have had many subsequent distinguished leaders from ESRI, including Kazumasa Iwata and Kenji Umetani who went on to senior policy roles, and now we are fortunate to have Masao Nishikawa as ESRI’s president. I am very honoured to be asked to participate in this conference. So many good friends and colleagues from the US and elsewhere as well as Japan are here for the NBER Japan Project meetings and are presenting in depth academic research on various aspects of the Japanese economy.

Therefore, I am not going to try to give you an entirely new take on the economy. What I would like to do is to give you some pointed suggestions on how to take what we already know about the Japanese political economy and implement them as an operational growth strategy. By my title, making real a growth agenda for Japan, I mean that in two senses. First, that as much as I and many others here admire the recent accomplishments of the Bank of Japan, I think we all agree that the emphasis now must be on the structural rather than monetary side of the economy and thus supply side reforms. Second, as a sense of making real, I mean how do you actually get reform done, that is implemented on a sufficient scale and sustained. On both counts, I will address the key policymakers – even though the colleagues assembled here are researchers, the mission of ESRI is to advise the policymakers leading Japan.

I think at the start that it has to be said is that all policy makers have and express the feeling that they do not get enough credit for the reforms they undertake. So when we discuss the economic situation in Europe right now, one always finds elected officials saying, ‘we know that we haven’t yet achieved financial union or given sufficient accountability to the European Parliament, but look how far we’ve come versus where we were,’ or ‘look, it took the US a hundred and fifty years to get from its constitution to an integrated stable economy, so look again at how far we’ve come.’ US elected officials are no exception to this habit. We have had a succession of presidents who have whined about not getting enough credit, from Clinton on the IT boom to Bush on education to Obama on health care. But, we have a particular issue in Japan over the last twenty years of seeing Cabinet members announce very long lists of specific policies that are meant to be implemented, and trying to impress people with the sheer number of announced measures. Yet, very little true change has been made, and the gap between announcement and impact has made people very sceptical of such lists.

Therefore, the Abe Administration has been quite wise to get out of the habit of listing fifty, or sixty or seventy, bullet points of things to fix. Having a clear set of priorities is not just important for internal effectiveness, but for external credibility and political support. I fear there’s been a little bit of backsliding of late on this, and there’s one particular area I’m worried about, which I will mention. But I think the way that Prime Minister Abe spoke at Davos in January 2014, and the way that the issues of healthcare reform, agriculture reform, female labour force participation, and GPIF reform have been clearly prioritized, is paying off. By concentrating on those plus fiscal consolidation and cooperation with monetary policy, we now have here in Japan largely the right priorities. That’s still a long list but it is far shorter than the lists that used to be announced.