- FEB 27, 2018
The amazing Olympics extravaganza South Korea just pulled off in Pyeongchang is raising stress levels in Tokyo.
How, oh how, do we top that? The geopolitical kumbaya moment with North Korea. That K-pop show of force. Those adorable mascots that went viral. That otherworldly closing ceremony. The splashy sports facilities. Tokyo 2020 organizers were under lots of pressure before Pyeongchang. They’re unlikely to sleep a wink over what “developing nation” South Korea just scored in the courts of global opinion and collective imagination.
Japan’s worry-list also includes what happens after 2020. Prime Minister Shinzo Abe’s team will leave it the Japan Olympic Committee to outdo South Korea. But perhaps inspired by the spectacle in Pyeongchang, Abe last week called up his Cabinet to ensure Tokyo doesn’t suffer a post-2020 economic funk — not just dealing with Olympics-related debt and facilities that will go unused, but how to keep growth racing forward.
Abe, though, is asking the wrong questions, sowing doubts about corporate Japan’s post-Olympics health. One relates to tax policy, one to Japan’s glacial embrace of importing workers.
As I’ve written before, Japan already faces a 2020 problem: magical thinking dating back to 1964. The games that summer, secured by Abe’s grandfather, Nobusuke Kishi, transformed Japan. Along with showcasing its astounding rise from the ashes of war, it wowed the globe with advancement like the shinkansen and impressive neon-lit skylines.
Team Abe is engaging in similar metamorphosis fantasy for 2020. Its gist: that, in one fell swoop, two weeks of sporting events will suddenly make Japan more innovative and edgy; boost productivity; vastly improve English proficiency; morph Tokyo into a financial center; reduce bureaucracy; spur risk-taking among the twenty-something set; impose more international corporate governance; narrow the gender pay gap; prod companies to fatten paychecks; and raise Japan’s global clout.
A decade of excruciatingly hard work made 1964 an epochal success. Team Abe, though, is trafficking in the economics of nostalgia, not bold reforms needed to achieve big wins.
Take taxes. More than five years into Abenomics, you’d think this government would shelve consumption tax hikes. How did the last one perform — that 2014 increase to 8 percent from 5 percent? A brief recession, for one thing. That led at least two Nobel laureates — Paul Krugman and Joseph Stiglitz — to warn that additional hikes are the last thing a deflationary economy needs. What’s more, the intended goal — paying down government debt — backfired. Tokyo upped borrowing to offset the headwinds.
And yet here we are, still thinking another move in 2019 is a good idea. Last week, Abe met with a key government panel, the Council on Economic and Fiscal Policy, and said of the post-Olympics period: “We need to study concrete steps to curb economic downswings, partly by learning from examples in Europe.” He can start by scrapping tax hikes that will only weigh on household and business sentiment.
Japan wouldn’t need to raise taxes if Abenomics hadn’t been so glacial with supply-side reforms. The Bank of Japan’s epic easing and some modest corporate governance tweaks have been grand for the 1 percent. But most of the 99 percent are waiting on pledges to loosen labor markets, cut red tape, catalyze a startup boom, empower women and reclaim Japan’s innovative greatness.
Abenomics also has been lucky. The weak yen policy dovetailed with a synchronized global recovery. Yet those virtuous external forces are fleeting. In the United States, a Federal Reserve under new leadership may hike interest rates aggressively to contain inflation. China’s ability to grow 6.5 percent year after year is becoming more uncertain. Japan’s real risk before and after 2020 is a synchronized downturn.
Foreign talent is another area where Abe is asking the wrong question, focusing not on the what, but the when of the issue. The what relates to how Japan’s fast-aging population perpetuates deflation, reduces consumption and lowers potential growth. Abe’s Cabinet wants to woo more foreign workers, particularly skilled ones. Sadly, the question of when they leave dominates.
The emphasis is on guest workers to plug holes in construction, health care, technology and transport, not permanent ones. How does that make Japan, already awash in rigidities and language barriers, more appealing? Why choose Japan when moving to Hong Kong or Singapore presents more welcoming long-term options? Japan also is deeply unattractive from a tax standpoint, even before a 2019 hike.
As magical as Pyeongchang looked, remember, investors still confront a nightmarish level of political paralysis in Seoul. Though South Korean President Moon Jae-in won big geopolitically, he faces a painful, multi-year slog to increase competitiveness and pull economic power away from forces towering over his nation.
So does Abe, of course. In South Korea, it’s a handful of family-run conglomerates hogging all the economic medals. In Japan, it’s a change-averse bureaucracy thinking that a couple of weeks of Olympic events are a game-changer for an under-performing economic system. That’s hardly a strategy that will put Japan in the winner’s circle.