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2018年10月

Workway Reform

Ⅰ.  Introduction

 Workway reform. This is the most important element of structural reform which constitutes the growth strategy of Abenomics. The package of laws which delineate the regulations and rules to promote workway reform was legislated on June 29,2018. It took more than three years to be enacted since the act has been presented to the Diet.

   In this essay, let me explain the content of the law, importance of “work way reform” for the growth strategy of Abenomics, and why it took such a long time to have been legislated, and finally evaluate the effectiveness of the legislation to realize the workway reform in Japanese industry.


Ⅱ. Workway Reform Legislation

   The package of workway related acts was legislated in the morning of June 29 at the general assembly of the House of Councilors. Since this package has passed the   House of Commons a month ealier, May 31, this package of laws have been formally legislated and put to effect.

   The package comprises of three major components:
1. Upper limit of overtime work hours
      Over time is allowed maximum 720 hours a year. Should be less than 100 hours a month. Severe penalty is imposed if violated. The regulation becomes effective from April 2019 for large firms, and from April 2020 for SME(small and medium enterprises).
 
  2.Same wage for same work
        Unjustifiable difference of working conditions such as basic wage and allowances between regular and non-regular employees should be abolished.The regulation will be effective from April 2020 for large firms and from April 2021 for SMEs.

   3.  Introduction of hour-unrelated wages
         The new system is to allow paying wages on the basis of performance of the worker rather than the length of work hours. A limited number of professional workers can be applied this system so that they are exempted from the existing work hour regulations.

           These workers are still required to take at least 104 days off a year. The worker applied this system of exemption can leave the system at his or her will. The system will be in effect from April 2019.

    An important defect of this legislation is that the government failed to include the crucial item of “the expansion of the category of workers to be applied discretionary work hour system.” 

  Discretionary work hour system is the system by which the worker is regarded to have worked certain hours which was determined by the employer and the worker before hand, regardless of actual hours worked afterwards. For example, if the employer and the worker determined to work 10 hours before hand, and if the worker worked actually 8 hours, he will receive overtime pay of equivalent to 2 hours. This system has been planned by the government(MInistry of Labor)to use for such workers as professional workers like designers and those engaged in planning or research.

  The reason why the expansion of the coverage was not included in the legislation this time was the trouble in the process of Diet debate. While opposition parties have been strongly against the expansion on the ground that the expansion will increase long-time work. Debating against this argument, PM Abe argued at the Diet session that there exists the data which shows that workers of this category work actually shorter hours than the ordinary workers.

   The opposition party members asked the source of the data and asked Ministry of Labor which has conducted the work hour survey to explain it. It was found then that the questions asked for the two types workers were different. The question for ordinary workers was the overtime work of the day when they worked longest hours, and the question for the focused category of workers was the average hours worked for a day. Naturally, the data obtained from such different questions are not comparable so that PM Abe’s argument was accused to be non-sense.

   Having apologized for this lousy handling of the data at a meeting with opposition parties, Ministry of labor asked them to accept the rescheduling of submission of this item for a year. The opposition party representative fiercely against such a proposal, and consequently, this important item of expansion of category of workers was not included in this package of laws for legislation this time.

  Later from mid-July, Labor ministry announced to resume the whole process of examination of this item hoping to enact for the future.

  The process of workway reform legislation took more than three years, which is  extra-ordinarily long for legislation of this type of laws. Let me review briefly how it went in the process.

   As early as April 23, 2013, prime minister Shinzo Abe appealed at the joint meeting of advisory committee of Economy and Fiscal policies and the committee of Industrial Competitiveness, the highest body to determine Abenomics, to examine to formulate the new working hour system in which reward is determined not by the hours worked but by the outcome of the work. Prime minister’s proposal was followed soon by Minister of Welfare and Labor, Mr. Norihisa Tamura on May 28 that the government launch official examination for introducing “white collar exemption” in Japan’s work hour regulatory system.

   The debate on introduction of new work hour system had to cover many items, as I will review in the follows, and took a long time. And toward the final stage of long-lasting debate, in February 2018, the trouble on the nature of the data which was referred to by PM Abe as the evidence took place. This trouble wasted a few months and resulted in dropping an important item from the legislation.


Ⅲ.  Abenomics and Workway Reform

   It was emphasized by Abe administration and agreed by many experts that the workway reform is crucial as a structural reform to promote economic growth of Japan.

   Let me explain why. Japan’s workers productivity has been one of the lowest among major advanced economies of the world for the last few decades. For example, according to the survey of Japan Productivity Center for the period of 2010 to 2012, Japan’s labor productivity in service sector was only 38.4% of that of the US. While Japan’s labor productivity has been rising moderately during the recent decade, its pace has been much slower than that of US and Germany.

The main reason for this is the poor productivity of service sector. While the delay of IT application in this sector has been dragging the productivity improvement, the outdated work system particularly of hour linked pay system is another important reason.

   While average working hours of Japanese workers as a whole has been aroung 1700 hours a year, which is more or less comparable with major advanced economies of the world. But this is the average of temporary or non-regular workers who work short hours and regular workers. The regular workers working hours remain longer than 2000 hours a year. This reflects that Japanese workers, whose majority work in a broadly defined service sector, tend to work long hours with rather low productivity. And this related critically with the out-dated work hour regulation of Japan.

   In order to understand why the current work hour regulations are outdated, we need to look back Japan’s historical development of labor standard regulations.The current labor regulations have been formulated largely shortly after the defeat of the Pacific War in 1945. Under the control of the Supreme Commander of Allied Forces(SCAP), many aspects of government regulations have been overhauled and newly determined. Labor standard regulation was one of those.

   Prior to the defeat in the war, Japanese labor regulatory system was somewhat similar to the Western model, particularly, separate treatment of white-collar and blue collar workers. Since white collar workers were regarded as reservoir of the management class, they were not controlled by the labor law which regulated blue collar workers. In other words, they were “exempted” from labor regulations, just like Western counterparts.

   This separated treatment of white-collar and blue-collar has been regarded as class discrimination which is a critical element of Japan’s quasi-feudalistic social structure which was condemned by the SCAP office which earnestly advocated “democratization” of Japan. The young bureaucrats who were also critical against pre-war militaristic and quasi-feudalistic system of Japan and adoring “democracy” worked hard to plan the new labor regulation system without class discrimination.

   They drafted the new labor regulation system under the supervision of SCAP office without differentiation by worker’s status such as white and blue-collars.  The new labor standard law, which prescribes work hour regulations, thus created was rather unique compared to many major Western countries where white and blue collar workers are treated differently. The Japanese young bureaucrats believed that this uniform treatment of workers regardless of status was “democratic.”

    This new system motivated tremendously Japanese workers, particularly of those coming from low social classes. This is because they were on the same start line with those coming from higher social classes who were always treated differently and favorably. Now, only rule of the game was to work hard and win the competition. This “egalitarianism” was not limited in the labor system but extended also to many aspects of the society such as education and land ownership. Under this new system, if you work hard and attain results you can be promoted even to the top of social structure.

    Under the new “democratic” system, the majority of Japanese workers worked hard, which was a crucial element why Japanese economy has recovered quickly from the fatal destruction of the defeat of the war and grew rapidly as was often described as “Japan’s economic miracle.” Japan grew rapidly taking advantage of ample and cheap young highly motivated workers, imported technology and expanding global trade market of the time.

    However, as Japan grew much as a manufacturing exporting country, the economy has been transformed to the structure dominated increasingly by broadly defined service industries such as trading, finance, consulting, medicine, education, research, tourism, etc. Workers working in such industries are not working along the belt conveyers. Their contribution is measured not by the hours of work but rather the outcomes of their brain work.

   Now, the conventional labor regulatory system which measures worker’s achievement by the hours of work and pays accordingly, gradually became impediments to productivity growth. Since the contribution of these brain workers were not evaluated by their outcome or performance, they were discouraged rather than encouraged. Also because the system pays workers by hours, even these white-collar workers had to stay at the office and waste their time idly to meet the target of long working hours. This is one of the major the reasons why Japanese labor productivity, particularly of service sector, has lagged far behind of major economies in the world. This is the reason why I name the current labor regulatory system is “out dated.”

    Abe administration has been well aware of this institutional defect. Prime minister Abe proudly declared right after the outset of his administration at the end of 2012 that he will initiated a comprehensive package of economic policies, often called “Abenomics.”  Abenomics is comprised of three arrows: (1) unprecedented monetary easing to get rid of deflation, (2)active and dynamic fiscal policies to support the process of major economic transformation, and (2) structural reform to enhance economic power for growth.

   And reform of labor regulation is considered as the crucial element of growth strategy, as I explained earlier. White Abe administration did not have enough time to prepare for a full-fledged growth strategy in its first year, namely, the mid-2013, the administration forthrightly tackled the task of planning the growth strategy for mid-2014.  The administration tried to prepare the ground to write the deemed reform plan mobilizing reform task forces such as Industrial Competitive Committee, and Regulatory Reform Committee.

   They focused particularly on (1) monetary compensation  for unjustifiable dismissals, (2) Pay by performance among others. Proposals of these reform task forces have been encouraged by business leaders and particularly by prime minister Shinzo Abe himself, but encountered strongly by opposition parties, labor unions, and curiously by an important segment of the government, Ministry of Welfare and Labor.

   Let me review in some detail the contents and process of debate on various topics which have been relevant to realize “workway reform” of Abe administration, and finally give my personal appraisal on this subject. Topics which have been debated include(1) compenated dismissals, (2) temporary labor law reform, and (3) pay by outcomes、particularly the issue of expanding the coverage of workers who are applied the pay by outcomes.

 
Ⅳ.  Progress and Failures

1.  Compensated dismissals

    Compensated dismissal is the system by which the worker who was dismissed by unjustifiable reasons as recognized by the court can receive due compensation rather than returning to the old workshop. There are two ways of paying the compensation: paid after the court decision and paid prior to the court decision.

 
    Since Japanese legal system of dismissal is very rigid so that it is virtually almost impossible to dismiss workers, and also the dismissed workers are victimized for loss of forgone opportunity and income, the compensated dismissal system is useful for employers to make dismissal a reasonable option, and for dismissed workers who are otherwise not reasonably compensated this is helpful to reduce economic hardship.

    For these reasons, Abe administration tried to legalize the compensated dismissals as an important element of workway reform legislation. Abe administration proposed to legalize this as early as August 2014 to make Japanese legal system of dismissals somewhat comparable with major advanced nations.

  On June 16, 2015, the regulatory reform committee submitted the report in which the committee recommended to organize experts’ committee to examine for setting up rules of compensated dismissals.

   Half a year later, on January 31, 2017 the experts committee of Ministry of Walfare and Labor finally started examine the legalization. On this issue, the management side appreciates because the cost of dismissals can be more readily assessed, labor side worries because this system may help increase dismissals, and SME employers oppose because the cost of dismissals will increase because of the rule of minimum compensation.

   After repeated discussions, the experts’ committee concluded that the legalization of compensated dismissals is not necessary though the usefulness of the system itself can be admitted. About a year later, at the meeting of Industry Competitiveness Committee held on May 28, 2018, Ministry of Welfare and Labor declared  their decision to pass this up. Consequently, the legalization of compensated dismissals was not included in the growth strategy of Abenomics.

2.   Temporary labor law reform

     Abe administration has been attempting to reform the temporary labor law which was made much more rigid during the rein of Democratic Party of Japan government.  However, the attempt to reform the law has failed to be examined at the Diet session on June 20, 2014 because opposition parties attacked severely the mistake in the sentence of the bill for amendment submitted by the government.The government was obliged to resubmit it a year later.

     The revised bill for the reform of the law was picked up in the Diet discussion for examination in the main assembly of the House of Commons on May 12.2015.This was regarded as an important agendum side by side with labor standard law revision in the comprehensive reform of labor legislation. The government viewed the reform as necessary element of growth strategy. However, opposition parties as represented by Democratic Party of Japan opposed the reform as worsening of the rule of employment.
   On September 11, 2015, the bill for the reform of the law passed the examination at the main assembly of the House of Commons and consequently enacted.
   The main points of the reform are:
1.  The employer can extend the period of employing the dispatched worker, whih
      was limited up to 3years.
2.  For the dispatched worker to continue working under the same employer, he or
     she has to shift to other sections
3.  Worker dispatching companies need to be permitted by the government.
    This reform makes it possible for employers to keep employing dispatched workers as long as they want, which helps increase the flexible adjustment fo workforce.
 
  3.  Pay by outcomes

   Pay by outcome is the issue which has been debated harshly between those who oppose and support. In May 14, when PM Abe was expected to join the meeting to focus on this subject, the meeting was cancelled because of increasingly tense confrontation between Ministry of Labor and Industry Competitive Committee, and the meeting was postponed.

   On May 28, 2014 Industry Competitive Committee decided to relax the work hour regulation of 40 hours a week. Prime minister Shinzo Abe stated his determination to introduce “white collar exemption.” Expansion of the types of workers broadly, who are applied “Pay by Outcome,” will be conducive to enhance productivity.
However, there are those who want to limit the scope only within a very small numbers within Ministry of Welfare and Labor.

  On July 7, 2014, Employment policy Committee of Ministry of Labor started discussion of employment reform centering around the new pay by outcome system.
On Sept. 11, Employment Policy Committee presented main points for revision of work hour reform including “white collar exemption.” Management side demands the expansion of the scope of workers to be applied the new system, while the labor unions oppose worrying about likely increases of forced overwork.

  On Jan. 15, 2017, Ministry of Labor presented a new plan for pay by outcomes  at the sub-committee of Labor Policy Commission. The ministry proposes the annual income level of at least 10.75 million yen, and suggested 5 jobs as researchers as appropriate jobs.

    On Feb 13, 2017, Ministry of Welfare and Labor officially determined to introduce “white collar exemption’ at the Labor Policy Commission. The ministry meant to submit related bills to the ordinary session of the Diet and intends to put into effect by April 2016.  This system is expected to be applied to professional workers whose annual income is at least 10.75million a year.

   On April 2017, Ministry of Welfare and Labor announced to expand the types of workers who can be applied “discretionary hour work” to include sales workers who propose new plans. It is expected that financial and IT businesses will hire such workers, and they are expected to total more than several hundreds of thousands.


Ⅴ.  Workway Reform Execution Plan

1. Nine areas of workway reform
    On August 6. upon initiation of the third Abe cabinet, the discussion on the workway reform, which Abe administration regards as the most crucial challenge, will start.

    On September 15, Mr. Toshimitsu Motegi, LDP Chairperson of Policy Research
Committee, pointed to the five major items for workway reform.
   1. Improvement of work conditions for non-regular employees
   2. Shortening long working hours,
   3.  Preparing for flexible workways,
        eg: shifting from “spouse tax deduction” to “husband and wife tax deduction
   4. Promotion of obtaining desired kind of jobs
   5.  Accepting more foreign workers.

     On September 27, PM Abe stated at the first meeting of Workway Reform Realization Committee to examine nine items.

    On March 28, 2017, at the Realization Committede ,the government compiled the execution plan consisting of 9 items.
   1.  Improvement of non-regular employees,  introduction of same pay for same
        work
   2.   Raising wages: raise the minimum wage by 3% annually to reach 1000yen
   3.   Correcting long working hours, Upper limit for overtime with penalties, and
          introduction of interval system
   4.   Assisting changing  and reobtaining jobs, financial and information assistance
   5.    Flexible workways: Tele-work, dual job holding, and side-job.
   6.    Encouraging female and young workers, re-learning of middle aged workers
    7.   Promoting woking of aged workers: Extending retirement age and assistance
    8.   Child rearing, nursing of the aged,:  Improve conditions for care worker
    9.   Accepting more foreign workers, involving all  relevant ministries.

  2.  Non-hour linked pay system
 
      On July 8, 2017, Rengo(Federation of labor unions) decided to present requests for improvement to the government on the bill for labor standard law reform. Rengo means to ask improvements on items on health protection.

      On July 10, the government responded to revise “white collar exemption"prescription on the basis of request from Rengo including imposing 104 days off  a year for employers, setting upper limit of overtime, and labor management consultation on determining continuous work offs.

      On July 14, Chairperson Mr. Rikio Kohzu of Rengo met prime minister Shinzo
  Abe and requested for improvement of the reform plan. PM Abe promised to 
  accept Rengo’s request.
      On July 22, many member unions of Rengo strongly criticized Mr. Kohzu for
  him to have met prime minister Abe by showing collaborative attitude.
      On July 28, 2017, Rengo decided to withdraw their initial acceptance of
  the reform plan of Labor Standard Law. The leaders of Rengo judged that the
  opposition of member unions were so strong that the entire organization may
  have to risk the collapsing of the organization.
      Witnessing the Rengo’s decision not to affirm the reform plan of labor standard
  law made business side worry about the possible delay of legislation and the likely
  change of the content in favor of strengthening work hour regulations.


Ⅵ.  Appraisals

1.  Much differed outcome relative to the initial intent

      The final result of workway reform, particularly its legislative form, is much different from what Abe administration wanted to achieve. As discussed above,the main intent of Abe administration was to utilize the workway reform as an important device to promote Japan’s economic growth as an integral components of its “growth strategy.”
    Japan’s economic growth has been slowing down in recent decades particularly since 1990s. While there have been macro economic shock such as the collapse of the “bubble” which triggered the acute slowdown of the economy. However, Japanese economy has been suffering from long term structural impediments: one is the declining trend of population and the other is a low productivity of service industry. The latter is serious defect in the era of “service economy” of advanced nations.

    The strategic intent of workway reform has been focusing on this issue. In Japan as a service economy, in which 70to 80% of workers work in a broadly defined service sector, workers contribution to the industry is not necessarity a coefficient of hours worked like manufacturing sector but rather the outcome of creative work.
Recognizing this trend, Abe administration attempted to reform the work system in which workers can work more efficiently to utilize their talents rather than bound by work hours.

    With strong advice of business related members of Industry Competitiveness Committee of Abe administration, primie minister Shinzo Abe himself took initiative to reform the conventional regulations of workways. Main objectives have been basically two:
  (1) Introduce a new workway in which wages are paid on the basis of outcome rather than hours worked. This is often refered to as “white collar exemption” borrowing the expression of Western countries where the white collar workers who are regarded as reservoir of management are exempted from ordinary labor regulation imposed on blue collar workers.

  (2) Compensated dismissals.  This is an important breakthrough in the rigid legal regulations against dismissals in Japan. With introduction of this system, employers can have a greater leeway to dismiss workers and increase flexibility of employment, and workers can have some compensation to minimize the loss of income due to dismissals.
  This has been and still is strongly demanded by employers of foreign
companies investing in Japan because they need flexible organization of their workforce partly because their time-horizon is not long as the local Japanese companies.

   The result of the campaign of workway reform as seen in the final product of the
workway legislation achieved at the end of July 2018 reveals three major points.
(1)  Reform to “pay by outcome” or “white collar exemption” was only very partially admitted. The new labor standard law permits highly professional workers whose salary is more than 1075yen a year can be applied the system of pay by outcome. The number of eligible workers in current Japan may be around 10000.
This is much too much smaller than what Japanese economy needs and can supply to increase the efficiency of large service sector. In my view, the law should have permitted at least a few millions of workers in this category.

    In fact, prime minister Shinzo Abe attempted to introduce this system during his first administration in 2006 but failed by strong oppositions from opposition parties  labor unions and relevant government branch. The accomplishment this time may be congratulated in view of this experience. However, since the coverage of eligible workers is so small that the new system will have only negligible effect to contribute to economic growth, if any.

  (2)  Reform for dispatched worker law is effective in making more flexible use of temporary workers and hence contribute somewhat to increase the efficiency of business. The original law was invented to make use of new types of workers who wish to work but not necessarily full-time in 1985. However, under the DPJ administration in 2009, it was revised much not to allow prolonged employment of dispatched workers as a temporary status. The revision this time is useful both for employers and those workers who want to work temporarily. This amendment will have some modest effect on increasing industrial flexibility and efficiency.

  (3)  Reform for compensated dismissals has been rejected almost outright in the process of examination without much meaningful discussion by strong opposition of labor unions, small firm employers and opportunistic Ministry of Welfare and Labor.
  (4)  In contrast, a major move has been achieved in fortifying the regulation system of working hours. One is imposing rigorous upper limit on overtime.
Over time is allowed maximum 720 hours a year. Should be less than 100 hours
a month. Severe penalty is imposed if violated. And the other is same wage for same work, which means unjustifiable difference of working conditions between regular and non-regular employees should be abolished.

   Although protecting fair labor conditions and workers’ health is undoubtedly the most important pillar of labor regulation and labor policies, the fortified regulations on working hours and working conditions as described above will increase the burden on Japanese business corporations and possibly their effort to increase efficiency.

   We may compare the workway reform legislation of this time with the comprehensive reform covering both labor and welfare regulations and corporate taxes which were conducted in 2003 in Germany, often referred to as “Shoroeder Reform or Agenda 2010.” This reform has been regarded as having triggered the dramatic economic recovery of German economy in the period of Merkel administration.

   The workway reform legislation by Abe administration could be much better if eligible workers were much more widely permitted to work under pay by outcome and compensated dismissals were legally permitted, and at the same time workers basic working conditions are more severely supervised and protected as done in the legislation this time, both for the economy and for the workers.

2.  Problems of Ministry of Welfare and Labor

   In the process of examinations, discussions and debate for the campaign to legislate workway reform, I am puzzled by two conspicuous problems: one is the time spent to arrive at the conclusion and the other is the lousy handling of the date prepared for official debate by Ministry of Welfare and Labor.

   The process of this campaign has taken more than four years counting from the initial proposition of prime minister Shinzo Abe to alter the labor regulation system, particularly work hour regulations, in the early 2014 until the enactment of law at the end of June 2018.

    As the reader of this essay may well be aware as reading of my chronological depiction of the process that the meetings of relevant committees take a long time between them. Much of this time management is up to the government office in charge, namely, largely Ministry of Labor. I myself has had much experience in this kind of work, I am not sure why they wasted that much time to reach the conclusion.

   Another, and more serious issue is that Ministry of Welfare and Labor committed a serious mistake by giving prime minister “wrong data” which led prime minister Shinzo Abe lose his credential in debate, and consequently the most important item to be included in the final legislation was scrapped.

    The reason why the expansion of the coverage was not included in the legislation this time was the trouble in the process of Diet debate. While opposition parties have strongly opposed against the expansion of the eligibility of the workers on the ground that the expansion will increase long-time work. Debating against this argument, PM Abe argued at the Diet session that there exists the data which shows that workers of potential eligibility work actually shorter hours than the ordinary workers.  The opposition party members asked the source of the data.  Ministry of Labor which has conducted the work hour survey found then that the questions asked for the two types workers were different so that working hours were not comparable, and consequently PM Abe’s argument was accused to be non-sense.

   This is a serious issue in the sense that Ministry of Labor not only abused but even demised the supreme leader of the government. This is the most primitive mistake that even college students would not commit to write a report. The ministry later reported that they found 117 cases of mistakes. The fact that this kind of lousy work is done in this most critical phase of the debate would make us even skeptical of some kind mal-intent at the side of the government branch in charge.  It is curious why reasonable punishment has not been given to the ministry on this serious mis-conduct.

   The strategic intent of Abe administration is clear, namely, make Japanese economy efficient, particularly, labor market. The actions that the ministry has taken in the process seem not quite supporting or even following it. We know that Ministry of Welfare and Labor must secure the understanding and support from both management and labor sides, unlike many ministries which only need to satisfy their clients. Nevertheless, the attitude of Ministry of Welfare and Labor seems curious and questionable under the given strategic intent of Abe administration.

   The opposition party members asked the source of the data and asked Ministry of Labor which has conducted the work hour survey to explain it. It was found then that the questions asked for the two types workers were different. The question for ordinary workers was the overtime work of the day when they worked longest hours, and the question for the focused category of wokers was the average hours worked for a day. Naturally, the data obtained from such different questions are not comparable so that PM Abe’s argument was accused to be non-sense.

   2.   Too much time elapsing and Lousy job of Ministry of Welfare and Labor
       ーintentional disturbance?

   3.  Productivity and Worker Protection
      ーLimited progress for flexibility
      ーIncreased control and inspection of working conditions
      ーProductivity increase by legal reform questioned
      ーLittle or no contribution for economic growth
  ーProductivity increase is up to corporate and individual effort
 
 

The Third Abe Administration and its Tasks

Ⅰ.   Abe’s victory in LDP presidential election

   On September 21, 2018, prime minister Shinzo Abe won the LDP presidential election and obtained the position of the president of Liberal Democratic Party, in principle, for another 3 years until September 2021.

   The only contender who competed the election against Mr. Abe was Mr.Shigeru Ishiba, who served as Secretary General of Abe administration for its first term since December 2012.

   The result of the election this time was that Mr. Abe obtained 69% of all the votes. The election was conducted by voting of the National Diet members and of local members of LDP who are not National Diet members.  Mr.Abe took 329 of DM and 224 of LM totaling 553, while Mr.Ishiba took 73 of DM and 181of LM totaling 254.

    During the election campaign of two weeks, prime minister Abe indicated that he would like to obtain two third of the votes of local members so that he will win the election by a land slide victory, which would highten his political cohesive force to enhance his leadership. The result of this election that Mr. Ishiba obtained as much as 45% of local members votes has been unexpected by Mr. Abe himself and his team members.

    The fact that nearly a half of local LDP members voted for Mr.Ishiba implies the depth of distrust against Mr. Abe. Since Mr. Abe, as prime minister, has been utilizing the current political system which strengthen institutional power of the prime minister and the party system of LDP to enhance his power for the Diet members skillfully, it is not surprising that he gained more than 80% of the votes of DM. In contrast he obtained only 55% of LM votes means he was not secured the support of the members who are less bound directly by the power of the prime minister.

   Now that Mr. Abe won the LDP presidential election this time, he will in principle keep the office for another 3 years. If he will complete the 3 year term without losing the office by any accidental happenings, he would experience the longest rein as a prime minister in the history of Japanese constitutional politics.

   This has been made possible by the change of rule of the LDP as to the  limit of the length of president from 2 consecutive terms to 3 terms which extends the limit up to 9 years. The idea to change the rule has been around since the beginning of 2016 and accepted increasingly widely within LDP, and officially determined at the LDP convention in March 2017.

   Let us remind ourselves a bit about Mr.Ishiba’s rivarlry against Mr. Abe. When Mr.Abe first attempted to organize his administration in December 2012, he had to win the presidential election at September 2012. There, Mr. Ishiba gained more votes from local members than Mr. Abe although Mr.Abe won the election by the aggregate votes including the Diet members.

    Acknowledging Mr.Ishiba’s achievement in the election, Mr.Abe assigned him the Secretary General, the most important job next to president. Mr. Ishiba is known to be an expert of defense issue. But when Mr. Abe suggested him to take a job of defense minister in a later occasion of cabinet formation, Mr.Ishiba rejected it and accepted to become minister of local development. And in the occasion of the next cabinet formation, Mr. Ishiba shied away from any post of Abe cabinet and became an outsider, meaning that he had free voice against Mr.Abe if he wishes, And Mr. Ishiba organized his political faction in 2015 shortly after Mr. Abe won the  presidential election the second time.


Ⅱ.   Debate between Abe and Ishiba

   During the two week campaign period, Mr.Abe and Mr.Ishiba had opportunities to debate on many issues at various occasions including TV show, public seminar,  media interviews and a few events at the cite of local cities.

   Throughout such exchanges, the basic views of Mr.Abe and Mr. Ishiba on various policy issues became more or less clear. Let me summarize major points of their  assertions.

    Mr. Abe emphasized repeatedly and strongly the economic achievements of Abenomics, namely, his administration has successfully maintained a persistent and increasingly empowered economic growth, if not at a high rate, powerful increase of employment as reflected in a historic high rate of job offer seeker ratio,  low rate of unemployment, voluminous increase of tax revenues, and much higher stock prices compared to the previous DPJ administration.

    He also emphasized that he means to ask the Diet to pass the constitutional  amendment during his term as a prime minister. His principal idea of constitutional revision is to write the name of self defense force as an additional item next to the second item of ariticle 9. The second item writes that Japan abandons to have any means to have military. Putting the name of self defense force, which is a de facto large and powerful military, next to item 2 looks self contradictory.

   Mr. Abe strongly wishes to formally and legally admit the name of self defense force, and worries the danger of losing this opportunity of revising the constitution by trying to delete the item 2 which is opposed strongly not only by opposition parties but also by Komei party which is LDP7s political ally.

   In contrast, Mr. Ishiba emphasized the big potential of economic growth of  local regions. He also emphasized big growth potentials of small and medium-size enterprises. He made such assertions obviously to make contrast with Abenomics which, he describes, depends upon so-called trickle down view.
   That is, charging policy emphasis on the relatively powerful sector such as large firms will eventually be diffused to relatively weak segments such as far away regions and SMEs.  Criticizing Mr.Abe’s claim of increasingly powerful economic growth,  Mr. Ishida said the better performance is largely due to the recent conspicuous improvement  of the global economy.

 Mr.Abe emphasized the importance and urgency of social security reform, which he promises to complete within three years. Although Mr. Abe and Mr. Ishiba do not differ much in terms policy goals, Mr. Ishiba tends to emphasize more of the importance of fiscal reconstruction. To achieve the goal, Mr. Ishiba proposes to organize more integrated committees assembling more experts and reps. relating to such major national strategies.

   Mr. Ishiba saids constitutional amendment is not the issue we should accomplish hurriedly. There are more important things to do before actually proposing the  amendment to the constitution, that is more discussion and foster more understanding among people.

   If amend the constitutional sentences, particularly of article 9, Mr. Ishiba proposes to drop the item 2 of article 9. Item 2 states that Japan does not have any weapons or means to help wage the war, which is obviously violated by the reality. He argues that the constitution has to be consistent. Mr. Abe criticizes such attitude of Mr. Ishiba who is as much like scholars who do not worry about the reality.

   Both Mr. Abe and Mr. Ishiba are not really much different in terms of eventual goals they are aiming at such as economic growth and self reliant national security. Mr. Ishiba saids while final goals may be common there can be many different ways and processes to reach the goal. And LDP should be open, if it is democratic, to such diverse arguments to stimulate discussions.

   Mr. Ishiba does not go into details of economic policies and achievements perhaps because this is the area where Mr. Abe is advantageous. Perhaps because of this, the detailed discussions on concrete policy measures have not been heard in the process of the election campaign, which is rather disappointing. Nevetheless, the fact that Mr. Ishiba, who has no official role to play either in the party or the government, gained as much as 45% of votes of LDP local members is impressive, which reflects a deep rooted distrust of people on Mr. Abe.

   In organizing his cabinet at the beginning of October, Mr. Abe gave no official position either in his cabinet or in the headquarter of the party to Mr. Ishiba, Mr.Ishiba perhaps secured a breachhead for the forthcoming presidential election three years ahead, if not sooner, by running against Mr.Abe this time and obtained a fair amount of support from the party members. However, this does not mean that the Mr.Ishiba’s advantage for the next election is guaranteed. There will be many contenders such as Mr.Fumio Kishida, Ms. Seiko Noda or even Mr. Shinjiro Koizumi.


Ⅲ.   Legacies and Desired Policies for Abe Administration

 
  Abe administration will have exceeded in terms of the length of its duration all of the previous administrations in the constitutional history of Japanese politics if it completes the forthcoming three year of its rein, it has exceeded already the well remembered administrations in the postwar period such as those of Shigeru Yoshida, Ichiro Hatoyama ,Nobusuke KIshi, Eisaku Sato, Kakuei Tanaka, Yasuhiro Nakasone, Jun-ichro Koizumi in terms of the length of their reins.
 
    The Abe administration which has the determined destiny, in principle, of final three years. will be faced two major issues. One is that it is a sort of “lame duck” administration. The political power whose final day is determined will lose attention of people. People will be interested in the question of who will be the next rather than the ending incombent. To fight against such a natural trend of losing attention, the “lame duck” leader tends to work hard to leave legacies which people will remember.

  In the aspect of international politics, Mr. Yoshida left the legacy of San Francisco Peace Treaty, Mr. Hatoyama left Japan-Soviet Union recovery of diplomatic relations, Mr.Sato left returning of Okinawa, Mr. Tanaka left Japan-China recovery of diplomatic relations, and Mr. Koizumi left Japan North Korea Pyonyang Declaration. What about Mr. Abe?

   Mr. Kosuke Takahashi comments(Web Ronza Sep 21,, 2018) that establishment of National Security Council, determination of National Security Strategy and New Defense Fundamentals, relaxation of Three Principles of Weapon Export under Mr. Abe’s initiative of “positive peace seeking.” However, these achievements are steps to build closer ties with the US in promoting mutual defense cooperation and appear not as major achievements to be remembered as “legacy”.

   In the aspect of economic policies, Tanaka administration is remembered with the legacy of “reconstruction of Japanese archipelago,” Nakasone administration is with “privatization of National Railways” and Koizumi administration with “Privatization of Postal System.” Abe administration is known to have been advocating “Abenomics.” But what has been the outcome of Abenomics?

    Its major goals were to shift people’s mindset from “deflationary” to “inflationary” with the target of achieving 2 % inflation annually. The outcome so  far is almost none. The other is  to bring the economy on the track of powerful growth.  The outcome so far is very modest which has been helped largely by the powerful recovery of the global economy rather than the power of Abenomics, as Mr. Ishiba criticizes.

   Another objective which was announed at the initiation of Abenomics was to reconstruct fiscal balance. As is well known, Japan’s government debt as measured by the accumulated debt relative to GDP is the worst among major countries of the world and even worse compared to the ratio immediately after the defeat of the Pacific War. Japan has made an  international commitment in 2010 that the government will attain fiscal balance by 2020.

  The outcome so far is that during the Abe administration the achievement has been much worse than Japan’s initial commitment. In fact, the government has been organizing increasingly larger amount of budgets, add extra-ordinary budgets, and prime minister Abe himself has repeatedly postponed the increase of consumption tax for various reasons.
  Mr.Abe has been quite successful in winning elections. He kept winning national elections five times consecutively and won LDP presidential election three times consecutively including the most recent one. To achieve such political goals, he makes skillful use of political organizations such as political factions. Organizing various factions to support Mr.Abe, he has to make many compromises. Consequently, he cannot conduct a decisive action as has been demonstrated by Mr. Koizumi who dared to fight against the postal system, the  most powerful supportive organization LDP.

   The list of members announced in the afternoon of Oct 2, 2018 was not impressive at all. It is described as ”inventory clearance” re-organization of the cabinet. Prime  minister Abe nominated figures from the factions who have helped him winning the LDP election. It is evident that he is interested in keeping support of factions and interest groups.

   Since the forthcoming three years is the final opportunity for his challenge as a political leader. He has an outstanding political capital among all the politicians. If he would bet his political capital to achieve the most important mission of statesman, namely, to leave the best country he can think of for the next generations, he is now in the best position and in the opportunity to achieve it. By doing so, he will be able to leave a great legacy for the country which will be remembered for years.

   Let me finally suggest a concrete plan for him to consider to achieve such a goal.


Ⅳ.   Aging and Possible Fiscal Crisis

   Japan is suffering from a serious issue of mushrooming government accumulated dept. Using a broad definition of the fiscal debt, it is 240 percent of GDP, which is by far the worst among major economies of the world, even worse than Greece, and worse than the serious debt left for Japan after the defeat of the WWII.

   It is interesting to realize that at the beginning of 1990s, Japan’s fiscal performance is much better. In fact, Japan’s government debt is better than the US and many of European economies then both annually and as accumulated amount relative to GDP. But Japan’s debt grew by far worse than these countries by the end of the 1990s. It has been getting worse and worse since then until now and for the foreseeable future. What are the reasons behind?

   The reason is as follows. The rapid aging which accelerated during this period since 1990s, which coincides with the very slow growth period of Japanese economy often cited as “the lost two decades.” The aging of population increases social security payment. However, since wages did not rise or even lowered during this period, social security contribution which relates to wages did not rise. Consequently, social security account began to suffer from a large deficit. Since it has been difficult to increase social security contribution by raising the rate of contribution, the government was forced to issue bonds to finance the deficit. Therefore, the government bond mushroomed during this period.

   With the current extra-ordinary high level of government debt has many potentially serious problems for Japanese population for the future. With this heavy fiscal burden on the economy, policies to empower Japanese economy through structural reform will be seriously hampered. Also, this huge debt means a huge differential among generations on their net social account, namely, the difference between the net life-long income and payment for individuals as has been formulated by professor Lawrence Kotlikov and others.  These are long-term structural issues.

   We need to be careful about the possibility of acute and could be fatal problem of fiscal collapse which will lead to economic collapse to damage life and activities of population seriously. With the current high fiscal deficit which is more than twice the size of GDP, there is an increasing danger that any fiscal developments or shocks may trigger the collapse of finance and hence the economy. Several triggers can be thought of. Within 10 to 15 years, it is likely that the aggregate government debt will surpass the aggregate net financial asset(saving) of population, which means that Japan will have no net asset to buy new JGB. Japan will have to ask foreign investors to buy them. They will not buy JGB at the current price which is lifted artificially by BOJ’s massive purchase. Thus, the price of JGB will drop, which will drive the interest rate high. High interest rate will make the government fiscal policy and private corporate finance difficult, and could lead to economic collapse.

    There are many risks which trigger fiscal and economic collapse such as a sharp drop of exchange rate of the yen, large scale attacks by speculators, natural disasters, military conflict, confusion of politics etc.

   To protect the life and activities of people, the critical task of the government to eliminate problems or sources of problems which may trigger such a catastrophe. The most important is to restore fiscal healthy balance. There are three major ways to achieve it: They are (1) reduction of government spending by streamlining government expenditure structure, (2) enhancing economic growth, and (3) increasing tax revenues.

   Almost all the administrations in the past have tried to accomplish all these objective, but they have not been successful to restore fiscal balance. Abe administration too has aimed at attaining the healthy fiscal balance. However, on the issue of reducing government spending, it rather increased spending in order to stimulate the economy, on the issue of enhancing economic growth, it deployed a policy package of “Abenomics” but the growth performance has been only modest and much less than the level to contribute to fiscal reconstruction. On the issue of tax increase, prime minister Abe shied away to increase consumption tax two times and lost opportunities from 2014 till 2019.


Ⅴ.    Shimada’s proposal to PM Abe.

    It is my view that prime minister Shinzo Abe should now challenge betting the rest of his political career to re-construct the country in which the next generations can live much more safely being protected from the dangers of fiscal and economic collapse and from the unjustifiable social and economic differentials.

   For prime minister Abe, I would like to propose for his reference a comprehensive plan to achieve such a goal. This is a long-term and fundamental reform of tax and social security systems and services.

    On the side of tax, I would like to suggest that the government presents a long term increase of consumption tax until the tax level reaches 20%, which is the level many European countries are practicing. Every year, the tax will be increased by at most 1% so that to minimize shocks to tax payers. Since the long term plan is shown to people, they will adjust their life plan accordingly.

   Also, inheritance tax is reformed to expand broadly its tax base by reducing tax rate structure from progressive to more or less equal so that the total revenue will be increased. This should be helpful to enrich the fund for reform of Japan.

   On the side of reform of social security system and services, the system will be fundamentally reformed to expand its services from the conventional set of pensions, health insurance, unemployment benefits, poverty support, and more recently added old age nursing care insurance to birth assistance, pre-school educational assistance, job training, basic support of working conditions, old age recurrent education and training etc.

    This sort of comprehensive social services are becoming necessary to assist the life of current population whose large proportion is facing a hardship of family maintenance and reproduction.  This kind of comprehensive social security and safety net of services is necessary in order for people to accept a long term continuous increase of tax burdens. Constructing such a system and providing such comprehensive services is highly costly.

     In order to construct a country in which the worries of fiscal and economic collapse and unjustifiable inter-generational differentials of life-long net income are wiped out and people enjoy comprehensive services to support their lives, it will take some half a century by continuing the consumption tax system of the level of 20%.

    Prime minister Shinzo Abe has to realize that the nature of the crucial issues that Japanese population is now faced after having enjoyed the two decades of postwar rapid growth and has been annoyed by the “lost two decades,” is something like this. This is a major challenge for Mr. Abe, but this is the challenge, perhaps, only such an outstanding political leader as Mr. Abe who will lead the country for the longest time in Japan’s political history can tackle. And it is worth challenging for him if he wants to leave the legacy of historic achievement.

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