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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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