Abenomics: Japan's Road To Economic Growth

For the last 15 years, Japan's economy has remained dormant.  But in December, 2012, the country elected Shinzo Abe to lead them into a better world.  Abe said "My highest priority as Japan's Prime Minister remains the economy",  and his reforms so far seem to match his words.  Abe launched his ambitious economic overhaul with changes to the monetary and fiscal policy designed to make Japan more competitive in international markets.  His policies were nicknamed "Abenomics".

His third strategy, what Abe calls the "third arrow", is structural reform.  For example, having recognized private sector companies as the "engine driving economic growth", Abe reduced Japan's corporate tax rate by 2.4% this year and promises more cuts next year.  He also strengthened "corporate governance", meaning he gave incentives to companies to increase the number of outside directors to their Boards of Directors.  This, Abe argued, would reduce insider trading and corporate corruption and make companies more accountable to their shareholders.

Abe then set up National Strategic Special Zones:  which focus on more deregulation of companies by government agencies.  This, Abe argued, would allow companies more freedom to operate and make them more profitable.  A second exciting feature of the N.S.S.  Zones is the admission of foreign companies, foreign entrepreneurs and their employees to set up shop on the home islands.  Up to now, Japan has been a relatively insular country.  In conjunction with this policy, Abe also relaxed visa requirements for tourists.  This measure alone resulted in over 10 million tourists visiting Japan last year - more than any other year in its history.

Abe then targeted Japan's dwindling population.  For centuries, Japanese society suffered from systemic discrimination against women in employment.  Knowing Japan's need for more workers, Abe created more child-care facilities.  This led to an increase of 820,000 women in the Japanese workforce since he took office.  Today, the female labour force participation rate for the 25-44 year olds, stands at 74.2% - the highest in Japanese history.  To set an example for others, Abe increased the number of women in his Cabinet from 2 to 5 ministers.

Another problem facing Abe was Japan's aging population.  In order to look after the elderly, Abe introduced pension reform.  Then, he took a very unusual step - he raised Japan's consumption tax (sales tax, value added tax) from 5% to 8%.  BUT, every Yen was allocated to social security funds for the poor and elderly - most governments simply put these taxes into general revenue.

There are many other reforms like Trans-Pacific trade agreements and so on, but what is the result of these growth strategies?  Significantly, unemployment is now below 4%;  companies, both large and small, have raised wages;  many part-time employees now have full-time jobs;  capital investment in company expansion has exploded;  a lower Yen has made exporters more competitive on the world stage;  and the Japanese stock market has reached its highest level since 2007.

Shinzo Abe is a leader of few words but lots of action.  Other world leaders would be wise to study his play-book!