Japan's 'New Capitalism' Coming Into Clearer, More Credible View

Many firms are reforming their personnel systems to improve the development and attraction of talented people, including foreigners.

Numerreforms listed in the 2023 revision of the implementation plan, such as reform of the unemployment benefits system, have already begun to be discussed.

Deliberations in the Diet on budgetary measures to expand investment in people will likely start later in 2023. These measures are expected to gradually increase the opportunities for reskilling and career transitions.

Still, other actions must be taken to achieve sustained wage growth. In particular, reskilling programs for non-regular workers and the correction of the
gender wage gap
are critical. The number of
non-regular workers , which includes 50% of female workers and 20% of male workers, has been increasing since the 2000s.

The government should more seriously engage in“active labor market policies” like those used in Northern Europe, which entails providing
a safety
for non-regular workers who wish to change jobs.

While labor market reform is one way to boost Japan's gradually collapsing lifetime employment system, the
Start-up Development Five-year Plan
contained in the 2023 revision also aims to restore the dynamism of the economy.

The policies contained in the plan have already been turned into a five-year roadmap for start-up development. Many people involved in Japan's start-up ecosystem recognize that support for start-ups is at the
center of the growth strategy .

The plan also emphasizes the importance of early revitalization or smooth closing of businesses that are in trouble. This is because healthy competition with firm entry and exit is necessary for small and medium enterprises to increase productivity from a macro perspective.

But the impact on the Japanese economy is uncertain, partly due to the lukewarm political attitude towards small and medium enterprises (SMEs).

To increase household income, the 2023 revision includes the
Doubling Asset-based Income Plan . This plan seeks to encourage the diversification of household financial assets away from
their concentration in deposits
and into investments.

The goal is for households to benefit from the
growth of Japanese companies , not only as employees but also as shareholders, thereby increasing their income.

Bold tax incentives have already been announced to encourage individuals to build long-term financial assets. But to truly realize these goals, Japan must improve the investment performance of asset management institutions and Japanese companies' long-term corporate values.

The new growth strategy aims to encourage ambitichanges in Japan's socioeconomic system, especially in the labor market. The key to success lies in the Japanese government's role in effectively mobilizing the efforts of private companies, investors, financial institutions and individuals, while also reshaping the policy environment.

Due to current pressures including a persistent labor shortage, changes in global supply chains due to the escalation of geopolitical risk and changes in industrial structures, there is a growing desire to invest in Japan both at home and abroad.

Prime Minister Kishida should take the lead to not only realize these plans but also to accelerate and intensify efforts for fundamental reform.

Yuri Okina is chairperson of the Japan Research Institute and executive vice president at the Nippon Institute for Research Advancement.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.