Japan: Seeking Renewal in the Face of Decline

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Japan: Seeking Renewal in the Face of Decline

Shinzo Abe’s constitutional reinterpretation has the potential to pay big dividends for the nation.

Japan: Seeking Renewal in the Face of Decline
Credit: REUTERS/Yuya Shino

“People of Japan, be confident!” So said Prime Minister Shinzo Abe in a keynote speech to the Japanese parliament in February, an unusually emotional appeal for support of his bold constitutional revision and economic revitalization agenda.

Postwar Japanese prime ministers have rarely consolidated the political capital needed to engage in serious game-changing policy reform, but Abe’s December election triumph – the so-called victory without a mandate – presents a rare opportunity to cement lasting foreign policy and economic metamorphosis.

In pursuit of constitutional reinterpretation and revision, the prime minister follows a slow but determined course pioneered by other Liberal Democratic Party leaders dating as far back as Kakuei Tanaka, the “Shadow Shogun” of the 1970s, and including Yasuhiro Nakasone and Junichiro Koizumi. Abe broke through 70 years of foreign policy ambiguity and paralysis with a precedent-setting decision in July last year. The Cabinet announced its intent to broaden the legal scope of actions Japan may take under certain scenarios to strengthen collective self-defense, and more flexibly allow participation of Japanese forces in overseas collective security missions.

After December’s election, Abe is now pursuing an even bolder goal, nothing short of the revision of the “Peace Constitution,” a document drawn up by the Americans and Allied Forces in the unique context of 1945 following Japan’s defeat in World War II. This is a significant development for a nation that, ever since the Occupation, has had no intelligible foreign policy strategy apart from a dependence on U.S. military forces under a security agreement, and generous official development assistance to many countries in Asia, most of which suffered under Japanese tutelage during the Pacific War. Long constrained in its ability to respond to crisis contingencies, Japan’s leadership seeks a freer hand.

Abe’s attempt to expand and redefine Japan’s autonomy on defensive security and military measures in the face of a more assertive China is the subject of substantial analysis in the wake of the July Cabinet decision. The focus is often on security, military capacity, the U.S. security alliance, and the geopolitics of the region. Less attention has been paid to the potential longer-term effects of normalization on prospects to transform the domestic policy arena, foster a better international trade position, and even mitigate the nation’s demographic decline.

Similarly, a preponderance of punditry seizes on tactics in implementing the “three arrows” of the Japanese leader’s economic revitalization plan, Abenomics. The three arrows – monetary easing, fiscal stimulus, and structural reforms – are indeed critical to Abe’s immediate economic program.

In the longer view, however, it is important to recognize that Abe views constitutional reform as part of a larger Japanese revitalization, in fact a prerequisite for national revival. In Abe World, unlocking the constitutional restraints to Japan’s normalization represents the golden key to Japanese renewal.

Most Japanese acknowledge that forward-thinking macroeconomic, monetary, and industrial policies played a role in postwar reconstruction. The more inscrutable driving force, though – a sense of collective national purpose – is still seen as the center of gravity that made Japan’s postwar economic miracle possible.

The Method in  Abe’s Madness 

Stoking Japan’s “animal spirits,” while not easily quantifiable by means of standard economic analysis, transcends the more mundane, shorter term three arrows strategy. Author Richard Katz calls this “Abe’s Confidence Game.” It is a bold, momentous attempt to transform a long stagnant economy, an effort to address systemic problems such as demographic decline, to open new defense and technology export markets, and redefine Japan as a first tier power even in the face of the Chinese juggernaut. Unlocking the constitutional restraints to become “a normal nation” that controls its own destiny, from this perspective, could facilitate a break from the past in the Japanese psyche, with the potential to unleash the animal spirits across the larger economy and culture.

For many observers, the proposition that confidence and a patriotic awakening would revive the economy is just short of madness. But what are animal spirits if not the inexplicable, unpredictable proclivities and instincts that drive economic booms and busts shaping the wealth of nations? Let us consider the method to Abe’s madness.

On the surface, the prime minister asserts a fresh vision that is easily digestible for his constituents and allies overseas. “First arrow” monetary easing by the Bank of Japan is a type of instant gratification that achieves a temporary reprieve from Japan’s long-stagnant deflation phantoms and generates more of Abe’s most precious political resource, time. “Third arrow” structural reforms, like agricultural liberalization, challenge deep-rooted special interests. Abe’s “womenomics” rhetoric in support of boosting women in the labor force to invigorate the economy has intrinsic appeal.

Beneath the public relations façade of the three arrows, less emphasized on the public stage, there is also savvy, cold economic calculation. It is a longer-term vision of a Japan for which the three-pronged approach to reform is merely an opening salvo.

Comparative Advantages 

LDP politicos have fond memories of the export-driven economy and the role export markets played in Japan’s postwar miracle years. Export-led growth has faltered in recent years, and bringing it back to life is a top priority for the government. In stark contrast to his caricature in the popular media as a hawkish, hard-right nationalist driven by dreams of rearming, Abe’s desire to normalize Japan’s defense posture is actually a hedge against waning U.S. influence in the Pacific. It is also driven by hopes that Japan’s export-driven economy and technological comparative advantage can be rejuvenated.

Just weeks before the Cabinet decision last July, in a less discussed policy change, the prime minister relaxed export restrictions on defense munitions and weaponry to its trade partners.  Since 1967, Japan has taken a careful path on weapons exports in accordance with its ‘Three Principles on Arms Exports,” a national policy that effectively banned the export of any weapons or munitions to foreign countries. This prohibition obscures another reality: Japan’s domestic weapons manufacturing capacity and supply chain are top notch, equipping one of the world’s largest navies and its self-defense forces. The country’s technology capacity for military production is probably surpassed only by the United States and Germany, drawing from some of the world’s most diversified and advanced corporations, of which Mitsubishi Heavy Industries, Kawasaki Steel, Hitachi, Fujitsu, Toshiba, and NEC are the tip of the iceberg.

Direct export of munitions and weapons will not be a panacea in the short run, but tie-ups and joint development of high-tech systems, along with technology transfer could establish Japan as a top player in the lucrative and growing $1 trillion plus global defense and munitions markets. Japan’s comparative advantage in these frontier defense and cyber-munitions technologies could be unleashed. Homegrown arms manufacturers might take stronger root. In this sense, looser constitutional interpretation and revision have a practical economic benefit – more revenue for Japanese manufacturing.

Domestic Reforms

If building a defense, munitions, and technology component into Japan’s already strong trade portfolio seems controversial, a more immediate prospect in Abe’s sights is approval of a far-reaching international trade treaty of 12 like-minded Asia-Pacific countries, the Trans-Pacific Partnership, now in late stages of negotiations. The TPP is considered a key litmus test for implementing the prime minister’s third arrow of structural reforms, as it confronts ossified special interests in Japan, particularly the JA Zenchu Agriculture Cooperative and Japan’s auto industry, both long protected from foreign competition by tariffs and non-tariff barriers. Long overdue liberalization in agriculture holds promise in re-orienting supply and demand in the sector, and will reward consumers with lower prices and more choices.

Trade liberalization remains a low-hanging fruit, providing stimulus for foreign direct investment and additional trade opportunities for Japan and signatory nations. The government estimates the TPP contribution to annual GDP growth per capita at 1.5 percent, but the long-term benefits of open markets, heightened competition, and growth in foreign direct investment could be significantly higher and deeper.

Although TPP is happening on a separate track from constitutional questions, in spirit it is similar to other proposed Abe reforms. In the future, greater engagement in humanitarian and UN-sanctioned peacekeeping operations overseas will encourage a more aggressive trade presence worldwide. Constitutional reinterpretation, or revision if successful, will add to the dividends Japan can reap from TPP and other trade agreements.

The End of Insularity 

In the 1980s and ‘90s, Japan initiated an awkward and occasionally derided “internationalization,” more a catch phrase than policy that came across as quaint for Western observers and people from other rapidly globalizing countries. Today, though, there are new opportunities to globalize the country with permanence.

Tourism to Japan is already a bright spot and continues as a component of Abe’s economic program. Visitors are arriving in record numbers, surpassing 13 million in 2014, double the 2011 numbers. A Japan weighed down less by its restrictive constitution can provide leverage for more globally active foreign policy, which implies more integration and crossovers of Japanese technology, potentially more interest in the culture and “Cool Japan,” and ultimately more foreign visitors.

Immigration is a more fraught proposition in the still insular, mostly homogeneous Japanese social fabric, but has great potential as a hedge against extreme demographic decline. As the grim trend lines of demographic decline have solidified (Japan’s population fell in 2014 by a record 268,000), the world’s most rapidly aging country is on track to lose more than 50 percent of its inhabitants by 2100. Japanese media sources in early 2014 implied that Abe’s government considered floating a proposal to allow a significant increase in legal immigration, perhaps allowing as many as 150,000-200,000 skilled workers into the country annually.

To the extent that demographics is destiny, prospects for real economic revitalization are unrealistic without some path toward more liberal immigration. It is not yet clear if Abe has the inclination or political capital to push hard – he may leave this hard sell to his successors.

A strong case, however, can be made for fostering the three arrows and revising the constitution to set in motion other domestic reforms, pivoting towards more open trade, tourism, and eventually far more open immigration channels.

Ideological Dilemma

The supreme irony surrounding the quixotic Shinzo Abe is that his forward-thinking quest for a re-energized Japan contrasts sharply with deeply held ideological views, which by any account appear rigid and nationalistic. Like many of his contemporaries, he cannot seem to repudiate old rationalizations of some of Japan’s darker legacies from the Showa era, its colonialist and militarist past, including the disasters of the Pacific War. On too many of the historical issues – Korea, massacres in China, “comfort women,” war crimes, and Yasukuni – Abe finds it difficult to acknowledge much responsibility for the nation’s war era mistakes and excesses. These views are difficult to reconcile with an agenda of national renewal.

Any changes to the constitution would best be achieved with transparent accounting for misdeeds of the wartime era, and softening the cultural arrogance towards Asia that still flares among Japanese nationalists.

These controversial views on complex historical issues, more than any external factor, pose a threat that could easily derail plans for constitutional reform. Any revision to the Japanese constitution requires supermajorities in both houses of the National Diet, and affirmation in a national referendum. Winning a referendum is an extremely difficult proposition at the best of times; the pacifist left’s suspicions of Abe’s nationalist inclinations make any effort at change extremely difficult. Any perception or public relations stumble that suggest Abe is moving too quickly, or altering Japan’s stance against offensive warfare, may immediately extinguish any possibility of reform. The public is wary of emerging threats in the region, but remains highly skeptical of constitutional change.

For constitutional revision to stand a chance, Abe must walk a political and foreign policy tightrope, cautiously persuading his constituents and approaching regional partners with diplomatic skill. Even as portions of the three arrows reforms alienate domestic special interests, Abe hopes short-term economic growth will maintain public perceptions of progress, keeping his government viable and on the path to garner support for revision of the constitution. It will be a delicate dance.

Is the prime minister’s attempt at summoning Japan’s animal spirits to unite, once more in collective purpose, a pipe dream? Many economists are skeptical, and historians will agree it is a steep climb. Still, the constitution, economic reform, and Japan’s security net are intertwined with the national psychology.

Abe’s confidence game is a hedge against demographic and national decline, a fledgling effort to make Japan a first tier geopolitical power in a volatile region, and finally emerge from insularity as a global citizen. The prime minister’s grand ambitions may not set Japan on the course to a second economic miracle, but in the face of stagnation and decline, his big gamble on the constitution should pay dividends down the road. It is a risk worth taking.

Andrew Oplas served at the World Bank in Washington DC and Tokyo from 2007-14. He writes on foreign policy and international development issues.