Home Politics Prime Minister Shinzo Abe Promises to “Drill” Through Regulations

Prime Minister Shinzo Abe Promises to “Drill” Through Regulations

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Japanese Prime Minister Shinzo Abe continues to move forward with his efforts to modernize the struggling Japanese economy. Once a manufacturing and electronics giant, Japan’s economy has stagnated in recent decades and the country has racked up a debt equal to more than 200% of the GDP. In an effort to increase the economic competitiveness of the island nation, Abe has promised to deregulate the complex Japanese market.

Prime Minister Shinzo Abe Promises to “Drill” Through Regulations

This move comes are part of a larger push by Prime Minister Abe to modernize the Japanese economy which has lost much of its competitive edge in recent years. Abe has already made his intentions clear, but a speech delivered at the recent Asia-Pacific Economic Cooperation summit carried a high level of urgency. Abe has previously pledged to begin deregulating Japanese industries by the end of the year.

Abe is promising to make it easier for companies to lay off workers

Some of the most important changes Abe is promising is to make it easier for companies to lay off workers and to reduce staff sizes. Traditionally, Japan has used a “life time” employment model whereby employees were practically guaranteed a job for their whole life in exchange for loyalty and high productivity. Critics of this system, however, have argued that it has made Japanese companies too slow and sluggish to respond to market changes. Further, because the system relies on seniority and hierarchy, many accuse it of actually restraining innovation and creativity.

Japan has also pledged to deregulate its heavily protected farm industry. Doing so, however, may provide difficult as farm lobbying groups hold a considerable amount of sway in the country. Japan protects its farming industry through a series of tariffs on products such as pork, rice, beef, and dairy goods. Farmers fear that lifting tariffs could lead to a flood of cheap imports from countries, such as the United States, which enjoy natural advantages in agriculture due to climate and land space.

The Japanese market is highly complex

The Japanese market is highly complex and international leaders have long accused Japan of protecting its home based companies. Often, lobbying groups and other private interest groups will use the political system to create complex and difficult to navigate regulatory frameworks that have traditionally discouraged foreign direct investment. This has made it difficult for foreign companies to tap local demand.

Indeed, while Japan was the first Asian tiger to emerge as a global power, it’s total accumulated FDI of $200 billion is actually less than Singapore, Ireland, and Mexico. To put this into further context, Poland’s total accumulated FDI ranks on par with Japan, despite having a less developed economy, smaller population, and having been under communist rule up until a few decades ago.

It is unclear if deregulation will really result in increased trade for other nations. Japanese consumers have generally shown a strong preference for Japanese made products. Even if it becomes easier for American auto companies to import cars, for example, there is no guarantee that Japanese consumers will purchase them. A few foreign companies have had success in Japan, however, with Apple Inc. (NASDAQ:AAPL) and Samsung being among the most notable in recent years. Japanese cellphone manufacturers initially ignored the emergence of Korean and American cellphone manufacturers and their smartphones. Now, Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) owns about 13% of the smartphone market while Apple Inc. (NASDAQ:AAPL) owns about 25%, while local companies have seen their market share shrink dramatically.

So far, few details into how Japan will specifically deregulate its economy have been released. While Shinzo Abe certainly seems to have the will to do so, actually implementing deregulation policies is proving to be difficult. Japan has long relied on its isolation to protect home grown companies and interests and these interests have built up a huge amount of power in the country. At the same time, its not clear that Japanese citizens are themselves willing to let go of time honored traditions, such as life time employment.

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