Confucius is reputed to have said that “Even the longest journey begins with a single step”. I’m sure he’s right and when I look at Abenomics with its three arrows I have to remind myself of this pillar of Confucianism. Japanese Prime Minister Shinzo Abe might be an arrow or two short of an archery contest but he has to be given a decent dose of brownie points for trying.
The first two of the three he announced early last year were massive fiscal stimulus and aggressive monetary easing, both being measures which had already been in place for years but under his stewardship, they were increased to kitchen sink size. Both these have now been implemented and although there have been positive signs in response, there is no saying how long it will take for their respective effects to wear off and for Japan for fall back into its two decade old torpor.
Japan is both deeply xenophobic and socially conservative and shifting it away from that traditionalism will be hard.
The third arrow, the one promising structural reform, is now on the threshold for a second time and with it Abe-San is hoping to catapult Japan and Japanese society into the 21st century. There have over the years been endless jokes about the Land of the Sinking Sun and all that jazz but when all is said and done, the real problem in Japan has nothing to do with capital investment, how hard people are prepared to work or whether they are educated or not, it is simply that as a race the Japanese are dying out. Just look at the population pyramid which reflects rising life expectancy combined with a falling birth rate.
The Base
The toxic nature of Japan’s demographics is nothing new but since it first became a discernible problem it has continued on its one way only path. The fact is that the country lacks consumers and without a consistent increase in end-user participation there can be no sustainable growth. Abe-San has identified this – you don’t need a Nobel Prize in Economics to do so – and is launching the second part of his third arrow, the one promising structural reforms, which he would love to focus on refreshing the population pool. The other reforms which deal with the likes of cutting corporation tax and what not is, to be frank, not much more than rearranging the deck-chairs on the Titanic; it’s robbing Peter to pay Paul.
Unless the base of the pyramid can be made wider, Japan’s descent into the fiscal black hole will continue. Although Abe knows the problem, crossing the bridge to a more liberal immigration policy is a trip too far. Japan is both deeply xenophobic and socially conservative and shifting it away from that traditionalism will be hard. Whether breaking down the traditional family unit in order to put women in the workplace and whether replenishing the population pyramid with immigrants is the way to go is a matter of taste.
As a second-generation Englishman – the first to be born in this country – with not a drop of British blood in me, I have little to add on the xenophobia front and never having had a wife in full time employment, I know little of the benefits of that either. I remain sceptical and fear that Abenomics will just increase the debt by running the country on money it doesn’t have to be paid for by future taxpayers who will not be born. Changing the social attitudes which define the country is a different matter entirely and one which he plays one way to the voters and another way to the international community.
You might choose to take a tactical long position on Japan but you must, in my view, remain a strategic short. Time to wheel out Winston Churchill again with his assertion that trying to spend your way out of debt is like standing in a bucket while trying to lift yourself up by the handle.
Smoke and mirrors
However, fiscal mathematics is a strange science and one which leaves me perplexed. The current debate in the UK is about how the decline in “sin-taxes” – those on alcohol and tobacco – is causing a funding short-fall and how this is to be made up. As a smoker – I could have puffed for the national team until I quit ten years ago – I was told that the heavy taxation was to make good for the cost to the National Health Service which smokers and drinkers with their self-inflicted ailments brought with them. In other words, if we stopped, then the strain on front line services would decline. It was supposed to be a zero sum game. Now we’ve all stopped, we are being told we have to be taxed elsewhere to keep the system running. Having been duped, do I start smoking again?
While feeling frivolous and while on the subject, my thanks to Mike Bailey for the following thought: “Health nuts are going to feel stupid someday, lying in the hospitals, dying of nothing.” It was not Confucius but George Bernard Shaw who is supposed to have said that if you don’t smoke and don’t drink you don’t live longer – it just feels like it.
