Reviewing the impact of Shinzo Abe's economic policies : The Indicator from Planet Money Shinzo Abe served as Japan's Prime Minister for nearly eight years before suddenly announcing his retirement in August. Today on the show, the lessons of Abenomics for the US and other countries.
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The Economic Legacy Of Shinzo Abe

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The Economic Legacy Of Shinzo Abe

The Economic Legacy Of Shinzo Abe

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UNIDENTIFIED PERSON, BYLINE: NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

CARDIFF GARCIA, HOST:

Hey, everyone. This is THE INDICATOR FROM PLANET MONEY. I'm Cardiff Garcia. So much has happened this year that you might not have noticed the news at the end of August that Japanese Prime Minister Shinzo Abe announced that he was retiring. But this story was actually a huge deal. Abe had been Japanese prime minister, uninterrupted, longer than anyone in history, almost eight straight years. And more importantly, he had turned around a struggling Japanese economy by doing things that were totally unexpected and that other countries might be able to learn from.

The economist Noah Smith lived in Japan for several years, and he still spends about a month there every year now analyzing the Japanese economy. And when Abe took over as prime minister at the end of 2012, Noah it did not think much of him, especially because Abe had been prime minister once before back in the 2000s. And it was not a super-impressive stretch, Noah says.

NOAH SMITH: And I didn't expect him to do more this time, but he completely defied my expectations and hired a bold team of advisers and implemented the most dramatic economic revitalization plan in living memory.

GARCIA: Abe also cut against the prevailing trends in other countries, including the U.S., which in recent years has been fighting trade wars and making it harder for immigrants to move here. Abe did the exact opposite for Japan. Noah says Abe governed as an economic liberal, which means that he opened up the Japanese economy to trade and to immigration, and that he tried to make Japanese companies more dynamic, more competitive.

SMITH: He became Japan's most liberal leader, probably in the post-war era, which is astonishing because everyone expected him to be this arch-conservative. He came from this extremely conservative background and had a lot of right-wing allies. But instead, he ended up changing Japan in a liberal direction.

GARCIA: Today on the show, the legacy of Shinzo Abe. How did he get the Japanese economy back to growth again? And what are the lessons of his time as Japanese prime minister for the U.S. and for other countries? A chat with Noah Smith right after the break.

(SOUNDBITE OF MUSIC)

GARCIA: Noah, I want to start with trade because so many other countries have kind of closed themselves off from trade in recent years. I mean, the U.S., famously under President Trump, pulled out of the Trans-Pacific Partnership trade deal with all these other countries, including Japan, at the start of his presidency. And then, of course, he also launched trade wars, raised tariffs, raised other barriers to trade. But Shinzo Abe kind of did the opposite for Japan, didn't he?

SMITH: He absolutely did. Under Abe, Japan became the world's biggest promoter of trade agreements, signed a big trade agreement with the EU and managed to keep the Trans-Pacific Partnership going despite Trump having withdrawn the United States. So essentially, Abe became the standard bearer of free trade, or at least for trade agreements. The reasons for pursuing all these trade agreements are, of course, to open up markets for Japanese exports, but also through opening up Japan to foreign imports to put pressure on hidebound, unproductive Japanese industries, especially the agricultural industry, force them to modernize and increase productivity.

GARCIA: Yeah. And, Noah, there's a specific economic challenge I want to ask you about that Japan faces because I think it's a challenge that a lot of other countries are paying attention to to see how Japan deals with it because they also might face a future in which they have to deal with it, and it's that Japan's population is aging. The average age is rising, and that makes it harder for the Japanese labor force to grow over time because there may not be enough young people to offset the older people who are retiring and leaving the labor force. So what did Abe do to confront that challenge and bring people into the Japanese labor force?

SMITH: He did basically two things. No. 1, he tried to increase women's participation in the labor force. No. 2, he tried to get more immigrants to come work in Japan.

GARCIA: And both of those things, by the way - to be clear, before Abe came in, both of those things had been sort of stagnant for years. There wasn't much immigration, and women faced a lot of barriers coming into the labor force, right?

SMITH: Right. Women had been increasing their labor force participation gradually, but this really accelerated under Abe. As for immigrants, immigration had been really low before Abe and then sharply accelerated under him.

GARCIA: OK, let's take each of those in turn then because those are both things that other countries are also grappling with. So what specifically did Abe do to lower barriers for women to enter the Japanese labor force?

SMITH: Well, one of the barriers is that day care is really hard to find and expensive in Japan. So the Abe administration built many day care centers, although now so many women are going into the workforce that the supply has difficulty keeping up with the demand. But he built a lot more day care centers. He also expanded parental leave policies dramatically to make it easier for parents to go take care of kids for a while and then come back to their old jobs.

In addition, he leaned on companies to hire more women. He forced companies to disclose how many women they were hiring, including for managerial positions. And then companies that hired more women would get preferential awards of government contracts. So that was another powerful tool.

GARCIA: OK. And what about to encourage more immigration?

SMITH: He did two things, basically. No. 1, for skilled immigrants, they made a fast track to permanent residency, which made it easier to come, you know, live and work in Japan if you had some sort of skills. No. 2, he created a new program which was called a guest worker program but is really an immigration program because it has a path to permanent residency. And so that's for more sort of unskilled labor.

GARCIA: Yeah. And, Noah, another big part of Abe's agenda was to put in place this team at the Japanese central bank that would use aggressive monetary policies to really stimulate the economy and to get the Japanese economy growing fast enough that people and companies would be spending enough money to raise inflation in Japan up to 2% a year after years of low inflation and even prices falling because people were not spending very much money. So were those monetary policies successful, in your opinion?

SMITH: They were. So the central bank printed a bunch of money. It bought a large bunch of assets, including much of the country's stock market. However, this failed to raise inflation to the desired 2% target even though it got the country out of deflation. But they didn't hit the target. And there's a number of other ways in which it sort of greased the wheels of financing for corporate Japan that probably helped. And so monetary policy, even though they didn't hit that inflation target, did help a lot.

GARCIA: OK. And last question, Noah. As you look at the Japanese economy in the time under Abe and you look at all these different policies that we just discussed and that Abe put in place and which seem to have had a positive effect, what do you think are the lessons of Abe's time as prime minister for other countries and for the leaders of other countries?

SMITH: I think the No. 1 lesson is that people care about their standards of living. Abe had a chance to focus on culture wars, and he passed it up and instead focused on increasing people's lot in life and avoiding culture war entanglements and focusing on making things better for people and doing whatever you need to do and not being a prisoner of ideology, not deciding ahead of time that every policy you do needs to conform to some idea of how economic policy should work, but instead being pragmatic and simply doing what works. That's the lesson for other leaders.

GARCIA: Noah Smith, thank you so much.

SMITH: Thank you.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

GARCIA: This episode of THE INDICATOR was produced by Darian Woods and Jamila Huxtable. It was fact-checked by Sean Saldana. Our editor is Paddy Hirsch, and THE INDICATOR is a production of NPR.

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