Yuriko Nakao / Courtesy Reuters A businessman looks at share prices displayed outside a brokerage in Tokyo, December 11, 2009.

Japan's Fat Chance

Why Abe Won't Embrace Neoliberalism

In a recent Foreign Affairs article, Noah Smith outlines a bleak future for Japan if the Abe government fails to introduce neoliberal reforms. “Many features of the Japanese economy that are commonly attributed to culture,” he writes, “are, in fact, the result of Japan trying to run a modern economy without neoliberal reform.”

Smith is not wrong about the Japanese economy. Indeed, it would benefit from lifting regulations, liberalizing its labor market, and opening its market to more foreign goods, capital, and workers. But that does not mean that it will. For 30 years, prime ministers have solemnly declared their ambitions to reform the Japanese economy for the twenty-first century. All have largely failed to deliver structural reform. Even Junichiro Koizumi, the premier who rode his pledge of “structural reform without sanctuary” to rock star–like popularity, had more success with cleaning up bank balance sheets -- a policy ultimately aimed at improving macroeconomic performance -- than with transforming Japan’s postwar economic institutions.

In turn, there are three reasons why Prime Minister Shinzo Abe will not be a neoliberal reformer either.

First, as Smith recognizes, neoliberalism has been met with “stiff public resistance.” For every reform proposed, there are those, usually with allies in the bureaucracy and the Liberal Democratic Party (LDP), who are prepared to water down, stall, and block initiatives. The fate of Abe’s “third arrow,” which Smith believes could deliver neoliberal reform, at the autumn extraordinary session of the Diet, has provided plenty of evidence that politicians are still plenty capable of blocking reform. Neoliberalism is particularly handicapped in Japan because the country has a weak tradition of liberal political and economic thought; the state’s prominent role in industrializing and then rebuilding the economy after World War II has left Japan with a strong legacy of statism that few are ready to abandon.

That includes Abe himself, who does not seem particularly disposed toward neoliberalism. Like his LDP predecessors, Abe has signaled that his goal is “

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