POLICY
Japan’s New Form of Capitalism
August 17, 2022
At the start of June 2022, Prime Minister Fumio Kishida announced a new economic policy for Japan. Called a “New Form of Capitalism,” the policy, which had been in planning for several months, is aimed at creating a virtuous cycle of growth and distribution, leading to prosperity that is both sustainable and inclusive.
The impetus for this policy was the growing income inequality that Japan was experiencing. Modern Japan has consistently prided itself on being a very equal society, in which all citizens could be secure that their essential needs would be met, and most could consider themselves middle-class.
While capitalism has made this prosperity possible, unregulated capitalism has led to a winner-take-all approach to business has produced large and growing disparities. In Japan and other developed countries, the gap between the wealthiest and the general population has widened to levels not seen since the early 20th century. Rural areas, in particular, feel excluded from modern tech-driven prosperity. Historically, these divisions weaken society and make people susceptible to the false promises of populist authoritarians and autocrats. In short, inequality puts democracy at risk.
The impetus for this policy was the growing income inequality that Japan was experiencing. Modern Japan has consistently prided itself on being a very equal society, in which all citizens could be secure that their essential needs would be met, and most could consider themselves middle-class.
While capitalism has made this prosperity possible, unregulated capitalism has led to a winner-take-all approach to business has produced large and growing disparities. In Japan and other developed countries, the gap between the wealthiest and the general population has widened to levels not seen since the early 20th century. Rural areas, in particular, feel excluded from modern tech-driven prosperity. Historically, these divisions weaken society and make people susceptible to the false promises of populist authoritarians and autocrats. In short, inequality puts democracy at risk.
Furthermore, unfettered pursuit of “shareholder value” that only looks at short term profits has led to a global climate crisis. The effects of this are already being felt, and future generations will have to carry an even greater burden. For their sakes and for ours, it was decided that a new solution was needed.
The “virtuous cycle of growth and distribution," which this policy aims at strengthening, is built on the idea that once the returns from economic growth are achieved, they must then be used to support society through higher wages or household deductions, which will then lead to further sustainable growth and the redevelopment of a healthy middle class and a fairer economy.
To trigger the first stage of necessary growth, the Kishida administration has laid out a plan to incentivize long-term growth industries. In particular, to realize a science and technology nation by supporting digital transformation, green growth sectors, and by drastically strengthening Japan’s capacity for innovation. To achieve this, a 10 trillion yen university plan has been launched, combined with other public-private initiatives to support science and technology education at all levels. Further initiatives will be put in place to invest in new innovations including digital, green, artificial intelligence, quantum, bio, and space technologies.
The “virtuous cycle of growth and distribution," which this policy aims at strengthening, is built on the idea that once the returns from economic growth are achieved, they must then be used to support society through higher wages or household deductions, which will then lead to further sustainable growth and the redevelopment of a healthy middle class and a fairer economy.
To trigger the first stage of necessary growth, the Kishida administration has laid out a plan to incentivize long-term growth industries. In particular, to realize a science and technology nation by supporting digital transformation, green growth sectors, and by drastically strengthening Japan’s capacity for innovation. To achieve this, a 10 trillion yen university plan has been launched, combined with other public-private initiatives to support science and technology education at all levels. Further initiatives will be put in place to invest in new innovations including digital, green, artificial intelligence, quantum, bio, and space technologies.
Because of the growing gap between urban and rural communities, the New Form of Capitalism policy also includes a “Digital Garden City Nation for Achieving Rural-Urban Digital Integration and Transformation” plan, intended to eliminate the disparities between rural areas and big cities like Tokyo by making it easier for more people to work, start businesses, or see doctors remotely. In addition, a new Digital Agency established in 2021 is overseeing efforts that include investment in next-generation IT infrastructure and a review of some 40,000 laws and regulations to ensure that government is making the best of new technologies.
The plan also emphasizes investing in climate-related technology. The administration believes that huge benefits for both the environment and the economy are possible. Japan has set itself the goal of reducing emissions by 46-50% by 2030, and a long-term climate goal of achieving net-zero emissions by 2050. A 2 trillion yen Green Innovation Fund is being established to support development of next-generation batteries and motors, as well as hydrogen and other clean energy systems, which hold the key to bringing innovations for decarbonizing transportation, industry, and consumer applications into the global mainstream.
This plan requires businesses to shift away from practices that put the interests of shareholders above those of all others. This is hardly a new concept in Japan, as the traditional style of responsible business management was known as “sampo yoshi” or “three benefits” in which the seller, the buyer, and society as a whole all come out ahead. Prime Minister Kishida mentioned this idea directly, saying “It is necessary for companies to manage themselves in a “Sampo Yoshi” style, so that not just shareholders, but all stakeholders, including employees and customers, also benefit.” By shifting from a “shareholder economy” to a “stakeholder economy,” businesses can still enjoy growth and profits, but in a way that is sustainable for society.
The New Form of Capitalism also calls for increased investment in people, which will in turn act as a foundation for further growth. By encouraging increases in wages, along with increased support for childcare, education, and vocational training, the policy aims to support businesses by creating a sustainable increase in consumer demand. At the same time, these initiatives are helping to realize a more open and diverse society that benefits from the participation of every individual.
The plan also emphasizes investing in climate-related technology. The administration believes that huge benefits for both the environment and the economy are possible. Japan has set itself the goal of reducing emissions by 46-50% by 2030, and a long-term climate goal of achieving net-zero emissions by 2050. A 2 trillion yen Green Innovation Fund is being established to support development of next-generation batteries and motors, as well as hydrogen and other clean energy systems, which hold the key to bringing innovations for decarbonizing transportation, industry, and consumer applications into the global mainstream.
This plan requires businesses to shift away from practices that put the interests of shareholders above those of all others. This is hardly a new concept in Japan, as the traditional style of responsible business management was known as “sampo yoshi” or “three benefits” in which the seller, the buyer, and society as a whole all come out ahead. Prime Minister Kishida mentioned this idea directly, saying “It is necessary for companies to manage themselves in a “Sampo Yoshi” style, so that not just shareholders, but all stakeholders, including employees and customers, also benefit.” By shifting from a “shareholder economy” to a “stakeholder economy,” businesses can still enjoy growth and profits, but in a way that is sustainable for society.
The New Form of Capitalism also calls for increased investment in people, which will in turn act as a foundation for further growth. By encouraging increases in wages, along with increased support for childcare, education, and vocational training, the policy aims to support businesses by creating a sustainable increase in consumer demand. At the same time, these initiatives are helping to realize a more open and diverse society that benefits from the participation of every individual.