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Q&A With Ken Shibusawa: Japan’s New Form of Capitalism

By Ken Shibusawa
September 16, 2022
In response to the many challenges facing the global community today, and to tackle the growing wealth gap in Japan, the Kishida administration has developed a new policy to make the Japanese economy more sustainable and inclusive. The new policy, named “New Form of Capitalism” combines raising wages with direct investment in education and innovation. Ken Shibusawa, CEO of Shibusawa and Company and member of Prime Minister Kishida’s New Capitalism panel, joins us to explain what it is about.
The ”New Form of Capitalism” has been described as a shift from shareholder capitalism to stakeholder capitalism. What is the difference between the two, and how will it benefit Japan?
The first thing everybody asks about the new form of capitalism, is “what's so new about it?”  People wonder whether it’s a distribution model or a growth model. I think it's very clearly not either/or, but instead strives to create a virtual cycle of both growth and distribution.

While that's been widely reported on, one part that I believe hasn't been covered so much, but which the Prime Minister himself has stated on many occasions, is the fact that he wants to incorporate the externalities that have been left behind by capitalism. By externalities I mean issues involving the environment, society, and other factors. 

My take on the new form of capitalism is that it’s inclusive capitalism. Is it new? No. But it is it necessary for our new age? Definitely, that's what this policy is going for. 

To have this inclusive sort of capitalism, which takes externalities into account, you have to answer to shareholders, obviously. But there are also other stakeholders who need to be answered to. This includes not only clients and customers, but also your workers, your partners, the environment, society, etc., and it's the management’s job to respond to all those needs. It seems like a very complicated job, but that’s why companies need top executives to do the difficult work. After all, that's what they get paid for.

So it's not new, but I think it's definitely necessary for this new world that we're entering.

Some in the international press have called it a rejection of Abenomics, but is that actually the case? How does this new policy differ from Abenomics, and why was a shift necessary? 
Yes, there's been a lot of interest from the foreign press asking, is it the end of Abenomics? Having this sort of opposing viewpoint makes it a very interesting story, so I can understand why they would want to tilt it that way. But at the same time, Prime Minister Kishida is the head of the LDP. It’s the same party; it's not like the opposition took over. So it makes perfectly good sense that he will continue the legacy and policies that were implemented by his predecessor. But then of course, as the new head of the LDP, I'm sure he has a vision of taking it into a new direction, and so he'll put his own stamp on it.

Abenomics came into place right after the Fukushima incident. The world had lost confidence in Japan and asset prices were abysmal. We needed Abenomics. It was the right time for that kind of policy. Confidence was regained and asset prices recovered.

Of the ‘three arrows’ of Abenomics, the most prominent was the first. I actually call it “the bazooka” because the scale and quality of that monetary policy was something we hadn’t seen previously. And there was fiscal policy to support that. Regarding the third arrow, which was about structural reforms, there was some good work done on corporate governance, I thought.

But in regard to the three arrows there needs to be some follow-up. I mentioned how confidence was restored, and asset prices went up primarily due to monetary policy. Looking back at the last ten years, yes, asset prices went up and market capitalization for many companies reached historic highs. But at the same time, if you look at the social disparity in the last ten years, obviously a lot of people were left behind. To me, the “New Form of Capitalism is trying to pick off where Abenomics left off. That is, it seeks to include the externalities that got left behind. I don't think see it as a contrary form of economics, but as a new form, the next evolution of Abenomics.

The Kishida administration is planning to encourage new innovation. Which fields are they choosing to support, and based on what criteria? 
For innovation to occur, you first need to have the basic technology in place. But then an invention doesn’t become an innovation until it’s recognized by the markets and consumers see it as a product or service that they require. At that point, they need a start-up that can deliver that technology, translated into a product or service, and then finally consumers start using it. That’s how it becomes an innovation.

Looking at that line of thought, we first have to start with the basic technology, and within the new policy the Kishida cabinet has focused on four areas: quantum technologies or quantum computing; artificial Intelligence, which is a wide field; regenerative medicine, iPS, etc.; and finally biomaterials, which to my mind has opened up a Pandora's box of sorts, but will be in every aspect of our lives over the next 30-50 years.

Exterior of the National Cancer Center in Tokyo
Medical research, such as the work done here at the National Cancer Center in Tokyo, will be among the fields receiving funding to improve quality of life and spark new innovations.

Within that context, it also includes things like green transformation, which is another global trend. This is something that is relatively easily monitored in terms of the advancements being made. Because start-ups will be the ones delivering results, the cabinet has put an emphasis on supporting new start-ups, even appointing a Minister for Startups. From a Western standpoint that is probably somewhat strange as start-ups are a private sector initiative, but in Japan there are barriers for start-ups, such as legal or social issues, so there is a role that the government can play in terms of deregulation.

With so much emphasis on supporting innovative new technologies and fields and industries, where does this leave traditional manufacturing or non-technical industries? How will they and their employees benefit?  
That's a very important question, and a very difficult one, because we're talking about not leaving anybody behind. However, obviously, if traditional industries can't adapt to the new age and the new business environment, they'll be left behind.

Digital transformation, which everybody talks about in Japan, is one aspect of this. While the larger companies have the cash on hand to deploy digital tools, there are many more smaller companies, and in terms of numbers of people, a lot more people work for SMEs. Raising the digital literacy and capabilities of SMEs here in Japan will require support, which can either come from the larger companies that the SME's work with or from the government.

So to answer your question, I imagine the government will probably focus on encouraging digital transformation in such a way that the traditional industries and SMEs won't be left behind in this changing environment.

Finally, on the distribution side of the new form of capitalism strategy, most have interpreted this to mean that the wages would be increased. There have been articles in the international press, however, about Japanese businesses being reluctant to get on board with this. How is the administration going to encourage them to raise wages? 
I don't get the sense that businesses are or against raising wages in principle. It's not like Japanese management is saying, “oh, we're going to keep our wages low forever.” During the council discussions, nobody raised any concerns about the policy to try to urge companies to raise wages. There was no opposition to that.

One concern was that while larger companies can do that, it may again be difficult for SMEs. One individual, however, a business owner, said that he likes raising wages, because lifetime employment is not a given anymore here in Japan. So you know that when a person is getting offers that are much higher than what you are providing, then your company realizes it needs to raise wages to keep talent.

So, while the foreign press might be putting their own spin on this, the reason businesses in Japan may be reluctant to raise wages is not because they're profit-driven and they don’t want to provide a working environment that's suitable for employees who are doing their jobs. I think that's a miscommunication that should be rectified because it is not true.

But one important reason wages aren't going up here in Japan is the liquidity in the labor market here in Japan. As I said, we all know that lifetime employment isn't a given anymore, but still many of the skills that employees gain over the years are very internal. So, unless you see labor market liquidity, you're not going to have structural increases in wages.

I think one thing we need in the new form of capitalism—and I believe this is more a wish by the council members rather than the government because it's a very complex issue—is the fact that we need to end the Showa era [1926 – 1989, including Japan’s economic “Bubble”] success model. One of the cornerstones of that success model is the lifetime employment seniority system, and that game is over. People realize that, management realizes that, and middle management realizes it. People entering into business probably don't even think about it. This is something that I personally thought was very important to focus on [as part of the advisory panel], but given the timeframe of our discussion, which was 6 months, they won't be able to make any sort of big changes in that short a time frame.

But the focus of the foreign press not so much be on the companies or on executives being resistant, but instead on this labor market liquidity issue.

Ken Shibusawa founded in 2001, Shibusawa and Company, Inc., and in 2008, Commons Asset Management. In 2021, he joined Brunswick Group as senior advisor. He is also director of Keizai Doyukai (Japan Association of Corporate Executives), member of various government panels, including Prime Minister Kishida’s Council on New Capitalism, and a steering group member of UNDP SDG Impact.
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