In economic circles, no slight stings more than being compared to Herbert Hoover. The 31st U.S. president, who helped make the Depression of the 1930s great, ranks among history’s worst growth killers.
Ryutaro Hashimoto, Japan’s prime minister from 1996 to 1998, went to his deathbed in 2006 seething over being tagged as Asia’s Hoover. Among those doing the labeling was former Sony Corp. chairman Norio Ohga. Hashimoto’s crime? The same as Hoover’s ― an ill-timed and ill-advised tax increase that ended Japan’s post-bubble recovery.
Hashimoto may soon have company in the annals of Hooveresque economics ― Yoshihiko Noda, Japan’s current leader. Last week, Noda made significant progress in raising the consumption tax by 10 percent over the next three years. Never mind that deflation is deepening, the population is shrinking and the ranks of the working poor are swelling. Noda says higher taxes are needed to pay down the nation’s debt, the largest in the world relative to the economy.
Some politicians are praising Noda for bold leadership, but that’s complete bunk. Raising taxes on 126 million people traumatized by two decades of economic drift and last year’s record earthquake and tsunami is taking the easy road. It’s a quick fix that’s likely to backfire and erase the little dynamism that’s left in an economy that has been overtaken by China.
True leadership would be to undertake major reforms. Japan’s problem isn’t really the size of its debt. It’s that there has been no real growth since the 1980s-era asset bubble burst. At the start of 2012, Japan’s inflation-adjusted gross domestic product was smaller than it was in 1992.
If Noda were to lead, he would tell farmers ― and other narrow special-interest groups stopping Japan from signing job-creating free-trade agreements ― to go away. He would spend less time coddling Japan’s nuclear industry and more championing energy alternatives to the dangerous reactors in the nation’s midst. A green revolution would fuel an employment boom.
If he really wants to lead Japan’s economic revival, he would demand that companies become more shareholder-friendly and accountable. He would offer incentives for executives to hire more women as full-time staff, ending the neglect of half the country’s most valuable resource.
Leadership would have Noda’s team devising ways for women to manage both a career and a family, including more affordable child care and lower taxes for couples having babies. He would act to push for increased immigration. Never mind claims that homogenous Japan isn’t ready to open its borders; economic reality makes it a necessity, not a choice.
Real leadership would be to set a new national goal to promote English proficiency. Like it or not, English is the lingua franca of the Internet Age, not to mention the global economy. Twenty years ago, foreign executives had to do things Japan’s way ― translators, ambiguous signals, the reluctance to offer a definitive “yes” or “no” to questions. Today, those executives have choices from South Korea to China to Indonesia.
Change means urging companies to rethink hiring practices. Students begin seeking lifetime employment in their junior year of college, or even their sophomore year. Fear of missing out on this recruitment process dissuades many from studying abroad or taking time off to travel before joining the ranks of the salarymen. It has created an odd generational quirk: Today’s young Japanese are often less international than their fathers.
Boldness means calling on companies to stop bellyaching about the strong yen and learn to live with it. Yes, those changes are afoot to some extent. More and more companies are seeking cheap production overseas. Yet the latest Tankan survey of business confidence found that large manufacturers were again chronically pessimistic, thanks largely to the yen. Japan’s currency has been strong for 10 years now ― figure it out.
Noda should work with the Bank of Japan to devise ways to get banks to lend. Wave after wave of central-bank liquidity isn’t resulting in the credit creation Japan needs to jump-start growth. Rather than tax consumers, why not tax banks that hoard cash? Why not force bankers to do their jobs? That might offset the effects of higher taxes.
Japan also lacks a vibrant venture-capital industry. How about announcing a government-driven incubation campaign with lower corporate taxes for new companies? OK, that would be anathema to economists from Adam Smith to Milton Friedman. But there’s a reason Japan is losing ground as scrappy startups and social-media offerings level alter the economic landscape. Japan Inc. still sees nothing wrong with most of its innovations and patents coming from huge companies, as opposed to Mark Zuckerberg types. That arrangement needs to change and if it comes from the government, so be it.
The Facebook Inc. founder met Noda in Tokyo last week, the same week in which the prime minister got closer to his dream of higher taxes. Zuckerberg is on the cusp of his own bit of history: the Internet’s biggest initial public offering. The big difference, of course, is that as Zuckerberg is creating wealth, Noda is set to destroy it, Herbert Hoover-style.
By William Pesek
William Pesek is a Bloomberg View columnist. The opinions expressed are his own. ― Ed.
(Bloomberg)
