Piketty Diagnoses Japan's Sick Economy
Toyota's projected record $18 billion windfall profit should put a smile on Japanese Prime Minister Shinzo Abe's face. This was, after all, how his economic strategy was supposed to work -- after two years of driving down the yen and filling the coffers of the nation's giant exporters, they in turn would give workers fat pay rises. Hello consumer spending, goodbye deflation.
Except Toyota isn't sharing the spoils. Like most of Japan's industry bosses, Akio Toyoda, the company president, is hoarding the cash. Abenomics may be great for corporate Japan, but most of the nation's 127 million people are still waiting for any benefit. How to move the wealth along? Well, there's someone traveling the country who might offer Abe's team a clue: Thomas Piketty.
Over the past week, the French economist has received rock-star treatment in Japan, where the translation of his 2013 book on inequality will soon hit bookshelves. The problem, Piketty argues, is that the Bank of Japan's ultra-loose policies are ginning up stocks and real estate, assets that tend to further enrich the wealthy. Meanwhile, the 30 percent plunge in the yen, disappearing bank-account interest and rising household costs are hurting everyone else. The BOJ, in other words, is increasing the gulf between the haves and have-nots.
"It’s not enough to print money,” Piketty told Bloomberg's Daniel Leussink in Tokyo. “If you print money, you can create bubbles on the stock market, on real estate prices. But that’s not necessarily increasing consumer price inflation and increasing growth.”
By relying almost entirely on "creative" monetary policies and delaying any structural reforms, Abenomics risks increasing Japan's Gini coefficient -- a measure of a nation's rich-poor gap. Japanese have long been proud of being "ichioku-sohchu-ryu” -- a nation of middle-class people. Yet Japan's sense of egalitarianism is fading as fast as its tradition of lifetime employment. At 0.336, Japan's Gini ranking is already worse than that of Germany, France, Italy and Canada.
Why are CEOs being so stingy? Abenomics has three arrows: monetary expansion, fiscal stimulus and a deregulatory "big bang." The first two have been deployed, but Abe has failed to lower trade barriers, loosen labor markets, reduce red tape or encourage entrepreneurship. Corporate executives say higher wages are contingent on these upgrades; Abe wants paychecks fattened now. As the standoff continues, consumer-price gains (2.4 percent year-over-year) are setting Japanese back.
Just as Japan is a laboratory for what happens when an entire population ages, it's a testing ground for whether zero interest rates can do more harm than good. In a May 2014 paper titled "How Does Unconventional Monetary Policy Affect Inequality?," economists Ayako Saiki and Jon Frost of the Netherlands central bank found that "structural reforms can play a role to offset widened income inequality." The longer Abenomics remains just a monetary game, the more Japanese society will suffer.
"Abe talks about tackling deflation, but with so many younger workers sidelined into low-paid, dead-end jobs, they can't spend much, won't have families, won't buy houses or invest in stocks," said Jeff Kingston, director of Asian Studies at Temple University in Tokyo.
Japan's relative poverty rate -- those living on less than half of median income -- is already about 16 percent, the sixth worst among countries in the Organization for Economic Cooperation and Development. What worries Kingston is the rise of an insecure "precariat" in Japan, which he puts at 38 percent of the workforce. "Growing disparities," he added, "trample on egalitarian norms and values. Increasingly, Abenomics is seen to be welfare for the wealthy."
The answer, Piketty suggests, is a fourth arrow: a plan to redistribute wealth. Abe wants to cut Japan's 35 percent corporate tax to further pad company profits. That would be grand for Toyota, which may earn more this fiscal year than the 11 other carmakers in Japan combined. Why not target the other end of the economy with tax incentives and stronger social safety nets? “I think in Japan it’s important to rebalance the tax system in favor of the young generation, who have a very difficult time to access property right now in Japan," said the author of “Capital in the Twenty-First Century.” "Increasing the value-added tax, which is what Abe did, is not a very good way to reduce inequality in Japan.”
Piketty also favors raising taxes on rich Japanese, particularly beneficiaries of what he calls "patrimonial capitalism," or heavily concentrated wealth passed down over generations. Abe also should slap a 10 percent to 20 percent levy on companies sitting on excessive cash piles. And why not use the bully pulpit to shame corporate Japan into sharing the wealth? If Toyoda and his ilk shared the record $2.3 trillion they held as of March 2014, Abenomics could be helping everyone.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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