The Missing Arrow of Abenomics
Debate about Prime Minister Shinzo Abe's public-policy reforms has largely crowded out discussion of the private sector’s role in economic revitalization. But Japan’s ability to achieve faster growth depends on whether companies take the steps needed to boost productivity.
TOKYO – In his drive to kick-start the Japanese economy, Prime Minister Shinzo Abe, shortly after taking office in 2012, introduced a large fiscal stimulus and put in place a bold program of monetary easing. Since then, Japanese policymakers have been working to launch what Abe calls the third “arrow” of his agenda: arduous reforms of key industries and the demolition of structural barriers to growth.
But the focus on public policy has left a “fourth arrow” – the private sector – untouched and seemingly ignored. This is unfortunate, because the government cannot fix Japan’s ills on its own. Annual productivity growth has been stubbornly sluggish, rarely rising above 2% for much of the past two decades, reflecting both missed opportunities and declining cost competitiveness.
Japan’s productivity slump permeates the entire economy; labor and capital productivity gains have nearly stalled in almost every sector – even in Japan’s signature advanced manufacturing industries. Labor productivity in the transport-equipment sector, for example, is barely half that of Germany.
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