Suga’s first growth strategy met with calls to tackle Japan’s chronic labor issues

Covering topics from decarbonization and digital transformation to improving the nation’s supply chain for microchips, the government laid out sweeping economic objectives Friday in its latest growth strategy.

While a slew of policies are leftovers from the previous administration, the Cabinet has also introduced some fresh items to the first new economic agenda to be issued under Prime Minister Yoshihide Suga.

Notably, the strategy has an increased focus on economic security amid growing geoeconomic risks due to tensions between the United States and China and as the pandemic exposes supply chain vulnerabilities for a number of products, including chips.

Japan will aim to reduce the risk of supply chain disruptions for vital products, such as semiconductors, medical items, batteries and rare earths. The strategy also notes the importance of attracting chip manufacturing bases to Japan, and looks to prop up the competitiveness of the chip industry.

The Suga administration is also looking to boost efforts toward decarbonization to achieve carbon neutrality by 2050, vowing to facilitate green innovation through a ¥2 trillion fund and to adopt carbon pricing systems.

Although much of the spotlight tends to gravitate toward hot economic issues, economists say that it is critical — and timely — for Japan to work on its more deeply rooted problems.

The pandemic has devastated the economy for over a year, but it has also brought about drastic changes to Japanese society that would have taken years to realize otherwise, and those changes could actually be strong assets for Suga’s economic policy.

“Whether Japan can leverage experiences that it has gained from the pandemic is the key for the growth strategy,” said Shinichiro Kobayashi, economist at Mitsubishi UFJ Research and Consulting Co.

Adoption of telework is a prime example of a change that has been forced upon the nation due to the COVID-19 outbreak, and one that could help the country enhance productivity.

Even though work-style reform had been a pillar of Japan’s recent economic policies — and one that appeared repeatedly in past growth strategies prior to the pandemic — it has never really moved forward at speed.

According to a survey by the Tokyo Metropolitan Government in July 2019, only 25.1% of companies in Tokyo had introduced telework systems.

But the health crisis forced businesses to adopt telework to avoid spreading the virus, and a metropolitan government survey conducted in April showed that the telework rate had jumped to 56.6% — saving millions of people the time normally spent commuting over the past year.

Japan was probably able to accelerate the use of telework by four to five years, Kobayashi said.

Still, as the country steps up its vaccine rollout in order to return to normal, some are concerned that the country’s traditional work culture might return as well.

“Big companies with enough financial resources have spent quite a lot to accelerate the shift (to the new normal) in the past year. I think these companies won’t turn back. But if many smaller firms go back to the way they used to be, they might clog the cogs of the economic system,” Kobayashi said.

For that reason, the government should offer specific support programs, including funding and technical help, he added.

Now that Japan has accelerated its progress on some policies, it is critical that the country tackle chronic problems like low labor productivity, economists said.

The government’s focus on that issue is clear: It’s mentioned in the first part of the first chapter of the growth strategy.

Although the country has seen an improvement in its labor participation rate thanks to an increase in the number of working women and older people over the past several years, Japan’s labor productivity remains the lowest among the Group of Seven wealthy nations, according to the strategy.

The Japan Productivity Center says the nation’s labor productivity per worker declined by an average of 0.3% annually from 2015 to 2019 while the figure for the productivity per hour worked rose a mere 0.4% in the same period.

The growth strategy introduces some measures aimed at boosting work efficiency and flexibility by continuing to promote telework, encouraging firms to offer their employees the option of a four-day workweek and furthering the digitization push in the public sector.

Along with work-style reform, improving productivity is something that the government has stressed repeatedly for the past several years, but so far efforts have yet to bear fruit.

The experience has shown that if the government relies on the same method to carry out policies, it won’t really solve the problem, said Yasuhide Yajima, chief economist at NLI Research Institute.

“This was a problem during the Abe administration, too, but growth strategies did not really move forward, since deregulation efforts were really weak. I think the point is what kinds of deregulation the government will come up with.”

Presenting solid deregulation plans can demonstrate that Japan is finally ready to deal with its chronic issues.

For example, deregulation that will facilitate the adoption of telecommuting to take advantage of the new normal should be taken into account, said Yajima, as many people have experienced its merits, whether it’s for work, health care or education.

It remains unclear how serious the Suga administration is about moving growth strategy policies forward, Yajima added.

For the immediate future, the government will likely have its hands full with curbing the COVID-19 situation. Also, a Lower House election must be held by the fall and an Upper House election will follow next summer.

“The situation will change once more people get vaccinated,” said Yajima. “That will be the time to keep a close watch on whether the Suga administration accelerates… and drives forward the growth strategy.”