On June 19, the Liberal Democratic Party (LDP) announced its manifesto for the July House of Councillors election. At the very top, they listed “A Strong Economy, Rising Wages,” signaling that wage increases are their primary focus.
Looking at the content, I give it a score of zero. Of course, since it was likely drafted by intelligent people, it includes some positive points, but it suffers from a complete lack of accountability regarding past policies. As I have repeatedly stated on this blog, conducting a thorough review of past economic policies is absolutely crucial.
For instance, the manifesto targets a “GDP of 1,000 trillion yen and a 50% increase in average income by 2040,” and a “wage increase of approximately 1 million yen by fiscal 2030.” These numbers might have held weight during the Abe administration, when Japan was struggling with deflation. However, we are now experiencing cost-push inflation. Such targets might be achieved simply by letting inflation run rampant, as seen under the do-nothing administrations of Kishida and Ishiba. I can only conclude that they have failed to adapt their mindset to the current economic reality.
While the goal of increasing real wages by 1% annually is correct, real wages have been on a downward trend for an extremely long period—since the late 1990s. What policies will break this trend? The manifesto lists various micro-level measures, but past administrations surely tried similar things. Why did they fail, and why should we believe these new promises will succeed? There is no clarity because there has been no retrospective analysis.
On a related note, an NHK news report I recently saw highlighted how corporate returns to shareholders (dividends and stock buybacks) are steadily increasing. In response, Tomo Suzuki, a Waseda University professor and expert on dividend policy, commented that companies “should direct more capital toward capital investment and employees.” According to his profile, he appears to be a brain trust for the LDP.
While Professor Suzuki’s opinion is not necessarily wrong, I wonder what the value was in soliciting such a comment. This is a failure on the part of NHK to dig deeper. Japan is not the former Soviet Union, filled with state-owned enterprises; simply telling firms to “invest more” or “raise wages” is meaningless. Adjusting the tax system might have a minor effect, but how much growth can we really expect? Corporations do not invest unless they expect a profit, and they will keep wage increases to a minimum unless the labor shortage becomes severe.
Furthermore, as long as we remain trapped in a “infinite negative loop”—where deteriorating national and social security finances lead to tax hikes and benefit cuts, which in turn accelerate consumer frugality and prolong economic stagnation—tweaking other policies to raise the labor share will accomplish nothing. A proper review of the real economy and past policies would inevitably lead to this conclusion.
Ideally, it should be macroeconomic scholars and economists, rather than political parties or old media, who discuss wage hikes from a broad perspective. Yet, they are disappointingly unreliable. Many argue that productivity growth is necessary to raise real wages, but I believe they have the causality backward. Wages do not rise unless the labor market tightens. In an economy where wages remain stagnant amidst a shrinking population, companies will not engage in “wasteful” capital investment. And without investment growth, productivity will not rise. This is how I organize these concepts in my mind. What is required to reverse a nearly 30-year decline in real wages? I believe the answer is self-evident, but I leave it to the readers to consider for themselves.
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