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Abe era a cautionary tale for deflation-tilting global economy

Three lessons from the Abe legacy that could have been

| Japan
Bank of Japan governor Haruhiko Kuroda meets with Abe in April 2018: when Abe promised to fire three arrows, he really meant one.   © Reuters

William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades."

The global fawn fest over Shinzo Abe's departure takes the you-do-not-know-what-you-have-until-you-lose-it sentiment to new heights.

The outpouring from Washington to Singapore, the sheer volume of "Oh no, what do we do now?" news analyses, speaks to concerns about the global leadership vacuum, one expanding a bit before our eyes as Japan's longest-serving leader resigns for health reasons. Even coldblooded John Bolton, former U.S. national security adviser, seemed to shed a tear, calling it a "major loss for both Japan and the United States."

Not surprisingly, Tokyo is off to the who-comes-next races. Will former Defense Minister Shigeru Ishiba finally get his chance to measure drapes at the prime minister's residence? Might the current Defense Minister Taro Kono, get the nod? Are the stars aligning for Foreign Minister Toshimitsu Motegi or former top diplomat Fumio Kishida? Or will Abe pass the baton to loyal Chief Cabinet Secretary Yoshihide Suga?

But before we look forward, we must take brutally honest stock of all that Abe failed to do with his 2,800-plus days in power. That made for a surreal, downright Trumpian Aug. 28 press briefing. Everyone knew Abe was stepping down, and yet he spent the first 10-plus minutes at the podium defending his COVID-19 response, his economic successes and other topics -- like nothing historic were going on in Tokyo.

It was a stark reminder that Abe spent way too much time palling around Donald Trump, who wages a daily war against reality. Abe rambled on as if Japan was not back in recession and deflation was not returning. He talked as if relations with China and South Korea were not in tatters or North Korea had not become a bigger threat on his watch. He proceeded as if Japan's demographics-and-debt time bomb is not worse than ever.

Abe spoke as if he had not shackled Japan's global clout to a U.S. president who would sell out Tokyo for a China trade deal tomorrow. It was the political equivalent of dancing like no one was watching. Now that the music is stopping, here are three lessons Japan's next prime minister must internalize and heed.

One: Public relations is not reform. Notice that in the last few years of Abe's reign, the media toned down references to Abenomics significantly. Slowly, and grudgingly, even true believers noticed the sprawling gap between the Big Bang Abe previewed in 2012 and actual results.

When Abe promised to fire three arrows at a rigid economy, he really meant one. Archer Haruhiko Kuroda, Abe's Bank of Japan governor, fired monetary weapons in all directions, delivering the longest expansion since the 1980s. The other two arrows either fell to earth -- pro-growth fiscal policies -- or never got deployed -- massive deregulation.

Raising sales taxes twice in 2014 and 2019 shot Japan in the proverbial foot even before COVID-19. These misfires, and a dearth of moves to loosen labor markets, cut red tape, incentivize a startup boom and empower women, explain why Japan cratered at an annualized 27.8% rate in the second quarter. Japan's next leader must do more than produce a splashy public relations campaign. He needs an action plan.

Two: The 1980s ended long ago. It is too simplistic to say Abe erred by thinking Kuroda alone could revive things. Abenomics sought to resurrect a manufacturing-centric system that no longer exists. Back in, say, 1985, massive BOJ easing and a 30% yen depreciation might have been enough to kick off virtuous cycles of rising wages and consumption.

Japanese passenger cars for export await loading onto a car carrying vessel at a wharf of Yokohama port in January 1983: the 1980s ended long ago.   © AP

This is pre-China-boom thinking. Rather than pass on the spoils of record profits, CEOs waited for a supply-side revolution that never arrived. In September 2013, Abe visited the New York Stock Exchange to declare "Japan is back." Yet how many multinationals have showed up to bid on Japan Inc. icons since then?

Or what of SoftBank's Masayoshi Son? His $100 billion Vision Fund changing the global venture capital game sprinkled virtually nothing in Japan. That Abe was thinking of 1985 while China's Xi Jinping invests trillions in 2025 says it all. Japan's next leader must turn his gaze to a future that Abe did not seem to notice.

Three: America is not in Asia. Trump gushed Twitter praise over the weekend, saying he says he "feels bad" for Abe. What he really meant was "who, oh who, am I going to sit with at Group of Seven meetings?" No world leader prostrated his nation more at Trump's feet than Abe.

And Japan got zero for it. The trade war slammed Japan's export engine and its supply chains. Trump's bizarre "love" for Kim Jong Un enabled North Korea to perfect nuclear-weapons capabilities. The day Trump reneged on Trans-Pacific Partnership, a trade deal Abe spent vast political capital joining, was the best of Xi's presidency. Trump even tried to scam $8 billion annually out of his "great friend" for hosting U.S. troops. Some pal.

Even if Joe Biden wins the November 3 election, the coronavirus-ravaged U.S. economy is going to be in shambles for years to come. Japan's next leaders must mend fences in Asia, particularly with Beijing and Seoul.

Tokyo should work to pull Korea into what remains of the TPP. Why not lobby Indonesia, the Philippines and others to join? Japan could lead an effort to link Asian bond and stock markets, create deeper currency-swap arrangements that pool together trillions of dollars of foreign exchange reserves and cross-border venture-capital programs to create more tech unicorns.

Abe had three assets no predecessor did: a revival blueprint the public supports, high-approvals ratings -- early on, at least -- and plenty of time to see his Japan-is-back vision through. To turn this cautionary tale of what could have been around, the next prime minister will have to do some serious heavy lifting -- and rethinking -- right out of the gate. In other words, more 2025, less 1985.

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