How Shinzo Abe’s Controversial Economic Plan Transformed Japan

FNew leaders leave a legacy like Shinzo Abe. Japan’s longest-serving prime minister led an ambitious program of domestic reforms and redefined the country’s status in geopolitical affairs. After his assassination on Friday, he may be best remembered for “Abenomics,” a controversial economic stimulus strategy that many economists say helped revive Japan’s economy.

“He instilled hope in the Japanese economy,” Koichi Hamada, one of Abe’s former economic advisers, told TIME. Hamada, now a professor of economics at Yale University, is considered one of the main architects of the theory of Abenomics. “Poor villages disappeared, university professors did not care about their students’ job opportunities, etc., because of Abenomics.”

Abe, who served two terms as prime minister from 2006 to 2007 and 2012 to 2020, was shot twice on Friday morning while delivering a speech in the western Japanese city of Nara, where he was campaigning for the ruling Liberal Democratic Party (LDP) ahead of Sunday’s parliamentary election. He died in the early evening at the age of 67, sending shock waves around the world.

The former prime minister, who resigned in 2020, was a key figure in economic circles, helping to guide the world’s third-largest economy through tough times while maintaining strong automotive and consumer electronics industries. “He is probably the most important prime minister Japan has had since the end of World War II,” said Robert Ward, president of Japan at the International Institute for Strategic Studies. “Abe left a rich and storied legacy.”

Abe’s “Three Arrows”

When Abe took office in 2012, Japan was suffering from weak exports, a trade dispute with China, and the continuing fallout from the 2011 nuclear disaster and tsunami. The combination of factors drove Japan into recession, forcing Abe to find a way to pull the economy out of a prolonged period of high inflation, high unemployment, and stagnant economic growth.

His plan consisted of “three arrows”: an increase in public spending, an increase in the country’s money supply, and structural economic reform. He has used increased government spending and hyper-loose monetary policy in the form of negative short-term interest rates to revive Japan’s stagnant economy, producing results that experts say are positive but inconsistent. Structural reform has brought more women into the labor market, strengthened protections for temporary workers and relaxed rules that have largely restricted migrant workers.

“The program represented a major new attempt for Japan,” says Mireya Solís, director of the Center for East Asian Policy Studies at the Brookings Institution. “He tried to revive the Japanese economy, and there were some successes there.”

Koichi Hamada, economic adviser to Japanese Prime Minister Shinzo Abe, speaks during an event in Tokyo, Japan, Wednesday, September 4, 2013.

Tomohiro Ohsumi—Bloomberg/Getty Images

Where Abenomics went wrong

Looking back several years, the overall success of Abenomics is questionable. Abe’s policies failed to build a sustainable economy and contributed to widening wage inequality as the ranks of workers in less secure, low-paying jobs grew, critics say.

Abe’s former economic adviser, Hamada, disagrees. He says the approach has been “very successful” in creating jobs and promoting equality between regular and temporary workers.

“There was a strong distinction between the two,” Hamada says, “since only regular employees could get stable employment with higher salaries.” But Abenomics, he says, has opened the door for temporary workers to get jobs, and more companies have started hiring non-regular temporary workers.

The effect of this policy is still being felt today, Hamada notes. According to a 2021 government survey of Japan’s wage structure, 47% of foreign workers in full-time positions were categorized as “non-regular staff,” such as temporary or contract employees. “It put a lot more people to work and due to the shortage of human resources, companies started investing in the country rather than abroad,” Hamada says.

“The idea was to have this principle of equal pay for equal work, whether you are a regular or non-regular worker, and to increase the wages,” retorts Solís. “But wages are still stagnating for non-regular workers, and people are feeling the pinch in their pocketbooks.”

Mixed feelings

Japan’s current Prime Minister Fumio Kishida, who took office in 2021 after Abe stepped down, criticized Abe’s economic policies last January. Speaking at the World Economic Forum’s Davos Agenda virtual conference, Kishida said massive monetary and fiscal stimuli were not enough to create a sustainable and inclusive economy. Early in his presidency, Kishida launched his own “new capitalism,” a set of policies aimed at closing the income gaps that Abenomics are blamed for producing. Kishida’s plan has since been rejected by the business community.

“Abe hasn’t put as much effort into structural reform,” Ward says. “Labour market reform, gender equality, maybe industrial reform, are politically difficult for any country. His battle was more around security reform and being diplomatically active outside of Japan.

Sentiment towards Abenomics varies today. Some 62.5% of Japanese think Kishida should re-examine Abenomics, while only 14.7% think their country should continue Abe’s economic agenda, according to a report. 2021 survey conducted by Jiji Press, a Japanese news agency.

Experts agree it helped spur growth at the time and put the country in a better position to weather economic shocks than it was before Abe took office. Initial investor reaction to the reforms has been positive, as Nikkei 225 Index hit highs it hadn’t seen in over two decades, hitting over 20,000 in April 2015 from a low of around 9,000 in 2012. But Abe’s approach seemed to fall out of favor after that Japan nearly slipped back into recession in 2020, as COVID -19 ravaged global markets.

“Even though Abenomics did not achieve all of its goals,” says Solís, “it was an important step forward. There has been progress.” Before Abe took office, Japanese politics was marred by “constant political turnover and an inability to push through long-term reform. The Prime Minister’s seat had been held by 18 different leaders between 1987 and 2012, but Abe managed to break the mold and hold on to his post for longer longer than any other Japanese leader.

“Not all of his initiatives were new ideas,” adds Solís. “But he was the one who was able to see them through, largely because of the political stability he brought.”

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