Shifting U.S. Strategies

China’s rise will coincide with a change in the United States' strategic posture in the Pacific Rim. Since it became the leading superpower at the end of World War II, the United States has enforced its position by securing global sea-lanes, maintaining a permanent U.S. military presence along key regional fault lines, and on occasion, directly intervening to maintain the balance of power. The United States wants to prevent the emergence of a rival regional hegemon anywhere in the world.

Washington’s strategic imperatives in the Pacific will not change, but its methods will. The United States will transition gradually in the coming years toward indirect and less costly ways of enforcing its writ. This will mean devolving responsibility to regional partners such as the Philippines, Australia, Taiwan, South Korea and Japan.

The United States’ shift is already beginning to push its allies in East Asia to become much more proactive in defending their security interests. Japan is at the forefront of this movement. In late 2012, Japanese Prime Minister Shinzo Abe launched an initiative to revive Japan’s regional economic, diplomatic and military standing. Since that time, Japan has made strides in regional diplomacy and military expansion and normalization. Still, to be successful, Japan will need to dramatically expand its efforts.

Throughout history, economic power and military power have been intertwined. In the 20th century, industrialization, combined with the technological limitations of ballistics, placed a premium on volume. However, since the final years of the 20th century, the quality of weaponry has become more important than the quantity. Vast fleets of large military vessels traveling long distances will continue to decline in significance, while precision-guided weapons platforms supported by space-based guidance systems will become increasingly important.

Meeting Japan's Military Needs

To play a role in 21st-century Pacific regional security, Japan will need to cultivate and sustain a cutting-edge domestic computing industry. To do this, Tokyo could start by increasing spending and public-private partnerships in defense research and development. It could also increase cooperation, intelligence sharing and technological connections with the United States. But Japan will also need to form a broader fabric of innovation and experimentation in computing technologies upon which the state can draw in times of need.

Although Japan has long excelled at advanced manufacturing and is still at the forefront of robotics, the country has struggled to gain a comparable footing in Internet-based computing. Japan's enduring Cold War order – an order defined by the close relationship between the government and major business groups, the keiretsu – is part of the problem. Keiretsu have hampered the efforts of successive Japanese leaders to open Japan to greater outside competition and investment, a factor that will need to change if the country is to encourage innovation in computing. Tokyo will also need to foster Silicon Valley-style tech startups, cultivate entrepreneurship and educate its workforce in the relevant disciplines.

Maintaining and widening its technological edge against regional rivals will require Japan to make significant changes to its domestic job market, changes the country has avoided thus far because of the mildness of its current economic stagnation. Tokyo will need to address the stark rise in underemployment Japan has seen in recent years. The total portion of Japanese employed in part-time jobs rose from 29 percent of the workforce to nearly 38 percent between 2002 and 2014. The offshoring of Japanese manufacturing activity over the past two decades has only added to the country’s employment problem. Anecdotal evidence indicates that over the past 20 years, many major Japanese electronics and advanced manufacturing companies that once dominated Japan’s economy (and accounted for a sizable chunk of domestic employment) have downsized their domestic workforces, at least in manufacturing, while expanding their share of overseas employees.

The Japanese economy will not necessarily have to grow for Japan to buffer against China and play a leading regional role, but it will need to become much more dynamic. This will mean channeling the nation’s dwindling working-age population into cutting-edge industries, something that will also be critical to maintaining domestic political order as the shrinking workforce bears the burden of caring for an aging population. How Japan responds to external pressures, and whether its response is adequate, will be determined largely on the basis of what happens to its economy over the next 5-10 years, the period in which Japanese Prime Minister Shinzo Abe’s reforms will play out.

Part 3

Summary

Editor’s Note:Since the end of the Cold War, the Pacific Rim has seen China rise and Japan stagnate. However, Japan is approaching an epochal shift that will enable it to challenge the current order. This analysis is the third in a four-part a series that forecasts the nature of that shift and the future of Japan. Part two examined therise of China and its impact on Japan.

As the strategic situation in the Pacific changes, Japan will be forced to adapt. Tokyo will need to pull the Japanese economy out of stagnation and cultivate a dynamic set of new industries while luring back businesses that have gone overseas. Current Japanese Prime Minister Shinzo Abe has an ambitious plan to do just that – but the strategy has so far foundered, and in the long term it will likely fail.

Analysis

“Abenomics” aims to revive Japan’s economy through three measures: monetary easing to devalue the yen, fiscal stimulus, and structural reforms. By devaluing the yen, the prime minister hopes to revive consumer spending by reversing consumer expectations of continually falling prices after years of stagnant-to-negative inflation. A weaker yen would also make Japanese exports more globally competitive and increase the value of overseas corporate earnings repatriated to Japan. Fiscal stimulus will include direct government investment into infrastructure development, defense and other sectors. The measures would also include corporate tax cuts and reforms aimed at stemming the flow of investment overseas while attracting greater foreign investment.

The last set of initiatives, structural reforms, aim to improve worker productivity by loosening the regulation of full-time workers, deregulating protected sectors such as agriculture and power to increase competition domestically, and expanding international free trade agreements, including the Trans-Pacific Partnership. In addition to the “three arrows,” the Abe administration is trying to encourage the autonomy and competitiveness of Japan’s different regions and cultivate a startup culture.

Abenomics is still in its early stages. The next two years will be critical in determining whether Abe's plan will succeed. But there are numerous factors that will constrain Abenomics and could derail the program completely.

The Japanese economy’s most serious problem for the next decade will be high and rising underemployment. For 20 years, this has been the key driver behind declining average household consumption and a drag on consumer spending. Weak consumer spending, combined with expected population decline, limits the Japanese government’s ability to boost corporate investment at home.

Each of the arrows has aspects meant to raise employment. Monetary easing seeks to boost the value of Japanese corporate earnings overseas to raise earnings for major conglomerates and free up bandwidth for them to invest domestically if they choose to do so. As part of fiscal stimulus, Abe aims for corporate tax cuts to create stronger incentives for these conglomerates to invest capital domestically rather than put it into savings or reinvest it abroad. Finally, structural reforms seek to ensure that when companies invest domestically, they are free to do so in ways that will maximize productivity and profitability, even if it means cutting back on long-standing workforce privileges.

Date: 2016-04-22; view: 665