Japan Institute for National Fundamentals

Speaking out

【#206】Abenomics is a Flawed Industrial Strategy

Ronald Morse / 2013.08.05 (Mon)

August 5, 2013

      History shows that countries with significant security and defense related investments are stronger and more economically prosperous. Today, the best example of this is Israel. A good 90% of Israel's successful companies are spin-offs from military R&D. Even in the United States, the engine for America's post 1941 success has been in its expanded investment in defense-related R&D. This is how America defeated Japan in World War II. America's industrial policy has always been designed in the Defense Department, but since the September 11, 2001 terrorism attack on the United States, investment in homeland security has been a major driving force. Even in Japan, before 1945, Japan's economic engine was linked to its military expansion. Today, Japan's major rivals - South Korea, Taiwan, China, Russia, etc. -- all have significant defense industrial strategies.

Limits of post-war industrial policy
      The biggest problem with the Abe administration's emerging national strategy is that his advisors think economic recovery can be generated simply by manipulating economic tools-- exchange rates, tax policy, inflation rates, etc. This strategy hasn't worked for 20 years and it won't work now. Speaking in Singapore on July 26, Prime Minister Abe said: “Over the past few years an anaemic economy in Japan has engendered feeble politics, which in turn weakens the economy further. We have been experiencing a negative chain of weakening that extends to our diplomacy and national security.” But Abe never once mentioned national security or defense R&D in his speech.
      Because of the constitution imposed on Japan after WWII by the Allied forces, for the past 60 years Japan has not had a defense department or developed innovative military technologies. Lacking a defense establishment, Japan has tried to use MITI (METI) - as the ministry responsible for industrial policy. The record shows that this strategy has significant limits. From 1945 to the 1980's, Japan borrowed foreign technologies to grow its economy. This worked for a time, because of Japanese teamwork, quality control and design skills, but gradually these technologies became obsolete. For the past 20 years, Japan has generated little domestic R&D creativity -- the result being that the majority of Japanese companies have declined and lost international market share. Software development -- the core of modern innovation-- barely exists in Japan today.

Double the defense budget
      Today and well into the future, China will pose a major political, economic and military threat to Japan. And there is no guarantee that America's support of Japan will continue in the same way as the past. By almost every indicator, America prefers China as an Asian partner over Japan. And to ensure its strength China, according to most estimates, spends 10% of GNP on defense related industrial development.
      Unfortunately, Prime Minister Abe has relied on promises from the US regarding Japan's future rather than studying the realities of great power relations. Abe's grandfather would not have made this mistake. The only way Japan can energize its economy and ensure the safety of the Japanese homeland is by significant defense-related R&D development. Even if Japan doubled its defense budget today and into the future it will take a decade for Japan to establish a respected and effective military capability.
      The Abe administration also mistakenly thinks that simply amending the Japanese constitution will make a difference in Japan's situation. A "weak" Japan with a changed constitution is still a "weak" Japan. Having the constitutional right to deploy a military that is weak and ineffective is not the right strategy.
      Prime Minister Abe needs to get his priorities straightened out -- stop trying to make the Obama administration happy, study history and industrial policy, boost defense spending, try to get the economy moving and pray that constitutional revision happens before there is a major confrontation with China. The Abe administration needs a fundamentally new industrial policy model if it wants Japan to survive and prosper in the future.

Ronald Morse is former professor at Reitaku University and Guest Researcher of JINF.