Picture a suit that has been living at the back of the wardrobe, cut for a person it no longer fits in a style now out of fashion.
The suit survives chiefly on nostalgia for happier times lived by a once-dishier occupant — blistering parties, slam-dunk job interviews, searing romances — and on the delusion that there must surely come a time when its owner is slimmer and the garment back in vogue.
Despite its name, this is the appeal of Japan’s “new capitalism” as it harks back to traditional business methods and challenges the necessity for quarterly financial reporting.
Since Fumio Kishida became prime minister in October, he has carefully engineered the new capitalism phrase to float behind him as a grand, zeitgeisty thought without snagging on anything substantial. A big part of its power has derived from its lack of definition.
“New capitalism”, in the hands of an avowedly consensus-focused leader, conducts the rising sense that much is wrong with the current capitalism without risking failure by committing to hard solutions. Helpfully, it also comes without hard time limits. Its main political purpose has been to differentiate Kishida from his two statedly pro-market predecessor prime ministers, Yoshihide Suga and Shinzo Abe. Now it has served its purpose, the pressure to keep that delineation clear is fading.
But, with an important Upper House election in July, the air in the new capitalism balloon still requires regular blasts of heat. Hence, say financial and political analysts, a series of leaks last week that the government was discussing changes that could ultimately relieve listed companies from the burdens of quarterly reporting.
Despite this line coming from the top levels of the administration, the true extent of any changes is hazy. Listed companies have overlapping quarterly reporting obligations to both the government and stock exchange, the former with penalties for false disclosures, the latter without. Abolishing the government’s requirements would reduce duplication, though it would not necessarily cause a radical alteration in company behaviour.
The specifics of the debate, however critical to investors, were not the point of the leaks. The central mission was to show Kishida addressing an issue with an easily identifiable villain — the “short-termism” supposedly fostered by the demands of quarterly reporting. For a Japanese leader without a strong ideology, this is a perfect business bogeyman.
Short-termism sounds, to a domestic public raised on the nation’s long-termism mythology, inherently un-Japanese; quarterly reporting can be justifiably painted as something forced upon its listed companies by foreigners. And Japan can cite good company in this fight when even the unrepentant market capitalists in the US and UK have begun to voice concerns around the dangers of short-termism.
The problem with creating such a bogeyman, at the expense of a more thorough debate on the finely-balanced pros and cons of quarterly reporting, is that it plants the idea that a suit which should have been chucked out ages ago may suddenly be wearable again. Two things in particular — both reflecting shifting attitudes outside Japan — could lure Japan into this mistake.
The first is the idea that the pursuit of new capitalism is prompting a favourable re-evaluation of Japan’s traditional way of doing things: in this case, listed companies’ assertion that they exist to serve a range of stakeholders rather than the supposedly narrower demands of shareholders. In this context, nothing could be more seductive than an interview with Japanese media last week in which BlackRock chief executive Larry Fink suggested that Kishida’s “new capitalism” was akin to the stakeholder capitalism he believes fosters durable profitability. Remove the un-Japanese quarterly reporting obligations, and perhaps companies can also return to more natural emphasis on stakeholders.
The second enticement is in the idea that the kind of long-termist corporate planning at which Japan always believed it excelled has been brought back into fashion by a combination of ESG investment narratives and the blows to globalisation caused by disease, war and trade disruption.
The big problem lies in the conviction that Japan’s old capitalism was better than current capitalism and that new capitalism will somehow prove that to be the case. The assertions of stakeholder emphasis were too often a disguise for terrible governance and outright abuse of minority shareholders. The assertions of long-termism were too often an excuse for cash hoarding and inaction. The memories of great times may be extremely strong and extremely fond, but Japan may need to accept it might always have been a terrible suit.