How Yoshihide Suga Can Finish What Shinzo Abe Started

(Bloomberg Opinion) -- There was no puff of white smoke, but Japan has a new Prime Minister. Yoshihide Suga, who was Chief Cabinet Secretary under Prime Minster Shinzo Abe, won an overwhelming victory in an internal contest within the long-dominant Liberal Democratic Party. Widely considered to have been one of the chief architects of Abenomics, Suga is likely to keep the government’s focus on resuscitating the economy. His top priorities should be a more efficient corporate culture, gender equality, and raising low-end incomes.

Under Abe, Japan went back to work. Buoyed by monetary easing, the employment rate soared:

This was especially true of women, who entered the workforce in record numbers. Increased immigration also added to labor supply. The coronavirus pandemic will cause employment to fall, but it should bounce back quickly, enabled by continued monetary easing and the fact that Japan’s disease outbreak has been relatively mild.

Encouragingly, productivity has also risen. Between 2012 (when Abe took power) and 2019, the OECD estimates Japan’s output per hour rose by more than 7%, compared to less than 6% for the U.S. But much more needs to be done. In 2018, Japan’s labor productivity was the lowest of the G7 — only about 62% of U.S. productivity.

Japanese workers simply waste a lot of time. Crushingly long hours in the office leave them too exhausted to be fully productive. Companies tend to value employees based on how much time they put in, not how much they actually get done. Promotions are typically based on seniority, making it hard to get companies to embrace fresh new ideas. A passive shareholder culture has allowed managers to maintain their companies as personal fiefdoms while neglecting the need to improve efficiency.

Not only does low productivity represent a huge millstone around the neck of Japan, Inc., it makes it very difficult for Japanese workers to raise families, exacerbating the low birthrate and contributing to population aging.

Abe made some inroads against this culture with a new corporate governance code. And new trade deals will expose some Japanese companies to competitive pressure. Suga should certainly continue these efforts, but the sheer size of the problem requires new approaches. Three key targets should be more remote work, more mid-career hiring, and more promotion of women.

Remote work is important because when people work alone, there’s no way for their bosses to monitor their hours. So managers must evaluate workers based on how many tasks they actually accomplish. The need to create new systems of evaluating output instead of input necessarily breeds a corporate culture focused on productivity and results. That in turn gives workers an incentive to find ways to use their time more productively, so they can move on more quickly to other tasks, such as child care. As a bonus, remote work would give workers more time at home and make child care easier, potentially boosting the birth rate.