In Europe, there is a prevailing habit of producing detailed reports and ambitious plans that promise to address the continent’s challenges but rarely see the light of day when it comes to implementation. We excel at drafting recommendations for what must be done to tackle pressing issues—whether economic stagnation, climate change, or technological innovation. But the political will and leadership required to turn these suggestions into actionable policies is often sorely lacking.
On September 9, 2023, one of Europe’s most respected statesmen, Mario Draghi, presented an extensive report on Europe’s economic shortcomings and offered a comprehensive roadmap for recovery. Draghi, a former president of the European Central Bank (ECB) and Italy’s former prime minister, is well-versed in Europe’s economic landscape and commands respect across the political spectrum. His report outlined measures to improve growth, boost innovation, and strengthen European economies. However, like many before it, this study is likely to gather dust, buried in the bureaucracy of the European Union (EU), as no major EU government—neither Germany, France, nor Italy—appears capable of implementing its proposals.
This inability to transform recommendations into action raises fundamental questions about the political systems of Europe. Why do we continue to produce insightful analysis and yet fail to execute the necessary reforms? What is it about Europe’s current political leadership that prevents bold action, even in the face of clear solutions? To answer these questions, it is helpful to look at a parallel case from Japan, a country with a similar penchant for producing reports but where a recent political shift might break the cycle of inaction.
Like Europe, Japan has a history of creating councils and committees that promise transformative change but seldom deliver. A prime example is Prime Minister Fumio Kishida’s Council on New Form of Capitalism Realization, formed shortly after he took office in 2021. The council was tasked with rethinking Japan’s economic model to foster a more inclusive and sustainable form of capitalism.
Yet, despite its lofty goals, the council has produced little in the way of tangible results. Most Japanese citizens would be hard-pressed to say that the country has undergone any noticeable shift toward a “new form of capitalism.” The economic system remains much as it was before: wages stagnate, income inequality persists, and large corporations continue to dominate while smaller enterprises struggle to survive.
This lack of noticeable progress is one reason why Prime Minister Kishida’s public approval ratings sank to record lows in 2023. Faced with mounting pressure, Kishida announced on September 27 that he would not seek re-election as leader of the Liberal Democratic Party (LDP), effectively stepping down as prime minister. The case of Kishida shows how Japan, like Europe, struggles to implement the recommendations it so diligently produces.
However, unlike Europe, Japan is at least changing its leadership. Kishida’s resignation opened the door for new leadership in the form of Shigeru Ishiba, who was elected as Japan’s new prime minister. The election of Ishiba offers a glimmer of hope that Japan might finally break free from its cycle of inaction and begin to implement meaningful reforms.
Shigeru Ishiba’s rise to the premiership marks a significant moment in Japanese politics. While political cynicism would normally suggest that little will change—faces in leadership may shift, but the LDP and the broader system of governance remain the same—there are reasons to believe that Ishiba might be able to make a real difference.
Firstly, Ishiba enters office with a significant stroke of luck. For the past two years, Japan has faced a combination of unfavorable economic winds, including high energy prices and a declining yen, which eroded household purchasing power. However, recent developments suggest that the tide may be turning. The rate of inflation is slowing, and the yen is rising in value against the US dollar as the Federal Reserve cuts interest rates to stave off a recession, and the Bank of Japan signals that it will raise its rates in due course. This convergence could narrow the gap between dollar and yen interest rates, helping the yen appreciate.
This shift in economic conditions offers Ishiba a window of opportunity. With inflation cooling and real incomes likely to rise, the new prime minister may be able to navigate the economic headwinds more effectively than his predecessor. This presents a perfect moment for Ishiba to call a general election, which he did for October 27, in hopes of capitalizing on his early popularity and the more favorable economic environment.
The second reason to believe that Ishiba could bring about change lies in the political dynamics within the LDP. If the party wishes to perform well in the upcoming election, it will need to offer voters something more than the status quo. The LDP has long been criticized for its entrenched interests and resistance to change, but if it wants to secure a strong mandate in the Lower House, it will need to present fresh ideas and a clear path forward.
Ishiba himself is well-positioned to deliver on this front. Though a veteran of the LDP, he has long cultivated an image as a maverick, someone willing to challenge the party establishment. This outsider status, ironically, may make him more palatable to voters who are frustrated with the stagnant political environment. As long as he can avoid disillusioning the public with unfulfilled promises, Ishiba’s appeal as a reformer could help propel him—and his ideas—into a more prominent role in shaping Japan’s future.
Finally, the LDP itself seems to recognize that change is necessary. The leadership election that brought Ishiba to power was overseen by two of the party’s most senior figures—former prime ministers Taro Aso and Yoshihide Suga. Both are members of the old guard, but their decision to back Ishiba suggests an understanding that the party cannot continue as it has. The field of candidates included younger leaders, women, and mavericks, signaling that the party is willing to embrace a broader range of voices.
In choosing Ishiba, the LDP opted for a leader who is seen as both a maverick and a safe pair of hands. At 67 years old, he is not a fresh face, but his reputation for being willing to challenge the status quo sets him apart from more conventional candidates. By positioning itself as a party open to reform, the LDP is betting that it can maintain its dominance in Japanese politics while adapting to the changing demands of voters.
Despite the optimism surrounding Ishiba’s leadership, the challenges he faces are substantial. Japan’s economic malaise, characterized by stagnant wages, insecure employment, and weak household consumption, is not something that can be resolved overnight. However, there are steps Ishiba can take to begin reversing these trends.
One of the most critical areas for reform is employment policy. For decades, Japan has pursued a cheap labor strategy, depressing wages and making jobs less secure in order to maintain corporate competitiveness. This approach has resulted in weak domestic demand, as households have less disposable income to spend, which in turn stifles innovation and productivity growth.
Ishiba could begin by dismantling the tax rules that penalize married women who earn above a certain income threshold, a simple but effective step to boost household incomes. He could also push for stronger enforcement of labor rights for irregular workers, a growing segment of the workforce, while making it easier for regular employees to change jobs mid-career by reforming pension rules and providing pre-agreed compensation for employment termination.
Another area ripe for reform is Japan’s corporate culture. There are already signs that the old system of lifetime employment and risk-aversion is giving way to a more dynamic environment, with increased start-up activity and greater risk-taking. However, more support is needed to accelerate this transformation. If Ishiba can foster a high-wage, high-productivity economy, Japan could break out of its current low-growth trap, boosting tax revenues and making it easier to finance key initiatives like the defense build-up and the transition to greener energy.
Shigeru Ishiba’s task is formidable, but his rise to power offers a unique opportunity to reverse Japan’s economic stagnation and build a more prosperous future. If successful, his efforts could offer a valuable lesson for Europe, where political leaders often fail to implement the very recommendations that could address the continent’s long-standing challenges.
While Europe remains stuck in a cycle of producing reports without action, Japan’s willingness to change its leadership—and potentially its policies—might offer a glimpse of how to turn fine words into reality. If Ishiba can break Japan’s cycle of inaction, perhaps Europe can learn how to do the same.
