Abe’s “Third Arrow”: Not What Margaret Thatcher Had in Mind

Abenomics's "Third Arrow" is more like an old-fashioned industrial policy than Thatcherite deregulation.

The deregulation arrow? More like a government industrial policy.

Next week, my colleagues and I at DN are hosting an event with top UK law firm Freshfields to discuss Prime Minister Abe’s economic policies and compare them to those of the UK’s Margaret Thatcher. It’s an interesting comparison, especially concerning Abe’s “Third Arrow,” often framed by the media as a deregulation push. But after a fantastic lecture by Stanford University’s Takeo Hoshi, I’ve come to believe that Thatcher would find very little to approve of in Abe’s approach.

First, let's look at the name itself. The official title is the “Growth Strategy,” and its components—the Industry Revitalization Plan, the Strategic Market Creation Plan, and the Strategy of Global Outreach—make no mention of deregulation. While some proposals, particularly those for the labor market, university education, and healthcare, have a deregulatory flavor, Professor Hoshi argues they're more akin to an old-fashioned, government-led industrial policy.

Hoshi highlighted several key issues. He noted that the policies are numerous, vague, and lack proper implementation metrics. Of the 52 reform ideas, 10 have no Key Performance Indicators (KPIs) at all, and only 20 have at least one KPI within the next five years. Other KPIs are so aspirational—like “being the most original country in the world”—that they're practically meaningless. Many of these “policies” are nothing more than “feel-good” pronouncements with no real plan for execution, covering praiseworthy but unimplemented goals such as promoting women, ensuring employment for all ages, attracting foreign workers, and developing clean energy.

Another point of skepticism from Hoshi was the creation of “special economic zones.” He sees these as a strategy copied from China that could end up cannibalizing demand from other regions of Japan instead of creating new growth.

Perhaps the biggest difference between Abenomics and Thatcherism lies in a significant omission: the privatization of state assets. This was a cornerstone of Thatcher’s revolution, based on the belief that the government’s role was not to provide goods and services. The private sector, driven by market forces, was far better suited to that task, and it needed as light a regulatory structure as possible to thrive. Japan, in contrast, has largely avoided this path.

Despite these criticisms, Professor Hoshi did offer a glimmer of hope. He pointed out that Japan is one of the few countries pursuing an expansionary fiscal policy alongside money printing. This is a stark contrast to the austerity measures being implemented in the UK, the US, and most of Europe. From an editor’s perspective, I think this unique policy mix almost guarantees some level of growth. It shows a degree of political imagination.

However, I'm concerned about the quality and fairness of that growth. British economist Andrew Smithers once said that politicians boast about the size of their national GDP at events like Davos, but they talk about GDP per capita when they genuinely care about their citizens. Unfortunately, Abe seems more interested in the Meiji-era ideal of Japan as a “great power” than in the welfare of his people.

Ultimately, while the comparison to Margaret Thatcher is a useful starting point, it's clear that their approaches are fundamentally different. Thatcher sought to shrink the state’s role and unleash the private sector, while Abe’s policies, despite the rhetoric, appear to be a more traditional, top-down approach of government-led industrial policy.