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Abenomics Explained: How Shinzo Abe’s Contentious Economic Plan Transformed Japan

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Few leaders leave a legacy like Shinzo Abe. The longest-serving prime minister in Japan’s history led an ambitious domestic reform agenda and redefined the country’s status in geopolitical affairs. Following his assassination Friday, he will perhaps be most remembered for “Abenomics,” a controversial economic stimulus strategy that many economists say helped revive the Japanese economy.

“He injected hope into the Japanese economy,” Koichi Hamada, one of Abe’s former economic advisers, tells TIME. Hamada, now a professor of economics at Yale University, is credited as a key architect of the Abenomics theory. “Poor villages disappeared, university teachers were not worried about the employment opportunities of their students, and so forth, because of Abenomics.”

Abe, who served two stints as prime minister from 2006 to 2007 and from 2012 to 2020, was shot twice on Friday morning while delivering a speech in the city of Nara in western Japan, where he was campaigning for the ruling Liberal Democratic Party (LDP) ahead of Sunday’s legislative elections. He died in the early evening hours at the age of 67, sending shockwaves around the world.

The former prime minister, who stepped down in 2020, was a key figure in economic circles, helping guide the world’s third-largest economy through challenging times while maintaining strong automobile and consumer electronics industries. “He is probably the most important prime minister that Japan has had since the end of the Second World War,” says Robert Ward, Japan Chair at the International Institute for Strategic Studies. “Abe left a rich, rich legacy.”

Abe’s “Three Arrows”

When Abe took office in 2012, Japan was suffering from weak exports, a trade spat with China and continued fallout from the 2011 nuclear disaster and tsunami. The combination of factors led Japan into a recession, forcing Abe to come up with a way to jolt the economy out of a sustained period of high inflation, high unemployment and stagnant economic growth.

His plan consisted of “three arrows”: an increase in government spending, a boosting of the nation’s money supply and structural economic reform. It used a surge in government spending and hyper-easy monetary policy in the form of negative short-term interest rates to kickstart Japan’s stagnant economy, producing results that experts say were positive but inconsistent. Structural reform brought more women into the workforce, increased protections for temporary workers and eased the rules that have largely restricted migrant workers.

“The program represented a major new attempt for Japan,” says Mireya Solís, director of the Center for East Asia Policy Studies at the Brookings Institution. “He tried to revive the Japanese economy, and there were some successes there.”

Special Advisor To Japan's Prime Minister Koichi Hamada Speech
Koichi Hamada, an economic advisor to Japan's Prime Minister Shinzo Abe, speaks during an event in Tokyo, Japan, on Wednesday, Sept. 4, 2013.Tomohiro Ohsumi—Bloomberg/Getty Images

Where Abenomics Went Wrong

With the hindsight of several years, the overall success of Abenomics is debatable. Abe’s policies failed to build an economy with lasting strength and helped contribute to widening wage inequality as the ranks of workers in less-secure, low-paid jobs grew, his critics say.

Abe’s former economic adviser, Hamada, disagrees. He says the approach was “very successful” in creating jobs and promoting equality between regular workers and temporary workers.

“There was a strong distinction between the two,” Hamada says, “since only regular employees could get stable employment with higher wages.” But Abenomics, he says, opened the door for temporary workers to get jobs, and more companies began to hire non-regular, temporary workers as a result.

The effect of that policy can still be felt today, Hamada notes. According to a 2021 government survey of Japan’s wage structure, 47% of foreign workers in full-time positions were classified as “non-regular staff,” such as temporary or contract employees. “It put many more people to work and because of the shortage of human resources, firms started to invest domestically instead of abroad,” Hamada says.

“The idea was to have this principle of equal pay for equal work, regardless of whether you were a regular or non-regular worker, and to increase wages,” Solís counters. “But wages are still stagnant for non-regular workers, and people are feeling the effects in their wallets.”

Mixed Sentiments

Japan’s current Prime Minister Fumio Kishida, who took office in 2021 after Abe resigned, criticized Abe’s economic policies last January. Speaking at the World Economic Forum’s virtual Davos Agenda conference, Kishida said that the massive monetary and fiscal stimuli were not enough to create a sustainable and inclusive economy. Early in his term, Kishida launched his own “new capitalism,” a set of policies aimed at closing the income gaps that Abenomics is accused of producing. Kishida’s plan has since faced pushback from the business community.

“Abe didn’t put as much effort in structural reform,” Ward says. “Labor market reform, gender equality, perhaps some industrial reform, are difficult for any country politically. His battle was more around security reform and being diplomatically active outside Japan.”

Sentiment towards Abenomics today varies. Some 62.5% of people in Japan think Kishida should reexamine Abenomics, while only 14.7% think their country should continue Abe’s economic program, according to a 2021 poll conducted by Jiji Press, a Japanese news agency.

Experts agree that it helped drive growth at the time and put the country in a better position to withstand economic shocks than it was before Abe took office. Initial investor response to the reforms were positive, as the Nikkei 225 index rallied to highs it hadn’t seen in more than two decades, reaching above 20,000 in April 2015 from a low of around 9,000 in 2012. But Abe’s approach seemed to fall out of favor after Japan nearly slipped into recession again in 2020, as COVID-19 ravaged global markets.

“Even though Abenomics did not achieve all of its goals,” Solís says, “it was an important step forward. There was progress.” Before Abe took office, Japanese policy was marred by constant political turnover and an inability to pass long-term reform. The prime minister’s seat had been occupied by 18 different leaders between 1987 and 2012, but Abe managed to break the mold and hold his position longer than any other Japanese leader.

“Not all of his initiatives were novel ideas,” Solís adds. “But he was the one that was able to see them through, largely because of the political stability that he brought.”

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Write to Nik Popli at nik.popli@time.com