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Monday, June 5, 2000

The conservative's dilemma


Traditionally American voters have been given a choice between conservatism and liberalism. The Republican Party is labeled "conservative" and the Democratic Party "liberal." In Japan before 1993, when the Liberal Democratic Party lost its monopoly on power, the choice was between conservatism and socialism. For decades Japanese voters had no need to draw a fine line between conservatism and liberalism.

The conservatives see the market as almighty, set great store by self-help and self-responsibility, pursue "small government" and therefore advocate a "low-welfare, low-burden" policy. These are the basic economic principles that support conservatism.

Liberals regard the market as imperfect and therefore maintain that government intervention in the market is necessary to secure economic stability and to correct imbalances. They embrace a "high-welfare, high-burden" policy.

Take unemployment, a supply-demand imbalance in the labor market. The imbalance develops because nominal wages have "downward rigidity" (they are inflexible to drops in demand). If wages actually drop to the level that matches demand, unemployment will disappear through the play of market forces. On these points the conservatives and liberals agree.

Beyond that, the two sides differ sharply. The conservatives think along these lines: Wages are downwardly rigid, either because labor unions do not accept wage cuts despite the fact that demand is lower than supply, or because the minimum-wage law prevents wages from falling below a given level. The law should be scrapped because unemployment stems from "irrationalities" in the market. If labor unions are tamed and if employers pursued "rationality," unemployment would go away.

On the other hand, liberals think this way: Achieving full employment is a top priority. If unemployment rises as a result of weak domestic demand, more jobs should be created by closing the supply-demand gap. Demand can be expanded by cutting interest rates and/or increasing public spending. The minimum-wage law, which prohibits extremely low-wage labor, should be maintained. Workers have a legitimate right to negotiate for higher wages through labor unions.

In fairness to conservatives, it must be said that they do not believe that the socially weak, including the unemployed, should be left in the cold. They acknowledge the need for the welfare system as a "safety net," although they consider it a necessary evil. They argue, as a matter of principle, that the weak should be left out for the sake of economic efficiency. But they believe that in practice a safety net should guarantee them the minimum necessary livelihood. At the heart of this thinking is the "logic of the strong": The social cost of providing a safety net for the weak is lower than that of keeping them on the payroll.

Conservatives and liberals also differ in social outlook. The former respect "tradition" and "order." They tend to exclude people on the fringes of society. They also lean toward nationalistic thoughts. The latter are tolerant toward the socially disadvantaged. And they are inclined toward cosmopolitanism.

Former Prime Minister Yasuhiro Nakasone, a confirmed conservative pushed economic liberalization. He also encouraged nationalism by reviving official visits to Yasukuni Shrine. Conservatives believe that an arms buildup is essential to national defense. Former U.S. President Ronald Reagan slashed Social Security spending to reduce the federal budget deficit, but he also invested heavily in the "Star Wars" national missile defense program. Conservatives view government as a system designed primarily to maintain order. Government functions such as defense, diplomacy, financial-market oversight, crime control and firefighting all aim at achieving this objective.

Protecting traditional systems and customs, particularly those involving the state and family, is one of the highest priorities for conservatives. They believe that state and family traditions must be preserved to maintain social order. They smell a rat in cosmopolitanism. For them, patriotism is the most important attribute of a people.

The ongoing information-technology revolution will shake up the concept of the nation-state. With the Internet connecting people across national boundaries, the traditional framework of nation-states is bound to weaken. This does not mean, however, that the world will become a single community. Instead, the more the world globalizes, the more fragmentary it will become -- a process that pundit John Nesbitt called a "global paradox."

The development of a global information network connecting individuals, or fragmentary regions, around the world does not necessarily mean that politics and culture will become uniform in the same way as economic activity. On the contrary, pressure for uniformity will create resistance in the form of, say, nationalism, cultural protectionism or religious fundamentalism.

As a result, ethnic, religious and cultural conflicts will come to a head even in small regions that may on the surface look homogeneous. Most likely conservatives alarmed by cross-cultural frictions will mount a campaign to exclude foreign groups in order to protect the culture of their country.

Thus the IT revolution, which is being promoted by conservatives who believe in market might, will intensify the conflict between true conservatism committed to cultural protectionism and market fundamentalism and those who oppose economic protectionism.

Takamitsu Sawa, professor of economics at Kyoto University, is also the director of the university's Economic Research Institute.


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