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Tuesday, Sept. 4, 2001

Build a better welfare society

Few doubt that Japan's market economy lacks freedom, transparency and fairness. There are growing calls for marked-oriented reform to make it really free, transparent and fair.

Such reform, however, will inevitably produce negative effects, including wider income gaps, higher unemployment and deterioration in public health-care and education. To minimize the negative effects, I believe a "third way" of reform should be implemented simultaneously with market-driven reform.

The third way, proposed by British Prime Minister Tony Blair when he took office in 1997, combined elements of Thatcherism and the Labour Party's old policies. Thatcherism, devised by Prime Minister Margaret Thatcher, gave free reins to market forces. Old Labour called for a planning economy.

The third way seeks to establish an equitable welfare society.

To distinguish the third way from old Labour's policies, the words "equitable" and "welfare" must be redefined. The "equitable society" sought by old Labour is one in which income gaps don't exist. In the opinion of old Labour, actual distribution of income inevitably is unequal; therefore, gaps in disposable income should be minimized through progressive taxation and welfare payments to the needy.

To Thatcherites, an "equitable society" means one with equal opportunities, which the government must guarantee. They believe that all people should stand at the same starting line but that inequities resulting from competition are unavoidable due to differences in individual abilities and efforts. In their view, to correct such inequities with progressive taxation hurts the effectiveness of a market economy.

Third-way politics aims to create a "fair society" that does not exclude anybody. Unemployment is a typical form of exclusion. Those wishing to work but unable to find employment are clearly excluded from society. Therefore, reducing the unemployment rate is a priority of third-way politics.

The Thatcher years saw a deterioration in public health-care service and education. The poor were excluded from good health care and education, creating an unfair society. In the United States today, 16 percent of the population has no medical insurance and is excluded from health-care service. In that sense, U.S. society is unfair.

Third-way politics seeks to minimize the number of those socially excluded. However, market forces do not help create a fair society; they tend to exclude the underprivileged.

To save those people, advocates of market forces call for the creation of a safety net. They believe the social cost of providing a safety net for those excluded from society as a result of competition and letting them live on welfare payments is reasonably low.

Conservatives say excessive welfare payments should be avoided since they make people lazy and dependent on welfare. Welfare payments to the sick, old and jobless naturally encourage dependence on welfare.

Future welfare systems should seek to improve the utilization of human resources and minimize the number of welfare recipients. For example, many college graduates in their 30s feel they don't "fit" their jobs and wish to change careers. For a new career, they need to acquire advanced skills and knowledge at a graduate school. If, however, they have a family to support and do not have financial resources for a two-year course for masters, they are forced to remain in jobs they dislike.

If there were a system allowing such people to use a portion of their future pensions for study, they could earn a master's degree while supporting their family. Many people would benefit from such a system, and so would the nation's economy.

Welfare societies of the future must stress positive welfare. Reform to create a positive welfare society that does not exclude anybody will facilitate market-driven reform.

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

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