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Monday, April 8, 2002


A system to match the times

In 1998, then-Prime Minister Keizo Obuchi launched the Economic Strategy Council as his advisory group. The council, headed by Hirotaro Higuchi, honorary chairman of Asahi Breweries Ltd., came up with a package of policy proposals in its February 1999 final report. The report deserves praise for the excellent recommendations based on the principles of market fundamentalism.

It is clear to most observers that the reform agenda being promoted by Prime Minister Junichiro Koizumi's Cabinet is an extension of the council's recommendations. Structural reforms in Japan should be aimed at transforming the nation's highly regulated, secretive and unfair economy into a free, transparent and fair one. To achieve that goal, the council recommended the implementation of its proposals.

In a book published in the late 1980s, I called for eradicating the premodern vestiges of Japan's economic structure, administrative service and politics. At this time the Japanese economy was booming while the U.S. economy was stagnating. Most economists extolled the superiority of the Japanese socio-economic system.

Japanese labor practices, such as lifetime employment and seniority-based wages, bred corporate loyalty and enthusiasm for work among employees, according to these economists. Major manufacturers and their parts suppliers thrived on long-established, stable networks of partnerships, they claimed.

This system purportedly enabled automobile, electronics and other major industries to build quality products at reasonable prices. Government policies to foster competitive industries, with administrative guidance, contributed to Japan's economic expansion after World War II, the economists said. They argued, unabashedly, that U.S. industries should learn a lesson from Japan's business management, education and government systems to recover from their steady decline.

Many of these economists have now reversed their position, saying Japan must replace its outdated system -- which they say is responsible for the decade-long economic slump -- with a U.S.-style system to revive its economy. Those economists have changed their opinion because they base their judgment simply on results.

In the 1980s, they praised the Japanese system because Japan was prospering while the U.S. was languishing. In the 1990s, they changed their views because Japan plunged into an economic tailspin while the U.S. staged a strong economic recovery. Their simplistic theory is "all's well that ends well."

Why did the Japanese system appear superior to the U.S. system in the 1980s and inferior in the 1990s?

In the 1980s, the final stage of industrial society, Japanese-style business management, administrative service and education systems functioned without a hitch. In those years, the electronics equipment and component industries comprised the most important sector in the Japanese economy. Japanese manufacturing industries were the most competitive in the world. But in the 1990s, the early stage of postindustrial society, the Japanese socio-economic system became dysfunctional, causing the local economy to enter a lengthy slump.

The superiority or inferiority of one socio-economic system to another varies according to the times.

The question is how will times change in the first decade of the 21st century. I believe this period will see further distortions of postindustrial society (which is based on progress in globalization and on the information-technology revolution) -- such as widening income gaps among nations and individuals, increased risks and uncertainties, and a tendency for a small number of winners to overwhelm a large number of losers competitively. The Japanese socio-economic system will not suit the times.

However, the U.S. system may not match the times either. We will all be under pressure to develop a revolutionary system to adapt to stunning changes this decade. As a result, the socio-economic system will change.

Reforms in the 20th century were based on visions of idealistic societies, such as the now largely defunct communist system and Japan's market-fundamentalist system. Reforms in the 21st century will be achieved only through a series of adaptations to change.

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

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