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Saturday, Jan. 1, 2005

Aim for change, not utopia


The 20th century was an era of utopias. Until the mid-1970s, many young Japanese believed that a socialist society was a utopia. While I was a student at a prefectural high school in Kyoto in the late 1950s, a classmate of mine with North Korean parentage returned to his homeland, which he thought was a dreamland. In those days, Japanese media used to describe North Korea as a "paradise on Earth." I majored in economics at a university because I wanted to specialize in Marxist economics.

In the 1950s and 1960s, the Soviet Union was consistently ahead of the United States in science and technology, leading it in the satellite-launching race until the successful U.S. manned flight to the moon in 1969. Regarding economic management, many experts believed that a planned economy was more efficient than a market economy. It was generally agreed that the major problem with a socialist system was that democracy, freedom, individual liberty and other modern Western principles were denied under single-party rule.

North Korea was by no means a paradise on Earth. In the late 1970s, the economies of the Soviet Union and its East European satellite states started on a path of long decline and it became clear that a socialist society as a utopia had no realistic possibilities.

The socialist economic system was unworkable because:

Despite their superior heavy and chemical industries, the Soviet Union and its satellite states were far behind their Western rivals in developing information technologies.

Planning the economy was beyond human intelligence. It was next to impossible for a state to set prices of all goods and services that would achieve a balance between supply and demand.

In addition, the Iron Curtain failed to deter transfers of technology while preventing the transfers of human resources and goods. People had no difficulty in obtaining information on Western nations through the Internet, just as they had no problem in monitoring West German television broadcasts.

Following the collapse of the Berlin Wall in October 1989 and the breakup of the Soviet Union in December 1991, the socialist system fell apart. China and Vietnam, meanwhile, switched to a hybrid system combining socialism and a market economy. While maintaining absolute single-party rule, they have shifted to a market economy and achieved high economic growth.

In Britain, Prime Minister Margaret Thatcher inaugurated her conservative government in 1979. In her view, utopia was a society based on pure market fundamentalism. John Maynard Keynes said the market was imperfect (citing the downward rigidity in nominal wages, friction in the market and often-inaccurate forecasts). Therefore, in his opinion, it was impossible to eliminate imbalance such as unemployment and instability such as business cycles. To prevent imbalance and instability, he said government should intervene in the market through fiscal and monetary policies.

Thatcher, an advocate of "small government," reversed the Keynesian theory to create a "perfect market." Thatcherism sought to privatize national enterprises and ease or eliminate various regulations to establish a society based on market fundamentalism.

We came to realize in the late 1990s that such a society was another utopia. It exposed various ills such as a widening income gap, deterioration in public medical care and education, violent changes in asset prices, currency crises in developing countries stemming from frequent transfers of short-term capital, and few winners overwhelming countless losers in free competition.

Furthermore, the protracted Japanese economic slump since the 1990s shows that the Keynes-style mixed economy, based on the perceived effectiveness of fiscal and monetary policies, and the government's market intervention, was another utopia. Through the years, Japan cut its official discount rate from 6 percent to 0.1 percent, expanded public works spending through annual supplementary budgets, and cut the income tax, but all the measures failed to activate the economy.

The government of Prime Minister Junichiro Koizumi took power at the start of the 21st century and implemented Japanese-style Thatcherite policies. Both Koizumi and economics minister Heizo Takenaka are likely to believe in a utopian society based on pure market fundamentalism.

Twentieth-century utopias, conceived by Adam Smith, Marx and Keynes, were imaginary societies with little realistic potential. To begin with, proposals for utopias should be taken with a grain of salt. We must be content with a relativist view seeking not the best system but a better one.

The 21st century is likely to be a period without a utopia. As long as a utopia does not exist as the goal of reform, how should we implement reform for a better society? The only way is to reform the social system through continuous adaptations to frequent changes.

We should achieve reform by staying ahead of changes and making suitable and quick adaptations. Those succeeding in such endeavors will be winners in the 21st century.

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


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