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Monday, July 4, 2005

Denial of a philosophical root


Unlike their Western counterparts, many Japanese economists seem to have a mistaken notion that theories are everything in economics. Rather than disregard them, Japanese almost seem unaware of the philosophies that underlie theories. Western economists make policy proposals based on economics only after deciding whether to support a certain school of economics, be it neoclassical or Keynesian, and its underlying philosophies.

Capitalism today has changed completely from what it was in the second half of the 19th century, when Karl Marx wrote "Das Kapital." In today's Japan, intense class struggles between capital and labor, typified by the labor strife at the Mitsui-Miike colliery in 1959-60, are unheard of. Labor unions have moderated their demands and stage few strikes. Student movements have weakened practically to the point of nonexistence, even at the university where I teach. Since the collapse of the Soviet Union in 1991, socialist society is no longer considered the necessary step to utopia.

Nevertheless, ideological confrontations between neoclassical and Keynesian economists -- or conservatives and liberals -- continue unabated in the academic and political communities. Conservatives dominate in both, although most ordinary people are little aware of the differences.

Neoclassicals believe that a free, competitive market economy is almighty. In their view, the government should limit its functions to police, firefighting and national defense, with personal responsibility and self-help as guiding principles. Social welfare and tax burdens should be minimized.

The United States and Australia are pushing the privatization of prisons. Japan also is reportedly considering the idea after the privatization of the postal service is completed. Limited-term, low-cost prison labor is said to be profitable, providing incentives to private businesses, such as security companies, to operate prisons.

But aren't profit-seeking prison operators likely to try to manage the largest possible number of prisoners with the smallest feasible number of guards. This could lead to human-rights abuses against prisoners.

Neoclassical economists also call for the moderation of progressive taxation. They argue that income gaps foster enthusiasm for work. This proposition has never been proven, but neoclassicals treat it as self-evident, contending that the government should drastically cut income and corporate taxes and turn instead to indirect taxes, such as the consumption tax, for its primary source of tax revenues.

On the other hand, Keynesian economists argue that the merits and demerits of an economy should not be judged solely on the basis of efficiency. To them, fairness is just as important as efficiency.

Neoclassicals argue that, in an efficient economy, income gains will "trickle down" to the lowest income bracket, or about 20 percent of all income earners. It literally is just a trickle; most of the gains go to the higher-income groups, as was demonstrated in the U.S. economy during the 1990s.

To correct such inequities, according to Keynesians, it is essential to introduce an even more progressive income tax and provide more welfare benefits to the destitute. And if profit-oriented companies disrupt the environment, the government must implement strict protective controls or impose taxes on the emission of pollutants.

The phrase "noblesse oblige," which refers to the presumed obligation of people in higher social classes to help the underprivileged, was coined in the context of modern Western civilization. It is in some ways similar to the Japanese "Bushido" (the code of the samurai). In my view, Keynesian economics boils down to "noblesse oblige."

The Japanese government supports neoclassical economics and political conservatism. It is implementing policies that impose pain on the underprivileged, as it seeks to create "an affluent nation with low living standards."

Such policies contravene modern Western philosophies and the Bushido. The "noblesse oblige" concept and the Bushido give dignity to society. In my opinion, Japan should strive to establish a dignified society.

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


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