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Monday, Dec. 8, 2008

Forsaken routes to utopia


I have long argued that whereas the 20th century was an age of utopia, the 21st century will be an age without a utopia. "Utopia" means an imaginary ideal place where everything is perfect.

During the first three-quarters of the 20th century, utopia was believed to be found in socialism. A large number of youths and intellectuals in Japan blindly believed in the prophecies of Karl Marx and Friedrich Engels that the capitalist system would inevitably collapse because of the "contradictions" inherent in the relationship between production and labor relations, and would be replaced by a socialist system free of such contradictions under which workers would no longer be exploited by capitalists.

In the mid-1960s, I remember bidding farewell to a man by the name of Kim, who was my classmate and a Korean resident in Japan. He and his family returned to North Korea; he said he was going to be a man like Kim Il Sung, Pyongyang's strongman.

In those days, North Korea was praised by many in Japan as a paradise, although the exact origin of such thinking is not known. On March 31, 1970, nine Japanese students belonging to an ultraleftist organization hijacked the Japan Air Lines jetliner Yodo en route from Tokyo to Fukuoka (Flight 351) before exiling themselves in North Korea. This clearly indicates that up until the mid-1970s, many in Japan regarded a socialist society as one in which there was no disparity between the rich and poor and in which everybody was "free" and treated as equals.

In the 1980s, though, people in Japan learned the hard way that the planned economy of socialist nations was quite inefficient, that human rights were being violated in those countries, and that socialist society was merely an imaginary utopia. In other words, it became clear that the pursuit of utopia would inevitably lead to a society far from ideal.

From the 1980s until recently, "pure market fundamentalism" replaced socialism as the way to utopia. John Maynard Keynes said the market always tended to be unbalanced and unstable because it is imperfect and that elimination of this imbalance and instability requires government intervention through fiscal and monetary policies.

Former British Prime Minister Margaret Thatcher turned Keynes' argument around and implemented market economy reform known as Thatcherism. Her theory went like this: Since the imperfect nature of the market requires government intervention, which in turn leads to bigger government, making the market more perfect would help make the government smaller. It follows, therefore, that relaxing or eliminating regulations and privatizing national enterprises will result not only in small government but also in a more efficient market economy.

Indeed, the British economy showed signs of revitalization during the early years of the Thatcher administration. Other European countries followed suit by implementing market economy reforms as rightwing forces took control.

After Yasuhiro Nakasone became prime minister in 1982, Japan started moving in the same direction by privatizing Japanese National Railways, Nippon Telegraph and Telephone Public Corp., and Japan Tobacco and Salt Public Corp.

The next prime minister after Nakasone to bear the standard of market reform in Japan's economy was Junichiro Koizumi, who privatized the postal services and Japan Highway Public Corp., gave corporate status to national universities, reduced government subsidies for compulsory education and deregulated financial markets.

Market fundamentalists' theme of achieving maximum efficiency through noninterference was praised, as was Adam Smith's assertion that society will attain maximum welfare if everything is left to individual self-interest and selfish desires.

In other words, upon the collapse of the Soviet Union in 1991, pure market fundamentalism replaced socialism as the idea for utopia. In Japan, Heizo Takenaka, then Cabinet minister in charge of economic and fiscal affairs, was the champion of the group advocating market fundamentalism.

Those who favored traditional Japanese systems and customs were labeled "the old guard." Fundamentalists accepted as "truth" the theory that income disparity serves as a work incentive even though this theory has not been proven either theoretically or empirically. There arose a mounting chorus calling for a shift of power from the public to the private sector.

There were cases in which people appointed to positions subject to Diet approval were turned away simply because they were former civil servants. It is ridiculous to assess a person's qualifications on the basis of whether he or she served in the public or private sector.

As securities certificates based on subprime loans became virtually worthless, the whole world began to plunge into recession. This has led economists in Japan to change their positions drastically. Now, the argument that social inequality is a negative result of the structural reform pushed by Koizumi has come into vogue.

The government's economic policy has shifted to reckless spending as exemplified by the proposal to give a cash grant of ¥12,000 to every citizen. Criticism has been leveled not only at market fundamentalism but also at financial engineering, which until very recently was the most spotlighted subject in economics.

What is happening today globally can be summarized as follows: (1) Pure market fundamentalism leads to an over-expansion of the financial economy with potentially uncontrollable instability; (2) the industrial culture of the 20th century led by automobiles and oil is coming to an end.

A creative strategy must be worked out to eradicate instability stemming from the financial economy. We must not lose any more time in building a new industrial civilization that deals squarely with the questions of climate change.

If the 21st century is to be an age without a utopia, it is incumbent upon us to foresee accurately what lies beyond the horizon and adapt ourselves properly and expeditiously to future changes.

Takamitsu Sawa is a professor at Ritsumeikan University's Graduate School of Policy Science and a specially appointed professor at Kyoto University's Institute of Economic Research.


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