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Sunday, April 1, 2012

CLOSE-UP: Naohiko Jinno

Master of public finance brings life to numbers

Naohiko Jinno, one of Japan's foremost economists, says there are far more important things than growth and all that money stuff

Staff writer

Born the grandson of a once-prosperous textile manufacturer in Urawa, Saitama Prefecture, Naohiko Jinno says that when he was growing up he was told by his mother, over and over again, that money was not important.

News photo
Naohiko Jinno, chairman of the government's Local Public Finance Council, makes a point during his JT interview. YOSHIAKI MIURA

Now aged 66, and a professor emeritus of economics at the University of Tokyo, Jinno recalls his mother telling him so many times that money doesn't matter — it's the things you can't buy with money that really matter.

Ensconced last week in his office at the Internal Affairs and Communications Ministry, where he serves as chairman of the Local Public Finance Council, Jinno tells how his family's business went bankrupt after his grandfather refused to become part of the munitions industry during World War II.

"My mother would say that it's okay to lose school textbooks because you can buy them again. But she said I shouldn't lose my notebooks, which are filled with my precious scribbles, and that I should cherish such things as love, friendships and ties with people, which I cannot buy with money."

Later, as our interview develops, it becomes increasingly clear that his singular upbringing — and his family's ancestral roots as Shinto shrine priests — had a significant influence on Jinno, now Japan's foremost authority on public finance.

Throughout his long years at Todai (as the University of Tokyo is widely known) teaching the nation's top-notch students, Jinno took the position that the role of public finance — a branch of economics that revolves around the levying of taxes and the redistribution of wealth back to citizens in the form of public services — should be "to find and share solutions to the common difficulties people encounter in life."

Jinno, who is particularly knowledgeable about the vaunted Scandinavian welfare systems, has been extremely critical of "neoliberalism" — an approach to economics that pursues the privatization of government services and the deregulation and aggressive liberalization of trade.

This approach was clearly evidenced in the policies of the British Prime Minister Margaret Thatcher and U.S. President Ronald Reagan during their terms of office spanning 1979-90 and 1981-89 respectively. In Japan, there was a relatively brief revival of neoliberalism from 2001 to 2005, when "lion hair" Junichiro Koizumi was at the prime ministerial helm. Backed by high support ratings, the photogenic Liberal Democratic Party (LDP) leader carried out a series of structural and deregulatory reforms affecting both the pension and health-care systems, as well as the privatization of postal services and the public corporations operating highways.

However, due to Koizumi's neoliberalism, Jinno argues that Japanese people have lost the close community ties and the sense of life-security they previously had, since they have been driven into excessive competition with each other, while poverty and income disparity both soared.

"A society in which its top political leader shakes the mane of his hair and screams, 'What's wrong with inequality?' 'There is no society without inequality!' is a society of despair," he wrote on the first page of his 2010 book "Wakachiai no Keizaigaku" ("Economics of Sharing"). "It's plain as daylight that such a society of despair would descend into a dystopia once it were hit by the tragic waves of a global economic depression."

In contrast to the Koizumi approach, Jinno argues that Japan should restore its social cohesion in which everyone has his or her place in society, and where the elimination of inequality and poverty — not economic growth — is the fundamental guiding light of public policy.

This stress on linking public finance not only with politics but also with society, has won Jinno supporters across the social spectrum — from academia and citizens groups to labor unions and many sections of the government bureaucracy. Moreover, in 2009, he was awarded a Purple Ribbon Medal of Honor, which is, of six kinds of medals given by the national government and awarded by the Emperor, the one that rewards academic and artistic achievement.

The following are excerpts from a recent interview in which Jinno, who also leads the citizens group Slow Life Society, shared — with abundant wit and humor — his ideas on the role of public finance, pension systems, taxation ... and much, much more.

I believe you played a key role in formulating the core economic policy of the Democratic Party of Japan (DPJ), which became the ruling party in 2009, and that your ideas are reflected in the current DPJ policies. Is that correct?

Not so correct. Before it became the ruling party, the DPJ created a (now-defunct) policy think tank, something they envisioned being like the (U.S.) Brookings Institute, and because emeritus Prof. Hirofumi Uzawa (a noted economist who was Jinno's mentor at Todai) was involved, I was also asked to give advice to DPJ members on taxation and pension policies. Based on my input, the party created its so-called manifesto (list of campaign promises) — but they only took parts of my ideas, so the policies are kind of terrible.

News photo
Ways ahead: A view of Strasbourg in France, whose water and air were once heavily polluted. Jinno says it is now a good example of a post-industrial city "prospering as an environmentally friendly and knowledge-based place that attracts creative and innovative people and cutting-edge biotechnology companies." NAOHIKO JINNO

Also, when (Naoto) Kan became the finance minister (in January 2010, five months before he became prime minister), I was called in and asked to give him lectures and ideas on national strategy. But he doesn't listen to others! So I wouldn't say I had no impact on the DPJ's policies, but ... and after the DPJ took power, everyone — even those who'd had zero interest in taxation policy — started swarming in. That resulted in the revival of zoku giin (literally, "policy tribes," referring to Diet members with entrenched positions in areas of their specialty).

You have also been chairman of the experts' committee in the Cabinet Office's Tax Commission.

Well, I was asked (by the DPJ) to create a plan for comprehensive tax reform — the most drastic reform since the (1949) "Report on Japanese Taxation" by the Shoup Mission (headed by U.S. taxation expert Carl Summer Shoup, this has been the foundation of Japan's postwar taxation system ever since). But the committee is virtually dormant now, and what the DPJ is trying to do is exactly the same as what the LDP and (its former minority ruling coalition partner) New Komeito have long tried to do — which is to raise the consumption tax.

What you just said highlights the fact that public finance is inseparable from politics. But the Japanese political system has long been incapable of putting together coherent and constructive policies. How can we fix the dysfunctional political system?

Well, we can't. What we can do is to look back in history so we can avoid making the same mistakes, or to keep "unexpected" scenarios from unfolding, by finding similar experiences from the past.

What we are experiencing now is very similar to the Great Depression (which started in 1929), which was also a time of great political turmoil. Even then, party politicians could not come up with meaningful economic policies, and that led to the public's distrust of politics. And then, when you remember what happened in the world, from the regional German state of Bavaria rose the German Workers' Party (which later changed its name to the National Socialist [Nazi] Party and the dictatorship of Adolf Hitler). So when conventional parties go dysfunctional, and political turmoil deepens, democracy and party politics are turned upside down.We have learned such bitter lessons as these from history.

But this time around, it's not just Japan that is in turmoil — it's all over the world. Italy and Greece are controlled by technocrats. Look at Britain ... that young boy (Prime Minister David Cameron) can't handle it, (German Chancellor Angela) Merkel can't put things together, and even (U.S. President Barack) Obama is failing — though Obama might be in a relatively good mood because the Republicans are worse (laugh). So there is political turmoil all over the place.

What do you think is causing the turmoil in Japan?

Japan's problem is that there is no social vision. The vision of countries in continental Europe, especially the Scandinavian ones, is that you need big governments to support everyone in the country. So people are heavily taxed, and that tax is redistributed to help every member of society. In Denmark, up to 70 percent of your income goes in tax. In contrast, the Anglo-Saxon nations have opted for smaller governments, and while people in such societies are expected to be self-reliant, the poor are not expected to pay much in taxes. Only the rich pay taxes to maintain the minimum functions of government. So taxes in the U.S., much of which are in the form of income taxes, are progressive (meaning the more you earn, the more you pay), while those in Sweden — where the consumption tax is 25 percent — are regressive (meaning the poor pay a higher proportion of their income in tax than do the better off). However, in Sweden if you pay taxes, the government will make sure you get free education, free child-care services and free care when you grow old and can no longer work.

Japan is worried about how it's viewed by the U.S., so it has somewhat opted for a "smaller government" model. But instead of emulating the U.S. taxation model and raising the income tax, it suddenly looks to Europe. (Political leaders in Japan) say Japan should raise its consumption tax — noting it is far lower than the rates in European countries, where consumption taxes are more than 10 percent. So Japan is aiming for a regressive tax system while cutting government services.

What is your view on Japan's taxation system itself?

Japanese tax rates are the lowest in the world, and they're a third of what Denmark levies. (According to a 2008 OECD comparison of taxation statistics), the U.S. taxes individual income most heavily, with revenue from income tax amounting to 9.9 percent of its GDP, while revenue from consumption tax amounts to 4.6 percent. This makes the U.S. income tax level almost double that of Japan, where income tax revenues are equivalent to 5.6 percent of GDP. Even France, which relies heavily on indirect taxes, raises the equivalent of 7.5 percent of its GDP in income taxes.

What these figures show is that Japan lacks a vision of what kind of society it wants to create. Does Japan want to create a society of self-reliant individuals, like the U.S.? Or does it want to create a supportive society like those in most of Europe?


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