The Democratic Party of Japan won the general election in August 2009 and this is regarded as a historic victory as well as a turning point for Japan, in the sense that it ended the one-party rule by the LDP (Liberal Democratic Party) that had lasted for more than fifty years in postwar Japan. Many of the policy promises presented in the election manifesto of the Democratic Party were in the welfare or social policy area, as in the examples of increased and extended family allowance for children, reforms of the healthcare system for the elderly, reorganization of the pension system, etc. In part, this can be seen as a backlash against the many problems such as growing economic inequality caused by the so-called ‘Koizumi reform’ with its strong neo-liberal orientation. In this context, the victory of the Democratic Party can be interpreted as a beginning for the first government of social democracy in Japan. On the other hand, the Democratic Party of Japan still does not have a comprehensive vision or consistent philosophy in welfare policy or public policy in general, and its election promises look rather ad-hoc and fragmented, including the issue of finances for the expanded welfare benefits.
Now Japan is the most ‘aged’ country in the world, with its ratio of people over 65 years old being over 20% of total population in 2008 and still increasing. It is going thorough a fundamental transition in terms of both economy and society, after the times of rapid economic growth through the 1980s and the downturns thereafter. The change of the political structure is located in this broader context, and the welfare policy or how to redistribute wealth in this aging society, is a critical challenge which is common in all the industrialized countries. Also the analysis of Japan’s experience can provide new perspectives and implications for other Asian countries or developing countries, as Japan had gone through a different path of development from other industrialized countries, as a ‘late-comer’.
With these concerns in mind, in this article I would like to review the evolution of redistribution policy of postwar Japan from the viewpoints of both industrial policy and welfare policy, locate them in the broader context of the concept of a ‘sustainable welfare society’, and refer to its agenda including other Asian countries.
1. Failure in a Shift From Industrial Policy to Welfare Policy? : Evolutions of Redistribution Policy in Postwar Japan
For an overall picture of the current status of welfare policy in Japan, please look at Figure 1. This is from the OECD database and it shows the volume of social protection expenditures as against GDP. Here we find that the government welfare expenditure in Japan is among the lowest in the major industrialized countries, almost equivalent with the United States, although the ratio of elderly people in Japan is the highest of these countries, as mentioned before.
Figure 1 Comparison of Social Protection Spending (% of GDP, 2005)
Source: OECD database
This figure may seem contrary to the general image of Japan as a relatively ‘equal’ society, an image that was matched by reality. Why are the government social protection expenditures low in Japan and what is the background? What is the current situation regarding economic (in)equality in Japan and what is the essential policy agenda? How do these relate to the change of political structure mentioned above? In order to have a comprehensive understanding of these questions, here I would like to briefly review the postwar Japanese public policy from the perspective of income redistribution, and examine the dynamic relationship of industrial policy and social and environmental policies.
I tentatively divide the developments of postwar Japanese public policy regarding redistribution into four stages.
Stage 1: Policy Initiatives for ‘Equality of Opportunities’ in the Postwar Era
Stage 1 is the period just after the end of the WWII. This was the period of occupation by the United States and this stage is characterized by the strong policy initiatives for ‘equality of opportunities.’ Specifically, two policy developments were significant in this context, which are:
1) Radical land redistribution through the agricultural land reform
2) Mandatory education system of junior high schools
1) was realized by the strong initiative in the occupation policy in order to dissolve the feudal land ownership. In 1946, the Special Law for the Creation of Landed Farmers was enacted and many agricultural lands were bought by the government and sold to the peasants. As a result, the ratio of landed farmers to all the farmers increased from 31 % in 1945 to 62% in 1950. 2) was also realized by similar initiatives in the occupation policy.
Both of these reforms, particularly the former, were radical in nature and had the very strong effect of redistribution. These two also had in common that they provided people with equal opportunities at an early stage of one’s life-course, and in retrospect, served as a basis for economic development later as they provided equal springboards for the economic activities of individuals.
In this connection, Figure 2 shows an interesting relationship between the equality of the initial land distribution and the economic growth. There is a positive correlation between equal land distribution and higher GDP growth. We should note that we can find relatively more equal land distribution in typical East Asian countries like Korea, China, Taiwan and Japan, in comparison with other developing areas in the world.1
Figure 2 Initial Land Distribution and Economic Growth
Source: World Bank (2005)
Stage 2: ‘Redistribution at the Production Level’ in High Economic Growth Period (1950s-1960s)
The term ‘redistribution at the production level’ may sound odd but this is the most characteristic aspect of redistribution policy in postwar Japan.
In the standard understanding of welfare states, production is done in the system of the market economy system and income redistribution is done ‘afterwards’ by the system of social protection and related mechanisms (progressive taxation, etc). But in the period of high economic growth in postwar Japan, sets of policies at the production level rather than social protection or social policies play the major roles in income redistribution, and the roles of social protection as a form of income redistribution were relatively small.
Specifically, typical examples of such redistribution policies, which could be categorized as ‘industrial policies in the broad sense’, were as follows:
1) Subsidies to farmers (distribution from urban to rural areas)
2) Tax redistribution system from central to local governments
3) Industrial policies (subsidies to small-sized companies, declining industries etc.)
1) was very important because this period coincided with a huge population transfer from rural areas to urban areas and the income gap between farmers and the urban residents was a major political agenda.2 2) was a strong redistribution mechanism of tax revenues from the national government to local governments, particularly of rural and poor areas. 3) was a redistribution policy among the various industrial sectors mainly done by the Ministry of International Trade and Industry (MITI), which some scholars pointed out as being a key element of the ‘economic success story’ of postwar Japan.3
All of these policies had the character of government interventions in the production level and unlike the standard distinction in economics between ‘resource allocation’ and ‘income redistribution,’ both of these were mixed with each other through the industrial policies by the government. This was possible because of the continuous expansion of the economy and the rapid process of industrialization of this period.
Figure 3 Government Expenditure in Japan by Policy Area (billion yen)
Social from Central Public
protection to Local Works
(by tax) Governments
1958 122 224 190
1960 193 328 304
1965 546 716 726
1970 1152 1772 1441
1975 4136 3308 3487
1980 8170 6952 6896
1985 9902 9690 6891
1990 11480 15931 6956
1995 14543 12302 12795
2000 17636 14915 11910
2005 20824 15923 8015
Source: Ministry of Finance, Japan
Figure 3 is the chronological change of government expenditure in Japan.4 This shows that until the 1970s the expenditures of tax redistribution from central to local governments and public works were bigger than that of social protection, and these mechanisms played major roles in realizing equal distribution of income.
Japan achieved universal coverage of social insurance in 1961 both in health care and pension, but we should note that this was possible based upon the strong redistributive mechanism by policies other than social protection.
Stage 3: Dependence on Public Works and the Beginning of Redistribution by Social Protection for the Elderly (1970s-1990s)
Japan entered a period of low economic growth from the 1970s. In terms of redistribution policy, this period was characterized by:
1) Dependence on public works as a redistributive mechanism – the government spending on public works had come to take the role of income distribution.
2) The beginning of redistribution through social protection for the elderly
Figure 4 Public Works and Per Capita Income of Local Prefectures in Japan
Vertical Axis: Volume of Public Works per capita (Thousand Yen)
Horizontal Axis: Income per capita of each prefecture (Thousand Yen)
Source: Daiwa Research Institute, Economic Planning Agency of the Japanese Government, Prime Minister’s Cabinet Office
Figure 4 shows the relationship of the volume of public works per capita and the income level per capita in various prefectures in Japan. In the period of 1955-1960 there is no clear correlation between the two, but in the 1990s, there is a clear relationship showing that in regions where income per capita was lower, more public works were done by the government. This reflects that public works came to take the role of income redistribution to low-income regions, apart from the necessity of the public works themselves. In other words, the ‘redistribution at the production level’ mentioned earlier was still maintained here, and this type of ‘production-oriented’ sets of policies, which had been effective in the period of high economic growth, gradually became the obstacles discouraging the development of social policies in Japan, particularly for the working age population. Also, dependence on public works as a redistributive mechanism had the effects of inhibiting the transfer of labour to other newly emerging industries like the service industry as well as causing environmental destruction, while contributing to apparently lower unemployment rates.
On the other hand, this period is also characterized by the beginning of redistribution by social protection for the elderly. As the elderly people are retired from the labour force, the mechanism of ‘redistribution at the production level’ cannot be used. Therefore, redistribution through the social protection system becomes inevitable, and during this period, with the backdrop of high speed of aging (ratio of people over 65 increased from 7.1 % in 1970 to 17.3 % in 2000), lots of policy developments regarding pension, health care and long-term care took place.5
Stage 4: Pro-Market Reforms and Their Outcomes (2001~)
The last stage in the evolutions of redistribution policy in postwar Japan coincides with the so-called ‘Koizumi Reforms’ since 2001, which were characterized by strong pro-market or neo-liberal policy initiatives. Through the reforms, the system of ‘redistribution at the production level’, i.e, the various government interventions in the market which had been the characteristics of redistribution policy in postwar Japan, was almost abandoned, or minimized. In addition, expenditures of social protection were kept minimal. Although these reforms had the positive meanings of dissolving the vested interests and inefficiency in government interventions, one of the most salient negative effects was the increased income inequality in Japan.
Figure 5 Relative Poverty among the Working-age Population and Social Spending in 2000
Source: OECD (2005)
For instance, the Gini Coefficient in household income after the redistribution increased from 0.3606 in 1996 to 0.3812 in 2002 (data from the Income Redistribution Survey by the Ministry of Health, Labour and Welfare). Also Figure 5 shows that the relative poverty rate among the working-age population in Japan is among the highest in OECD countries, which is accompanied by the low social spending.
We have reviewed the evolutions of Japanese postwar public policy from the perspective of redistribution, and the following evaluations may be possible.
First, in retrospect, one of the most effective and perhaps most successful sets of policy in terms of redistribution were the very strong policy initiatives for ‘equality of opportunities’ in the postwar era, which provided a basis for economic development later on. Secondly, ‘redistribution at the production level’ worked relatively successfully in the earlier period of high economic growth, while becoming burdens from the 1970s and curtailing the development of social protection per se. The recent pro-market reforms to dissolve the negative aspects of government interventions led to increasing income inequality.
These policy developments and their results can be summarized as a ‘failure in the shift from industrial policy to welfare policy.’ It is to be noted that this pattern is likely to happen in many late-comer or ‘catch-up’ countries in industrializing or developmental states.
2. Towards Sustainable Welfare Society : Agenda for Japan and Asia
In the foregoing section we reviewed the evolutions of public policy in postwar Japan paying attention to the dynamic relationships of welfare, economy and environment. The fundamental reorganization of policies from development or production- oriented ones to the ones geared towards quality of life are needed and this coincides with the agenda that the Democratic Party which won the general election last summer is now facing.
Here, having a concept of ‘Sustainable Welfare Society’ in mind, let us consider what kind of social model is to be designed and how it has relevance for Japan and other Asian countries.
Agenda for Realizing Sustainable Welfare Societies in Asia
As for the environmental sustainability, the situations in Asia, at a first glance, look vary serious as, for instance, some gigantic countries such as China and India are now accelerating their economic developments and resource consumption.
If we look at the trend of population from a longer perspective, however, the situation is not so pessimistic. For instance, the total population of Japan already began to decrease in 2005 and the population in China, too, is expected to reach its peak around 2033 (with its population of about 1.5 billion). The population in East Asia as a whole will reach its peak also in the 2030s (about 2.1 billion according to the UN population forecast). The backgrounds for such population stabilizations are decreasing fertility rates in Asia and the aging population.
So we have good chances of realizing environmentally sustainable societies combined with aged societies in Asia as shown in Figure 6. On the other hand, although the population is likely to stabilize towards the middle of the 21st century in Asia, consumption of food, energy and other natural resources per capita are now accelerating there, and so the visions and policy initiatives for realizing sustainable welfare societies in Asia from local to national to regional level are one of the most urgent agendas.
Figure 6 Environmentally Sustainable Societies and Aged Society
Environmental Sustainability Stable Population
finite natural resources
aging and low fertility rate
Between human beings and nature
Let us turn our eyes from environmental sustainability to welfare or distribution of wealth. Figure 7 shows the relationship of economic development (GNI per capita) and income inequality (Gini coefficient) in Asian countries, and we may roughly detect a pattern of Kuznets hypothesis of inverted U-shaped curve, although this is to be examined in detail more precisely.
Figure 7 Economic Development and Income Inequality in Asian Countries
Source: adapted from the data from World Development Report 2006
As for the domestic aspects of income inequality, measures should be taken in the contexts of public policy in each country. We should note here that in the cases of rapidly industrializing countries including many Asian countries, not only welfare policy but also the industrial policy are crucial in achieving income redistribution and, as discussed in the previous section, the integrations of industrial policy and welfare policy and the appropriate transformation of policy orientations from developmental to quality of life-focused are essential. It is significant to conceptualize such policy models through comparative research in Asian and European countries.
In addition to the welfare issues at a national level, welfare at a supra-national level in Asia will become significant. This may include 1) international cooperation in the areas of social protection, 2) ‘Asian Welfare Network’ and 3) welfare state at a supra-national level. One example of 1) is a project by JICA (Japan International Cooperation Agency) regarding the implementation of old-age pension in the rural areas in China which started in 2006,6 and various forms of international cooperation in the areas of social protection should become more active. 2) is the communications and networking of researchers, NGOs etc. in the areas of welfare or social policies including research. 3) concerns the discussions of East-Asian Community and other forms of cooperation among Asian countries including the redistributive mechanism at the supra-national level in Asia.
Welfare agendas are becoming increasing critical in a new context both in Japan and in the rest of Asia. The rapid speed of aging accelerates this trend. Japan should reorient its policy paradigm under the new political leadership and seek a new social model such as the sustainable welfare society discussed here.
Institute for International Cooperation (2004), Development of Japan’s Social Security System, Japan International Cooperation Agency.
Chalmers Johnson, MITI and the Japanese Miracle.
OECD (2005), Extending Opportunities: How Active Social Policy Can Benefit Us All.
World Bank (2005), World Development Report 2006 (Equity and Development), Oxford University Press.
* This article is an abbreviated, edited version of the article submitted by the author to the Asian Regional Roundtable on Social Security, Hong Kong, 8-9 October 2009, organized by AMRC, the Hong Kong Polytechnic University and the Hong Kong Social Security Society.