<Germany-Japan Symposium> June 7-8/1995, Tokyo
Economic Society for the 21st Century
Can "Social Market Economy" be a Model for the Future?
Friedrich Ehbert Stiftung and RIALS focused on the "social market economy", which was introduced as the basis for the economic and social system of Western Germany after World War II and both entities planned this symposium to shed new light on contemporary issues as well as to examine implications for the future. The symposium was held on June 7 and 8, 1995 at the You Life Center in Minato-ku, Tokyo with 140 Rengo union members, researchers, and scholars in attendance. Following is a summary of the symposium.
Opening Remarks
Strategic Choice for Japan
by
Mr. Seigo Yamada
President,RIALS
1995 is a memorable and historic year for both Germany and Japan as we celebrate 50 years after World War II. As such, it is of course important and prudent for us to reflect on efforts for the future, particularly the 21st century.
The social market system, the main topic of this symposium, requires further discussion and consideration as do issues regarding the ideal state of humanity, of society in general, and indeed, methods of advancement towards these goals.
When Rengo(Japanese Trade Union Confederation, JTUC) was first initiated, the main target of our efforts was to increase compensation and the general standard of living for workers on a level similar to that of western nations and as such. For that purposes, Rengo had proceeded with political activities under the premise that the economy, industries, and corporations exist for the enhancement of our lives. Furthermore, Rengo considered as its raison d'etre the promotion of two main targets: clarification of a clear path for Japan in shaping a fair society where individuals are able to enjoy an affluent and descent lives; as well as to build an environment-friendly industrial society. Based on these two ideals, we at Rengo are studying a "Strategic Choice for Japan" that would rely on a social market economy, the main topic of today's symposium. The theme for today is then, whether a 'social market economy' can be a model on which to rely in the future. I believe this model of market economy will continue to be a viable entity into the future as it is for us both necessary and prudent.
The Reality of Germany and Japan
by
Mr. Michael Ehrke
Director General,Friedrich-Ebert-Stiftung,Tokyo Office
Today's theme was initiated by the Japanese contingent, which insisted on the necessity of discussing the social market economy. At this suggestion we hesitated slightly, since the 'social market economy' is not a system which has reached fruition and as such may not be readily recommended. Additionally, we also considered the fact that it would not be easy to fully explain the difficulties in its implementation faced over the past 50 years. Furthermore, social economy is subject to several interpretations and problems including a variety of strategies in the political economy. Finally, since there are distinctions between welfare states and social market economies, these two entities should be thought of differently.
As a German living in Japan, I have had a rather difficult time becoming acquainted with the Japanese economy, its social models, and the reality of Japan. Although Japan and America have always been compared to illuminate differences between economic systems, from a European viewpoint, there seem to be many similarities between America and Japan. Yet, in a way, America seems to be the outsider, since Europe and Japan tend to have many things in common. It is important in a meeting such as this to be aware of and to contemplate areas of similarity and difference as well as to learn about each other.
During the preparation process for this symposium, I have been forced into facing the reality of Germany, our country, as well as the current situation in Japan. I began to think of the similarities and differences of the two countries. Through comparisons between Japan and Germany in details, I hope we will be able to learn something. If we are able to obtain direct results and conclusions from this meeting, I believe we will have been successful.
Session One: A keynote PresentationGermany and Japan: Post War Changes and Future Prospects
Presentation 1:
Is the Social Market Economy Already an Outdated Model?
by
Bert Ruerup
Faculty of Economics,Darmschtadt University
The social market economy ideal of German Liberal policy considers citizens and consumers in ways similar to that in other Liberal Anglo-Saxon countries, and does not put forth 'perfect harmony' as its premise. However, for markets to be effective, some kind of social interventions are necessary. The idea of a social market economy had economic effects in Germany and there were several interpretations for this. It was thought of as rather more of a 'vague idea which contributed to social peace' in German political economy than a consistent theory. In any case, the essential characteristics of social market economy are: 1) Social partnership, and cooperative relations based on agreements between trade unions and management, including joint consultations , 2) A Socialist State, the idea of which could not be melded with the welfare state, 3) Solidaristic policy in the arena of legal securities, such as social insurance.
Social market economy has been subject to new and varied problems with the decrease in German economic power, high unemployment, and the costs associated with the unification of Germany. Under these circumstances, some began to suggest radical and 'quick' market solutions to the problems, while many others are opposed to rapid market changes.
A social market economy requires a reform and this will be possible. In the log run, the principles of a social market economy, such as social ideals for solidarity, consensus between various stakeholders in the market, must be more effective economically.
Presentation 2:
The Future of the Japanese Economy and Its Socio-economic system
by
Prof. Shunzo Nitta
Faculty of Economics,Toyo University
After the second world war, Japan achieved high growth in mass production systems, which have been supported by exports. Moreover, this success was made possible through a system in which MITI controlled the entire industrial structure of Japan and consequently made several strategically important companies and industries competitive, based on a structural migration towards heavy industry. However, the mechanism for growth of Japan's economy requires modification as problems with social infrastructure, land issues, and trade friction have become apparent. This modification will necessarily affect economic growth patterns in both the medium and long term.
Export competitiveness has not led to a corresponding increase in welfare for Japanese society as a whole, reflected in the fact that average purchasing power for Japanese consumers remains extremely low vis a' vis that for citizens in other advanced countries.
In a maturing society, policies which focus on social balance under stable economic growth rates will have the effect of raising the quality of life and as such, decreases in economic growth rates should not be viewed pessimistically. Indeed, if Japan is able to advance social policies that meet the needs of the "graying society" imminent in the 21st century, it will posses the capability to create a unique model which utilizes advancements in technology innovation, market competitiveness, and human resources.
A true economic system is one which successfully integrates social factors with market mechanisms, in contrast to one which responds only to market forces and to non-market forces. Social welfare in which social and economic factors are in balance and in harmony is made possible by fostering social development industries based on the establishment of social infrastructure, the establishment of a social market where demand reflects social needs, and the re-examination of public policies where companies contribute to society through market competitiveness.
Session Two:
Political Systems of Germany and JapanPresentation 1:
Political Systems of Germany--Principles of the Welfare State and Its Maintenance
by
Dr. Karl Hinrichs
Senior Research Fellow,the Center for Social Policy Research,University of Bremen
The structure of the social market economy is that which targets market protection as a competitive policy, rejecting the notion of cartels and exclusive property rights as well as individual protection from the rigors of a free market by advancing social policies that ensure individuals against laissez-faire market risk and promote social egalitarianism. This structure is then in other words, the unified ideas of liberal democracy, social democracy, and Christian conservatism. In this sense, Germany as a welfare state consists of (1) Distribution policies as security measures against social risks to families. (2) Control policies such as worker's compensation, "renter's" laws, and the family law (3) A employment framework in which issues regarding compensation and working conditions are collectively bargained over by unions and management (4) A practical employment policy to attain full employment. Development of these policies however, has stagnated since the beginning of the 1980's.
Traditionally, the maintenance of ideas surrounding the welfare state have fallen under the auspices of the Liberal Democrats, the Social Democrats, the Social Alliance, and the Christian Democrats. Social policy since the Pension Reform Act of 1957 has been carried out mainly by a coalition including the Social Democrats and the Social Christian Labor faction of the Christian Democrats, while churches and welfare organization have also played a fundamental role. It is important to note that although welfare services benefit the public as a whole, these services should be carried out through private sector independent welfare organizations. As such, the welfare state has social security systems organized independently by labor and management in the absence of direct government influence, and these units are supported by partners such as trade unions and management groups. In Germany, the entire social system is facilitated through a united trade union umbrella, under which 90% of employees hold an employment agreement.
Germany as a welfare state has been urged to initiate several reforms for a variety of reasons yet, as reorganization efforts and the direction thereof are difficult to quantify and therefore remain unpredictable, we must keep in mind that the ability to reform and the necessity of reform must have some common ground in order for reorganization to be successful.
Presentation 2:
Welfare Society and Politics
by
Prof. Minoru Tsubogo
Waseda University
The welfare state is a political system of advance industrial society which emerged after World War II. This social system takes as its premise a system of social security, and as the phrases 'social market economy' and 'welfare capitalism' symbolize, the promotion of general welfare and solutions to social problems as a basis of economic development.
Furthermore, the welfare state holds social security as the right of its citizens and resident aliens, not merely as a benefit. In Japan, social security is generally regarded as a right of citizens although as we see the reality of families on welfare, some aspects can be regarded as "benefits".
The advancement of the social state in Japan is relatively low, as is seen in the area of housing and in systems, institutions and 'soft' aspects of the welfare society. The notion of the 'Japanese welfare state' was promulgated near the end of the 1970's and focused on 'families' as the responsible unit for welfare and social improvement efforts. Company activities were also targeted as a medium for social improvement efforts--indeed general public welfare in Japan, or the lack thereof, was supplemented partially through corporate welfare efforts, although companies engaging in this type of assistance were restricted to medium sized or larger entities and non-permanent employees as well as foreign laborers were excluded.
After the mid 1970's, the establishment of a welfare society based on state welfare programs began to take shape as new social movements and citizens groups initiated activities to promote public welfare. Japan must accomplish the goals set out by these groups and movements in order to fully realize true public welfare in our society.
To these ends, it is prudent to maintain in local governments a suitable mixture of organizations composed of three sectors: the 'formal sector', the 'mediation sector', and the 'informal sector' to facilitate a welfare society in decentralized forms. The establishment, creation, and settlement of non-governmental, non-profit sectors will be vital and trade unions will play an important role in local responsibility coordination.
Session Three:
The Economic Systems--Is The Welfare State Compatible With Economic Efficiency?
Presentation 1:Ideals and Reality of Germany's Social Market Economy
by
Dr. Dieter Vesper
German Economic Research Institute,Berlin
Liberalism is the basic tenet of the social market economy, which aims toward the realization of individual freedom in economic activity. In other words, strong nations prevent establishment of authority when they fix the framework of the economy, while at the same time competition is carried out under the principle of social consideration and social welfare; nations have a responsibility to 'divide the pie', yet there are no widely recognized and effective standards with which to judge a 'fair' distribution of that pie.
The strength of the German economy lies in its economic system, which regulates the medial effectively with regard to economic policy. While the German economy is not exactly internationally competitive due to its wage levels and transfer payments, the wage level is generally higher than in other industrialized countries. Regarding taxes, they should only be used to cover services such as infrastructure and educational systems and on the issue of taxation levels, I do not believe that a reduction of public services as a means by which to cut taxes will in any way increase the competitiveness of the German economy.
In the past few years, the tax rate has been stable but social payments such as pensions, medical insurance, unemployment insurance, and social security have been steadily increasing. Recession, as it increases demands for social insurance, has been part of the liquidity problem, as has the unification of Germany, but to cut social programs in essence means that those who depend most on welfare services will be the ones who pay for the unification and the debts of recession.
The size of welfare coverage should not be reduced as improvements in productivity have been a direct outgrowth of and a justification for the programs. Rather, coherent economic policy and sound adjustment mechanisms are required at this time to address, for example, widespread confusion in the foreign exchange market.
Presentation 2:
The Market Economy and Social Systems
by
Prof. Tatsuya Nakamura
Chuo University
Reflecting on an advanced economic structure, an adjustment mechanism for the market is required. The brilliant economist John Maynard Keynes has pointed out that natural adjustment mechanisms in the market can become paralyzed, necessitating macro-economic adjustment in the form of government intervention. Furthermore, as the 'Failure of Market' theory in the 1960's pointed out, some areas of the market are unable to adjust and thus require intervention by outside forces. In not recent past, market reforms in eastern Europe and the dismantling of the Berlin Wall symbolized the superiority and effectiveness of market economy vis a' vis command economy, yet it is clear that there are dangerous aspects of free market economics, for example the experience in Japan with the expansion of the bubble economy and its consequent collapse. Consequently, maintenance of free market economics' merits as well as effective control of the demerits through social systems is of the essence.
As the 'Failure of Market' theory points out, the market is not an independent entity but rather it is subject to forces outside the market such as public goods which in turn require adjustments outside of the market. For example, choices to provide public goods such as education and medicine take place in social and political arenas while on the other hand, as is characteristic of free riders and public goods, several 'blips' are seen in labor and land markets, where goods and services are sacrificially sold and contained in the mesh of the market economy net. Market economy theory does not define the existence of human beings beyond that of a 'labor force' nor of nature beyond that of simple land 'commodities'. Economic systems are formed by how the aforementioned elements are placed in the economy and as such, it is necessary to consider the construction of a social system which can assist the market economy.
Session 4:
Employment Systems and the Industrial Relations:
The Mobility of Labor and Industrial Democracy in the Labor Market
Presentation 1:
The Future of Labor and Management in Germany
by
Dr. Wolfgang Lecher
Hans-Boeckler-Stiftung
The relationship between labor and management in Germany and the cooperative decision making process as its core require change in the following three ways: conditions on economic and social framework, European style labor-management relations, and the adjustment of eastern German labor-management relationships to western German ones.
'The social model of productivity' focuses on aspects of labor force and production systems as opposed to traditional ways of thinking which dictate that the productivity of society and of management depends on the progress of their capital and in the improvement of technology. As such, 'Cooperative decision making in the workplace' as a form of direct employee participation can be an effective method to enhance productivity. Accordingly, unions should seek to prevent discord between those who reap profits and those who lose as a result of challenges to a 'soft' management style. With this in mind, 'Cooperative decision making in the workplace' can serve as the most important pillar supporting labor-management relations and the cooperative decision making process.
Due to the unification of economies in the European Union, it is necessary for trade unions to utilize a 'European standard for negotiation' and as such, placement of a European management conference at large enterprises is a good place to start. Furthermore, it is necessary to consider representation by 'same right' participation for the following three groups: workplace committees, management conferences, and full-time union members. This idea supposes direct participation of rank and file employees, management representatives, as well as trade unions.
Compared with the labor-management system in western Germany, which is characterized by management conferences, cooperative corporate decision making at auditor's meetings, and trade union compensation policies, former East German enterprises held no management conferences as unions were the dominant force. The unification of Germany does not mean that western German systems preside over eastern Germany, but rather serves as a forum for recognition of possible benefits of direct management representation with eastern trade unions in workplace committees.
Presentation 2:
The Future of Japanese "Lifetime" Employment
by
Prof. Hiroyuki Chuma
Faculty of Economics,Hitotsubashi University
Recently, a variety of evaluations have been put forth as to the uniqueness of Japan's 'traditional' employment practices. In particular, "lifetime" and other 'Japanese' employment characteristics have of late been continuously raised for review. It is necessary to analyze through both historical and theoretical perspectives reasons why this behavior was initiated and why it has persisted over the years. Within the construct of agency theory it becomes clear that long term trust between labor and management have facilitated the longevity and success of this system.
Over the past ten years in Japan, length of service at an enterprise for middle aged employees has increased, and particularly in larger corporations, the percentage of employees who remain with the company after graduation has been on the rise. Thus, the number of Japanese employees whose employment is 'protected' under 'Japanese' employment conditions remains significant and is the main reason for the continuation of efforts to maintain this system.
Currently, most companies are suffering from problems incurred during the long recession and from the expansion of new employee recruiting during the bubble years. Structurally, companies now are laden with a relatively large number of employees in their 40's. It is difficult to deal with this group of labor through government policy as negative factors such as continued slow economic growth and the bad loan problems. As for the labor 'float' of these middle-aged workers, we can compare their situation to those similar employees in other countries. As the tendency toward longer continuous service at an enterprise illustrates, the 'float' of middle-aged workers will not increase rapidly. Under tight control exhibited by corporations over employees and the idea held that employee 'float' will reduce corporate flexibility in their ability to reduce labor costs, it is impossible to expect corporate managers to endorse such a system. As a result, current long term employment practices, through fundamental support from top-tier companies, as well as employment adjustment pressures for middle aged workers, will continue well into the future.
Session 5:
Social Security: Changes in Demographics and the Future of Social Security
Presentation 1:
The Future of Social Security Systems in Germany'
by
Dr. Alfred Phaller
Friedrich-Ebert-Stiftung,Bonn
In the social security system of Germany, income is redistributed and cooperation of citizens is required in a variety of ways.
There three main points characterizing the social security systems of Germany as follows: 1. Social security in old age 2. High standard medical services 3. Fair educational opportunities (through the abolition of barriers due to economic, but not cultural, difficulties). Although the level of medical services and education vary by income level, the welfare state of Germany does not support or maintain the ideal of individual purchasing power as a standard for material wealth. Also, social security could be viewed as a condition for the welfare state, supposing full employment, but this premise is currently no longer valid for us.
The heavy burdens of social welfare give rise to three dangers for social security:
1. Security for the aged is unfavorably affected by the structure of the population as a whole.
2. Under the medical insurance system, medical costs are increasing in accordance with breakthroughs in medical science. Furthermore, costs are affected by changes in demand, for a necessary good, not by purchasing power, and as such are likely to be abused.
3. Due to the current employment crises due to German unification and the dreary situation in Europe, the current unemployment insurance system can only just barely meet the needs of our workers.
These three dangers are not related per se but are viewed as "economic dangers to the social state' as a whole. These problems are not in fact caused by economic factors for if this were true, the issue could be solved by increasing the cost of insurance or by requiring citizens to cut the extent of their insurance coverage or other social services. Rather, these problems are promulgated through political effects--yet it is extremely difficult to raise the cost of insurance politically.
Presentation 2:
The Changing Population Structure and Social Security
by
Prof. Yoshiko Kido
Faculty of Economics, Keio University
In 1993 the birth index stood at 1.47 while the number of children per family continues to increase and the 'greying' of Japanese society progresses. It is a bit difficult to take up this issue as Japan still maintains traces of the old concept of 'family' held before the war and unlike European states, has little in the way of government mandated policies to attend to the relevant issues. Accordingly, it is important to recognize the necessity of establishing social systems which support this weakness so that children, other family members, and entire families are able to live safely and comfortably.
As for social security in a continuously aging society like Japan, considerations must carefully be taken for the following areas: public pensions; the stability of public finance, preparation of employment opportunities for middle and aged persons; increases in medical costs; and establishment of nursing care systems and the money to fund them. Most importantly, it is important to consider changes on the societal level necessary to cope the with the aforementioned issues.
Viewing the system as a whole, as an aged society in which over 20% of the aged are handicapped, it becomes clear that the current social structure requires dramatic change. Social security and welfare programs are not simply a natural outgrowth of industrial economy. Rather, they are important ingredients in establishing systems that both prepare for social dangers and accidents that befall citizens, and in a general sense reduce the probability of such dangers.
Finally, when improved welfare policies are advocated in a system of limited resources, it is necessary to comprehend all aspects of the policies vis a vis other systems within the realm of society. Individual, fragmented discussions regarding systems should not take place as they will bear little fruit in the end. Rather, it is necessary to promote dramatic, detailed, and systematic change in the economy and in industry by recognizing the necessity for reorganization of society in its entirety.
Closing Remarks
by
Sadahiko Inoue
Deputy Director General,RIALS
Talcot Parsons, one of the great theorists in modern sociology, once said "both market and company systems are embedded in the social system". I believe this observation has profound meaning.
Economy and Society in Globalization: Hollowing out and the equalization of factor costs
Regarding economic globalization, questions were raised on issues related to German and Japanese competitiveness, and hollowing out was used to describe the likely scenario if the two countries maintain current competitive levels. Furthermore, as the concept of the global economy has of late received widespread attention as international capital and technology transfers are more frequent than ever before in an era of 'mega-competition', dynamic adjustment and advanced industrial structure will by the means by which an economy avoids hollowing out. Labor intensive industries as well as those not requiring a high degree of technical expertise will move overseas and when this occurs, it will be necessary to increase societies capability for adjustment by preparing social and intellectual infrastructure such as labor force and training policies which will ensure smooth transitions.
Socio-economic Systems After World War II: German "Social State" vs. Japan Inc.
In the German constitution, the method for government is clearly defined within the constructs of a 'social state'. On the contrary, as Japan's economic growth demonstrates, Japan has put priority on its economy and its industries, an emphasis that for many approaches the extreme. In the 1990's, discussions were initiated to this effect, including 'The 5-Year Plan to Increase Living Standards', and 'Policies and Politics Focusing On Consumers' (the 'New Gold Plan', and the 'Angel Plan' should be included here also). It also should be remembered that the constitution clearly states the right of citizens to health and comfortable living, and as such, Japan should vigorously pursue these goals.
German and Japanese Employment Systems: the Limits of the Neo-classical Approaches.
Many panelists pointed out that with regard to the analysis of German and Japanese employment systems in the reports, explanations of high productivity Germany and Japan are not well suited to the cost principle approach of external labor markets. The report on social models of productivity put given by Mr. Riehe explained very well the efficiency of cooperative decision making systems, but on the other hand, the rationale and efficiency of the Japanese long term employment system was not fully explained by utilization of the idea to' employ necessary workers when needed (Professor Chuma)
Full Employment and Social Security: Conditions of a Welfare Society
From past experiences, Germany has pointed out the following:
1 Danger to the welfare state begins when perfect employment collapses and as such, employment stability is vital.
2 Coping with an aged society with declining birth rates is difficult so it is imperative to develop ideas slowly with clear focus on long term goals.
At any rate, it was pointed out that our nearsighted approach and focus on short term goals is dangerous and undesirable. Also, in the discussion on welfare, it was mentioned that Germany has reached a stage in which its social security systems can be adjusted relative to prevailing economic conditions. On the other hand, however, Japan has only just begun to establish systems to address the needs of an aging society in which fewer children are born. Thus it is apparent that Germany and Japan are at different stages in their development of the welfare state, and as such, comments regarding the dangers of the welfare state in Japan should not be made so loosely.
How To Manage the Social Market Economy
The conclusion reached at this symposium was that establishment of a true welfare system and the maintenance thereof is an arduous process that is necessarily limited by economic constraints and one which is subject to agreement and ratification by the citizenry. For example, in constructing a system for public nursing, the ability of local governments to fully implement such as plan is in question, as is the autonomy of other social security measures vis a' vis both labor and management's influence. If both the quality of program initiated and the level of autonomy are high, there will be flexibility for adjusting the social programs, therefore meeting public needs even in the event of a shortage of funds. It is again prudent for us to consider the concept of an autonomous, decentralized welfare society.
"Welfare Economic Society" and Social Market Economy
The true meaning of social market economy for us is important only so far as it explains current economic society in Germany and Japan. We should be able to identify general aspects which are considered those of 'advanced' nations and it is possible for us to realize a new 'meaning' of a social market economy through the examination current social structures in the current global framework.
When RIALS uses the concept of a 'social market economy', it tends to be perceived as a typical 'German style' system and as such, it would enhance understanding, then, if we refer to such a system in a more general conceptual framework as opposed to the 'economic welfare system'. This viewpoint will be discussed in further detail by the committee for research on an economic welfare society (chaired by Mr. Kenichi Miyazawa)
Closing Speech
by
Prof. Sei Kuribayashi
Director General,RIALS
The purpose of holding this symposium is that, as the concept of world socialism has for the most part collapsed, the market economy ideal has spread throughout the world. However, it is important to remind ourselves of the tenets of socialism, for the market economy will have difficulty advancing in the absence of a competing concept to push it along.
In attending the sessions during the past two days, I feel I have learned quite a lot. Namely, it became clear to me that the principles associated with market economy hold worth--mainly in the sense that the market respects participants' freedom of choice. Furthermore, when we look at the profit motive as the basis for a market economy, consumers as well as companies enjoy freedom to pursue profit. Indeed, Germany has initiated policies to improve choices in a market where monopoly in excluded.
As for the labor market, historically it has been recognized that unlike other sectors of the economy, for example financial markets, labor should not pursue the idea of dependence solely on the market to reach a desirable outcome. For this reason the concept of cooperative decision making in the enterprise has been utilized in Germany. The Japanese system, however, does not take this form. In Japan, responsibilities for workplace governance lie almost entirely with corporations and employees cooperation is expected. Cooperation in Japan may take the form of corporate unions and management negotiating compensation issues where 70% is decided through negotiation and the remaining 30% is included in a profit sharing scheme with the company. Under this system, compensation remains quite flexible and the rate of unemployment is lower than in Germany. However, unemployment in Japan is slowly increasing, so it is important to proceed carefully. It has been recognized that living systems and social systems do not lend themselves well to the dynamics of a 'market'. To use German terminology, these systems can best be described as 'joints', and the challenge is how society as a whole can manage these 'joints' as well as risks associated with market activity. In this regard, we are able to learn from Germany, as in Japan, risk management thus far has fallen mainly with informal sectors. We must begin to consider economic fairness and efficiency and as such, the ways in which the Japanese system shares responsibility for risk between informal and formal sectors will be an important issue for the future.
Can "Social Market Economy" be a Model for the Future?
Friedrich Ehbert Stiftung and RIALS focused on the "social market economy", which was introduced as the basis for the economic and social system of Western Germany after World War II and both entities planned this symposium to shed new light on contemporary issues as well as to examine implications for the future. The symposium was held on June 7 and 8, 1995 at the You Life Center in Minato-ku, Tokyo with 140 Rengo union members, researchers, and scholars in attendance. Following is a summary of the symposium.
Opening Remarks
Strategic Choice for Japan
Mr. Seigo Yamada
President,RIALS
1995 is a memorable and historic year for both Germany and Japan as we celebrate 50 years after World War II. As such, it is of course important and prudent for us to reflect on efforts for the future, particularly the 21st century.
The social market system, the main topic of this symposium, requires further discussion and consideration as do issues regarding the ideal state of humanity, of society in general, and indeed, methods of advancement towards these goals.
When Rengo(Japanese Trade Union Confederation, JTUC) was first initiated, the main target of our efforts was to increase compensation and the general standard of living for workers on a level similar to that of western nations and as such. For that purposes, Rengo had proceeded with political activities under the premise that the economy, industries, and corporations exist for the enhancement of our lives. Furthermore, Rengo considered as its raison d'etre the promotion of two main targets: clarification of a clear path for Japan in shaping a fair society where individuals are able to enjoy an affluent and descent lives; as well as to build an environment-friendly industrial society. Based on these two ideals, we at Rengo are studying a "Strategic Choice for Japan" that would rely on a social market economy, the main topic of today's symposium. The theme for today is then, whether a 'social market economy' can be a model on which to rely in the future. I believe this model of market economy will continue to be a viable entity into the future as it is for us both necessary and prudent.
The Reality of Germany and Japan
Mr. Michael Ehrke
Director General,Friedrich-Ebert-Stiftung,Tokyo Office
Today's theme was initiated by the Japanese contingent, which insisted on the necessity of discussing the social market economy. At this suggestion we hesitated slightly, since the 'social market economy' is not a system which has reached fruition and as such may not be readily recommended. Additionally, we also considered the fact that it would not be easy to fully explain the difficulties in its implementation faced over the past 50 years. Furthermore, social economy is subject to several interpretations and problems including a variety of strategies in the political economy. Finally, since there are distinctions between welfare states and social market economies, these two entities should be thought of differently.
As a German living in Japan, I have had a rather difficult time becoming acquainted with the Japanese economy, its social models, and the reality of Japan. Although Japan and America have always been compared to illuminate differences between economic systems, from a European viewpoint, there seem to be many similarities between America and Japan. Yet, in a way, America seems to be the outsider, since Europe and Japan tend to have many things in common. It is important in a meeting such as this to be aware of and to contemplate areas of similarity and difference as well as to learn about each other.
During the preparation process for this symposium, I have been forced into facing the reality of Germany, our country, as well as the current situation in Japan. I began to think of the similarities and differences of the two countries. Through comparisons between Japan and Germany in details, I hope we will be able to learn something. If we are able to obtain direct results and conclusions from this meeting, I believe we will have been successful.
Session One: A keynote PresentationGermany and Japan: Post War Changes and Future Prospects
Presentation 1:
Is the Social Market Economy Already an Outdated Model?
Bert Ruerup
Faculty of Economics,Darmschtadt University
The social market economy ideal of German Liberal policy considers citizens and consumers in ways similar to that in other Liberal Anglo-Saxon countries, and does not put forth 'perfect harmony' as its premise. However, for markets to be effective, some kind of social interventions are necessary. The idea of a social market economy had economic effects in Germany and there were several interpretations for this. It was thought of as rather more of a 'vague idea which contributed to social peace' in German political economy than a consistent theory. In any case, the essential characteristics of social market economy are: 1) Social partnership, and cooperative relations based on agreements between trade unions and management, including joint consultations , 2) A Socialist State, the idea of which could not be melded with the welfare state, 3) Solidaristic policy in the arena of legal securities, such as social insurance.
Social market economy has been subject to new and varied problems with the decrease in German economic power, high unemployment, and the costs associated with the unification of Germany. Under these circumstances, some began to suggest radical and 'quick' market solutions to the problems, while many others are opposed to rapid market changes.
A social market economy requires a reform and this will be possible. In the log run, the principles of a social market economy, such as social ideals for solidarity, consensus between various stakeholders in the market, must be more effective economically.
Presentation 2:
The Future of the Japanese Economy and Its Socio-economic system
Prof. Shunzo Nitta
Faculty of Economics,Toyo University
After the second world war, Japan achieved high growth in mass production systems, which have been supported by exports. Moreover, this success was made possible through a system in which MITI controlled the entire industrial structure of Japan and consequently made several strategically important companies and industries competitive, based on a structural migration towards heavy industry. However, the mechanism for growth of Japan's economy requires modification as problems with social infrastructure, land issues, and trade friction have become apparent. This modification will necessarily affect economic growth patterns in both the medium and long term.
Export competitiveness has not led to a corresponding increase in welfare for Japanese society as a whole, reflected in the fact that average purchasing power for Japanese consumers remains extremely low vis a' vis that for citizens in other advanced countries.
In a maturing society, policies which focus on social balance under stable economic growth rates will have the effect of raising the quality of life and as such, decreases in economic growth rates should not be viewed pessimistically. Indeed, if Japan is able to advance social policies that meet the needs of the "graying society" imminent in the 21st century, it will posses the capability to create a unique model which utilizes advancements in technology innovation, market competitiveness, and human resources.
A true economic system is one which successfully integrates social factors with market mechanisms, in contrast to one which responds only to market forces and to non-market forces. Social welfare in which social and economic factors are in balance and in harmony is made possible by fostering social development industries based on the establishment of social infrastructure, the establishment of a social market where demand reflects social needs, and the re-examination of public policies where companies contribute to society through market competitiveness.
Session Two:
Political Systems of Germany and JapanPresentation 1:
Political Systems of Germany--Principles of the Welfare State and Its Maintenance
Dr. Karl Hinrichs
Senior Research Fellow,the Center for Social Policy Research,University of Bremen
The structure of the social market economy is that which targets market protection as a competitive policy, rejecting the notion of cartels and exclusive property rights as well as individual protection from the rigors of a free market by advancing social policies that ensure individuals against laissez-faire market risk and promote social egalitarianism. This structure is then in other words, the unified ideas of liberal democracy, social democracy, and Christian conservatism. In this sense, Germany as a welfare state consists of (1) Distribution policies as security measures against social risks to families. (2) Control policies such as worker's compensation, "renter's" laws, and the family law (3) A employment framework in which issues regarding compensation and working conditions are collectively bargained over by unions and management (4) A practical employment policy to attain full employment. Development of these policies however, has stagnated since the beginning of the 1980's.
Traditionally, the maintenance of ideas surrounding the welfare state have fallen under the auspices of the Liberal Democrats, the Social Democrats, the Social Alliance, and the Christian Democrats. Social policy since the Pension Reform Act of 1957 has been carried out mainly by a coalition including the Social Democrats and the Social Christian Labor faction of the Christian Democrats, while churches and welfare organization have also played a fundamental role. It is important to note that although welfare services benefit the public as a whole, these services should be carried out through private sector independent welfare organizations. As such, the welfare state has social security systems organized independently by labor and management in the absence of direct government influence, and these units are supported by partners such as trade unions and management groups. In Germany, the entire social system is facilitated through a united trade union umbrella, under which 90% of employees hold an employment agreement.
Germany as a welfare state has been urged to initiate several reforms for a variety of reasons yet, as reorganization efforts and the direction thereof are difficult to quantify and therefore remain unpredictable, we must keep in mind that the ability to reform and the necessity of reform must have some common ground in order for reorganization to be successful.
Presentation 2:
Welfare Society and Politics
Prof. Minoru Tsubogo
Waseda University
The welfare state is a political system of advance industrial society which emerged after World War II. This social system takes as its premise a system of social security, and as the phrases 'social market economy' and 'welfare capitalism' symbolize, the promotion of general welfare and solutions to social problems as a basis of economic development.
Furthermore, the welfare state holds social security as the right of its citizens and resident aliens, not merely as a benefit. In Japan, social security is generally regarded as a right of citizens although as we see the reality of families on welfare, some aspects can be regarded as "benefits".
The advancement of the social state in Japan is relatively low, as is seen in the area of housing and in systems, institutions and 'soft' aspects of the welfare society. The notion of the 'Japanese welfare state' was promulgated near the end of the 1970's and focused on 'families' as the responsible unit for welfare and social improvement efforts. Company activities were also targeted as a medium for social improvement efforts--indeed general public welfare in Japan, or the lack thereof, was supplemented partially through corporate welfare efforts, although companies engaging in this type of assistance were restricted to medium sized or larger entities and non-permanent employees as well as foreign laborers were excluded.
After the mid 1970's, the establishment of a welfare society based on state welfare programs began to take shape as new social movements and citizens groups initiated activities to promote public welfare. Japan must accomplish the goals set out by these groups and movements in order to fully realize true public welfare in our society.
To these ends, it is prudent to maintain in local governments a suitable mixture of organizations composed of three sectors: the 'formal sector', the 'mediation sector', and the 'informal sector' to facilitate a welfare society in decentralized forms. The establishment, creation, and settlement of non-governmental, non-profit sectors will be vital and trade unions will play an important role in local responsibility coordination.
Session Three:
The Economic Systems--Is The Welfare State Compatible With Economic Efficiency?
Presentation 1:Ideals and Reality of Germany's Social Market Economy
Dr. Dieter Vesper
German Economic Research Institute,Berlin
Liberalism is the basic tenet of the social market economy, which aims toward the realization of individual freedom in economic activity. In other words, strong nations prevent establishment of authority when they fix the framework of the economy, while at the same time competition is carried out under the principle of social consideration and social welfare; nations have a responsibility to 'divide the pie', yet there are no widely recognized and effective standards with which to judge a 'fair' distribution of that pie.
The strength of the German economy lies in its economic system, which regulates the medial effectively with regard to economic policy. While the German economy is not exactly internationally competitive due to its wage levels and transfer payments, the wage level is generally higher than in other industrialized countries. Regarding taxes, they should only be used to cover services such as infrastructure and educational systems and on the issue of taxation levels, I do not believe that a reduction of public services as a means by which to cut taxes will in any way increase the competitiveness of the German economy.
In the past few years, the tax rate has been stable but social payments such as pensions, medical insurance, unemployment insurance, and social security have been steadily increasing. Recession, as it increases demands for social insurance, has been part of the liquidity problem, as has the unification of Germany, but to cut social programs in essence means that those who depend most on welfare services will be the ones who pay for the unification and the debts of recession.
The size of welfare coverage should not be reduced as improvements in productivity have been a direct outgrowth of and a justification for the programs. Rather, coherent economic policy and sound adjustment mechanisms are required at this time to address, for example, widespread confusion in the foreign exchange market.
Presentation 2:
The Market Economy and Social Systems
Prof. Tatsuya Nakamura
Chuo University
Reflecting on an advanced economic structure, an adjustment mechanism for the market is required. The brilliant economist John Maynard Keynes has pointed out that natural adjustment mechanisms in the market can become paralyzed, necessitating macro-economic adjustment in the form of government intervention. Furthermore, as the 'Failure of Market' theory in the 1960's pointed out, some areas of the market are unable to adjust and thus require intervention by outside forces. In not recent past, market reforms in eastern Europe and the dismantling of the Berlin Wall symbolized the superiority and effectiveness of market economy vis a' vis command economy, yet it is clear that there are dangerous aspects of free market economics, for example the experience in Japan with the expansion of the bubble economy and its consequent collapse. Consequently, maintenance of free market economics' merits as well as effective control of the demerits through social systems is of the essence.
As the 'Failure of Market' theory points out, the market is not an independent entity but rather it is subject to forces outside the market such as public goods which in turn require adjustments outside of the market. For example, choices to provide public goods such as education and medicine take place in social and political arenas while on the other hand, as is characteristic of free riders and public goods, several 'blips' are seen in labor and land markets, where goods and services are sacrificially sold and contained in the mesh of the market economy net. Market economy theory does not define the existence of human beings beyond that of a 'labor force' nor of nature beyond that of simple land 'commodities'. Economic systems are formed by how the aforementioned elements are placed in the economy and as such, it is necessary to consider the construction of a social system which can assist the market economy.
Session 4:
Employment Systems and the Industrial Relations:
The Mobility of Labor and Industrial Democracy in the Labor Market
Presentation 1:
The Future of Labor and Management in Germany
Dr. Wolfgang Lecher
Hans-Boeckler-Stiftung
The relationship between labor and management in Germany and the cooperative decision making process as its core require change in the following three ways: conditions on economic and social framework, European style labor-management relations, and the adjustment of eastern German labor-management relationships to western German ones.
'The social model of productivity' focuses on aspects of labor force and production systems as opposed to traditional ways of thinking which dictate that the productivity of society and of management depends on the progress of their capital and in the improvement of technology. As such, 'Cooperative decision making in the workplace' as a form of direct employee participation can be an effective method to enhance productivity. Accordingly, unions should seek to prevent discord between those who reap profits and those who lose as a result of challenges to a 'soft' management style. With this in mind, 'Cooperative decision making in the workplace' can serve as the most important pillar supporting labor-management relations and the cooperative decision making process.
Due to the unification of economies in the European Union, it is necessary for trade unions to utilize a 'European standard for negotiation' and as such, placement of a European management conference at large enterprises is a good place to start. Furthermore, it is necessary to consider representation by 'same right' participation for the following three groups: workplace committees, management conferences, and full-time union members. This idea supposes direct participation of rank and file employees, management representatives, as well as trade unions.
Compared with the labor-management system in western Germany, which is characterized by management conferences, cooperative corporate decision making at auditor's meetings, and trade union compensation policies, former East German enterprises held no management conferences as unions were the dominant force. The unification of Germany does not mean that western German systems preside over eastern Germany, but rather serves as a forum for recognition of possible benefits of direct management representation with eastern trade unions in workplace committees.
Presentation 2:
The Future of Japanese "Lifetime" Employment
Prof. Hiroyuki Chuma
Faculty of Economics,Hitotsubashi University
Recently, a variety of evaluations have been put forth as to the uniqueness of Japan's 'traditional' employment practices. In particular, "lifetime" and other 'Japanese' employment characteristics have of late been continuously raised for review. It is necessary to analyze through both historical and theoretical perspectives reasons why this behavior was initiated and why it has persisted over the years. Within the construct of agency theory it becomes clear that long term trust between labor and management have facilitated the longevity and success of this system.
Over the past ten years in Japan, length of service at an enterprise for middle aged employees has increased, and particularly in larger corporations, the percentage of employees who remain with the company after graduation has been on the rise. Thus, the number of Japanese employees whose employment is 'protected' under 'Japanese' employment conditions remains significant and is the main reason for the continuation of efforts to maintain this system.
Currently, most companies are suffering from problems incurred during the long recession and from the expansion of new employee recruiting during the bubble years. Structurally, companies now are laden with a relatively large number of employees in their 40's. It is difficult to deal with this group of labor through government policy as negative factors such as continued slow economic growth and the bad loan problems. As for the labor 'float' of these middle-aged workers, we can compare their situation to those similar employees in other countries. As the tendency toward longer continuous service at an enterprise illustrates, the 'float' of middle-aged workers will not increase rapidly. Under tight control exhibited by corporations over employees and the idea held that employee 'float' will reduce corporate flexibility in their ability to reduce labor costs, it is impossible to expect corporate managers to endorse such a system. As a result, current long term employment practices, through fundamental support from top-tier companies, as well as employment adjustment pressures for middle aged workers, will continue well into the future.
Session 5:
Social Security: Changes in Demographics and the Future of Social Security
Presentation 1:
The Future of Social Security Systems in Germany'
Dr. Alfred Phaller
Friedrich-Ebert-Stiftung,Bonn
In the social security system of Germany, income is redistributed and cooperation of citizens is required in a variety of ways.
There three main points characterizing the social security systems of Germany as follows: 1. Social security in old age 2. High standard medical services 3. Fair educational opportunities (through the abolition of barriers due to economic, but not cultural, difficulties). Although the level of medical services and education vary by income level, the welfare state of Germany does not support or maintain the ideal of individual purchasing power as a standard for material wealth. Also, social security could be viewed as a condition for the welfare state, supposing full employment, but this premise is currently no longer valid for us.
The heavy burdens of social welfare give rise to three dangers for social security:
1. Security for the aged is unfavorably affected by the structure of the population as a whole.
2. Under the medical insurance system, medical costs are increasing in accordance with breakthroughs in medical science. Furthermore, costs are affected by changes in demand, for a necessary good, not by purchasing power, and as such are likely to be abused.
3. Due to the current employment crises due to German unification and the dreary situation in Europe, the current unemployment insurance system can only just barely meet the needs of our workers.
These three dangers are not related per se but are viewed as "economic dangers to the social state' as a whole. These problems are not in fact caused by economic factors for if this were true, the issue could be solved by increasing the cost of insurance or by requiring citizens to cut the extent of their insurance coverage or other social services. Rather, these problems are promulgated through political effects--yet it is extremely difficult to raise the cost of insurance politically.
Presentation 2:
The Changing Population Structure and Social Security
Prof. Yoshiko Kido
Faculty of Economics, Keio University
In 1993 the birth index stood at 1.47 while the number of children per family continues to increase and the 'greying' of Japanese society progresses. It is a bit difficult to take up this issue as Japan still maintains traces of the old concept of 'family' held before the war and unlike European states, has little in the way of government mandated policies to attend to the relevant issues. Accordingly, it is important to recognize the necessity of establishing social systems which support this weakness so that children, other family members, and entire families are able to live safely and comfortably.
As for social security in a continuously aging society like Japan, considerations must carefully be taken for the following areas: public pensions; the stability of public finance, preparation of employment opportunities for middle and aged persons; increases in medical costs; and establishment of nursing care systems and the money to fund them. Most importantly, it is important to consider changes on the societal level necessary to cope the with the aforementioned issues.
Viewing the system as a whole, as an aged society in which over 20% of the aged are handicapped, it becomes clear that the current social structure requires dramatic change. Social security and welfare programs are not simply a natural outgrowth of industrial economy. Rather, they are important ingredients in establishing systems that both prepare for social dangers and accidents that befall citizens, and in a general sense reduce the probability of such dangers.
Finally, when improved welfare policies are advocated in a system of limited resources, it is necessary to comprehend all aspects of the policies vis a vis other systems within the realm of society. Individual, fragmented discussions regarding systems should not take place as they will bear little fruit in the end. Rather, it is necessary to promote dramatic, detailed, and systematic change in the economy and in industry by recognizing the necessity for reorganization of society in its entirety.
Closing Remarks
Sadahiko Inoue
Deputy Director General,RIALS
Talcot Parsons, one of the great theorists in modern sociology, once said "both market and company systems are embedded in the social system". I believe this observation has profound meaning.
Economy and Society in Globalization: Hollowing out and the equalization of factor costs
Regarding economic globalization, questions were raised on issues related to German and Japanese competitiveness, and hollowing out was used to describe the likely scenario if the two countries maintain current competitive levels. Furthermore, as the concept of the global economy has of late received widespread attention as international capital and technology transfers are more frequent than ever before in an era of 'mega-competition', dynamic adjustment and advanced industrial structure will by the means by which an economy avoids hollowing out. Labor intensive industries as well as those not requiring a high degree of technical expertise will move overseas and when this occurs, it will be necessary to increase societies capability for adjustment by preparing social and intellectual infrastructure such as labor force and training policies which will ensure smooth transitions.
Socio-economic Systems After World War II: German "Social State" vs. Japan Inc.
In the German constitution, the method for government is clearly defined within the constructs of a 'social state'. On the contrary, as Japan's economic growth demonstrates, Japan has put priority on its economy and its industries, an emphasis that for many approaches the extreme. In the 1990's, discussions were initiated to this effect, including 'The 5-Year Plan to Increase Living Standards', and 'Policies and Politics Focusing On Consumers' (the 'New Gold Plan', and the 'Angel Plan' should be included here also). It also should be remembered that the constitution clearly states the right of citizens to health and comfortable living, and as such, Japan should vigorously pursue these goals.
German and Japanese Employment Systems: the Limits of the Neo-classical Approaches.
Many panelists pointed out that with regard to the analysis of German and Japanese employment systems in the reports, explanations of high productivity Germany and Japan are not well suited to the cost principle approach of external labor markets. The report on social models of productivity put given by Mr. Riehe explained very well the efficiency of cooperative decision making systems, but on the other hand, the rationale and efficiency of the Japanese long term employment system was not fully explained by utilization of the idea to' employ necessary workers when needed (Professor Chuma)
Full Employment and Social Security: Conditions of a Welfare Society
From past experiences, Germany has pointed out the following:
1 Danger to the welfare state begins when perfect employment collapses and as such, employment stability is vital.
2 Coping with an aged society with declining birth rates is difficult so it is imperative to develop ideas slowly with clear focus on long term goals.
At any rate, it was pointed out that our nearsighted approach and focus on short term goals is dangerous and undesirable. Also, in the discussion on welfare, it was mentioned that Germany has reached a stage in which its social security systems can be adjusted relative to prevailing economic conditions. On the other hand, however, Japan has only just begun to establish systems to address the needs of an aging society in which fewer children are born. Thus it is apparent that Germany and Japan are at different stages in their development of the welfare state, and as such, comments regarding the dangers of the welfare state in Japan should not be made so loosely.
How To Manage the Social Market Economy
The conclusion reached at this symposium was that establishment of a true welfare system and the maintenance thereof is an arduous process that is necessarily limited by economic constraints and one which is subject to agreement and ratification by the citizenry. For example, in constructing a system for public nursing, the ability of local governments to fully implement such as plan is in question, as is the autonomy of other social security measures vis a' vis both labor and management's influence. If both the quality of program initiated and the level of autonomy are high, there will be flexibility for adjusting the social programs, therefore meeting public needs even in the event of a shortage of funds. It is again prudent for us to consider the concept of an autonomous, decentralized welfare society.
"Welfare Economic Society" and Social Market Economy
The true meaning of social market economy for us is important only so far as it explains current economic society in Germany and Japan. We should be able to identify general aspects which are considered those of 'advanced' nations and it is possible for us to realize a new 'meaning' of a social market economy through the examination current social structures in the current global framework.
When RIALS uses the concept of a 'social market economy', it tends to be perceived as a typical 'German style' system and as such, it would enhance understanding, then, if we refer to such a system in a more general conceptual framework as opposed to the 'economic welfare system'. This viewpoint will be discussed in further detail by the committee for research on an economic welfare society (chaired by Mr. Kenichi Miyazawa)
Closing Speech
Prof. Sei Kuribayashi
Director General,RIALS
The purpose of holding this symposium is that, as the concept of world socialism has for the most part collapsed, the market economy ideal has spread throughout the world. However, it is important to remind ourselves of the tenets of socialism, for the market economy will have difficulty advancing in the absence of a competing concept to push it along.
In attending the sessions during the past two days, I feel I have learned quite a lot. Namely, it became clear to me that the principles associated with market economy hold worth--mainly in the sense that the market respects participants' freedom of choice. Furthermore, when we look at the profit motive as the basis for a market economy, consumers as well as companies enjoy freedom to pursue profit. Indeed, Germany has initiated policies to improve choices in a market where monopoly in excluded.
As for the labor market, historically it has been recognized that unlike other sectors of the economy, for example financial markets, labor should not pursue the idea of dependence solely on the market to reach a desirable outcome. For this reason the concept of cooperative decision making in the enterprise has been utilized in Germany. The Japanese system, however, does not take this form. In Japan, responsibilities for workplace governance lie almost entirely with corporations and employees cooperation is expected. Cooperation in Japan may take the form of corporate unions and management negotiating compensation issues where 70% is decided through negotiation and the remaining 30% is included in a profit sharing scheme with the company. Under this system, compensation remains quite flexible and the rate of unemployment is lower than in Germany. However, unemployment in Japan is slowly increasing, so it is important to proceed carefully. It has been recognized that living systems and social systems do not lend themselves well to the dynamics of a 'market'. To use German terminology, these systems can best be described as 'joints', and the challenge is how society as a whole can manage these 'joints' as well as risks associated with market activity. In this regard, we are able to learn from Germany, as in Japan, risk management thus far has fallen mainly with informal sectors. We must begin to consider economic fairness and efficiency and as such, the ways in which the Japanese system shares responsibility for risk between informal and formal sectors will be an important issue for the future.