Reflecting on the Contemporary Meaning of "As the People Are, So Is Their Government" for 10 Years

2021/08/23

This year's commemorative lecture was held in the midst of a state of emergency due to the COVID-19 pandemic. Therefore, it was delivered as an on-demand broadcast on YouTube starting at 10:00 a.m. on May 15. The video and the slides from the lecture are still available on YouTube.

Good morning. Today is May 15th once again.

This year marks the 153rd year since the battle between the Imperial Army and the Shogitai in 1868. If you look up the timetable for that day, May 15th, Yukichi Fukuzawa's lecture on Wayland's book on economics began at 10:00 a.m. Since the battle started around 8:00 a.m., it seems Yukichi Fukuzawa's class from 10:00 a.m. was conducted amidst the sounds of gunfire and cannon fire.

The head of the government forces was Masujiro Omura. He was 11 years older than Yukichi Fukuzawa and served as the head of Tekijuku in 1849. Yukichi Fukuzawa became the head six years later, in 1855. Then came the Battle of Ueno, led by Masujiro Omura. While all of Edo was in an uproar, on the day of the battle, Yukichi Fukuzawa was lecturing on Wayland's economics in Shinsenza, about 2 ri (approx. 8km) away, near present-day Hamamatsucho. The following year, Masujiro Omura was assassinated. He was 45 years old.

Now, today's title is "Ten Years After Discussing the Contemporary Meaning of 'Such a People, Such a Government'." The reason "Ten Years" is in the title is that in the spring of 2010, when I was asked to give a lecture at the entrance ceremony for the Office of Correspondence Courses, I spoke about the "contemporary meaning of 'Such a People, Such a Government'." Time flies, and 11 years have passed since then.

In 2010, the Democratic Party of Japan (DPJ) was in power. The change of government had taken place in the election of August 2009, the previous year. In that political climate, when I received the request to speak at the entrance ceremony for the Office of Correspondence Courses and accepted the invitation, I was asked what the title would be, and "Such a People, Such a Government" suddenly came to mind.

This phrase is found in the first volume of “Gakumon no susume (An Encouragement of Learning)”. Initially, “Gakumon no susume (An Encouragement of Learning)” was written with the intention of publishing only the first volume.

The second volume following the first was written one year and nine months later, and he continued writing after that. Speaking as a writer myself, when writing under such circumstances, one tends to want to put all the messages into the first piece so that the entire picture can be understood by reading just that one. Yukichi Fukuzawa seems to have thought the same way, and the essence of all his thoughts is written into the first volume. In that first volume, there is the following passage:

"If there is a harsh government over a foolish people, it is only logical that there is a good government over a good people. Therefore, even now in our country of Japan, it is a case of 'such a people, such a government'."

Around 2010, under the DPJ administration, the politics of the time were terrible. Long before the 2009 general election, it was clear that what was written in the DPJ manifesto could never be realized.

Yukichi Fukuzawa encouraged the people to pursue learning. By the time nearly ten years had passed in the 21st century, everyone should have mastered at least the level of learning advocated in “Gakumon no susume (An Encouragement of Learning)”. However, Japanese politics rushed into populism ahead of the rest of the world. Ten years since then, the opposition parties that had the power to check the ruling party have disappeared from this country. The harmful effects of the populism of that time still linger today.

To what extent did Yukichi Fukuzawa consider that even in a country where learning had progressed, so-called populism would occur and society would go awry?

Masao Maruyama, in his review of “An Outline of a Theory of Civilization”, pointed out that Yukichi Fukuzawa believed in "Enlightenment progress." The 18th and 19th-century view of progress collapsed miserably long after the era in which Yukichi Fukuzawa lived. In the 20th century, while democracy was realized in form, the stories of democracy breaking down within that framework appeared later: Walter Lippmann's "Public Opinion" in 1922, Ortega's "The Revolt of the Masses" in 1929, and Hannah Arendt's "The Origins of Totalitarianism" as late as 1951. Thus, there was still optimism in the era when Yukichi Fukuzawa lived.

By the way, Keio University established its college in 1890, and an opening ceremony—that is, an entrance ceremony—was held. On the day of that college entrance ceremony, before students gathered from all over Japan, Yukichi Fukuzawa gave a lecture titled "Do Not Become Obsessed with Learning." Yukichi Fukuzawa, who had written “Gakumon no susume (An Encouragement of Learning)” about 20 years earlier, was now telling them not to become stiff and narrow-minded through learning alone. Furthermore, at a time when 60 high-spirited young men gathered from across Japan for the founding of the college were poised to "start their studies now," he told them: "Learning without knowing human affairs is no different from being a Go player or a poet. If so, life will not be complete, and when you encounter things and deal with matters, you will become a person who always says extreme things."

Yukichi Fukuzawa seemed to define people who are unbalanced and run to extremes as "fools," and he said one must not become such a person lacking in smartness. I believe this kind of spirit of Yukichi Fukuzawa has been passed down at Keio University for a long time.

Among the few memories I have of the entrance and graduation ceremonies I attended, one I clearly remember is the graduate school entrance ceremony where the then President, Tadao Ishikawa, spoke about "not becoming a specialized fool." Those who know me well will understand that I have learned much of the spirit of "Do Not Become Obsessed with Learning" (Mokkori Gakumon) from Keio University. Even now, I love this spirit of not becoming obsessed with learning, which also possesses a sense of playfulness or humor.

Today, in conducting my research on social security and public finance, I would like to touch upon topics from a perspective slightly distanced from being obsessed with just that one point.

My specialty is social security policy. Today, I would first like to talk about something rare in the world of policy theory: a story that has already been settled, where it is clear who was wrong and how, yet a story where the wounds from the era when pensions were used as a tool for political struggle remain deep in the back of your minds.

Ten years ago, the pension system in this country was supposedly collapsing. Therefore, many people believed the story that Japan's pension system needed fundamental reform. Pensions were certainly a hot political topic. However, that was merely a hollow fuss; the problems being discussed in society did not actually exist.

In the public eye, I seem to be regarded as a pension expert, and I was even made to write the general introduction for the first chapter of the "The Pension Academy of Japan 40th Anniversary Commemorative Collection" published this January. However, I have long disliked being thought of as a pension researcher. My seminar is in its 23rd year, but not a single student has written a graduation thesis on the theme of pensions. The reason is that while it is important to gain accurate knowledge about pensions, they are not a subject for training students to "think."

However, pensions are a good subject for thinking about the problems of democracy. People who knew nothing of the history or system of public pensions entered the fray in large numbers and caused great confusion in policy theory. One wonders when the discipline of economics began to give economists the reckless courage to participate in policy theory without knowing systems or history, and the same goes for political scientists who do not know the details of policies and systems. The world of pensions provides material for thinking about many things.

In my social security classes, I talk about democracy and information problems, and I often talk about what the media is, much of which was learned from the pension uproar.

As former Prime Minister Yukio Hatoyama argued in 2013, "The narrative that pensions were falling apart and that people wouldn't be able to receive them when they got old contributed greatly to the change of government." The DPJ's landslide victory in the 2009 change-of-government election was significantly aided by their pension collapse campaign.

Japan's public pension system underwent a major reform in 2004, the bill was passed by a forced vote, and its current form was established. At that time, 70% of people in opinion polls were against the reform. Back then, I was the only one in the private sector saying, "This reform isn't actually as bad as everyone says." However, public opinion moves according to the campaign.

When that reform plan was being debated in the Diet, a still-young Yukio Edano raised his status within the party by making statements such as, "(The current system) will undoubtedly collapse and will have to be changed again within five years."

To implement the "minimum guaranteed pension" that the DPJ was talking about at the time, several trillion yen in national treasury contributions would be required. When asked in the Diet how those funds would be procured, Edano replied, "[The matter of funding] is not difficult. If you change the government, it's just a matter of whether there is the will to do it... if you leave it to us once, we will realize it." Around the same time, Katsuya Okada stated, "The National Pension system is broken."

I have appeared on television only once in my life. That was on May 31, 2009, on the Sunday morning show "Shin-Hodo 2001." It was exactly three months before the general election on August 30. It was the day of Mr. Okada's first TV appearance after becoming the Secretary-General of the DPJ. Since he said the pension system was collapsing, I said, "Where exactly is it collapsing? You should study policy well before discussing it," and I could see the veins bulging in his temples. I hear that day's footage is uploaded to YouTube or Nico Nico Douga; perhaps it was quite entertaining.

This pension collapse campaign was successful—that is, thanks to the creation of a situation where everyone believed their campaign—they won an overwhelming victory in the August 2009 general election. Because the politics of this country were so ridiculous and I knew they would soon reach a dead end, and because there was no way I would get involved with them, I contacted the government on the night of the general election to say I was quitting my government work. After that, under the DPJ administration, I received several job offers, but I turned them down.

After the change of government, their arguments took a complete turn. In October 2009, Akira Nagatsuma, who had become the Minister of Health, Labour and Welfare, began to say the obvious: "Pensions will not collapse; as long as the state continues, we will certainly support them."

Since their pledge was to fundamentally reform the collapsing pension system and create a minimum guaranteed pension, they eventually had to estimate how much the necessary funding would be. Above all, it was strange that they had been talking about a minimum guaranteed pension for years without ever making such an estimate, and that there were scholars who supported it. Incidentally, we had known for a long time roughly what scale of funding would be required, but they kept saying that ours was different from theirs.

After the change of government, the cornered DPJ executives had the Pension Bureau perform estimates. The results were so unrealistic and completely lacked feasibility that several DPJ executives decided to hide the estimates. However, the estimates were leaked, and the Diet fell into chaos as the then-opposition LDP bombarded them with questions.

By around 2012, Deputy Prime Minister Okada retracted his statements from his days in the opposition that the National Pension was collapsing, apologizing in the Diet: "Regarding the collapse of the pension system, I once said something close to that myself, and for that, I am very sorry." Then-Prime Minister Yoshihiko Noda also stated in the Diet, "It cannot be said that the (current pension) system is collapsing; it will not collapse."

However, once they were out of power, they began using pensions as a tool for political struggle once again.

Let me explain the pension system a little here. First, let's confirm that pensions are insurance. It is insurance against the risk of living a long time; it is not savings. It is whole-life insurance where a fixed amount of benefits is paid until death.

In the major reform of 2004, this country's pension insurance adopted a method where the premium rate was raised until 2017, at which point the premium level was fixed, and benefits are automatically adjusted according to demographic and economic trends until the pension finances are balanced. At a pension symposium held in 2019, Vitor Gaspar, Director of the Fiscal Affairs Department at the IMF, highly praised this system, saying: "Japan's pension system has been reformed over the past 20 years while disclosing data. By linking the pension amount to macroeconomic indicators and other factors, the sustainability of the system has been enhanced, and the intergenerational distribution structure has also been addressed. Japan's pension system is commendable and can be called one of the best practices for pensions." This is a natural evaluation, as Japan is doing something that other countries seem unable to do.

Under the Japanese system of fixing the premium level, the income entering the pension system is fixed in the long term. Consequently, if current seniors receive large pensions, future benefit levels will be lower. The reverse is also true: if the benefits for current seniors are suppressed, future benefits will increase. Therefore, the 2016 pension reform bill asked current pension recipients to accept a slight reduction in their benefits to help pass that portion on to their grandchildren and great-grandchildren's generations, so that future benefit levels would not drop too much due to the impact of the declining birthrate and aging population.

While that bill was being debated, former Health Minister Nagatsuma said, "The point of the former DPJ's new pension system is that it has a minimum guarantee function called the 'minimum guaranteed pension'," and "We need to work on 'fundamental reform' right now." At the time, Kazunori Yamai, Chairman of the Diet Affairs Committee of the Democratic Party, criticized the bill for transferring funds from current seniors to future generations, calling it the "pension cut bill."

However, in a fresh turn of events, Diet Affairs Chairman Yamai was criticized all at once by the media, which had finally come to understand how the public pension insurance system is designed after being in the midst of the pension uproar for many years.

The reason the pension uproar has subsided to some extent is clear. Reporters have come to believe that they understand pensions better than opposition politicians. Furthermore, the media, social insurance labor consultants, and financial planners have reached a point where they ask, "Is that all scholars and researchers amount to!?" and have stopped taking what they say at face value. Recently, if old-fashioned pension scholars write the same old articles, FPs and social insurance labor consultants counter and crush them on Facebook and other platforms. What's particularly interesting is that typical nonsensical theories, which anyone can now point out as wrong, continued to receive hundreds of millions of yen in Grants-in-Aid for Scientific Research (Kakenhi) for many years. The world of pensions was truly a place where such laughable and interesting things happened.

Here, I would like to consider democracy and public opinion for a moment.

In the global bestseller "Factfulness," author Hans Rosling stated that the reason humans have a tendency to see the world as a "dramatic world" that differs from the facts is that people have ten instincts. The book explains the necessity and possibility for humanity to accurately understand the world, make judgments based on that accurate understanding, create a vision, and improve society by suppressing these ten instincts, such as the "Gap Instinct—the world is getting worse" and the "Blame Instinct—things will be solved if we blame someone."

However, as someone who has observed the media world for many years, it seems to me that reporters who can mass-produce sensational articles for the masses seeking a dramatic world in line with these human instincts are the ones who have become prominent in the media world. If you think about it, it's not just pensions where people make mistakes. Throughout history, humans have repeatedly made major mistakes even as a group, and individuals are frequently deceived, sometimes easily falling victim to fraud.

The cognitive biases mentioned by Hans Rosling can be called the essential qualities that bring about mistakes in humans. Steven Pinker and others argue that such essential human flaws are shackles placed on humans by evolution, and that "the cognitive faculties we rely on may have worked well in traditional societies, but we should now consider them full of bugs" ("Enlightenment Now"). The evolution of the human brain, built by Homo sapiens who emerged 200,000 years ago to survive, seems to have stopped about 10,000 years ago.

Humans are not the rational, well-predicting, and confident strong creatures assumed by economics; they are weak creatures who normally make mistakes and live in fear of future anxiety regarding an uncertain future. Therefore, when a demagogue like Cleon, who appeared after Pericles in ancient Athens, fans anxiety, they are very easily incited and lead the country to ruin. Such situations have occurred repeatedly throughout history.

Public pension insurance is a social system born in the process of controlling the political anxiety and instability fostered by the essential human fear of future anxiety. Therefore, there is no reason why those with the qualities of a leader of a mobocracy would not advocate the theory of the collapse of public pension insurance, which is a pillar of political stability.

To borrow the words of Nanami Shiono, leaders of a mobocracy are "truly skillful at fanning distrust toward leaders arising from (future) anxiety, and the resentment and anger toward those better off than themselves that results from that escalated distrust." Thus, for nearly 20 years during which pensions were targeted as a tool for political struggle, the pension anxiety felt among the public spread throughout society and was truly troublesome.

Ortega criticized the professional class that was beginning to emerge as the elite at the time, especially "scientists," calling them "modern barbarians" who behave as if they understand things outside their own specialty. Such barbarian scientists and elites easily entered the world of pension criticism.

And during this time, political scientists were just as bad as economists. Policy is something where God or the Devil dwells in the details, so when political scientists who do not know the details of policy enter the fray, the discussion goes awry. In 2011, when I was invited along with Kanichiro Hamaguchi, a researcher of labor law, to a symposium hosted by political scientists then at Hokkaido University, Mr. Hamaguchi told the political scientists, "Some political scientists, many political commentators, and most political reporters are the root of all evil," and I deeply agreed. I believe this proposition regarding the root of what has made Japanese politics go awry by relentlessly advocating for political leadership and the like does not need to be changed even now, ten years later.

Here, I would like to introduce a question I set this spring as a "Correspondence Education, Textbook Subject Report Assignment." The Pension Reform Act was passed in May 2020. While the pension reforms of 2004 and 2016 were passed by forced votes by the ruling party, this time "the amendment jointly submitted by the ruling and opposition parties was approved unanimously." The question asked students to discuss what exactly was happening in the political process, keeping in view the historical transition during this period, and furthermore, how "democracy" actually functions in reality.

The students are quite capable. During this time, I participated in two national councils: the 2008 National Council on Social Security and the 2013 National Council on Social Security System Reform. Most of the work regarding pensions in those councils was a battle against the populism initiated by politicians.

Thus, the meaningless pension uproar finally moved toward a resolution to some extent, but I would also like to mention that this uproar has produced sacrifices in an extremely regrettable form. How is policy formed under capitalism? Let me give a brief explanation of the term "rational ignorance."

Voters, naturally, do not live just to vote. They have things to do in their daily lives and are generally quite busy. So even if they were told they could use 24 hours a day freely, how many people would spend time studying public policy? Even on election day, each person's vote carries the weight of only one person out of the total number of voters. One's own influence on the election result is negligible.

Under these circumstances, is there any reason for a voter to seriously study public policy? If voters act rationally, they will hardly study public policy at all. This is the concept of "rational ignorance of voters" in public choice theory, a field of economics.

If voters act rationally, they become ignorant regarding public policy. I first encountered this idea over 30 years ago, when I was a first-year master's student attending a joint seminar by Professor Seiji Furuta and Professor Hiroshi Kato (Katokan). I was convinced that it must be so, and "rational ignorance of voters" seems to have been established as the starting point of my thinking.

If that is the case, it means that democracy, where everything is decided by election, is being operated under circumstances where most of the citizens know almost nothing.

It is possible to deliver information even to such rationally ignorant voters. However, doing so incurs a significant cost, and funds are needed to cover it. Since those who have such funds are mostly in the business world, democracy under capitalism inevitably becomes biased regarding public opinion and policy. I have called this "capitalist democracy."

Regarding pensions, what really needed to be done over the past 20 years was to apply Employees' Pension Insurance to short-time workers. It was to apply a system with built-in income redistribution, like Employees' Pension Insurance, to those who are non-regular workers. That would have been a considerably effective policy for the problems of inequality and poverty.

However, this has been stubbornly resisted by the business world. Matters they stubbornly resist also fail to reach the public's attention within a capitalist democracy. While it was necessary to pour the energy of society as a whole into solving this problem, opposition politicians and researchers wasted society's energy on unrelated matters.

However, herein lies the difficulty of democracy. In the process of creating a political situation by the opposition, the future pension anxiety of the pension recipients themselves is fanned. Because it targets the overwhelming majority of the citizens, the response is very strong. However, the issue of expanding coverage is not very relevant to the many people who are already in the Employees' Pension Insurance. To know the meaning of this problem and have it recognized as a major issue in Japan today, people must have an interest in the "public." How can that be achieved?

As public choice theory teaches, one will not make errors in prediction if one understands that politicians will do anything to win the next election, acting to maximize their vote share. However, the real problem is the existence of scholars who give them their seal of approval. In such policy debates, scholars are like monks at a funeral; you cannot have a funeral without a monk. Similarly, politicians can hardly move unless scholars give their approval. And during that era of pension uproar, scholars continued to say things that appealed to politicians aiming to create a political situation. I still do not understand their intention.

When I was asked to appear in "Hangaku Hankyo," which introduces seminars in Keio's public relations magazine "Juku" in 2011, I wrote the following because of these circumstances:

"It is dangerous if you don't think very carefully—that is the feeling I have after about a quarter-century of analyzing and discussing social security using economics as a tool.

Until now, I have witnessed many cases where researchers themselves were the cause of the problem rather than the solvers. Indeed, how many researchers, especially economists and political scientists, are there whom one would want to tell that the world and its people would have been better off if you hadn't existed? (Omitted)

Perhaps as the years go by, I am coming to understand the meaning of what Yukichi Fukuzawa once argued: that for those who cannot distinguish right from wrong to study politics and economics is 'as dangerous as a child playing with a sharp blade'."

Dealing with pensions makes me angry, so I would like to change the subject here.

Social security now accounts for 20% of GDP (Gross Domestic Product), reaching an overwhelmingly large scale as a public policy. While GDP is approximately 550 trillion yen, pensions are about 60 trillion yen. Medical expenses amount to 40 trillion yen, and nursing care is on the scale of 10 trillion yen. Among these, major reforms were underway for medical and nursing care even before the COVID-19 pandemic.

The reforms currently underway are based on the blueprint of the "National Council on Social Security System Reform," whose report was compiled in 2013. To help you briefly understand its content, let me introduce a few keywords.

First, medical and nursing care reforms are to be pursued integrally. The thinking behind this is based on the argument that medical and nursing care are the same in the dimension of enhancing Quality of Life. Japanese medical care used to be "hospital-complete," where it was over once the patient was discharged. We have been advancing reforms in the direction of having the hospital where surgery was performed, local home medical care, and nursing care providers build face-to-face relationships and collaborate to provide thorough care until the final end-of-life stage. This requires a major shift from the traditional "medical care that cures" to "medical care that cures and supports."

Furthermore, we are in the middle of a major transition from the traditional free access of "anytime, anywhere" with a single insurance card to a medical system with "gentle gatekeepers (consultants/referrers)" that provides necessary medical care when needed.

Moreover, and this is being questioned under the current COVID-19 situation, many Japanese hospitals are privately owned, and there is a history of private hospitals expanding their scale while competing. However, from now on, it is necessary for hospitals that have competed until now to cooperate with each other, clearly dividing roles and collaborating. This is the realization of the Community Medical Care Vision, and furthermore, reforms have aimed toward a direction where multiple medical institutions, under the name of Community Medical Care Cooperation Promotion Corporations, maintain close cooperation akin to integration, with medical and nursing care providers throughout the region firmly protecting local medical care.

And in the official document of the 2013 "National Council on Social Security System Reform," for the first time, a description was made to enhance QOD, the quality of medical care toward death, which has now evolved into an activity called ACP, or Advance Care Planning.

To advance these reforms, the spread of "family doctors" has been aimed for as an essential element. There is a firm definition for "family doctors." In 2013, the entire medical world, including the Japan Medical Association and the Council of Four Hospital Organizations, defined family doctors.

The definition is: "When unable to provide treatment or guidance beyond one's own expertise, provide solutions in cooperation with local doctors, medical institutions, etc." "To ensure that the best medical care for the patient continues even outside one's own consultation hours, share necessary information with local doctors, medical institutions, etc., and build a system to respond to patients on holidays and at night in cooperation with each other." "Build relationships of trust with local residents and promote home medical care so that local seniors can live in the community for as long as possible."

It might be hard to imagine, but Japanese medical care is aiming for a system where such family doctors are close at hand not only for seniors but also for young people.

The integrated reform of medical and nursing care was considered necessary and was being advanced to match the medical delivery system to changes in the public's medical needs. Then the pandemic struck. This event made us keenly feel the need to accelerate the direction of the reforms so far—namely, the division of roles and cooperation among medical institutions.

There is another major area in current social security. It is an important policy regarding the declining birthrate. The number of births fell below 1 million for the first time in 2016 and has continued to decrease since then, with last year's births at approximately 840,000, a record low.

Politics, having keenly felt the seriousness, now seems to be considering the creation of a "Children's Agency" to unify administration regarding children. If that happens, the discussion of how to secure the financial resources for those measures will inevitably arise.

Under these circumstances, inquiries regarding the "Child-rearing Support Solidarity Fund," which I have been talking about for the past few years, are increasing. This story is about multiple social insurance systems supporting the child-rearing support system, and I would like to introduce it so you can understand it.

While childcare leave benefits from unemployment insurance are already being provided, in addition to that, systems that mainly cover expenditures for the elderly stage of a person's life through social insurance means—namely pension insurance, medical insurance, and nursing care insurance—will contribute to the Child-rearing Support Solidarity Fund to enhance the sustainability of their own systems and future social insurance benefit levels. This fund will then support the child and child-rearing system. Why is such a Child-rearing Support Solidarity Fund being considered?

First, if this system is established, whether people are unmarried or married, or have finished raising children, their future benefit levels will be higher if measures against the declining birthrate are firmly implemented. In that way, pension, medical, and nursing care insurance will be able to support measures against the declining birthrate.

In 1934, the Swedish couple Gunnar and Alva Myrdal—Gunnar won the Nobel Prize in Economics and Alva won the Nobel Peace Prize—published a book titled "Crisis in the Population Question" and advocated for the "socialization of child-rearing costs."

They used the term "socialization of the consumption of childbirth and childcare." The reason is that as social security such as pensions becomes more substantial, the benefit for an individual to have children decreases. As a result, a decline in the birthrate and population occurs, which conflicts with social interests. They argued that the only way to solve this problem is through the socialization of child-rearing costs.

Having systems where expenditures for the elderly stage are socialized—in present-day Japan, pension, medical, and nursing care insurance—become able to support child-rearing also solves the contradictions inherent in social security for the elderly.

Also, social insurance has a high capacity for procuring financial resources. In this country, social insurance premium income has exceeded national tax income since 1998. Benefits will not be stable unless the financial resources are stable. Social insurance premiums have an overwhelming capacity for procuring financial resources compared to taxes. If these social insurance premiums can support child-rearing assistance, extremely stable financial resources can be secured.

Furthermore, an opportunity arises for the management side to cooperate in correcting the fluctuations of capitalism. Japanese capitalism has fallen into a situation where it is difficult to expect smooth development due to the future labor shortage predicted from the declining birthrate, as well as the lack of demand because consumption by many people has become saturated, and the lack of consumption due to future anxiety regarding the sustainability of social security.

From the standpoint of individual managers, the lower the labor costs, the better, and profits can be maximized by not thinking about the reproduction of the labor force or the cultivation of consumers. However, if managers take rational actions from such a micro perspective, problems inevitably arise from a macro aspect and a long-term perspective, a problem known as the "fallacy of composition."

Long ago, Professor Kazuo Okochi argued for labor force preservation: to solve the contradiction between individual capital and total capital, social policy should be developed by seeking contributions from individual capital from the standpoint of total capital. Such points of argument held true in the era of Bismarck at the founding of social insurance, in Professor Okochi's era, and also in the current era troubled by labor shortages and lack of demand under a declining birthrate. Therefore, it is in the long-term interest of managers to actively cooperate with the Child-rearing Support Solidarity Fund.

In this way, discussions about policies regarding the upbringing of children and what to do about financial resources will emerge in this country from now on. I hope you understand that these discussions are being held within this context.

I just spoke about procuring financial resources, and last month, President Biden of the United States declared that he would reverse the long-standing trend of tax cuts for corporations and the wealthy, increase corporate and wealthy taxes, and use those resources to increase jobs and carry out a plan for families centered on child-rearing support policies. In his speech, the importance of the middle class in both the political and economic aspects of a nation was proclaimed.

My feeling was, "Finally, the U.S. has come to understand," though that is a joke; however, I have been talking about the points in President Biden's speech to Congress—emphasizing the "middle class" and denying "trickle-down"—for so long that I am tired of it. A thick middle class is essential for a nation's economy to grow smoothly and for politics to be stable. Policies that leave things to the market, so-called trickle-down where making the wealthy rich allows the benefits to drip down to low-income earners, have never been realized in history.

Social insurance accounts for 90% of social security benefit expenditures. These are pensions, medical care, nursing care, and so on. I believe these are systems that everyone will be involved with at some point in their lives. Public assistance is about 3%. Since half of that is medical assistance, the cash-benefit livelihood assistance you might imagine accounts for about 1% of social security benefits.

Social security exists mainly to protect the lives of the middle class, and this is a similar trend in many countries. In Japan, the Gini coefficient, an indicator of income inequality, is improved by social security and the tax system, but about 90% of that improvement is achieved by social security. And social security redistributes income from high-income regions to low-income regions.

I have argued that the elderly are economic treasures and that actively attracting the elderly to rural areas is an effective means of regional revitalization. By having those elderly people there, income flows into that region from high-income regions like Kanto and Tokai. In that sense, I have called social security an irrigation facility that constantly flows income from high-income areas to low-income areas.

The irrigation facilities built by Dr. Tetsu Nakamura, who passed away in 2019, in Afghanistan. Dr. Nakamura was a senior alumnus of my high school. To introduce his great work, I have also been in contact with the Peshawar-kai; by building those irrigation facilities, the desert is transformed into lush green fields. For the role of social security as an irrigation facility, I would like you to imagine that great achievement of Dr. Tetsu Nakamura.

Markets are not good at distributing income. It cannot be helped that relying heavily on the market creates disparities and increases inequality. Democracy checks that market and develops policies to reduce disparities. One means for that is social security.

And here, I would like you to think about one question. Is it more desirable for economic growth to have equal income distribution, or is it more desirable to leave it to the market?

What I have been saying all along is that "if the discipline you hold changes, the answer changes." This is the scary part of academia; depending on the discipline one holds, the policy solutions one considers desirable will be completely different. Socially vulnerable people who know nothing of such talk are tossed about by the ideological battles within economics and pushed into poverty.

Here is a diagram summarized as the "Lineage of Economics Related to Social Security." The lineage starting with Adam Smith and connecting to Friedman is called right-wing economics, and the lineage passing through Keynes is called left-wing economics.

Based on right-wing economics, it is thought that the economy works well if left to the market, and social security is an unnecessary thing that drags down the economy, so the smaller it is, the more desirable. However, based on the left side, it is concluded that the economy works better if income distribution is equal. Therefore, the system of social security, which realizes the equalization of income distribution, is actively evaluated as an economic policy.

The 1980s, when I was a university student, was a period when economics took a major turn to the right. In politics, Prime Minister Thatcher appeared in the UK in 1979, and President Reagan was born in 1981. In the Nobel Prize in Economics, Friedman won in 1976, and Stigler in 1982—both from the Chicago School. Then Buchanan won in 1986, Becker in 1992, and Lucas in 1995.

Four of these five, excluding the relatively young Lucas, gathered in Switzerland in 1947 with Hayek as their leader and organized the Mont Pelerin Society. The purpose of this organization was to reverse the expansion of government that had progressed during the interwar period, revive the market economy as it was before the two world wars, and aim for an era of liberalism once again. This is the neoliberalism that those libertarians set in motion. To borrow the words of Naomi Klein in "The Shock Doctrine," "what they sought was a return to an unpolluted, pure capitalism."

When I was a student, Professor Kotaro Tsujimura criticized the rational expectations school of Lucas and others in his classes. However, partly due to the power of the prestige of the Nobel Prize in Economics, they came to have tremendous influence, and we entered an era that denied almost all intervention in the market.

In such an era, social security is positioned as a foreign object in capitalism. This was the case not only in Thatcher's UK and Reagan's US but also in Japan, where the various systems that democracy had established to check the market were regarded as bad regulations. It became an era where relaxing them, reforming them, and speaking ill of the government—especially Kasumigaseki—was seen as absolute justice, and many people were lionized in that direction.

Right-wing and left-wing economics are completely different things. Even so, both have continued to exist. From the perspective of those in the natural sciences, it might look truly strange. While some Nobel laureates in economics called economics the queen of the social sciences, Thomas Kuhn, who spoke of paradigm shifts in science, did not include economics in science. I think it was a keen insight.

Regarding this way of thinking, I was clearly conscious of the "Theory of Intent" developed by Yukichi Fukuzawa in “An Outline of a Theory of Civilization”. I would come to think about where exactly these disciplines diverge and become different things.

Fundamentally, the premises of the arguments at the starting point of these two disciplines are completely different. The right side is certainly an economics that views the economy from the supply side, based on the premise of Say's Law that "supply creates its own demand" and everything produced will be sold.

In contrast, the left side is certainly an economics that denies Say's Law and views the economy from the demand side. However, if we think further, while the right side thinks the future can be predicted, the left side thinks that because the future is uncertain in the sense meant by economist Frank Knight—meaning we don't know what will happen—predicting the future is impossible. There is a fundamental difference between the two.

The pension theories I have developed start from the fundamental premise of an uncertain world where future predictions are impossible. The paper I wrote for Chapter 1 of the "40th Anniversary Collection of Papers of the Pension Social Security of Japan," which I mentioned at the beginning of this lecture, is titled "Uncertainty and the Past, Present, and Future of Public Pension Insurance," and it introduces the topic of uncertainty as a major premise.

For example, when the Employees' Pension Fund was established in 1966, the system was designed based on a projected interest rate of 5.5%. Human predictive power is so precarious that at the time, almost no one questioned that system design. Public pension insurance as a real-world system must be operated under the policy of finding ways to protect people's lives in old age, even in an uncertain world where the future is unpredictable. Thus, whether one views the future as predictable or unpredictable changes the nature of economics and, furthermore, the way system design should be approached.

Furthermore, the economics on the right and the economics on the left each develop logically correct arguments based on premises where the entire system would collapse if even a single part were replaced—what Kuhn calls "incommensurable hypotheses." Therefore, they can never truly align. As for whether there is evidence to clarify which of the two is true, it is not that simple a matter.

Clearly, the trend of economics tilted heavily to the right in the 1980s, and after a while, the world on the right came to be called mainstream or orthodox economics. A certain degree of agitation began to occur in orthodox economics around the time of the Lehman shock, but it is unclear which direction it will head in the future. However, considering the 250-year history since the birth of economics, it is clear that policy ideas based on economics have had a decisive influence on the state of the world and the shape of nations, often tossing people's lives about.

I believe that the world and the economy will work better if we carefully nurture the signs that are now beginning to appear slightly in global politics. Riding the wave of this year's Eiichi Shibusawa boom, I have assigned "The Analects and the Abacus," which I have long wanted to recommend to students, as a task for my seminar students. Eiichi Shibusawa's ideas actually have points in common with the thoughts of Adam Smith, who personally wrote both "The Theory of Moral Sentiments," which preaches empathy with others and altruism, and "The Wealth of Nations," which became the starting point of economics.

Whether Biden's social policies through corporate tax hikes succeed depends on whether international cooperation to stop the race to the bottom in corporate tax rates is possible. And that, in turn, depends on how much power democracy can exert over market mechanisms and capitalism. That said, as I mentioned today, democracy is quite unreliable and precarious.

Finally, I would like to introduce a piece I wrote for "Mita-hyoron (official monthly journal published by Keio University Press)" (May 2006 issue), which was a book review of Shinzo Koizumi's "Yukichi Fukuzawa." From Shinzo Koizumi's perspective, Yukichi Fukuzawa seemed to possess a nature where he "sought to say things that were highly provocative and, so to speak, did not hesitate to always bend a crooked bow in the opposite direction to straighten it." It seems that the current era has also become a crooked bow, but what should we do to straighten this bow?

Yukichi Fukuzawa uses the term "spirit of the times" (jisei) as a factor that moves history. He says, "It is not heroes or great men who have moved history. There is something called the spirit of the times, and that spirit moves the world and, by extension, moves history." He viewed society by defining that spirit of the times as the character of the people living in that era, namely, "the state of the wisdom and virtue distributed among the people of that era." Such a view of history is the polar opposite of the long-dominant view that history is moved by those on the front stage of politics, such as heroes and great men, and that the good or bad of politics lies solely with the government.

In contrast, Yukichi Fukuzawa argued, "Government naturally changes its direction according to public opinion. Therefore, I say, today's scholars should not blame the government but should grieve over the errors of public opinion" (An Outline of a Theory of Civilization, Volume 2, Chapter 4). He argued that changing the "character of the people and the state of the wisdom and virtue distributed among the people" is precisely the "duty of scholars." The purpose is to "protect the great peace of the entire nation." This is the final sentence of the first volume of "Gakumon no susume (An Encouragement of Learning)." Today's title, "Such a People, Such a Government," is the very essence of his view of history.

Being in the world of policy theory means that if you are not extremely careful, you may make a mistake somewhere and risk causing great trouble for the people of today and the future. That is the fear of the world of policy theory.

I do not truly know in which direction the public opinion of this country will proceed or what kind of developments the government policies following it will show. Although it is such an uncertain world, with about six years left until retirement, I intend to continue to "speak out the theories I believe in without fearing the slander of heresy," as stated in "An Outline of a Theory of Civilization," while occasionally remembering Yukichi Fukuzawa's idea of the duty of scholars—explained in his speech "Do Not Be Obsessed with Learning" regarding the importance of balance—that "scholars should look before and after to plan for the future, grieve over the errors of public opinion that make politics what it is today, and transform public opinion." Thank you very much for your kind attention today.

(This article is based on a lecture given at the Yukichi Fukuzawa Wayland Economic Book Lecture Commemorative Event held online on May 15, 2021. Regarding the cited literature, some notations have been modified for readability.)