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The monetary institutions are the same – but culture dictates the choices we make

In discussions about the significant differences that we have observed over the last 30 odd years between the conduct of economic policy in Japan and elsewhere, the usual response from mainstream economists, when challenged to explain the outcomes in the former nation, is that it is ‘cultural’ and cannot be applied elsewhere. I always found that rather compromising because mainstream economics attempts to be a one-size-fits-all approach based on universal principles of maximising human behaviour. So, by admitting ‘cultural’ aspects to the discussion, this is tantamount to admitting that the ‘market-based’ micro founded approach to macroeconomics is incapable of explaining situations. That is the first black mark against the veracity of mainstream theory. But when one prods further, it becomes clear that the term ‘culture’ is fairly vacuous and blurred in this defense of the mainstream framework. I respond by pointing out that essentially the monetary system dynamics in Japan are identical to the way the system works elsewhere. The institutions might have subtle variations but essentially the operations are so similar that the ‘culture’ bailout doesn’t help resurrect the appalling lack of predictive accuracy when it comes to examining the macroeconomics of Japan. Cultural aspects, however, are crucial to understanding the differences. The trick is understanding how these monetary and fiscal institutions are managed. This is where the cultural aspects impact. And, while I have learned a lot about Japanese cultural nuances, some of the more important ‘cultural’ drivers are transportable to any nation – if only we cared enough and valued people in the same way.

Researchers have long been interested in developing explanations as to why Japan is able to maintain much higher levels of social stability relative to other nations (particularly the English-speaking Western nations).

While all national societies have states which effectively function to enforce rules, there are significant disparities in the role that these state institutions play.

Social scientists have considered a number of different theoretical approaches to this question.

The early work of sociologist Talcott Parsons – who in 1937 published his opus – The Structure of Social Action (McGraw Hill, New York) – focused on what he termed an ‘integrative approach’ where the economy interacts with culture and social institutions to move forward.

He advanced what became known as the ‘voluntaristic theory of action’ to define what he considered to be the scope of sociology

People come together because they have shared values that are best advanced collaboratively.

Similarly, Peter Blau published his – Exchange and Power in Social Life (Wiley, New York) – in 1964, which sought to comprehend social structures by studying and understanding the way people are governed.

There are processes that regulate the way in which people associate with each other.

At the heart of this enquiry is ‘social exchange’ which is crucial to advancing goals – at an individual and societal level.

He wrote that to understand social relationships we must analyse:

… social associations, of the processes governing them, and the forms they assume is the central task of sociology.

I just finished reading the 1970 book by Japanese social anthropologist – Nakane ChieJapanese Society (Pelican).

Nakane Chie compared and contrasted social structure in Japan, China and India and concluded that Japan is a ‘vertical society’, by which she meant that individuals are defined by their place in the hierarchy rather than their individual attributes.

Horizontal relations in Japan are less defined relative to these vertical relations which are based on seniority and permeate organisations and society in general.

These groupings are defined by the ‘frame’ – the context or particular situation that applies.

I have mentioned before that the use of language in Japan is very context or frame-dependent.

Different words with the same meaning are used in different situations, which sets it apart from English, which tends to be context invariant.

As I learn more about the Japanese language I realise more that it is one of the keys to understanding Japanese culture.

In turn, this helps me understand the way in which economic policy is conducted, which is my central point of enquiry here.

In terms of Chie Nakane’s approach, Japanese people tend to define themselves in terms of their ‘place’ – whether it be in the context of their workplace or perhaps, their family.

They use words to emphasise the context rather than create a sense of individualism.

Before a Japanese person speaks they assess the context and their self-expression becomes dependent on who they are talking to and the situation they find themselves in.

So the concept of ‘self’ is relational and situational, unlike in the English language where it is true we use different forms of words depending on where we are etc, but our sense of self doesn’t really change with the circumstance.

This also bears on the way in which conflict is resolved in societies.

In Western societies we develop concepts of ‘fairness’ and ‘rights’ to define what we expect from others around us and when these ideals are ‘violated’ we seek relief ex post.

In some Western societies, this resolution is highly litigious.

As I understand the situation in Japan, children are encouraged to avoid conflict through various processes such as ‘self criticism’ and empathy.

In other words, the ‘conflict resolution’ approach is not to resolve disputation after the fact but to prevent it from happening in the first place.

One learns about the principle of – Kenka Ryoseibai 喧嘩両成敗 – which emerged in the development of law in Medieval Japan.

Accordingly:

The principle provides that both parties which resorted to violence in a conflict should be equally punished regardless of the right or wrong of the matter.

So both parties are to blame if there is conflict.

In the C15th, the articulation of this principle led to situation where “those who engaged in an armed conflict were both to be executed, irrespective of the question of right or wrong”.

A sure fire way to quell emerging disputation if there ever was one.

Teachers regularly use this principle in schools to minimise conflict among students.

The philosophical principle of – Omoiyari:

… is a form of selfless compassion – putting yourself in the shoes of others, and from their perspective anticipating their needs, acting in a way that might make them at ease, happy or comfortable.

In her 2020 book – (Haprper Collins) – Erin Niimi Longhurst writes that:

Care, consideration and empathy underpin all aspects of daily life in Japan and are essential to the social spirit. From Omotenashi (Japanese hospitality), Kirei (cleanliness and organisation) and Mottainai (reducing waste) to Zakka (finding beauty in the mundane) and Senbazuru (the origami art of folding one thousand paper cranes), there are so many different ways that the Japanese emphasise the importance of community and helping others.

Just reflect on the supporters of the Japanese soccer team during the current World Cup, who stay behind after the game to ‘clean up’ the stadium.

There are many aspects of this tendency to consider others and to be self-critical in Japanese society.

I was told the other day that Japanese firms hate to sack workers and will do everything possible to avoid that.

Contrast that sort of societal order with the now-dominant neoliberal order based on promotion of the individual in Western societies, particularly the English-speaking world.

On October 31, 1987, the then British Prime Minister Margaret Thatcher told the UK Women’s Own Magazine:

I think we’ve been through a period where too many people have been given to understand that if they have a problem, it’s the government’s job to cope with it. ‘I have a problem, I’ll get a grant.’ ‘I’m homeless, the government must house me.’ They’re casting their problem on society. And, you know, there is no such thing as society. There are individual men and women, and there are families. And no government can do anything except through people, and people must look to themselves first. It’s our duty to look after ourselves and then, also to look after our neighbour. People have got the entitlements too much in mind, without the obligations. There’s no such thing as entitlement, unless someone has first met an obligation.

This statement was an important ‘mantra’ for those who sought to break down the collective will of the British people.

It was exported around the world in various forms to provide support for the campaigns to retrench the welfare state and abandon full employment, which had been key elements of government policy conduct in the post WW2 period designed to reduce inequality, improve material living standards for workers and provide opportunities for the least advantaged.

That fightback began in earnest with the 1971 release of the – The Powell Memo (AKA the Powell Manifesto) – written by Lewis Powell, who had been hired by the US Chamber of Commerce to come up with a strategy to reduce the power of workers and allow corporations to more easily pocket profits

I analysed that strategic document – which was entitled “Attack of American Free Enterprise System” – in this blog post (among others) – The right-wing counter attack – 1971 (March 24, 2016).

While there are some very distinctive facets of Japanese culture – some of which I note above – that reflect its history, its Confucian links, its language and more – the fact remains that Western nations also developed a sense of society which allowed the gains for workers to be made post 1945 and, ultimately, were abandoned because capital found a way to elevate individualism above the collective through its superior control of the media, lobbying funding and more.

Just reflect on the framing and wording of the – The 1945 White Paper on Full Employment – which defined the policy environment in Australia over the ensuing three or so decades.

In his 1994 book – The Death of Economics – British economist Paul Ormerod argued that the Post-World War II period of strong GDP growth, relative balance of payments stability, and high investment rates could have occurred without the accompanying low unemployment.

He wrote:

The sole difference would have been that those in employment would have become even better off than they did, at the expense of the unemployed.

The higher tax rates and buoyant government sectors allowed the flux and uncertainty of aggregate demand to be shared.

While the bulk of the OECD countries abandoned this method of sharing, some economies resisted the neoliberal pressures in the 1970s and maintained high levels of employment and some still maintain that commitment.

Ormerod suggests that Japan, Austria, Norway, and Switzerland, among others have (in their own ways):

… exhibited a high degree of shared social values, of what may be termed social cohesion, a characteristic of almost all societies in which unemployment has remained low for long periods of time … the countries which have continued to maintain low unemployment have maintained a sector of the economy which effectively functions as an employer of the last resort, which absorbs the shocks which occur from time to time, and more generally makes employment available to the less skilled, the less qualified.

Collective will is tied in with the concept societal trust that the government will pursue a common well-being rather than serve one particular group (especially itself!) over another, or, more importantly, all others.

While policy has shifted in the neo-liberal period to encourage us to behave more venally towards each other – a classic divide and conquer strategy to maintain the power of capital – it cannot be said to have delivered superior outcomes.

The point is that the assault on collective will – from Ayn Rand to Milton Friedman and their neo-liberal acolytes in the economics professions – is not based on any scientific basis.

It was a strategic attack designed to undermine government intervention so as to tilt the playing field back towards capital after several decades of social democracy (based on collective will) had seen income inequalities drop and workers enjoy greater job security and working conditions.

Social democracy was too successful in its pursuit of general well-being and it had to be undermined.

How better than to conclude that it was anti-human – in the sense that it was working against our human nature.

And by oppressing our human nature – our innovation and choice was subjugated and outcomes were thus diminished.

It was a powerful narrative and, as we know, has penetrated deep into our ‘mass consumption-easy credit addled’ psyches.

The elites no longer needed religion to render the masses mute – supermarkets and liberal credit did the trick and returned a neat return to capital, something that religion could not do very effectively.

The only problem is that unfettered capitalism does not seem to be very closely aligned with our human nature.

I analysed that issue in this blog post – Humans are intrinsically anti neo-liberal (May 22, 2017).

So while this era of Western civilisation is pushing the ‘individual’ and trying to deny societal responsibilities to help all people, the research literature doesn’t provide a fundamental authority to justify the neoliberal putsch.

Conclusion

The point here is that while there are some ‘Japan-centric’ elements that ensure that the Japanese government acts in a certain way, the sense of society is not something that is unique to that nation.

Neoliberalism has perverted the way we manipulate the powers of our economic institutions in such a way that we benefit the elites more than the rest.

These are essentially the same institutions that the Japanese government has at its disposal.

But the cultural aspects that dominate (still) in Japan force their government to make different choices.

Just the fact they hate unemployment ensures policies will be different.

The West could make the same choices but have used the cultural shifts promoted and reinforced by neoliberal ideology to eschew those options and society is worse off as a result.

This is an on-going enquiry for me. More later on what I find out.

Thanks also to Professor Se with whom I had a very interesting session listening to and interacting with in Kyoto.

That is enough for today!

(c) Copyright 2022 William Mitchell. All Rights Reserved.

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    This Post Has 17 Comments
    1. Why ?

      Why have things developed this way.

      The EU is the biggest clue we get. Wrapped in Orwellian language the Ukraine war has revealed the truth and why the West has been set up this way. To keep pushing the Berlin wall Eastwards. The Orwellian language has been exposed more than ever during the conflict. The glaring truth being peace could easily have been achieved and yet just look at their actions.

      Geopolitics is the driver of everything. Now let’s discuss the Western military basis littered across Japan ?

      Is Japan as free and independent as you make it out to be ? How does this fit in with your analysis as it simply can’t be ignored and swept under the table ?

    2. When I spent 10 days on Japan I noted how many extra people seemed to be employed in frontline public services than in NZ…more community police officers, more train station attendants, more cleaners on trains etc…I suspect this was the de facto Job Guarantee in action. But it also made for a safe, clean, well-run sort of city.

    3. I agree this is a very good post, and Derek is all wrong.
      Derek Henry, based on the other 6 comments and mine, you are out voted by 7-1.
      .

    4. have read a few articles where growing inequality in Japan is discussed and
      Some attribute this to Abenomics and a booming stock market.
      Is this something you have come across in the universities?

    5. The most disturbing thing about Margaret Thatcher’s rhetoric remains that,d by the time she sought public office, the wealthy had excised, perhaps even from themselves, the social awareness and knowledge to refute her.

    6. To explain why Japan can get away with large deficits every year for 30 years, it seems to me that mainstream economists should mention the fact that Japan has a continuing balance of payments surplus. This seems to matter for can the Gov. keep going deeper into debt. It seems like foreigners don’t keep being given yen which they have to do something with, so foreigners can refuse to buy Japanese bonds.

      Perhaps this condition should be added to the list of things that a nation needs to have or do before it is free to use MMT (have its own fiat currency, float that currency, and never bowwow in any other currency & have no debts in another currency).

      I keep being told that only the US can use MMT like thinking and have huge deficits, because the US$ is the world’s reserve currency. So, this could be added to that list, at least functionally.

      What do you think about this?

    7. Japan retained its feudal structure and everyone has their position and role and all are essential for the wellbeing of the whole. Extreme greed and sociopathy are rare. The collective benefit is prioritised over the individuals benefit. Advancement of the whole nation and all of its people is a ongoing goal.

      One relevant story.

      One factor that was significant in the total exit of the Australian car manufacturing industry was that the President of General Motors International operations at the time was generally hostile to continuing the Australian manufacturing operations of General Motors Holden compared to the local managers that were doing their utmost to come up with a suitable deal with the heavily neoliberal ultra conservative Tony Abbott led Liberal-National Coalition federal government of the time in late 2013.

      GMH wanted A$160 million a year up to 2023 to help justify the modernisation of its manufacturing operations and the introduction of two replacement models but Prime Minister Abbott and Treasurer Joe Hockey would offer no more than A$80 million per year and also publicly goaded GMH to close their manufacturing operations.

      I suspect that this GM Detroit senior manager could have negotiated a bigger subsidy to compensate for the total removal of tariff protection but that he foresaw that if GM Holden exited then that would force last man standing Toyota Australia to also exit even though they were still marginally profitable and therefore abandon their much larger investment in the then state of the art $1 billion assembly plant in the Melbourne western suburb of Altona.

      Holden has since gone from market leader to irrelevance and GM now has a tiny market share in the Australian market. Toyota with its wide product range has been market leader ever since.

      Toyota Australia was unique in that a genuinely cooperative extended family working environment was created for employees and suppliers over many years, and once closure was announced considerable assistance was provided to employees with training and with finding suitable job placements and components suppliers were assisted with finding new markets wherever possible.

      This contrasts with GMH, and Ford Australia that closed operations a few years earlier, that generally had a bigger class divide between management and workers and once closure was announced in general just offered the mandated redundancy payments to their direct workforce.

    8. Steve a current account surplus would mean the Japanese government’s deficit would need to be less – presumably then just to counteract increased savings by the populace.

      Can the Japanese government keep going further into debt? Of course it can as the Bank of Japan can just buy up the debt using zero cost currency issuance. Or government bond issuance can end and the BOJ could just directly finance any deficit.

      As for only the US being able to take advantage of an understanding of MMT concepts as the US dollar is a reserve currency? The MMT academics have said that all nations with a free floating fiat currency can freely deficit spend up to the full employment condition – unless you are Norway and you are already beyond the full employment condition and need to run a national government surplus so as to take an excess of currency out of circulation.

      I recall that you had a good understanding of MMT years ago, why the basic questions?

    9. Carol, I looked it up.
      Their trade deficit was $15 billion for Oct, 2022. So, 12 x 15 = $180 B.
      It has been in deficit for the last 15 months. This is a result of the pandemic.
      I don’t think that this is aa huge number though.
      The yen has been falling for a while.

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