RIETI Report August 2015

Japan's Fiscal Problem Calls for a New Political Philosophy

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The government presented a fiscal reform plan at the end of June 2015, and Faculty Fellow Keiichiro Kobayashi considers the significance of fiscal problems in terms of political thinking. Problems that must be addressed by politics and those that are dealt with by economics are often different in nature. In the August issue of the RIETI Report, we present his column "Japan's Fiscal Problem Calls for a New Political Philosophy."

Kobayashi claims that if the current generation can bring out their self-sacrificing spirit and restore fiscal stability by accepting tax hikes and cutbacks in social security expenditures, the future of the Japanese economy and society would be stable and people's lives would continue to improve for generations to come. However, individualistic liberalism, a political philosophy that exists in developed countries including Japan, cannot offer any political value that supersedes personal interests and must be protected even at the cost of comfortable lives enjoyed by the current generation. He stresses that to ensure long-term sustainability and development as a democratic country, political philosophy must be strengthened by incorporating the essence of republicanism or civic liberalism. This would inspire new ideas for institutional reform.

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Japan's Fiscal Problem Calls for a New Political Philosophy

KOBAYASHI KeiichiroFaculty Fellow, RIETI

The government is set to present a fiscal reform plan at the end of June 2015. In order to organize thoughts before evaluating the specifics of the fiscal reform plan, I would like to consider the significance of fiscal problems in terms of political thinking.

Problems that must be addressed by politics and those that are dealt with by economics are often different in nature. The conflicts of interest that have to be resolved by politics are typically those that can be defined as a lifeboat dilemma, which refers to the following situation.

A group of people float adrift on a sinking lifeboat. If one person leaves the lifeboat (i.e., sacrifices his/her life), the lifeboat would stop sinking and all of the others would survive. However, if no one leaves, the lifeboat would sink and all of them would die.

In more generalized terms, this situation can be described as one in which a certain group (e.g., town, company, country) is facing a crisis, and an act of self-sacrifice by a small number of individuals to voluntarily accept disadvantages will benefit the remaining majority. A situation where some members of a group must be sacrificed for the survival of the entire group is a frequent occurrence in politics and, despite this, cannot be properly addressed by economic policies.

For instance, in the case of a prisoner's dilemma which is typically dealt with by economic policies, there exists an equilibrium at which all players can gain, and therefore, it would be possible to induce optimal behavior from all of the players with the promise of economic benefits, such as introducing long-term transactions. However, it is impossible to induce people in a lifeboat dilemma situation to self-sacrifice by promising economic benefits. Being in a state where there is no compensating for losses suffered by self-sacrificing people is the very definition of a lifeboat dilemma.

To read the full text
http://www.rieti.go.jp/en/papers/contribution/kobayashi/56.html

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