Equality versus Efficiency, Japanese-Style

In a wonderful little book written in 1975, economist Arthur Okun said the "big tradeoff" facing economic policymakers is between "equality and efficiency." An article in this Sunday's NY Times suggests that this is precisely the tradeoff with which Japan is now struggling. Here is how the article begins:

Revival in Japan Brings Widening of Economic Gap

Japan's economy, after more than a decade of fitful starts, is once again growing smartly. Instead of rejoicing, however, Japan is engaged in a nationwide bout of hand-wringing over increasing signs that the new economy is destroying one of the nation's most cherished accomplishments: egalitarianism.

Today, in a country whose view of itself was once captured in the slogan, "100 million, all-middle class society," catchphrases harshly sort people into "winners" and "losers," and describe Japan as a "society of widening disparities." Major daily newspapers are running series on the growing gap between rich and poor, with such titles as "Divided Japan" and "Light and Darkness."

The moment of reckoning has come as the man given credit for the economic revival, Prime Minister Junichiro Koizumi, prepares to retire in September after more than five years in office. Mr. Koizumi's Reaganesque policies of deregulation, privatization, spending cuts and tax breaks for the rich helped lift the national economy, but at a social cost that Japan's more 127 million residents are just beginning to grasp.

Thanks to a growing economy and rising corporate profits, companies hired several hundred thousand more young Japanese for the start of the fiscal year on April 1. The broad Topix stock index closed recently on a 14-year-high. Commercial land prices in the country's three biggest metropolitan areas rose for the first time in 15 years, and high-rise luxury apartment buildings have kept sprouting across Tokyo.

At the same time, the number of Japanese without any savings has doubled in the last five years, and the number receiving welfare payments or educational assistance have spiked by more than a third.