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Life and philosophy.

In 1928, I was born in the provincial town of Yonago in Tottori Prefecture. Tottori is located in the western part of Japan, in the scenic region officially referred to as the Region in the Shadow of the Mountains. Although it is now among the poorest in terms of per capita income, it used in the ancient times to be one of the most advanced in Japan. Being located in the shortest distance across the Japan Sea from the Korean Peninsula, its culture was the finest and the most sophisticated. But it was allegedly destroyed by the more brutal and barbarian culture of the Yamato Dynasty, supposedly the ancestors of the present-day Emperor.

In my family, my brother and I were the first male children in many generations. In prewar Japan, only male children (the first sons, for that matter) could inherit family estates. As far as I can trace back my family lineage, either no sons were born or none survived beyond adolescence, and husbands from neighboring areas had to be adopted. To be adopted into a family of small fortune must have been most humiliating. My father was a school-teacher, but this sense of humiliation seemed to have remained all through his life.

To have been born in the Region in the Shadow of Mountains in a family of adopted males seems to have had a lasting influence upon my life, even though my family moved to Tokyo when I was four years old. My childhood was quiet and peaceful; I hardly remember any incident of importance, except for one rather unpleasant experience. It occurred when I must have been a third or fourth grader in the elementary school. My school teacher proudly taught us the long lineage of the family of the Emperor, tracing back from the legendary Emperor of Jinmu two thousands six hundred years ago, up to the present Emperor, all directly and linearly related. I then raised my hand and asked him the question which I thought was most natural: What would they do if the first son of the Emperor turned out to be an idiot? I do not recall what punishment I received, but his stunned white face which turned to a flush angry one is still vivid in my memory.

The Pacific War broke out in the year when I entered the middle school. The school was called the First Middle School in the District of Tokyo and it was reputed to be the best in Tokyo or in Japan for that matter. My own experience there, however, sowed in me the seed which would develop into the full-fledged critical view I now have about the quality of the Japanese educational system in general.

The school was located near the official residence of the Prime Minister and next to the school there was a Japanese restaurant called Kohraku where the leaders of the February 26 incident were headquartered. The February 26 incident took place on February 26, 1936, when a group of young army officers led a rebellion and attacked the official residence of the Prime Minister and other strategic posts, killing several members of the Cabinet (the Prime Minister himself miraculously escaped the attack). They occupied the official residence of the Prime Minister, the Diet, the Headquarters of the Ministry of Army, and other strategic buildings for several days until they were crushed by a contingent of the Navy and other divisions of the Army. Although all the leaders of the rebellion were executed, the February 26 incident led Japan irreversibly into the military expansion and war.

Since the school was located in the center of the rebellion, our teachers often talked about their personal experience during the February 26 incident. By the time I was in school there, however, every attempt was made to conceal the nature of the February 26 incident, and I was not able o find out what it was about. None of my teachers could provide me with an adequate answer and I vainly went to a number of public libraries to find material on the mysterious February 26 incident.

The school had had a rather liberal tradition, but the Pearl Harbor attack had changed the atmosphere in the school. Right after the Pacific War broke out, our art teacher assigned us to draw posters to encourage our war effort. Art was the subject I felt most deficient in and I painted a poor picture with a caption, "Remember Pearl Harbor!" Naturally, I did not know at that time that the phrase was popular in the United States. The teacher was so angry with me that I was severely reprimanded by him as unpatriotic and unworthy of studying in that reputable institution. Later on the volunteered for the army and was killed in action in the Southern Pacific.

In 1944, we were all sent to the war factories to supplement the shortage of the skilled labor. My class worked in a factory which was making speedometers for submarines. I was assigned a job of assembling the parts into a final product and then testing its accuracy. However, I was so bad in manual skill; most of the speedometers I was assembling were so deficient that indicators did not show any sign of moving when the machines were put in the testing device. I had to use a heavy hammer to hit them so that their hands would move at all. Out of frustration, a close friend of mine and I often scaled the fence of the factory to escape to the River Tama to ride on a Japanese style racing shell. Thus I could master the delicate art of sculling a boat, the only manual skill I have mastered to this day. The friend of mine later died in one of the air raids on Tokyo.

In my class, there was a brilliant student who had a maturity not comparable with his contemporaries. I was much influenced by him and gradually became concerned with the role of the militarism and the supporting industrial power in entrapping Japan into the war with the Great Powers. We decided to organize some of the students to stage a strike on the pretense that the factory management abused and treated us inhumanly. We then locked the factory manager in one room and forced him to promise us better and more humane treatment. I remember is was in the summer of 1944. The school authorities found out what we did and all our parents were summoned to school to receive a harsh warning. How this friend of mine and I were not found out to be the ringleaders, I do not recall. This friend later became an economic historian, noted for his excellent contributions to the detailed and unique analysis of the economic conditions during the Edo Period.

In the spring of 1945, I entered the First High School. In the prewar Japanese educational systems, there was three years of high school before we entered the university. There were about twenty high schools in all Japan at that time, all boarding schools, with a few exceptions, where students supposedly received an elitist education. The First High School, located in Tokyo, was the first such school, thus, it was regarded the most revered one. Those who were able to pass the severe entrance examination were regarded as the cream of Japanese youth.. My own experience, however, convinced me that its reputation was based on a mirage. It is true that the alumni of that high school comprise a distinguished roster, ranging from several prime ministers and the leaders of the bureaucratic and industrial as well as academic communities to the leaders of the Japanese Communist Party. I suspect, however, that the political and social backwardness the Japanese society has been suffering up to this day, in spite of the rapid economic growth, may be not unrelated to the educational system where such an institution as the First High School was revered.

Despite these criticism, in the First High School I was able to grow beyond the immediate confine of my own personal experience. The first experience which substantially changed my historical, social, and political vista was my close acquaintances with a contingent of Chinese students. When the Japanese Army began the invasion of China in 1937, it encountered a persistent and strong resistance by the Chinese people. The Japanese Army then had a brilliant idea; as part of the Pacification Program, they would pick up promising Chinese students and bring them to Japan to educate them to the Japanese way of life. They chose the First High School as the institution which, they thought, was best qualified to educate these Chinese students. One of the dormitories on the campus was exclusively assigned to Chinese students. By the time I entered the school, around April of 1945, there must have been close to fifty Chinese students there. Contrary to the wishes of the Japanese Army, they were actively engaged in converting us to their cause. As I found out later on, Chinese students were a first divided between a group who stood for Mao Tse-tung and another in favor of Chiang Kai-shek. After a bitter argument, the Mao group persuaded the Chiang group, and together they began to convey to us the basic messages of Mao Tse-tung. Many years later, in 1976, I visited the old headquarters of the Eighth Route Army in Sian, And with a deep nostalgia I looked at the pamphlets written by Mao Tse-tung during the Anti-Japan Resistance War, some of which were exact replicas of those pamphlets which were passed to me by my Chinese friends in the First High School during the darkest days towards the end of the war. The irony was that the influence of the Chinese students upon us was so great that, right after the war, the First High School became the center of an intense leftist student movement which produced a large number of the leftist leaders who had played a prominent role in the resistance movement during the Occupation Era. The Japanese Army thought they would educate young Chinese students to the Japanese way of life and thinking, whatever it might have been, but it was the Chinese students who succeeded in educating Japanese students to the Chinese way of life and thinking.

At the First High School, I was enrolled in the premedical course, the graduates from which mostly went to the School of Medicine. But as the years passed, the idea of entering the medical profession was pushed to the farthest corner of my mind. I was torn between pursuing an academic career and engaging more actively in political and social activities. I finally decided to choose mathematics and took the entrance examination to the Department of Mathematics in the University of Tokyo. The Department of Mathematics was a small institution with a dozen professors and a student body of only fifteen new students a year. It was at that time, and still is, one of the most distinguished institutions in the world, and its professors were all renowned mathematicians, who were extremely modest and courteous to us. Upon my graduation, I was fortunate in being chosen as a Special Research Fellow to pursue my study in the department. To this day, I occasionally wonder why I decided, at a later date, to leave such a splendid academic atmosphere.

While I was preparing myself to become a professional mathematician, my field of speciality being that of algebraic number theory, I was not able to extinguish my passion for social issues. At this time Japan had not yet recovered from the ruinous conditions of the war, and poverty, starvation, and inflation were the order of the day. My concern with social issues gradually became focused upon economics. I began to read books on economics, particularly those of Marxian economists. I was a member of a small reading group where we tried systematically to study the basic contemporary literature on Marxian economics, from Marx, Engels, Lenin, down to Stalin. I had trouble with Stalin, particularly with is Essay on Languages. I was not able to decipher what Stalin was trying to say, and I felt that my mind was blocked by the mere utterance of his name. Later, when I heard that Khrushchev made a severe attack on Stalin in 1953, I felt greatly relieved.

I began to entertain seriously the idea of becoming a member of the Japanese Communist Party, the most fashionable thing to do among us at that time. But a friend of mine, who was the theoretical leader of our group and later to become a leading member of the Communist Party, advised me that, with my scant knowledge in Marxian economics, I would hardly be able to pass the entrance examination for the Party. Hearing this advice from someone whose intelligence and judgment I greatly admired, I decided that it was time to quit mathematics and exclusively devote myself to studying economics, so that one day I might accumulate enough knowledge in Marxian economics to pass the entrance examination for the Communist Party. Since then, however, my interest in economics has turned in an entirely different direction, and I have not taken that examination. To this day, I do not know whether I should thank him for his advice.

To quit mathematics was not as easy a matter as I expected. Particularly because most of the professors I sought out for advice thought mathematics was the only subject in which I had a talent and they were eager to persuade me to reconsider. I remember, with a feeling of regret, that I told the main professor under whom I studied number theory, that, with the poverty and chaos the Japanese society was suffering at that time, it was almost a crime to continue to do research in pure algebraic number theory. This professor was instrumental in helping me whenever I had difficulties in my life later on. I do not know what words I should say or what I should do to adequately express my gratitude.

With the help of this professor, I obtained a job with the Institute of Statistical Mathematics in the Ministry of Education and later with a life insurance company as a statistician in the actuarial department. But I could not stay in any of these jobs; somehow my urge to concentrate solely in economics overcame any practical consideration.

At about this time, I joined a small group of young economists in the Faculty of Economics at the University of Tokyo. The leadership was shared by the late Professor Hiroshi Furuya and Professor Ryuichiro Tachi. Professor Furuya was on a leave of absence at Harvard University and it was Professor Tachi who was the organizer. Thus Professor Tachi was the first living economist with whom I was personally acquainted and who was to have a lasting influence upon the direction in which my study in economics was to turn. I retrospect, it seems that by then, my enthusiasm for Marxian economics had begun to wane as I began to question the logic of some its basic theoretical premises. Under the tutelage of Furuya, Tachi, and others, I had been drawn into what turned out to be neoclassical economics, almost an antithesis to Marxian economics.

Working with Professor Everret Hagen seemed to have accelerated this tendency. At that time, the Japanese government was planning to build the first automobile highway, one between Nagoya and Kobe, and applied to the World Bank for loans. The World Bank sent the Watkins Mission to investigate the feasibility of the plan. Professor Hagen was in charge of the macro-economic analysis and I was hired as an assistant to him. During the six-month period when I was working with him, I was able to learn a great deal, in particular with respect to the practical implications of the Keynesian theory of economics.

I was also fortunate in participating with the seminar conducted by Professor Hendrik Houthakker, then of Stanford University. Each year, the University of Tokyo and Stanford University ran a joint seminar; during the summer of 1954, Professor Houthakker came to Tokyo to organize a seminar on demand analysis. Not only was Professor Houthakker the author of one of the most original concepts, that of the Strong Axiom of Revealed Preference, but also he was one of the most profound teachers I had ever met.

My encounter with Hagen and Houthakker, together with my association with the Furuya-Tachi seminar, had a great influence on my parting with Marxian economics. Up to this time Marxian economics had been the most fascinating and penetrating guide for me through the maze of economic issues. Through these new stimuli, Marxian economic concepts began to recede to the background and modern economic theory became my main concern. The most decisive moment came when I read Professor Kenneth Arrow's Social Choice and Individual Values. In fact, I had read the book a few years earlier, around 1952, just after it was published under the tutelage of Professor Ken-ichi Inada, but it took me a couple of years more to digest the import of the conceptual framework of Arrow's theory and I had began to formulate my decision to leave mathematics for research in economics. I then was reading anything Professor Arrow wrote, published or unpublished, and devoured the content just like the sand on the summer beach. Later on, several American friends of mine even told me that my English resembled that of Professor Arrow's; what a great honor.

Among the works of Professor Arrow, I was particularly fascinated by the contributions he was making jointly with Professor Leonid Hurwicz on the feasibility and stability of allocative mechanism in a socialist economy. The topic itself was immensely appealing to me, but I was attracted by the way higher mathematics could be used to solve problems of substance. This train of thought was new to me, who came to economics through the door of Marxian economics.

It was some time in the year of 1955 that I received an invitation from Professor Arrow to come to Stanford University to do research on his project. Stanford then was a mecca for mathematical economists and I was so thrilled by the prospectus of working with Professor Arrow that I could hardly wait for the time when the appointment would begin in the next year.

My Stanford years were the happiest and the most productive. The Economics Faculty was composed of a harmonious group of economists, producing an ideal atmosphere for research and teaching. It was there that I was able to concentrate upon the enlargement of the frontier of economic theory.

I was particularly concerned with the problems of economic growth and development and with formulating theoretical models which would capture the essential aspects of the economic system in question, either capitalistic or socialist. The two-sector model of capital accumulation, which I was able to construct and work through to understand its implications for the process of economic growth, was an attempt to transplant the content of Marx's Das Kapital into a coherent mathematical model in such a manner that Marx's intentions would be more clearly brought out. However, I became more concerned with the problems of short-run fluctuations in a capitalist economy and began to work with Keynes's General Theory.

Although my first initiation to economic theory was the reading of Keynes's General Theory under the tutelage of Professor Tachi and my earnest endeavor as a professional economist began when I worked with Professor Hagen on the macro-economic implications of the construction of a highway system in Japan, it was at the beginning of the 1960s that I finally came close to the core of the General Theory. At this time I had a particularly close association with Nicholas Kaldor and Joan Robinson, both of whom were occasional visitors to Stanford and Berkeley. They convinced me that the neoclassical interpretation of the General Theory a la Hicks' IS-LM analysis might miss some of the more important and subtle aspects of the Keynesian theory. As I worked through the labyrinth of the General Theory and put some of the more salient aspects of the theory into a number of mathematical models, I began to be bothered by the suspicion that the General Theory, if one read it superficially, might not coherently represent the theoretical framework of the work done by the young group of economists in Keynes' circle. I then was drawn into the subject of dynamic disequilibrium, where the instability of price mechanism in an advanced capitalistic economy is emphasized, and the role of stabilization policy became important.

Although my association with Professor Arrow was close and rewarding, I began to feel so inferior and small in his presence, both from intellectual and personal points of view, that I had to be away from him in order to restore my own identity. At the same time, I felt that the physical and climatic atmosphere at Stanford was too languorous an environment in which to bring up my children (What a pity for them!). I moved from Stanford to Chicago to meet the new challenge and to seek an opportunity for myself and my children to grow more vigorously. In Chicago, I could enjoy relative autonomy and intellectual independence, and at the same time, I began to develop new acquaintances with my colleagues at the University of Chicago. Particularly rewarding was my association with the late Professor Lloyd Metzler, whose intellectual depth and personal charm has left a permanent imprint upon me.

By 1965-1966 the United States had seriously escalated its military involvement in Vietnam. I was greatly disturbed by the moral, political, and economic implications of the American military escalation in Vietnam and its brutal, savage military tactics, together with the serious damage the Vietnamese people were suffering. I was particularly concerned that I, as an Asian, stood by silently while my neighboring people were suffering at the hands of the country in which I was living, not by birth, but out of my own choice. After a relatively calm year at Churchill College in the University of Cambridge in England, I thought that it was about time for me to return to Japan.

In 1968, I returned to the Department of Economics in the University of Tokyo. Although I was not an alumnus, I could feel at home with the faculty there because of my close association with a number of faculty members. However, the University was then at the height of a student revolt, the harshest of its kind anywhere in the world. For almost two years, the teaching and research at the University ceased to function. The nature of the student revolt movements at the University of Tokyo and elsewhere showed that higher education in Japan was in real trouble. The trauma left by the student revolt cause a deterioration in the academic atmosphere in the universities and the Japanese Ministry of Education took advantage of the confusion to gain effective control of the academic affairs, thus shattering the academic structure of the august body of the once great Japanese national universities.

The Japanese economy had experienced a process of rapid economic growth, from the mid fifties to the end of sixties. During this period all the economic indicators such as gross national product grew at unpredecent rates. The social and natural environments, however, showed no sign of improvement. To the contrary, they had deteriorated to such an extent that the real living standard of the Japanese people had gone down during this period of rapid economic growth, and this became my main concern upon my return to Japan.

The social implications of the allocative mechanism in the Japanese society, which had made such a rapid growth possible, may be best illustrated in terms of the incident concerning the Minamata disease. Not only is this incident one of the most serious and publicized events in the post-war period, but also it reveals the basic characteristics of the social and political system which still dominate Japanese society today.

The Minamata incident is one of the most extensive and serious incidents in the whole history of poisoning due to the residual emittance of industrial pollution. It was based by the mercury contained in the industrial refuse emitted from one of the largest chemical factories in Japan.

This situation is indicative of the nature of the economic and social disturbances associated with the process of Japanese economic growth, even though it actually antedates the decade of the most rapid economic growth.

Industrial and other economic activities have been performed without taking proper account of preservation of natural and social environments and they have victimized the inhabitants who have had no choice other than continuing to live in a region which has been heavily contaminated by poisonous wastes.

If one visits the Minamata region today, one would be struck by the poverty that still prevails in a country which takes pride in being one of the largest industrial producers in the world and by the agony and sufferings which Minamata disease has left upon the victims and their relatives.

One often wonders if economic growth is desirable when it is associated with such a miserable effect upon human life and the surrounding natural environments.

It may be possible to characterise the basic institutional arrangements of post-war Japanese society as those of a market-oriented economy in a broad sense of the world. It has two distinctive features. The first feature of a market economy is related to the process of allocation of scarce resources. Such a system presupposes that the resources which are limitational in the process of production and consumption are privately owned, and their disposals are done in such a manner that private benefits, either in the form of private profits or utilities, are maximised from this point of view. Market institutions are those which resolve possible conflicts between various members of that society without resorting to regulatory measures.

The second feature of the market economy is concerned with the distributive aspect; namely, in such a system each individual is entitled to receive rewards, to be based upon the values established by the market, for the scarce resources one owns, and nothing more or less. Thus, if an individual's own resources are relatively scarce and highly appreciated in the market then the income from those resources will be larger, otherwise one has to be satisfied with whatever income one gets, and this is one of the factors which is responsible for the effectiveness of the market mechanism in attaining efficient resource allocation. But it has a rather significant impact upon the distribution of real income from the welfare point of view. In particular, such a rewarding arrangement has a tendency to increase the degree of inequality, particularly from the viewpoint of the intergenerational distribution of income. This tendency, inherent in a market economy, toward a more unequal income distribution has been long recognized. Various measures such as progressive income taxes and inheritance taxes have been adopted by most contemporary societies in an attempt to counterbalance such unstable tendencies. However, it may be noted that such arrangements do not possess any visible impact upon the probability that each citizen may drop below the poverty line in terms of his or her income. The main impact of counterbalancing measures is to rescue those who have dropped out of the society, at least from the economic point of view.

It is one of the most basic propositions in economics theory that such a market mechanism brings about an efficient allocation of scarce resources. But this proposition crucially depends upon the institutional arrangements whereby all the resources are to be privately owned. In most market-oriented societies, however, a very significant portion of scarce resources are not privately appropriated or owned, either for the reason of technological nature or from the point of view of social justice. Instead they are owned by the society as common property resources, and the construction and the management of such resources are delegated to the government. It is in general the case that such social resources are used by the members of the society, either free of charge or with a nominal price. Such social resources are often called social overhead capital and they play a very important role in the processes of resources allocation and income distribution in any contemporary society. But the role of social overhead capital has not been properly recognized in economic theory and its analysis has not been fully explored, so that it is not easy to see the extent to which the management and regulations concerning the use of such capital are related to the allocative mechanism in a basically decentralised market economy.

This social overhead capital constitutes what may be called the environment in the very wide sense of the world and the role of such overhead capital has been increased as the process of economic growth takes place and the level of living standards has been increased.

In a sense, the phenomenon of environmental pollution may be regarded as an outcome of mismanagement of social overhead capital, but in a purely market economy, there is very little incentive to bring about the effective measures in regularising the use to be made of such social overhead capital.

Thus, in the market economy, the intrinsic tendency of the adverse effect upon the income distribution, combined with the redistributional effect due to the social costs associated with environmental pollution, has been aggravated during the process of economic growth in the last decade. The resulting social and economic problems have now forced us to re-examine the basic institutional arrangements underlying such a market economy, and to gradually adopt social and economic policies which put a priority on the economic welfare of the members of the society and try to restore the social stability in the allocative mechanism.

If I take the case of Japanese economy again, during the last two decades the Japanese government adopted various policy measures such as credit expansion, export subsidies and so forth, and in addition to these measures it has also allocated a fairly significant portion of public investment to be spent on the construction of industrial infrastructure. According to one estimate, about 80 percent of public expenditures have been spent on the construction and maintenance of industrial infrastructure and only a very small portion of public investment has gone into the maintenance of social overhead capital which are directly concerned with the health and living standards of the people. Such a pattern in the allocation of public investment is justified usually only if the policy objectives were to ignore the non-market aspects of the economic performance. But, in a welfare state, the primary objective of the government is to ensure the harmonious development of economic welfare, which takes account not only of the level of personal income, but also the amount of services people would obtain from social overhead capital. This will imply a significant shift towards public expenditures for the maintenance of social capital directly involved with the living standards and preservations of natural environment, and investment and infrastructure for industries will have to be to a large extent slowed down, resulting in an overall increase in manufacturing costs. Such an investment pattern would have an adverse effect on the rate of price increase in general, and, indeed, would have some inflational effect in the short-run, but from a longer point of view it is possible to attain a more stable pattern of price increase.

Also the public provisions of the services to ensure the basic right of the citizen imply an increase in the total public expenditures and a shift in the allocation of public expenditures. The first effect of such a shift would be to lower the probability that an average person's income may drop below the poverty line, thus trying to restore social stability, and also it would entail a significant shift in the management of the natural environment. The use of services and destruction of the natural environment would be strictly regulated, either in the form of effluent charges, or in the form of ambient standards more directly concerned with the preservation of the environment. Such regulatory measures have adverse effects upon the process of economic growth and alter the composition of gross national products. But again, such adverse effects are of a short-run nature and when the economy is fully adjusted to the new regulatory measures, it becomes possible to maintain a stable and relatively high rate of growth, even in terms of the conventional national income account. This phenomenon is primarily due to the fact that natural and social environments constitute a vital factor in the processes of production and consumption, and only by taking proper measures to reflect their scarcity in the use of their services is it possible to achieve a long-run stable path of economic growth.

Thus the optimum policy structure and objectives for Japan are not very much different from those which have been regarded as desirable in many countries now. But it is extremely difficult to implement such measures in the foreseeable future. Hirofumi Uzawa Professor of Economics, University of Tokyo.
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Author:Uzawa, Hirofumi
Publication:American Economist
Date:Sep 22, 1991
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