Born the grandson of a once-prosperous textile manufacturer in Urawa, Saitama Prefecture, Naohiko Jinno says that when he was growing up he was told by his mother, over and over again, that money was not important.

Now aged 66, and a professor emeritus of economics at the University of Tokyo, Jinno recalls his mother telling him so many times that money doesn’t matter — it’s the things you can’t buy with money that really matter.

Ensconced last week in his office at the Internal Affairs and Communications Ministry, where he serves as chairman of the Local Public Finance Council, Jinno tells how his family’s business went bankrupt after his grandfather refused to become part of the munitions industry during World War II.

“My mother would say that it’s okay to lose school textbooks because you can buy them again. But she said I shouldn’t lose my notebooks, which are filled with my precious scribbles, and that I should cherish such things as love, friendships and ties with people, which I cannot buy with money.”

Later, as our interview develops, it becomes increasingly clear that his singular upbringing — and his family’s ancestral roots as Shinto shrine priests — had a significant influence on Jinno, now Japan’s foremost authority on public finance.

Throughout his long years at Todai (as the University of Tokyo is widely known) teaching the nation’s top-notch students, Jinno took the position that the role of public finance — a branch of economics that revolves around the levying of taxes and the redistribution of wealth back to citizens in the form of public services — should be “to find and share solutions to the common difficulties people encounter in life.”

Jinno, who is particularly knowledgeable about the vaunted Scandinavian welfare systems, has been extremely critical of “neoliberalism” — an approach to economics that pursues the privatization of government services and the deregulation and aggressive liberalization of trade.

This approach was clearly evidenced in the policies of the British Prime Minister Margaret Thatcher and U.S. President Ronald Reagan during their terms of office spanning 1979-90 and 1981-89 respectively. In Japan, there was a relatively brief revival of neoliberalism from 2001 to 2005, when “lion hair” Junichiro Koizumi was at the prime ministerial helm. Backed by high support ratings, the photogenic Liberal Democratic Party (LDP) leader carried out a series of structural and deregulatory reforms affecting both the pension and health-care systems, as well as the privatization of postal services and the public corporations operating highways.

However, due to Koizumi’s neoliberalism, Jinno argues that Japanese people have lost the close community ties and the sense of life-security they previously had, since they have been driven into excessive competition with each other, while poverty and income disparity both soared.

“A society in which its top political leader shakes the mane of his hair and screams, ‘What’s wrong with inequality?’ ‘There is no society without inequality!’ is a society of despair,” he wrote on the first page of his 2010 book “Wakachiai no Keizaigaku” (“Economics of Sharing”). “It’s plain as daylight that such a society of despair would descend into a dystopia once it were hit by the tragic waves of a global economic depression.”

In contrast to the Koizumi approach, Jinno argues that Japan should restore its social cohesion in which everyone has his or her place in society, and where the elimination of inequality and poverty — not economic growth — is the fundamental guiding light of public policy.

This stress on linking public finance not only with politics but also with society, has won Jinno supporters across the social spectrum — from academia and citizens groups to labor unions and many sections of the government bureaucracy. Moreover, in 2009, he was awarded a Purple Ribbon Medal of Honor, which is, of six kinds of medals given by the national government and awarded by the Emperor, the one that rewards academic and artistic achievement.

The following are excerpts from a recent interview in which Jinno, who also leads the citizens group Slow Life Society, shared — with abundant wit and humor — his ideas on the role of public finance, pension systems, taxation … and much, much more.

I believe you played a key role in formulating the core economic policy of the Democratic Party of Japan (DPJ), which became the ruling party in 2009, and that your ideas are reflected in the current DPJ policies. Is that correct?

Not so correct. Before it became the ruling party, the DPJ created a (now-defunct) policy think tank, something they envisioned being like the (U.S.) Brookings Institute, and because emeritus Prof. Hirofumi Uzawa (a noted economist who was Jinno’s mentor at Todai) was involved, I was also asked to give advice to DPJ members on taxation and pension policies. Based on my input, the party created its so-called manifesto (list of campaign promises) — but they only took parts of my ideas, so the policies are kind of terrible.

Also, when (Naoto) Kan became the finance minister (in January 2010, five months before he became prime minister), I was called in and asked to give him lectures and ideas on national strategy. But he doesn’t listen to others! So I wouldn’t say I had no impact on the DPJ’s policies, but … and after the DPJ took power, everyone — even those who’d had zero interest in taxation policy — started swarming in. That resulted in the revival of zoku giin (literally, “policy tribes,” referring to Diet members with entrenched positions in areas of their specialty).

You have also been chairman of the experts’ committee in the Cabinet Office’s Tax Commission.

Well, I was asked (by the DPJ) to create a plan for comprehensive tax reform — the most drastic reform since the (1949) “Report on Japanese Taxation” by the Shoup Mission (headed by U.S. taxation expert Carl Summer Shoup, this has been the foundation of Japan’s postwar taxation system ever since). But the committee is virtually dormant now, and what the DPJ is trying to do is exactly the same as what the LDP and (its former minority ruling coalition partner) New Komeito have long tried to do — which is to raise the consumption tax.

What you just said highlights the fact that public finance is inseparable from politics. But the Japanese political system has long been incapable of putting together coherent and constructive policies. How can we fix the dysfunctional political system?

Well, we can’t. What we can do is to look back in history so we can avoid making the same mistakes, or to keep “unexpected” scenarios from unfolding, by finding similar experiences from the past.

What we are experiencing now is very similar to the Great Depression (which started in 1929), which was also a time of great political turmoil. Even then, party politicians could not come up with meaningful economic policies, and that led to the public’s distrust of politics. And then, when you remember what happened in the world, from the regional German state of Bavaria rose the German Workers’ Party (which later changed its name to the National Socialist [Nazi] Party and the dictatorship of Adolf Hitler). So when conventional parties go dysfunctional, and political turmoil deepens, democracy and party politics are turned upside down.We have learned such bitter lessons as these from history.

But this time around, it’s not just Japan that is in turmoil — it’s all over the world. Italy and Greece are controlled by technocrats. Look at Britain … that young boy (Prime Minister David Cameron) can’t handle it, (German Chancellor Angela) Merkel can’t put things together, and even (U.S. President Barack) Obama is failing — though Obama might be in a relatively good mood because the Republicans are worse (laugh). So there is political turmoil all over the place.

What do you think is causing the turmoil in Japan?

Japan’s problem is that there is no social vision. The vision of countries in continental Europe, especially the Scandinavian ones, is that you need big governments to support everyone in the country. So people are heavily taxed, and that tax is redistributed to help every member of society. In Denmark, up to 70 percent of your income goes in tax. In contrast, the Anglo-Saxon nations have opted for smaller governments, and while people in such societies are expected to be self-reliant, the poor are not expected to pay much in taxes. Only the rich pay taxes to maintain the minimum functions of government. So taxes in the U.S., much of which are in the form of income taxes, are progressive (meaning the more you earn, the more you pay), while those in Sweden — where the consumption tax is 25 percent — are regressive (meaning the poor pay a higher proportion of their income in tax than do the better off). However, in Sweden if you pay taxes, the government will make sure you get free education, free child-care services and free care when you grow old and can no longer work.

Japan is worried about how it’s viewed by the U.S., so it has somewhat opted for a “smaller government” model. But instead of emulating the U.S. taxation model and raising the income tax, it suddenly looks to Europe. (Political leaders in Japan) say Japan should raise its consumption tax — noting it is far lower than the rates in European countries, where consumption taxes are more than 10 percent. So Japan is aiming for a regressive tax system while cutting government services.

What is your view on Japan’s taxation system itself?

Japanese tax rates are the lowest in the world, and they’re a third of what Denmark levies. (According to a 2008 OECD comparison of taxation statistics), the U.S. taxes individual income most heavily, with revenue from income tax amounting to 9.9 percent of its GDP, while revenue from consumption tax amounts to 4.6 percent. This makes the U.S. income tax level almost double that of Japan, where income tax revenues are equivalent to 5.6 percent of GDP. Even France, which relies heavily on indirect taxes, raises the equivalent of 7.5 percent of its GDP in income taxes.

What these figures show is that Japan lacks a vision of what kind of society it wants to create. Does Japan want to create a society of self-reliant individuals, like the U.S.? Or does it want to create a supportive society like those in most of Europe?

As for redistribution of income, there are two schools of thought: that it should be equally redistributed to everyone, and that it should be redistributed according to each person’s ability or contribution to society.

Surveys in the U.S. show that 70 or 80 percent of respondents support giving back different amounts depending on individual abilities. In contrast, in Europe — even in Germany and France, not just in the Scandinavian countries — an overwhelming majority of people support the idea of dividing wealth equally. In Japan, 40 percent support equal redistribution and 30 percent say redistribution should be based on individual ability!

That’s interesting.

Another survey found that 60 percent of people in Japan say they are taxed too much, compared with 40 percent in Denmark. Japanese people don’t feel that their taxes are redistributed fairly and, because there is no talk of a vision, many feel that the planned increase in the consumption tax is really just to ease the budget deficit, and that social security costs are being used as a convenient excuse.

What’s worrying, though, is that Japan’s public debt has now reached ¥1,000 trillion.

What are you so worried about?

I’m worried that our sons and daughters will be forced to pay for the nation’s past fiscal policy mistakes. The interest alone that we are paying is enormous …

Well, the interest payments are somewhat low due to the government’s zero interest-rate policy.

Although we don’t know how long this zero interest-rate policy will last, is it your view that we shouldn’t be overly concerned about the ¥1,000 trillion debt?

We cannot leave the debt to future generations. We never have. Well, when you look back in history, Britain’s national debt in the 19th century was 300 percent of its GDP — far bigger than Japan’s 200 percent! And in Japan during the (feudal) Edo Period (1603-1867), regional clans were heavily in debt and always making a fuss about how they were short of tens of thousands of ryō (a gold coin). Where did that debt go? We don’t even know if the yen as a currency will survive in the future.


When we say Japan has this public debt, it’s internal. The lender is the Japanese public. So it’s like a husband borrowing from his wife. External debt — debt owed to foreign creditors — may bankrupt a nation, because it’s like the husband borrowing money from loan sharks, but in the case of Japan, the bonds are issued in yen — so it can (theoretically) pay off its debt if it prints more money. Japan was more heavily in debt during World War II than now. How did it repay its debt? After the war, it levied a one-time tax (of up to 90 percent) on the value of property holdings, and this led to the demise of the zaibatsu conglomerates and the super-rich.

If Japan is really serious about repaying its debt, it’s simple: You can levy a 100-percent tax on all the owners of Japanese Government Bonds (JGBs), and the debt is gone.

But most of the JGB holders are domestic financial institutions, right? Isn’t it a concern that those institutions might go bankrupt?

Granted, you might see a bit of financial turmoil, which explains why last year a group of the 16 wealthiest individuals in France, including L’Oreal heiress Liliane Bettencourt, asked to pay a “special contribution” tax. In America, billionaire investor Warren Buffet said he should be paying more taxes.

One explanation for all this is that these people are altruistic and burning with a desire to contribute to society. The other way to explain this is, they have huge financial assets, and they risk losing them all if their assets suddenly fall in value. So they call for a tax increase on themselves, and in exchange for some personal sacrifice they hope that everyone will agree to a solution (to the financial crisis).

It makes perfect sense for the rich to be concerned about the collapse of banks. Do you have JGBs?


Then why should you worry? The problem is that Japanese people have been duped into worrying about assets they don’t have!

Are you saying that I needn’t worry?

With Japanese debt, it’s all issued in yen. What’s happening in Greece and Italy is that their debts are in euros but they don’t have the power to issue euros. Japan got rid of all of its wartime debt through the aforementioned property tax and through inflation. What you should perhaps worry about is, if taxes are used to repay the nation’s debt, redistribution of wealth goes in the opposite direction (to save the rich who have bought the government bonds).

The credit rating of JGBs has gone down by several notches in recent years, in light of Japan’s snowballing public debt. Doesn’t that make Japan more vulnerable to attacks from speculators?

True, if ratings go down and the government starts having problems finding new buyers of JGBs, then it would be a real problem, because Japan wouldn’t be able to raise funds. So national debts must be managed carefully and we should make sure we refrain from going deeper into debt.

By debt-management we mean heading off extreme inflation or deflation and avoiding so-called “crowding out” — drastic increases in interest rates that dampen demand for investment. And (we should) make sure Japan’s current account balance (the sum of exports minus imports, plus the balance of international trade and investments) does not log a big deficit.

(But) the mission of public finance is to stabilize people’s lives and the nation’s economy, and public finance is bound to go into deficit every time a nation faces a crisis, a recession, or a war. Keeping the right financial balance should not be the ultimate goal. The mission of public finance is to solve social and economic crises; if that mission is accomplished, the balance of public finance will improve eventually.

But Japan’s tax revenues are expected to decline further as the population grays.

Well, it’s not clear at this stage. I think that though the elderly earn less from jobs, they have financial income (from their assets).

So are you saying that their financial income should be taxed?

Right. Japan’s logic is that social security should be financed through consumption tax increases because the elderly (among whom 60 percent of the nation’s ¥1,500 trillion personal savings are concentrated) would pay that like everyone else. France, on the other hand, has the philosophy that — because the elderly don’t work, or earn less income from work — social security costs should be financed by taxes levied on the added total of earned and investment income.

A consumption tax alone does not address the financial gap among the elderly. Some seniors in Japan do not have any investment income, while there are others like one of our past prime ministers (Yukio Hatoyama), who had a mother so rich she could give him a monthly allowance of ¥10 million! So it’s fairer to tax both types of income.

I wonder why Japanese are so fixed on raising the consumption tax only.

You have said that in Japan, businesses used to be the social security provider, treating their employees as neo-family members and providing various benefits. But conditions that supported such a culture — lifetime employment and the seniority-based pay scale — are both gone now. Young people today have such a hard time finding jobs.

In much of Europe, pensions push people out of the labor market. That’s because, due to the strong labor-union culture, when there is a layoff, then the ones who get the ax first are the young. So when there is a recession, the social pressure mounts to lower the retirement age, to give more jobs to the young. In Japan, pensions are something to be fought over by different generations.

If there is no civic support for the social security system, social security can be (a target of) inter-generational strife, and it would be pointless to debate the system’s sustainability. Systems must change over time.

When Japan (under the leadership of neoliberal Prime Minister Junichiro Koizumi) revised pension laws (in 2004), the government boasted that it had created “a pension system that will last for 100 years.”

That promise has already been broken (as the revised system was soon found to be unsustainable) — but if you look back in history, around 100 years ago Japan was in the middle of the Russo-Japanese War! Can you imagine a system from back then lasting through to today?

So systems must keep changing, but to make any system work, it must be based on a strong civil society.

How do you build such a society?

Well, many people have said it before me, but Japanese people have lost a sense of trust for others. Societies with high tax rates are ones in which people trust others. What we need is to revive communal activities in neighborhoods and across workplaces — like how people used to participate in matsuri (festivals), which led to anti-disaster and anti-crime campaigns in their communities. Japanese don’t believe in solidarity any more.

But after the Great East Japan Earthquake on March 11 last year, kizuna (interpersonal bonds) became a buzz word in Japan.

That’s right. I think that earthquake in the Tohoku region (of northeastern Honshu) has reminded people of three things: that human lives are more important than anything else; that you must live with other people and, as the nuclear disaster has shown, with nature; and thirdly, that you must actually take action, instead of just standing by. Sadly, such awarenesses are disappearing fast — even though Tohoku hasn’t recovered yet.

Do you feel that Japan is at a critical juncture in its history?

We are at a very critical stage, economically, socially and environmentally. Yet Japanese tend to be obsessed with trivial details. It’s like we are on the Titanic and if we turn in the wrong direction we will hit a huge iceberg and go under. So it’s actually important to “slow up and calm down.” You need to stop the car, take out your map, and make sure where you are before deciding which way to go. But right now in Japan, as seen in reforms advocated by Osaka Mayor Toru Hashimoto, people are fighting over who didn’t clean the deck!

Anyway, it is at times of crisis when people become imaginative and create new paradigms. Just like the Great Depression gave birth to a new paradigm called “Keynesian economics,” we need a new paradigm to guide us into the future. And public finance plays a key role in charting that future.

Do you think one way we should guide our future is by saying “no” to excessive capitalism and promoting localization of economies?

Yes. To change our systems, we need to work from the bottom up, not from the top down. Tasks that cannot be performed by individuals should be performed by their family members, and what cannot be done by families should be done by communities, and what local communities cannot do should be done by municipalities, and where municipalities cannot perform, then nation states should step in. And if nation states cannot do it, an ultra-national mechanism should.

Globalization has liberalized the flow of money. The reason we have been having economic bubbles since 1973 is because that’s the year when the so-called Bretton Woods system ended, with the U.S. unilaterally abolishing its undertaking to convert the dollar to gold. Before that, the world’s currencies were tied to the dollar and Japan’s yen was exchanged at ¥360 per dollar. That placed the world’s money under control. But when that convertibility was lost, currencies became a target of speculative trading.

What (globalization has done) is that it’s put community economies on thin ice, so whatever happens in the far corners of the world can have serious repercussions on the lives of people in small communities. In the borderless, globalized world it’s hard to redistribute wealth through money. Therefore each community should help each other without exchanging money — thus trying to weaken the power of money.

What is your opinion on bringing in immigrants in order to sustain the Japanese society?

I don’t consider the aging society such a big problem, but if we are to accept immigrants, we must give them exactly same rights we give non-immigrants. We should never, ever fail to treat them with dignity! In other words, if we are to accept them, we should be in a total agreement that they are perfectly equal as human beings, regardless of any differences in skin colors or cultures. So you are saying Japan should accept them as citizens?

As “part of us.” Sweden does not accept labor immigrants, but when Swedes decide to accept immigrants, they treat them with dignity — as when they accepted nearly 200,000 immigrants from Kosovo alone in their nation of just over 9 million people.

Does that mean Japan and Japanese people should not regard immigrants as mere sources of labor?

Something like that. But the thing is, Japanese people also think of themselves only as labor providers. When I go to government committees that discuss the aging society, people there think longevity is not desirable. Ideally, so their thinking goes, people should give birth to many children and die early!

The percentage of dependents in Japan — those under 15 and those aged 65 and older — is going back to levels of the past. It’s only in the 20th century that the percentage of such dependents decreased — because the population exploded in that century.

Out of the total of around 500 million Japanese people who have lived on Earth, 200 million of them lived in the 20th century. That’s abnormal. The mass-production, mass-consumption model increased the number of people. So we just need to go back to the old times — though in the past, there were far more under 15s than there will be in the future.

It will be less difficult to support the dependents in society in the future, because, unlike youths, old people don’t need to be invested in or educated. They are not as expensive. It’s just that they are not future providers of labor.

Recently, various nations and international organizations have begun assessing social progress or quality of life not by GDP growth, but in terms of “happiness.” But happiness varies from person to person.

Well, happiness does not correspond to their income, as defined by U.S. economist Richard Easterlin. According to the so-called “Easterlin paradox,” happiness rises with income to a certain degree, but after income reaches a certain point, the connection falls apart.

What do you think is the most fundamental human desire? It’s the need to breathe. You can only hold off on that desire for about a minute (laughs). Such basic human needs, however, have little to do with income.

What all these “well-being” projects are trying to do — such as the (2009) French report compiled by economists Joseph Stiglitz and Amartya Sen; the “well-being index” advocated by British Prime Minister David Cameron; and a report by the Cabinet Office here on national well-being (published in December) — is to acknowledge that there are different forms of happiness.

Creating a new index is not important per se, but it’s important to understand that well-being of people is made up of various different factors, not just GDP growth.

Neoliberalism, as in the Koizumi reforms, actually helped Japan to grow on a macroeconomic level — but when you look at the quality of growth, it deepened disparity and extended poverty. The extreme concentration of wealth has led to all the Occupy protests in Europe, on Wall Street and elsewhere.

Economic “growth” comes in both quantity and quality, and if you ignore the quality of growth, in the end it hinders economic “development.” People are beginning to realize, once again, that economic stabilization and the (appropriate) redistribution of wealth are very important — not just growth.

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