Placing blame abroad won’t end inequality

By Hiroshi Watanabe / Special to The Yomiuri ShimbunI visited Europe in March to attend two conferences in Berlin and Paris, the capitals of Germany and France, which more clearly than ever hold the destiny of the European Union in their hands. Participants in both conferences looked beyond Europe and took up broader global issues.

Common to the two events, as at almost all such international forums of late, were discussions on ways of “defending multilateralism” and “eliminating inequality.” The fact that the two issues have repeatedly emerged as global themes at various conferences shows that multilateralism and efforts to reduce inequality are in jeopardy — or even under outright attack — all over the world.

When a country disavows multilateralism, it can be easily recognized from outside, since such a policy is reflected in its relations with other countries. At the same time, it is difficult to notice from outside the domestic moves within a country that aggravate inequality, altering its social structure and its populace’s political mind-set to the extent that its foreign policy is adversely affected.

The two themes do not look like they stem from the same root, and may not seem directly relevant to each other. The issue of inequality typically smolders on its own as a domestic problem. Later on, an external issue is added, as if oil were being poured on the flame, triggering a major explosion of discontent among people. Viewing the consequences a little simply, two things are clear. First, a country’s government has a biased and distorted recognition of its domestic problem. Second, even when the government tries to deal with the situation by internal measures, its measures turn out to be insufficient in the face of resistance from vested interest groups and budgetary constraints.

What has been actually happening in certain countries clearly indicates that the leadership in each of them opts to put the blame on a foreign country or countries, adopting hard-line external policies, instead of implementing adequate remedies to ease popular discontent as an internal issue.

Measurement problems

When trying to work out solutions to the issue of inequality, we need to know that, to grasp the seriousness of the problem, it is not enough to look at such benchmark statistics as growth rates of the gross domestic product and per capita GDP levels. It may be conceptually possible to imagine a nation where everyone may earn the identical amount of money, but history shows that there has never been such a case in real life. In reality, people’s incomes vary from person to person, depending on their abilities, efforts and circumstances. In other words, people’s incomes increase or decrease in a way commensurate with their respective talent and sweat as well as in response to prevailing economic conditions.

In an economy where there exists a gap between high- and low-income earners, a fairly high growth rate may help raise incomes among people even in the lowest-income bracket to some extent. In such a situation, incomes of people in the highest-income bracket tend to show a marked increase, while, in addition to aggregate and average GDP value gains, real incomes of people in the lowest-income bracket also post a positive rise.

However, in the event of lower growth, people in the lower-income brackets become more likely to experience a negative income growth rate. When those people’s living conditions worsen, coinciding with a decline in government measures in their favor, they would naturally increase criticism of the government for “inaction.”

Now, let us look at a country’s income redistribution and welfare policies and assume that its population is divided among nine tiers based on income levels, namely upper, middle and lower clusters, with each of those clusters divided into upper, middle and lower parts of their own, ranging overall from “lowest lower tier” to “highest upper tier.” Generally speaking, people in the lowest lower group and the medium lower one have benefited from the income redistribution and welfare policies, but those from the upper lower group to the upper middle one have not received such benefits.

It should be noted that the nine-category classification of people is based on their own self-perception, and thus does not necessarily reflect an equal apportionment of people. As such, the middle cluster tends to represent a relatively large cohort of people. Many in this particular category harbor a sense of being “ignored by government policies.”

Those who believe they belong to the middle cluster are not unskilled workers. In fact, many of them take pride in their expert skills, having a tendency to think they are superior to newcomers in the labor force and being unwilling to accept any wage reduction that results from an increase in labor supply.

Middle-income people are also reluctant to come to terms with the ever-changing situation in which the workplaces where they have earned skills continue to be eroded by the presence of new workers taking advantage of one technological breakthrough after another. They tend to feel more and more dissatisfied with the subsequent deterioration of their working conditions, such as wages and employment, before directing the brunt of their criticism at the government all at once.

Middle-income people’s discontent

Since the beginning of the 21st century, countries have mostly failed to introduce policies tailored to the needs of people in the middle cluster, while the young generation in that cluster finds it hard to move up the income status ladder even on merit. As a result, people feel pessimistic, saying, “I am poor now and will be poor in the future” or, “The situation for my children will be unchanged from the one for me.”

Against such a background, widespread negative sentiments toward those with high-incomes have been smoldering in many countries, causing people to amplify criticism of their governments for doing little for the middle-income category. What is worse, an increasing number of governments have resorted to trade protectionism and exclusionism while blaming “internationalism” as the sole cause of inequality-related issues at home, even though it is only partially responsible.

Ineffective domestic policies

When a company performs poorly due to trade competition and increased imports, its employees do not automatically become straightforwardly resentful or jealous of foreign companies that benefit from competition and increased imports, as they still regard the situation as something that has little to do with them.

However, once foreign companies’ subsidiaries start operations in their own land with some hiring even incoming foreign workers, they experience a threat to their job security firsthand, having a sense of victimhood and blaming such inroads from “outside” for their difficulties. In this case, their hatred of the foreign countries and companies concerned is likely to intensify without verifying exactly to what extent their jobs are being threatened. If their government responds to such public resentment of foreign countries and companies by arguing that “the movement of goods in the form of trade is the very source of the problem,” public sentiment against internationalism — antipathy to the cross-border movement of goods and personnel — will be further inflamed.

In this connection, it has to be pointed out that the more ineffective a country’s income redistribution policy is, the more widespread anti-internationalism will become there, involving more and more people.

Such an ill-thought approach can inevitably cause a negative impact on international relations. But the impact of what we have seen above cannot be limited to one country. It can threaten to impede regional growth as well.

It is true, at first glance, that the overall Asian economy is strong. But aren’t we so impressed by the remarkable economic performances by a limited number of major countries in Asia that we have become inclined to think that the whole of the region is faring well economically? Aren’t the small and medium-sized countries in the region simply lagging behind their larger neighbors and being left on the sidelines of competition?

Or, have those small and medium-sized Asian countries been negatively affected by the rapid development of the larger ones in the region? If we fail to learn the exact answers to those questions, the security of Asia as a whole will be eventually imperiled. Meticulous development efforts should not be limited to a single country. Rather, they should cover the entire region — and the whole world, of course.

We will soon bid farewell to the Heisei era. The name of the outgoing era is a just fit for seeking to achieve what is discussed in this article — the defense of multilateralism and the elimination of inequality. It cannot be said that Japanese society has been free from the widening of inequality, but the Japanese government has been recently praised, in comparison with other countries, for having dealt fairly well with the issue.

The new era that is to begin on May 1 is named “Reiwa.” The name reflects the Japanese people’s wish to usher in a situation where different ingredients go well together with a view to being fused in a harmonious manner. Realizing such an ideal is a common goal that not only Japan but also the world as a whole should pursue. What the new era name implies is an environment in which it is important for people in every part of the world to bring their hearts and minds together, moving forward in a friendly, calm and beautiful manner, instead of simply allowing themselves to be herded blindly along by any authorities.

Special to The Yomiuri Shimbun

Watanabe is president of the Tokyo-based Institute for International Monetary Affairs, a post he has held since 2016. From 2013 to 2016, he was governor and chief executive officer of the Japan Bank for International Cooperation. He was also vice finance minister for international affairs from 2004 to 2007.Speech

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