THE ＧＬＯＢＡＬＩＺＡＴＩＯＮ ＆ ＧＯVＥＲＮＡＮＣＥ ＰＲＯＪＥCＴ， ＨＯＫＫＡＩＤＯ ＵＮＩＶＥＲＳＩＴＹＷＯＲＫＩＮＧ ＰＡＰＥＲ ＳＥＲＩＥＳThe Politics of Risk Allocation
Why is Socialization of Risks Difficultin a Risk Society?
Ⅰ−０３

Jiro Yamaguchi, Hokkaido University＊

Paper for the Workshop Governance of Welfare for the 21st Century:

New Social Risks and Renewal of Social Democracy, 18-19 February 2005＊

None of these papers should be cited without the author’s permission.

The Politics of Risk Allocation
Why is Socialization of Risks Difficult in a Risk Society?

Paper presented forInternational Workshop on Welfare Governance in the 21 st Century

February 18/19, 2005

Jiro Yamaguchi
Hokkaido University, School of Public Policy
Email: jyam@juris.hokudai.ac.jp
Not for Citation

1

The Politics of Risk Allocation

Introduction
Provision against risk can be a good reason to champion equality in modern
times. No one is free from such risks as disease, aging, caring for old parents, andraising children. Since human beings are vulnerable by nature, they fall victim tovarious risks regardless of their wealth or social status. If one considers others’
hardships as one’s own, one would naturally support policies that socialize risks. The
socialization of risk is closely related therefore to the idea of equality because itcompensates those who fall victim to risk.
Today risks are growing due to the fierce competition brought about by
globalization. People have come to realize their lives are at risk. Even diligent andhonest people are dismissed from their jobs for reasons beyond their control when theiremployers try to cut wages. Many ordinary students have great difficulty finding a job.
As advanced societies age, the people are more concerned about their lives after
retirement, especially in terms of pensions and medical insurance. In the UnitedStates, where there is no public health insurance system, more people suffer the risk ofsickness.
This short paper aims to consider why neo-liberals are still popular amongpeople in such a risk-filled society. In other words, why don’t the people elect the Leftor Social Democrats in Western Europe and the Liberals in the United States, whose
traditional agenda is the enhancement of equality, and thereby relieve themselves ofthese concerns? This article attempts to answer this question by looking at the variety
and gradation of risks.

1. The United States: Why Didn’t the Liberals Win?
George W. Bush’s victory in the 2004 US presidential election was shocking
news for those who value equality. As Robert Reich says in his recent book Reason:

Why Liberals Will Win the Battle for America, rational people would have chosen theliberal candidate if they took hardship in their lives more seriously. Kevin Phillips2points out that while wealth is concentrated on the top 1 percent of the entire people,
the income of the bottom three-fifth of the population has been declining since the1990s. Forty million people out of a population of about 280 million cannot afford
medical insurance. American society is the most unequal of the advanced countries
and is full of risks for the average citizen. Robert Reich and Michael Moore point out
that, according to recent opinion polls, the American people prefer better social
services even if it means an increase in tax and social insurance contributions. It wasevident that John Kerry was the better choice for the average citizen because of his
policies on employment, healthcare, and education. It was also obvious that the tax cut
proposed by Bush would benefit only the richest in society. However, Bush won thepresidency. It seems to me that this outcome cannot be understood without recognizing
the multilayer structure of risk for Americans.
Bush won because Americans placed more emphasis on fundamental risks,such as terrorism or weapons of mass destruction, than on socioeconomic risks, such as
unemployment and the shortage of healthcare and education. The former threatens
our very survival and the latter threatens our enjoyment of decent human lives. To be
sure, stability of economic life is important to everyone. But the American people felt
more threatened by the risk of terrorism or violence which can terminate their lives
entirely. It did not matter for them how likely the terrorist attack was. The important
thing was that they felt fear no matter how unlikely the terrorism was. This fear was
the biggest motivation behind their vote. Therefore, Bush’s victory depended on his
ability to make Americans fearful enough about their survival that they would
overlook socioeconomic risks. It is said that the sudden appearance of Osama Bin
Laden on television just four days before the election was a crucial determinant of theelection outcome. Although we have no evidence that the Bush administration
manipulated the video of Bin Laden, Bush did succeed in making people fearful.
While the American government leaves socioeconomic risks up to theindividual, it exaggerates the risk to military security and public safety. The US is acombination of small government concerning social and economic ills and big
government with a strong military and police force. The experience of 9/11 still makes

3

Americans accept such a gradation of risks.

2. Japan: The Collapse of the Postwar Welfare Regime(1) Japan’s Socioeconomic System
In Japan, postwar economic growth brought about an egalitarian society
where 90 percent of the people considered themselves as middle class in the mid-1980s.
However, postwar equality has eroded since the 1990s. Before analyzing this erosion, it
is necessary to describe the postwar welfare regime in Japan.
The postwar socio-economic system formed in Japan by the Liberal
Democratic Party (LDP) and the bureaucracy is often called a ”successful social
democracy,” especially by economists and business leaders keen to point out the limits
and defects of the Japanese system from a neo-liberal point of view.
It seems odd to label Japan as a social democratic nation, as it has been ruled
almost continually by the LDP, a conservative party that is largely dependent on
business for funding and votes. There are some basic features of the postwar Japanese
economy that make it look similar to a socialist or social democratic regime: (1) the
economy developed at a rapid pace even after the two oil shocks of the 1970s; (2) the
economy is subject to much government intervention in the form of regulations, public
investment, etc.; and (3) the economy created a society with relatively small economic
disparities among individuals and regions—a society, in effect, in which everyone feltthat they belonged to the middle class. Almost all media discussions of economic policy
in Japan are predicated on these shared perceptions.
It is usually the second point that receives the strongest emphasis, as
commentators stress the role of Japan’s regulatory regime in creating an industrial
order that ensures the survival of the weakest, thus minimizing the role of competition.
They note as well the tendency to concentrate public investment in poorer ruralprefectures, a policy reflecting the importance of the farm sector in the LDP support
base. These two factors are thought to have contributed greatly to the leveling ofJapanese society.

4We can gain a better grasp of the distinctive features of the Japanesesocioeconomic system by analyzing the government’s mode of involvement in thesociety and economy. A good way to do this is to plot a position relative to twoaxes—one representing the continuum from discretionary to universal policy; the other,
the continuum from the socialization to the individualization of risk.
The socialized-versus-individualized-risk axis gauges the degree to whichsociety as a whole shares in and assumes an individual’s responsibility with respect topossible loss, injury, disaster, and so forth. At the same time, it gauges the degree towhich the principles of individual responsibility and free competition prevail.
Market purists place the greatest emphasis on individual responsibility andthus individual risk, insisting that each person should assume the risk of losing his or
her job, going bankrupt, falling ill, and so forth. Policies associated with thisorientation include tax cuts, deregulation, and other measures that call on eachindividual to take on the competition and accept responsibility for the outcome. In
opposition to this thinking, there are those who insist that individuals may findthemselves sick or unemployed through no fault of their own and that society as awhole should assume the risk and come to the aid of people who happen to meet such
misfortune. They also believe that regulations governing the behavior of individuals
and corporations are necessary to prevent environmental destruction and ensure
consumer safety. With respect to the distribution of risk, policies associated with thisorientation emphasize the use of tax revenues or social insurance premiums to pay forthings like universal pensions and healthcare. Where regulation is concerned, policies
reflecting this school of thought strive to minimize the risk to the consumer orenvironment through a regulatory regime, even if it means higher prices or fees thanwould result from free competition in a deregulated environment.
The discretionary/universal policy axis measures the fairness and uniformityof the government’s policies pertaining to industrial regulation and benefit distribution.
By the same token, it measures the degree of discretion exercised by the government
agencies responsible for implementing those policies.
As mentioned above, the Japanese bureaucracy has enjoyed relatively large

5discretionary power in policy implementation. In terms of the distribution of benefits, auniversal policy is one that aims for uniformity in the implementation or expansion ofsuch comprehensive systems as long-term health insurance, and pensions and aims toincrease the budget for systems like public education. In respect to the regulation ofindustry, a universal policy applies the rules strictly and uniformly to ensure faircompetition and consumer safety.
Discretionary policies, on the other hand, confer benefits selectively on certain
groups at the discretion of the policymakers, such as subsidies or tax breaks for specificregions or industries. Discretionary regulatory policies, meanwhile, are policies thatcall for ad hoc decisions whenever an issue arises between the regulated and theregulators, instead of applying the same rules to each situation; the classic example isthe “administrative guidance” so common in Japan. Here the bureaucracy wields
tremendous discretion in deciding whether to apply the official rules, how strictly toapply them, or even whether to invent ad hoc regulations for the situation at hand.
Using both axes, we can categorize policies according to the scheme shown in
Figure 1. This process will aid us as we explore the reasons why Japan’s socioeconomic
system has been termed “social democratic.”
The first reason why the Japanese system looks like a quasi–social democracyis that the system has functioned to socialize risk through public works projects inrural prefectures and through a regulated, uncompetitive business environment, as
exemplified by the finance industry’s “convoy system.” As Table 1 show, Japan’s outlay
for social programs is relatively low as a percentage of tax and social insurance
premiums, while its outlay for public capital formation relative to GDP is three times
that seen in Western industrial nations. This reflects the government’s generosity
toward rural prefectures through public works which have helped create jobs in thoseregions. In addition, by curbing competition through regulatory policies, thegovernment has coddled such uncompetitive industries as agriculture and distribution,
making them lucrative. The government has indirectly maintained a minimum living
standard through public works projects and regulations that allow companies tooperate without regard for profitability or efficiency. This is what has led some6

commentators to describe the system as social democratic.
The second basis for the label “social democracy” is the tremendous power
wielded by the state bureaucracy by virtue of its discretion in the implementation of
government policy.
In short, the LDP has constructed a strong safety net beneath the weakerelements of the economy—be they individuals, companies, or prefectures—bysocializing risk with subsidies and through such regulatory practices as the convoy
system. At the same time, it has distributed profits at its own discretion throughpatronage and bid-rigging.

(2) The Erosion of the Postwar Welfare Regime
The pitfalls of such a politico-economic system became painfully apparent in
the 1990s with the advance of globalization. One problem is the strain on government
finances. Since the collapse of the bubble economy of the 1980s, stimulus measurescentered on public works helped prevent serious unemployment problems in the ruralprefectures, but as a result, Japan has accumulated a national debt of almost ¥700
trillion (US$6 trillion or 5 trillion euros), the largest of any industrial nation. This puts
the entire economy at risk. The second problem is that the competition-curbing
regulation of industry has served to buoy up prices, creating a “high-cost society.” Theeconomic inefficiency resulting from this state of affairs can be regarded as the upshotof pseudo–social democracy in Japan. The third problem is that the lack oftransparency in this type of system breeds corruption, as many Japanese came torealize in the 1990s through the series of financial scandals involving bureaucrats aswell as politicians. According to the neoliberal critics of ”Japanese-style social
democracy,” the problem was that the big corporations and wealthy individuals thatdrive the economy were forced to pay the price for the redistribution of assets in theform of high taxes, costs, and fees, and the bureaucrats and politicians used thatmoney wastefully, resulting in inefficiency and corruption.
In the midst of all this, Prime Minister Koizumi made his entrance, calling for“structural reform.” If we can take the prime minister’s advisors at their word, the7

Koizumi administration’s structural reforms are aimed at instituting universal policies
based on clear criteria, such as efficiency and profitability, and eliminatingintervention by bureaucrats and politicians. This is the argument behind Koizumi’s
drive to privatize Japan’s quasi-governmental organizations. The administration andits advisors also stress policies that will provide incentives for more individual andcorporate risk-taking in a competitive environment. Koizumi also calls for moreindividual responsibility in such areas of risk as healthcare and pensions. The reformof the healthcare system is designed to shift more of the cost to patients. Together withrecent proposals for tax reform, this is all in line with the administration’s emphasis onindividual risk. The principle of individual responsibility is also being applied to thedisposal of nonperforming assets; creditors are calling in their loans to small
businesses, and bankruptcies are mounting.
The Japanese people are fed up with privileges that high-ranking bureaucrats
have enjoyed. Therefore, it is quite natural that they support Koizumi’s initiative forcutting inefficient and ineffective public sectors. However, the question now is whether
this kind of structural reform, designed to root out the old “social democracy,” will put
Japan in a position to solve its current economic woes, including continuing deflation,
increasing unemployment, and financial jitters. Thus far, there is no indication that itwill.

(3) The Essence of Koizumi’s Structural Reform
In Japan, social scientists have become more and more interested in risk, andmany books have appeared on the market on such broad issues as crime, natural
disasters, unemployment, education, and pensions. This is because people are realizingthat the foundations of our lifestyles, such as permanent jobs, stable communities, andeducation, are collapsing. In addition, the Japanese archipelago was struck byrepeated natural disasters in 2004 which made people more aware of risk. As Table 2
shows, life has become harder for the average person under the Koizumi cabinet.
People are now confronting the hard fact that their lives are fragile. Those who alreadyface big risks try to avoid greater risk. For instance, young people who do not have8

stable jobs tend to avoid marriage or having children. That is why the birthrate has
been on a steady decline in Japan. As a result, society is less sustainable. These risks
cannot be covered by the efforts of individuals. In this sense, risk management is the
key issue in Japanese politics.
We can find parallels between the United States and Japan regarding thegradational structure of risk. Prime Minister Koizumi is handling risk just like his
close friend Bush did in the United States. September 11 is to the American people
what the North Korean threat is to the Japanese. The abduction incidents and missile
issue have given rise to Japanese hostility toward North Korea. The Japanese
government decided a new mid-term defense plan in December 2004 which designatedNorth Korea as a threat and China as a potential threat. Japan is beginning to view
more leniently the restraint imposed by Article 9 of the Constitution, and to take amore active role in military cooperation with the United States. The news media inJapan emphasizes the decline in law and order, and public opinion is being formed thathuman rights should be restricted for the sake of public safety. The government has
promulgated several laws to give the police more power to intervene in civil society.
In contrast with this positive policy toward the risk of war and crime, thegovernment is indifferent to risks in the nation’s socio-economic life. For example, over
9,000 people commit suicide every year in Japan because of economic-related distress.
However, no government ministry takes note. The national unemployment rate has
exceeded 5 percent since 2001, with a more serious unemployment crisis in rural areas
like Hokkaido and Okinawa. The young generation has serious difficulties finding a job.
Slashing the public sector means reductions in public services, such as education andhousing. The increase of patient’s payments under health insurance was first decided
in Koizumi’s structural reform. And, the Diet approved a new pension bill in June 2004
that will increase contributions and decrease the benefits of public pensions. The
Ministry of Finance and the LDP have also started to mention an upcoming increase in
the consumption tax.
In addition to the reduction of social services, ordinary people will be forced to“take risks” under Koizumi’s scheme of deregulation and privatization. The “pay off” or9

deposit insurance system will come into effect as of April 1, 2005 and will cover loss ofdeposits up to 10 million yen in the case of bank failure. That means ordinary people
will have to choose safe banks for their deposits. If the privatization of postal services,
Koizumi’s pet project, is approved by the Diet, people will no longer be able to use
risk-free savings and insurance guaranteed by the government. Even citizens who
have no ambition to make a lot of money through investment will be obliged to become“investors.” In general, hardships will come to be borne by individuals under thecatchphrase of “at your own risk.” The problem is that most people lack theinformation and knowledge needed to take the risks.
Then comes a new question: Why do the people support the disadvantageous
policies that the Koizumi Cabinet is proposing? Although his approval rate has
decreased to 33 percent according to the latest poll by the Asahi Shimbun, Koizumi has
been exceptionally popular since his inauguration. In fact, however, people are far frombeing satisfied with Koizumi’s reform. In general, people do not expect any
improvement in the economy or society. According to an opinion poll conducted by the
Cabinet Office in June 2003, 67 percent of the people feel anxious about the future.
They are worried about their lives after retirement, especially regarding pensions andhealthcare, and the younger generation is anxious about the education of theirchildren. One could easily understand that corporate liberalism like that being
advocated by Koizumi will never ease their anxiety or would not be backed by the
public if an effective opposition party were to propose a clear-cut alternative.
There are several reasons why the public backs Koizumi. The first is thepeople’s emphasis on the perceived fundamental risk to survival. As I mentioned above,
the Japanese people feel that law and order is in a state of crisis. This primary risk
blurs risk in their socio-economic lives. The second is Koizumi’s political tactics. The
socialization of risk has often led to vested interests. Closed policy communities
composed of politicians, bureaucrats, and interest groups have benefited from thispolicy. Koizumi successfully connects the idea of the socialization of risk with thenegative image of selfish bureaucrats and corrupt politicians. People appear to accept
the idea of small government as a tool to clean up the political world. Koizumi is very10

good at presenting a political spectacle in which he deals the death blow to the corrupt
bad guys.
The third reason is misunderstanding about welfare in Japan. Traditionally,welfare was thought to be mercy to the weak and was truly exceptional in postwar
Japan. During the era of high economic growth, Japanese society was young and vitaland enjoyed high social mobility. These fortunate conditions made welfare a gift to asmall minority. What is happening now is that more and more people are becoming
weak and at the same time turning against the other underdog amidst fierce
competition. Instead of establishing a reliable welfare regime based on popular
contributions, people resent the beneficiaries of risk-socialization policy. Urban
dwellers complain about the misuse of public money in rural development, andworkers in companies criticize protection for farmers and self-employed people.
Although everyone comes at some point to realize his/her vulnerability, a sense ofsolidarity is not shared yet among the Japanese people.

3. Prospects for Japanese-Style Social Democracy(1) Gradation of Risks
To restore the value of equality, we should understand the risk that we are
now facing. We can divide risk into three categories. Primary risk is risk to survival. As
mentioned earlier, people come to be more sensitive to this kind of risk after a period ofpeace and prosperity. News media often present the stereotype that immigrants,
minorities, rogue states, and so on exacerbate this type of risk. Secondary risk is risk to
the enjoyment of a decent human life. Most people in advanced countries take for
granted that they will enjoy a decent life with a stable job. However, risk in
employment, education, medical care, and pension is increasing rapidly. Tertiary risk
is remote or incidental risk. Like global warming or a big earthquake, this kind of risk
is not imminent; however, it will cause unthinkable damage to human life if it happens.
Although there is a worldwide consensus that we should start to prepare for such risks
immediately, we do not agree on who should pay the cost.

11This gradation of risks corresponds to policy ideas (Figure 2). Emphasis on
primary risk justifies small government. If people make much of secondary risk, they
will choose a social democratic government which would provide social policies to covervarious risks. Those who appreciate tertiary risk would be interested in new social
movements based on post-materialistic values.
If the social democratic agenda for risk management were to become popular,
we would need to clarify the entire structure of risks and break the stereotypical
discourse about the primary risk. At the same time, we would need to convince people
that neglecting secondary risk would surely enhance primary risk. For instance, a risein the number of jobless people and the deterioration of public education will result in
an increase in crimes and anti-social behavior. People do have serious interest insecondary risk. If they shared a view on real risk, they would be able to retain thesense of solidarity which is essential for the socialization of risk.

(2) The Twofold Problem Facing Japanese Social Democracy
I would like to conclude by considering the kind of political party needed to fill
the present vacuum in Japanese party politics. What the country needs now is apolitical force that combines the ideals of universal policy and socialized risk. The goalsof such a party would be to clean up the bureaucracy and put an end to political
patronage, while at the same time laying the foundations for universal policies toprotect and sustain the people—especially those buffeted by misfortune—instead ofleaving their fate to market forces. For example, instead of abandoning those displacedby shifts in the economic structure or devising ad hoc stopgaps one industry at time,
this party would seek to bolster unemployment insurance and strive for universal
policies designed to get people back on their feet, such as government-subsidized
education and training.
If the tide of bankruptcies and unemployment continues to rise as the
Koizumi administration pursues its blind quest for small government, it will benecessary above all to forge a policy to stabilize business and employment. This should
be a strategic program centered on undertakings that simultaneously respond to other12

challenges facing Japan in the 21st century, such as the environment and an aging
society—not the arbitrary doling out of funds or the anachronistic development andpublic works projects that were carried out under Prime Minister Keizo Obuchi andthat the old factions of the LDP today promise to continue.
At the same time, Japan desperately needs universal policies based onprinciples and rules. The rules for maintaining the economic system must be strict andunbending to ensure justice, while those aimed at assisting people in need should befair and caring. As I mentioned earlier, the Koizumi administration seems to be
pursuing reforms based solely on the principles of efficiency and profitability. Yet whenit comes time to apply these rules to the actual economy, Koizumi reverts to the LDP’s
old discretionary approach. For example, regarding the disposal of nonperforming
loans, the administration refuses to address the basic problem with a rational andconsistent policy, instead it merely applies band-aids here and there as the occasion
demands—as in the bailout of a failed bank and supermarket chain. According to therules, the administration should be calling for the full disclosure of bad loans,
prompting the shoring-up of write-off reserves, using public funds to make up theshortfall, and putting the failing banks under government control. The government
needs to apply these rules strictly across-the-board in order to make a clean sweep of
the moral hazard looming over Japan. Eliminating administrative discretion andpolitical interference and applying the rules of capitalism consistently are crucial
prerequisites of true reform in Japan.
The other rules—the caring rules aimed at socializing risk—must also be fair
and transparent. That means putting an end to the traditional LDP manner ofsocializing risk, as by keeping small businesses afloat and constituents employed withthe special subsidies finagled through political clout. It means first seeing to it thatunemployment compensations, pensions, and key social services like education anddaycare are reliably provided and then reforming the entire social welfare system toensure that benefits are distributed equitably to those in need.
The policies I have just described are also those of the social democratic
parties of Europe, where they are referred to as the “third way.” This appellation13

suggests an alternative to both the welfare state built by the old social democrats (the“first way”) and the cold-blooded capitalism of Thatcherism (the “second way”)—that is,an economy in which market vitality coexists with a respect for humanity.
As a viable alternative to the LDP, the Japanese people need a party that canoffer a “third way” tailored to the nation’s realities. Problems that Japanese social
democracy must tackle are twofold. In Japan, we would have to call the “first way”
LDP-style government for vested interests, and the “second way” American-inspired
Koizumi reform. The next phase, then, should be a system that rests on the two pillars
of a transparent, fair market and socialized risk to protect the health and welfare of
the people—a Japanese “third way.”14

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15

Table 1. Social Welfare Contributions and Benefits (US$, per capita)
IncomeTax and Social InsuranceSocial Security Benefit

(A)

(B)

A/B (%)

Japan

26919

9825

4092

41.6

US

21351

7793

4142

53.2

UK

14444

6673

3929

58.9

Germany

20448

11492

6830

59.4

France

18668

11638

7038

60.5

Sweden

17453

12287

9320

75.9

Source: Cabinet Office of Japan, Yearbook of Social Security Statistics, 1997.

Table 2. Social Indexes in Japan since 2000
Item

2000

2002

2004

Average Household Income (1,000 yen/year)

7,210

6,830

6,600

Average Household Consumption (1,000 yen/month)

31.7

30.6

30.2

Average Worker Income (1,000 yen/year)

7,690

7,480

7,210

Average Worker Debt (1,000 yen/year)

5,790

6,070

6,050

No. of Unemployed (million)

320

359

350

Unemployment Rate (%)

4.7

5.4

5.3

No. of Corporate Bankruptcies

18,76919,807

16,255

No. of Individual Bankruptcies

145,207

223,570

250,983

384

417

450

No. of Suicides

30,95732,14334,427

No. of Homeless People

20,451

24,09025,296

1,072,24

1,242,723

1,344,327

No. of Juvenile Workers without a Permanent Job(million)

No. of People on Public Assistance1
No. of Workers with a Permanent Job (million)

369.5

348.9

344.4

Birthrate

1.36

1.32

1.29

16

Crime (thousand)

2,443

2,853

2,790

Reported Cases of Domestic Violence

1,096

1,528

1,574

Reported Cases of Child Abuse

18,80424,25426,56917

Figure 1. Relationship between Policy Ideas and the Constellation of Political Forces

Socialization of Risk

Old LDPJapanese “Third Way”

Discretionary

Universal

PolicyPolicySurvival of LDP

Koizumi’s

Structural Reform

Individualization of Risk

Figure 2. Gradation of Risks and Policy Ideas
Tertiary Risk: Remote and incidental risk

New social movement

Secondary Risk: Risk to enjoyment of decent
human life
Primary Risk: Risk to survival

Social democracy

Small government withstrong military and police forces18