China's Entry into the WTO and Government Reform: Experiences of Government Reform in Developed Countries

Author: Gan Feng
Publisher:
Publish Date: 2002-09-01
Features: Japanese enterprises are not only production units but also fundamental units of life. Employees can work for one company from a young age until retirement; the company provides lifelong services to employees, covering everything from healthcare to housing. In economics textbooks, enterprises are defined as organizations formed by shareholders to pursue profits, and employees are hired based on contracts. However, Japanese enterprises are more like social organizations, centered around seniority-based wage systems and lifetime employment, creating an employee-centric structure. A person employed by a company is more appropriately described as a member of a "community." In post-war Japan, the most important community was the company. A "company person" mentality holds that as long as it benefits the company, even if it's illegal, it's acceptable. If wage income is the primary source of livelihood, then prioritizing producers, as discussed by Adam Smith in The Wealth of Nations, is also a phenomenon. However, for a single enterprise to align so closely in production and life is a product of the wartime total mobilization system, i.e., the "40-year system." (2) Embracing "coexistence" and denying competition
This is the second characteristic of the "40-year system." As a "community," its purpose is singular, and the outcomes of the community can only be "shared," meaning equal distribution. Literally, "coexistence" means cohabiting, but it has gone beyond mere coordination and harmony. According to economic theory, production is coordinated by market competition principles, while personal livelihood security is provided by social insurance, not employment. However, the "40-year system" theory argues that the survival of producers should also be the responsibility of the enterprise. For example, the so-called "convoy system" in financial administration stems from this consideration. As a key to the financial system, efficiency and safety are paramount. Post-war Japan's financial system prioritized bank safety at the expense of efficiency, adopting the "convoy system" to prevent bank bankruptcies. The concept of "coexistence" includes the right to enterprise survival, but it also contradicts the basic principles of free-market economics. Whether an enterprise survives should be determined by consumers—enterprises that meet consumer needs can thrive, while those that do not are eliminated or perish—this is the fundamental law of the market economy. Japan is known as a "semi-market economy" dominated by the government. The government's forced intervention in the economy, indirect finance, lifetime employment, groupism, and the sense of community among enterprises, through this "strong tie" approach, have built an "atmosphere of security." However, all of this was formed around 1940 as part of the wartime economic system, known in Japan as the "40-year system." The "40-year system" persisted in the post-war era, supporting Japan's high economic growth. Yet, it also became a systemic reason for Japan's long-term economic stagnation. Japan's "atmosphere of security" model has faced challenges from the international community. Since the 1997 financial crisis, people have been asking: Has Asia ever had a miracle? Some attribute the foundation of the Asian miracle to the special relationship between the government and the market, which can be summarized by the concept of a "state-owned company." In Japan, this model is called the "Japanese state-owned company." This is a system where government officials intervene in the market through regulation, along with other legally unfounded "administrative guidance," which play a dominant role in market operations. This system is a continuation of the pre-WWII framework, which can be summarized as a wartime system characterized by high state intervention in the market. The Asian miracle proposed an Asian model, which, in reality, is Japan, as it is the only country in the region to have achieved Western industrial accomplishments. (3) Embracing Keynesianism: Continuous expansionary fiscal policy and a public investment-driven economic structure
1. The limits of Keynesianism: Japan's and Europe's choices
How can the government stimulate a recessionary economy? As one of the greatest economists of the 20th century, Keynes's basic approach was: when the economy is sluggish, economic activities determined by market mechanisms may not guarantee full employment, and involuntary unemployment may persist. In such cases, the government should expand fiscal deficits, increase public investment, create effective demand, and thus stimulate the economy to move toward prosperity. This theory became the basic "common sense" for fiscal policy after Keynes and also a rational political premise for those in power. However, Keynesianism's expansionary fiscal policy, though initially effective, did not bring long-term economic growth. Relying on accumulated fiscal deficits to boost domestic demand can easily have a negative impact on economic growth. The reasons are as follows: , the world today has undergone unimaginable changes compared to the era of Keynes. First, industrialized societies are transforming into post-industrial societies, and the era of mass production and mass consumption has ended. Second, with the advancement of free trade, economic globalization has formed, and the significance of national borders has gradually diminished. Second, the economic framework that serves as a premise for Keynesianism has also collapsed. For example, domestically self-sufficient industrial structures have transformed into transnational specialized division of labor; changes in price structures have exceeded the scope of one economy and spanned international markets; sovereign states have implemented extensive regulatory reforms, and so on. These two points indicate that the explosive force and influence of Keynesian deficit fiscal policy have greatly weakened, and it is difficult to drive prosperity solely by expanding fiscal spending. Japan and Western countries have different approaches to Keynesianism. Macro-control policies in Western countries generally adopt an alternating method between Keynesianism and monetarism. However, over the past decade, fiscal stimulus policies as a means to boost prosperity have been rarely used in Western countries, except for Japan. As short-term prosperity measures, Western countries primarily use monetary policy, especially the U.S. and the EU. Take the EU as an example. The euro was launched on January 1, 1999, and the two conditions for joining the European Monetary Union (EMU) were: , the government's fiscal deficit as a percentage of the gross domestic product (GDP) must be below 3; second, the total government debt as a percentage of GDP must be below 60. These two conditions were determined by the Maastricht Treaty and became a key policy target for EU governments to tighten fiscal discipline. So, how to resolve the contradiction between fiscal tightening and Europe's high unemployment rate? EU governments believe that high unemployment is not the insufficient aggregate demand inferred by Keynes but is caused by overly generous social welfare systems and rigid labor markets, reflecting systemic structural flaws. Therefore, solving unemployment cannot rely solely on one-way fiscal expansion policies but must involve structural reforms. On this issue, EU governments have reached a consensus. The U.S. passed a series of laws, such as the "Fiscal Adjustment Act," after 1990, specifically to reduce fiscal deficits, reducing the government's fiscal deficit from $290.4 billion in 1992 to $171.3 billion in 1996. The U.S. budget for 1999 showed revenues exceeding expenditures by $9.5 billion, marking the first black budget in 30 years since 1969. The Republican Party's "Fiscal Balance Act" of 1997 emphasized that balanced fiscal policy does not necessarily hinder the economy or affect prosperity. The U.S. reduction in fiscal deficits coexisted with a healthy private economy, achieving 10 consecutive years of economic prosperity. Japan differs from Western countries in that the Liberal Democratic Party (LDP) government's economic policies primarily rely on expansionary fiscal deficit policies to drive prosperity. Since the early 1990s, following the collapse of the bubble economy, as a prosperity measure, the Japanese government introduced additional spending totaling over 70 trillion yen. The government budget for 2000 increased by 3.8% compared to the previous year, and the national debt was projected to reach 125% of GDP in 2000, while in 1990, this ratio was below 60. This fiscal expansion policy aimed to overcome economic stagnation and restore prosperity, embodying a typical Keynesian approach.