Institutional Transformation and the Political Economy of Inequality in Japan

This paper examines the political economy of inequality in Japan, and I do so by placing this inquiry within the broader context of the institutional transformation of the “Japan model” that has taken shape since the early 1980s.  While many aspects of this model that Japan institutionalized in the early decades of the postwar period have now been well documented, there has been less clarity and attention paid to how this model has changed over time, and the impact that these changes have had on Japan’s rising level of social stratification and risk.

As part of a broader project, this paper seeks to address this gap by examining the domestic political dynamics behind this change.  In a recent publication (2014), I have argued that there has been a significant transformation of the Japanese state since the early 1980s.  I have referred to this change as the “neoliberal hybridization of Japan’s developmental state”, whereby the state has grown significantly larger given its commitment to maintaining the stability of a more liberalized and finance driven economy even as it has reduced substantially its traditional role in both industrial policy and functional equivalent forms of welfare policies. Moreover, in sharp contrast to the predictions made by many observers of cotemporary Japanese politics who adopt a rational choice framework within the context of electoral institutional changes, I demonstrate in a forthcoming publication (2015) that the decline in the functional equivalent forms of welfare have not been accompanied by a corresponding rise in more formal and universalistic forms of welfare benefits for the working age population.  Instead, many formal welfare benefits have been cut back even as spending has risen, and the various tax and labor reform policies that have been adopted since the 1980s have further eroded the level of social equality and income security in Japan.

In light of these seemingly counter-intuitive empirical insights, the central objective of this paper is to explicate the domestic political dynamics that account for these changes, and I do so by embracing a historical institutionalist framework that examines how the relationship between the political party in power and its social basis of support becomes patterned and institutionalized over time.  I argue theoretically and demonstrate empirically that this institutionalized relationship is not fixed or frozen through time, but neither is it as fluid and ad hoc as the rational choice based theories suggest. Instead, this institutionalized relationship changes through an iterated process of negotiation.  The political bargaining and compromises that are struck and become institutionalized in one period in turn confront exogenous changes or produce unintended consequences endogenously over time that reshape and redefine the political setting upon which subsequent decisions are made. Hence, identifying economic policy changes requires a careful empirical and analytical investigation of these path dependent effects.