Background and Research Proposal

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1 Necessity

In recent years, both in Japan and worldwide, there has been a marked increase in the incidence of issues requiring the mitigation of intergenerational conflict for their resolution.

First, the issue of global warming, while resulting from not only current but also past long-term economic activity, will mainly affect the generations living several decades in the future. Thus, the "assailant" and the "victim" are not contemporaries, making it impossible to simply apply the polluter pay principle that holds past generations responsible. @As it is, therefore, the situation makes it virtually impossible to solve the issue through direct negotiation between the assailant and the victim. The conventional framework proposed by various studies on pollution cannot be applied to global warming issues.

Second, population aging is rapidly becoming one of the most serious concerns for Japan and other developed countries in the first half of the 21st Century. At present, social systems of pension, health and long-term care are supported by intergenerational income redistribution. @It is thus feared that as national populations age, intergenerational conflict will intensify. As norms for intergenerational equity are yet to be formulated, governments are tending to deal with this issue on a patchwork basis, often allowing excessive and unfair income redistribution to senior citizens with greater political influence. Such redistribution is expected to adversely affect resource allocation.

Third, Japan, Germany and southern European nations such as Italy and Spain suffer from low birth rates and are consequently under pressure to formulate more realistic policy vis-a-vis accepting greater numbers of immigrant workers. With declining birthrates, increases in foreign workers, mobilization of labor and diversifying employment patterns, conventional programs of social insurance are being seriously challenged and some have already hollowed out. For the last 20 years efforts have been made to restructure these programs utilizing a new public/private mix, but there is still ample room for further research on the specifics of redesigning such systems.

Fourth, many developing countries encounter difficulties in reconciling sustainable economic development with intergenerational equity on income distribution. There is a risk at the start-up phase of economic development that income distribution between generations will be adversely affected. Specifically, while the middle-aged to elderly generations are mainly engaged in traditional low-income industries, many from the younger generations are likely to be channeled into new high-income industries that promote development. If intergenerational income distribution becomes severely skewed, there is a danger that economic development itself will be hampered.

Fifth, when the former socialist economies made the transition to the market economy, their social security systems collapsed and people were unable to receive the social security benefits they had until then paid for. As a result, citizens, especially the elderly, came to mistrust the market economy. Nevertheless, intergenerational equity issues, such as how the younger generations might finance the lost social security funds, and how to publicly finance the money to secure a minimum standard of living, especially for the elderly, demand immediate attention in these economies.

As noted above, it is clear that issues involving intergenerational equity exist not only in Japan but also worldwide. Nevertheless, with two or three exceptions, academics in the fields of economics and political science have rarely taken the problem into serious consideration.

It is, therefore, necessary to address the problem in the following ways: by clarifying the current and future intergenerational situation of economic well-being and the cohort-by-cohort motivations for mitigating intergenerational conflict through theoretical and empirical analyses and surveys; by deepening conceptual understanding of intergenerational equity on the basis of these analyses and surveys; by developing a new analytical framework for the fair distribution of well-being between different generations; and by proposing country-specific policy options for the respective issues.

2 Urgency

Japan has taken a leading role in tackling global warming issues through such activities as compiling the Kyoto Protocol of 1997. Global expectations for Japan to maintain a leadership role remain high.

On the issues of aging and declining populations, former Prime Minister Ryutaro Hashimoto proposed gsocial security initiativesh during the Lyon Summit of 1996, where he promised that Japan would play a key role in efforts to deal with these issues. Following his proposal, information on various countries was collected through the OECD, and a ministerial social security convention was held in 1998. The then Minister of Health and Welfare of Japan, Junichiro Koizumi, served as the vice chair, leading the discussion. At the Pension Workshop (150 government officials, researchers, and professionals from international organizations etc., attended the workshop) organized by ILO-OECD, which was held before the ministerial convention, PIE representative Noriyuki Takayama took charge of the summary discussions and final comments as Rapporteur. Although a general outline for action was compiled on the basis of these two meetings, the specifics thereof have yet to be agreed upon. Immediately after entering the 21st century, Japan surpassed Sweden, becoming the front-runner in terms of an aging population (the ratio of those over age 65 to the total population). Various countries are paying extremely close attention to how Japan will deal with this issue both politically and economically.

Further, developing countries and those in transition to market economies are urgently petitioning Japan to provide intellectual and technological assistance for their efforts to attain intergenerational equity.

In order to respond to these expectations and attention, there is a need to establish an organization in Japan that would become a center-of-excellence in this field, open to the world and engaging in cutting-edge research. This project, therefore, is exceedingly urgent.

3 Objectives

Taking into account the necessity and urgency of the above study, this project has six objectives:

First, to apply conceptual consideration to intergenerational equity as regards global warming from the perspectives of economics and moral philosophy, and to propose a new cost-sharing principle based on these considerations.

Second, to clarify the future condition of pensions, health care and long-term care from an intergenerational perspective through theoretical and empirical studies, and to propose country-specific measures to adequately mitigate intergenerational conflict. Taking into account the situation in different countries, the project will also clarify a variety of public/private mixes and measures to deal with transitional issues (especially the gtwice-burdenh problem) in more prefunding. With regard to pensions, the effects of various policies on international monetary flows will also be considered.

Third, to analyze from an economic perspective how a declining population affects intergenerational conflict both in terms of theoretical and empirical studies. Also, to make specific proposals on how Japan might admit immigrant workers, based on careful studies of the past experiences of other countries.

Fourth, to examine, both theoretically and empirically, the fair distribution of well-being among different generations during periods of economic development, focusing on Japan and Asia.

Fifth, to extensively collect socio-economic statistics from countries in transition to market economies in order to investigate the structure of intergenerational conflict. Global issues and specific issues particular to transitional economies are differentiated, and the implications for economic policy of intergenerational conflict in transitional economies will be explained.

Sixth, to define issues of intergenerational relations within the Japanese political system, and to indicate how the political system must be reformed in order to achieve the fair distribution of well-being among different generations.

4 Related Research in Japan and Overseas

Research on intergenerational issues is rare, with only two or three works of note.

First, there is a work on generational accounting led by Professor L. Kotlikoff. Research was first conducted on the US to set a precedent, and the results of an international comparative project were then compiled and published in 1999 (L. Kotlikoff et al. eds., Generational Accounting around the World, Univ. of Chicago Press, March 1999). From Japan, Noriyuki Takayama, Yukinobu Kitamura and Hiroshi Yoshida (all of whom are PIE members) participated. However, the analytical framework of this research was extremely simplified (for example, it is assumed that major tax hikes and expenditure cuts will not at all affect future economic growth or interest rates), precluding its further development. As for generational accounting in Japan, the Economic Planning Agency had already engaged in preliminary research.

Second, since the publication of the new theoretical proposal on justice by J. Rawls, normative studies on how to define gintergenerational equityh have been sporadically attempted by researchers including P. Dusgupta, K. Allow, and R. A. Musgrave. However, even to this day, the content of these discussions remains primitive, and no fully-fledged research has taken place.

Third, with regard to research on sustainable economic development in overlapping generation models, findings are, to some extent, being accumulated. However, such research, including that which takes into account income transfer, merely focuses on the efficiency of resource allocation, and a model related to distributional equity is yet to be developed.

Fourth, while political scientists have conducted some very elementary discussions on silver democracy, an intensive study focusing on generations has not as yet been conducted.

In the past, resource allocation problems over different points in time have been regarded as an important topic in economics and have been thoroughly analyzed. Among such analyses there exists, albeit indirectly, partial discussion of intergenerational equity.

Studies have been conducted on the issues of global warming, pension, health care and long-term care, declining population and immigration, sustainable economic development, and transitional economies, both within and without Japan. However there have as yet been no integrated studies that examined these issues from the unified perspective of intergenerational equity.

As for related research in Japanese government ministries and agencies, research on issues of social security, aging and declining population, and the norms of intergenerational equity, has been taken up by the Health Sciences Division and the National Institute of Population and Social Security Research. The three researchers that led these studies, namely, Makoto Atoh, Yuya Ogata and Reiko Goto will participate in the PIE and will continue to study the issue based on previous findings.

5 Theme of Each Research Program and Program Leaders

Program A1

Theme: intergenerational equity and principles of cost-sharing in the context of global warming

Leader: Professor Kotaro Suzumura, Institute of Economic Research,

Hitotsubashi University

Program A2

Theme: intergenerational equity in health and welfare of developed countries

Leader: Professor Tadahiko Tokita, Graduate School of Economics,

Hitotsubashi University

Program A3

Theme: pensions and intergenerational equity

Leader: Professor Noriyuki Takayama, Institute of Economic Research,

Hitotsubashi University

Program A4

Theme: Low fertility and migration

Leader: Professor Osamu Saito, Institute of Economic Research,

Hitotsubashi University

Program A5

Theme: intergenerational equity and sustainable economic development

Leader: Professor Juro Teranishi, Institute of Economic Research,

Hitotsubashi University

Program A6

Theme: intergenerational equity under the transition to a market economy

Leader: Professor Yoshiaki Nishimura, Institute of Economic Research,

Hitotsubashi University

Program A7

Theme: politics of intergenerational equity

Leader: Professor Shin-ichi Kitaoka, Graduate School of Law and Politics, Faculty of Law, University of Tokyo

6 Research Activities

The PIE will engage professors from the Institute of Economic Research, Hitotsubashi University as its core research members, and leading Japanese authorities will participate in individual research programs aimed at theoretical/empirical analyses of intergenerational equity scheduled to run over a four-and-a-half year period. In conducting the research programs, various relevant micro data will be intensively analyzed, and several surveys will be administered. Each study group, as a general rule, will hold a meeting once every month, striving to attain a higher level of analysis through individual reports and subsequent debate. Also, Hitotsubashi summer workshops will be held at regular intervals. Further, domestic and foreign authorities on related issues will be invited to participate in various international seminars and workshops. Through their keynote speeches, debates, comments and evaluations, the PIE will continuously strive to deepen, enrich and extend the content of its various individual tasks.

There will be daily release and transfer of information via email and the Internet. For increased efficiency in this regard, a database with its own server will be created.

A general assembly of all program members will be held biennially to deepen the shared understanding of the issues concerned, and to reorganize the key issues in order to advance the quality of the research. The research products will be sequentially compiled and published in a Discussion Paper (DP) series. After being presented at academic conventions both within Japan and abroad, these reports will be published in prestigious academic journals or included in several English and Japanese monographs.

7 Ultimate Goal

For a long time, Japan has been said to lack creative research in the social sciences that meets international standards. The above-mentioned PIE research project aims to rectify this situation and generate top quality, illuminating, and groundbreaking findings with international relevance. The PIE will represent a marked and outstanding improvement in Japanese academic standards.