Economics for Happiness

Excerpt from Conversation Eight of
Shaping a New Society: Conversations on Economics, Education, and Peace

By Lawrence J. Lau and Daisaku Ikeda

IKEDA: Because the economy is vital to both the individual and society, people are quick to criticize and question its efficacy.

Responding concisely to my question about what kind of twenty-first century he wanted to see, Galbraith said that he hoped it would be an age in which people found life in this world to be a joy and a time when killing had come to an end. Galbraith lived through two world wars and believed strongly that we must not allow war to break out again. He insisted that politics, economics, and science were basically means to advance the welfare and wellbeing of humanity, but because modern society had lost sight of this, these fields had instead become ends in themselves.

I was struck by his forthright, astute belief that economics must serve human happiness. However, while many acknowledge that the study of economics is important, there are some who find the discipline complex and difficult to understand. How would you describe the workings of an economy in modern society?

LAU: In a country or region, an economy is a system for the determination of, first, the assignment of the primary factors of production, including capital, labor, and natural resources, to enterprises and organizations, including governmental organizations and their compensation; second, the type and quantity of goods and services, including capital and consumer goods and services, that are to be produced by these enterprises and organizations, and the pricing of these goods and services; and third, the distribution of these goods and services to the different enterprises, organizations, and households for use as intermediate inputs or to be consumed. Whether an economy is a centrally planned one, a market one, or a mixed one, it must fulfill these necessary basic functions.

In addition, the government is responsible for the financing (through taxes and the issuance of public debt, if necessary) and provision of public goods, such as education, health care, national defense, public security (including firefighting and police protection), and public infrastructure. The government also has the responsibility for the stabilization of the economy (to smooth out the cyclical fluctuations of the economy and to control inflation), the promotion of full employment, and the support of sustainable long-term economic growth.

Further, the government is responsible for the redistribution of income through income taxes and transfer payments, so that the gains of economic prosperity can be better shared by all. The provision of public goods, such as education, medical care, environmental preservation, pollution control, and public parks, by the government can be a very effective “in kind” redistribution mechanism.

IKEDA: Thank you for clarifying the relationship between economic activity and government. Governance is truly a skilled craft. The challenge of politics lies in balancing economic growth with enhancing the quality of people’s lives and ensuring that this effort is stable and sustainable.

Toda often told us that individual happiness should never be sacrificed at the altar of social prosperity; rather the two must advance hand in hand. I believe there is a growing urgency for economic activity to not only focus on efficiency but also the greater public good.

LAU: Yes. Allow me to add that to an economist, efficiency has a very specific meaning—a state of the economy such that the output of any good or service cannot be increased without decreasing the output of another good or service. Efficiency, in laymen’s terms, simply means that all resources are being put to their highest and best use, and that no resource is wasted.

The efficient use of resources includes the use of human resources. Sun Yat-sen, in a petition he submitted to Li Hongzhang, viceroy of Zhili, in 1894, described a vision of an efficient economy, in which every person would be able to use his talent to the fullest, every piece of land would be exploited to its highest benefit, everything would realize its maximum usefulness, and every good would be able to move freely (to where it was most needed).

But such a state of affairs cannot be obtained automatically. A free market system cannot achieve efficiency by itself. Only a truly competitive market system, satisfying certain conditions, can result in an efficient economy.

This is where the government must come in—to regulate and supervise the operations of the market system, so that it becomes and remains truly competitive. In certain markets in which natural monopolies prevail, such as electricity generation and distribution, more direct regulation and supervision may be required. For example, in many developed market economies, public utilities are regulated by public utility commissions, which have the power to approve or disapprove any proposed price change, if the utilities are not owned, managed, and operated by a government corporation directly.

IKEDA: Yes, this is a vital role the government fulfills. If I remember correctly, you have often said that economic trends have their unique rules and patterns.

LAU: One idea that has broad applications in many different settings is the hypothesis of “self-fulfilling expectations.” It highlights the important role that collective expectations play in an economy.

A few years back, Japan was in a deep recession. Many households and firms expected that it would be worse the next year, and so they each independently decided to cut back on their respective consumption and investment. And because of this cutback, the next year did turn out to be worse. So the expectations were fulfilled, actually self-fulfilled.

IKEDA: This means it is equally possible for widespread expectations to drive economic growth.

LAU: The Chinese economic boom in 1992 following the southern visit (1) of Deng Xiaoping was another example of “self-fulfilling expectations.” The Chinese economy then was dead in the water in the aftermath of the Tiananmen Square protests of 1989. (2) After the Deng visit, everyone thought the economy was going to boom and acted accordingly, and the result was a huge boom.

However, not all expectations are self-fulfilling. There are also “self non-fulfilling expectations.” For example, with the debut of a new and exciting movie, everyone might expect that all the tickets would have been sold out and hence decide not to go to see the movie. The end result might be a half-empty theater.

IKEDA: I am reminded again just how difficult it is to predict economic trends. Obviously, operating any business would be a simple matter if people could accurately forecast the future.

As Galbraith said, the fundamental force that drives an economy is people. No matter how trying our plight may be or how daunting the adversity we face, he was convinced that as long as human beings remain strong and resilient, then we would forge on, reversing our fortunes and recovering to the point that we would once again leap ahead and eventually create a truly prosperous society. (3)

As you may know, Galbraith advised President Franklin D. Roosevelt on economic policy as the latter strove to rebuild the American economy in the years following the Great Depression. Galbraith shared with me a famous passage from Roosevelt’s 1933 inaugural address, in which the newly elected president called out to his fellow Americans, whose spirits had nearly been broken by years of economic distress: “First of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.” (4) This is a classic illustration of just how valuable good leadership is in times of crisis.

Youth Employment

IKEDA: In Japan today, young Japanese are finding it difficult to hope for a better future—which comes as no surprise, given the number of jobless youth, the expansion of nonpermanent or irregular employment, the growing number of the working poor, and other uncertainties they face. How does this compare with Hong Kong?

LAU: Hong Kong faces many of the same problems. Many young people are not optimistic about their future prospects.

Part of the problem arises from the gradual disappearance of well-paying jobs. Manufacturing jobs have largely disappeared from Hong Kong, to either mainland China or to Southeast Asia, a result of the rising degree of globalization. (Automation and robotics have not yet affected Hong Kong but have had a significant impact in the United States.)

The advancement in information and communication technologies has also caused many middle-level managerial positions to become redundant, as the span of control of senior management expands, and the organization of an enterprise becomes flatter and flatter.

For example, in a commercial bank, there used to be layers of middle management between the president and the tellers—not anymore. It is possible for a single senior vice president to monitor the work of a thousand lower-level employees. The same information and communication revolution has also enabled even the back-office jobs to move away to lower-cost locations elsewhere. The result is a diminution of advancement of opportunities and rising disparity in the distribution of income.

What can be done about these problems? They are not easy to solve in the short run. I have advocated for Hong Kong and elsewhere to create jobs that cannot be moved away—for example, jobs in the tourism industry and in industries that cater to tourists. However, these are by and large low-paying jobs. If young people are to aspire to greater opportunities, they should consider going north.

Just as the ambitious young Americans responded to the call of “Go West, young man!” in the nineteenth century, the young people of Hong Kong should do the same; they should venture into the mainland, the land of opportunities and, of course, of risks. But if there is no risk, there can be no gain; if one does not take some risks when one is young, when will one take risks?

IKEDA: Young people should indeed dare to tackle ambitious goals.

This is somewhat of an aside, but I clearly recall Toda offering the following advice to a young man troubled by what career he should pursue:

There are three standards when choosing a job. They are the values of beauty, benefit, and good. Everyone would ideally like to find the kind of work they like (beauty), is profitable (benefit), and contributes to the betterment of society (good). The real world, however, is not as accommodating as you’d believe. In fact, only a handful of people are likely to find that perfect job they hoped to land from the very beginning. More often than not, people are forced to work at a job they never expected to do.

Granted, a person may land a job he or she enjoys but doesn’t pay enough (beauty without benefit) or may be working for the welfare of others yet may not like the job (good without beauty) and so on. Thus, it is quite rare in reality to find work in which the three values of beauty, benefit, and good coincide.

Should the young man become mired in less-than favorable employment, Toda counseled:

It is essential that you work with all your might at your present job, that you become someone who is truly indispensable to your employer and fellow workers. And by soldiering on, you will definitely be able to work at a job you like, one that is profitable and contributes to society in a significant manner. That is the power and proof of faith. All the hard work you put in will not be wasted and that experience will remain a cherished asset throughout your life. One day, you’ll realize that everything you had to undergo served a purpose. I can say this without equivocation from my own experience.

Having seen countless other individuals with similar experiences, I feel deep in my heart the veracity of Toda’s words.

LAU: That’s very instructive advice. I have often advised the students at the Chinese University of Hong Kong on their career choice, “Do what you love, and love what you do!”

IKEDA: Clearly, governments should assign employment among their highest priorities and tackle the issue accordingly. The dearth of jobs and work opportunities not only forces the unemployed into dire economic straits but makes them feel useless and unneeded, deepening their sense of alienation and, in some cases, sapping their lives of hope.

The International Labour Organisation has been urging countries to secure what it describes as “decent work” for citizens. According to the ILO report “Global Employment Trends 2014,” some 74.5 million young people ages 15–24 remained jobless in 2013.5 This is a serious situation requiring immediate redress.

Dr. M. S. Swaminathan, the agricultural geneticist and former president of the Pugwash Conferences on Science and World Affairs, has been a consistent advocate of and agent for solutions to remedy global poverty and the food crisis as well as widespread unemployment. In September 2013, he spoke at a peace seminar held at the University of Madras in India, an event co-organized by the university, the M. S. Swaminathan Research Foundation, and Bharat (India) Soka Gakkai. Dr. Swaminathan mentioned the peace proposal I issued in 2013.6 In the proposal, I called for all nations to implement a “Social Protection Floor” ensuring that those suffering from extreme poverty can regain a sense of dignity. I further cited estimates by the relevant UN agencies that it should be possible for countries at every stage of economic development to cover the necessary costs for minimum income and livelihood guarantees—and the news that some thirty developing countries have already begun implementing such plans. Dr. Swaminathan shared that in order to aid the impoverished and advance social betterment, there exists an urgent need to provide them with proper healthcare and education in addition to adequate food.

In one of the discussions we shared, Dr. Swaminathan explained that it was equally vital to develop initiatives that secure jobs for those in less fortunate circumstances, enabling them to earn an income and decent housing. He pointed out the tremendous imbalance of wealth in the world, with the five wealthiest countries having a greater GNP than the next fifty nations combined. With the majority of the world living in abject poverty, it was imperative, he said, that we provide all people a quality of life allowing them to lead truly human lives. We need to reorient ourselves from a profit-driven economy to an economy that values the dignity of human life, he concluded. I also believe humanity can no longer avoid confronting these challenges.

Notes

1. Deng Xiaoping traveled to Wuhan, Shenzhen, Zhuhai, Shanghai, and other cities in south China, declaring his commitment to reforms and liberalization, and to accelerating economic development.

2. Throughout 1989, students in Beijing led demonstrations in support of greater democracy in China, sometimes called the ’89 Democracy Movement. On June 4, government troops killed several protesters who sought to block the military’s advance to Tiananmen Square. The number of civilian deaths is estimated between several hundred to thousands. The event drew international condemnation. Investors withdrew money from China, and several Western countries enforced economic sanctions and embargoes, forcing China to begin a long process of attempting to move beyond its reputation as a repressive regime. In China the tragedy is known by its date as the June Fourth Incident, and in the West it is known by its location as the Tiananmen Square Massacre.

3. Translated from Japanese. John Kenneth Galbraith, Nihon keizai e no saigo no keikoku (The Last Warning to the Japanese Economy), trans. Takashi Kakuma (Tokyo: Tokuma Shoten, 2002), p. 16.

4. Inaugural Addresses of the Presidents of the United States: Grover Cleveland (1885) to Barack H. Obama (2009) (Bedford, Mass.: Applewood Books, 2009), p. 93.

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