Japan in a growth-equity-small government trilemma

The following is an excerpt from the author’s new book.

The Nordic economies, the United States, and Japan have been trying to deal with the issues related to inequality and growth (particularly, globalization and innovation) and the choice of the functions of the government they have made. They have showed different preferences in making decisions in this respect.

Facing the pressure of rising inequality, Nordic economies have given priority to resisting wider inequality and maintaining an egalitarian society. On the other hand, the United States is relatively tolerant of wider inequality, and Japan is placed in the middle.

In terms of promoting growth by globalization and innovation, Nordic economies and the United States have been aggressive. In comparison, Japan has been slow and limited in achievement in both respects.

Finally, with respect to the functions of the government, the US has limited its functions and relied more on market mechanisms. In contrast, the Nordic economies extended the functions of the government to deal with the issues that emerged.

The functions of the government in Japan are somewhat in between the two.

Achieving an egalitarian society by suppressing inequality, realizing high growth by promoting globalization and innovation and allowing market mechanisms to work by limiting the functions of the government – all three are attractive objectives for a society.

If it were possible, the government should strive to achieve all three. However, none of the economies we have been looking at has achieved all three. The best that each of them has managed to do is to achieve two of them and give up the remaining one.

The above observation leads us to realize that it is impossible to achieve all three