The Newsletter 81 Autumn 2018

Social justice and well-being: lessons for Asia

Hiroshi Ono

Countries strive for economic growth because they believe that it will elevate the well-being of their people. Higher income entails a higher standard of living and enhanced life satisfaction. Economic growth will lift all boats, and assures the greatest happiness for the greatest number of people, so it has long been believed. Underlying the growth objective was the unquestioned assumption that income and happiness are closely related.

But it has become equally clear that economic growth can be very problematic from the viewpoint of social justice and well-being. First, higher economic growth has not necessarily led to greater happiness. For example, GDP per capita in the U.S. increased four-fold between 1945 and 2010, but happiness levels remained flat throughout the same period. This pattern, i.e. the disconnect between material and subjective well-being, was observed consistently across countries, and became known as the Easterlin Paradox.1 Easterlin, R. 1974. ‘Does Economic Growth Improve the Human Lot? Some Empirical Evidence’, in P.A. David & M.W. Reder (eds.) Nations and Households in Economic Growth: Essays in Honor of Moses Abramovitz. New York: Academic Press, Inc.

Second, and even more troublingly, economic growth in the twentieth century did not lift all boats equally, but increasingly favored only a select few. Without a doubt, technological innovations and efficiency gains have led to significant advances in standards of living and quality of life, on average. But the dispersion of progress has turned out to be extremely uneven. Inequality intensified within and between countries especially after the 1980s, as the gap widened between the haves and have-nots, and between the protected and unprotected. It was a far cry from achieving happiness for all people.

Welfare states, communist countries and happiness

The postwar period also saw the rise of the social-democratic welfare states in many developed countries. These have come closest to securing social justice and well-being for the people. By means of redistribution and universal model of social insurance, the welfare states have empowered people and reduced inequality. In contrast to the market-centered approach typically found in the U.S., the social-democratic model – evolved in the Nordic countries – is state-centered. The social-democratic welfare states, notably Norway, Sweden and Denmark, consistently rank among the happiest countries in the world. Historically, these countries have also recorded low within-country income inequality (as measured by the Gini index) in comparison to continental Europe and the U.S. The successful performance of the Scandinavian welfare states illustrates that the state can play a pivotal role in advancing social justice and well-being.

If a state-centered approach can lead to greater happiness, then what can we say about the performance of the communist or the transition economies? Were people happy under communism? Did they become happier after the transition? In the West, the conventional wisdom is that life under communism was full of misery and grief. People lived in dire conditions, under state control and with little freedom. Surely, many assumed, the transition from communism to capitalism must be a necessary condition for achieving greater well-being. Liberated from the iron grip of communism, the people would come to realize that meritocracy and market capitalism are the path to true happiness. But the experience of the transition countries diverged from expectations. Almost without exception, happiness in the post-communist economies declined following the transition. To be sure, life under communism was far from happy: a survey taken in the Soviet Union before the transition showed that happiness there was lower compared to their Western counterparts. Yet, the same survey showed an even lower level of happiness after the transition. Why? The explanation is rooted in social injustice and inequality. A deep sense of injustice prevailed following the transition. People’s expectations of meritocracy and the fruits of market capitalism were largely unfulfilled. Optimism was replaced by powerlessness and hopelessness; widening inequality between rich and poor instilled feelings of unfairness. Surveys taken after the transition (in the 1990s and 2000s) consistently rank the post-communist/ East European countries, e.g., Bulgaria, Romania, and Russia, among the unhappiest countries in the world. Among the transition countries, it is not uncommon for the elderly to reminisce about the communist past. People had jobs, access to healthcare and education. They had a sense of social security and felt protected. As the countries transitioned out of communism, people lost their safety net to an often dysfunctional market-based substitute. Unemployment rose as jobs were no longer guaranteed. Corruption and organized crime flourished as loopholes in regulations were exploited. Unsurprisingly, the post-communist countries rank low in the ‘trust index’, owing to widespread corruption. In former East Germany, resentment of the present is so strong that a new expression became commonplace, ostalgie, a combination of ost meaning east and nostalgie. In Bulgaria, people still ponder the Stalinist past; in China, the Mao regime, and so on.

In sum, the promise of capitalism fell short in many of the transition economies. These countries continue to struggle as they transition to a more meritocratic, market-based system. The experience of the transition economies inform us that advances in well-being and social justice must be achieved through the right mix of capitalism and democracy.

What then are the lessons for Asia?

First, many Asian countries are vulnerable to a large-scale social transformation that is taking place: the weakening of family and intergenerational ties and the diminishing social support system that accompanies it. According to Esping-Andersen,2 Esping-Andersen, G. 1990. The Three Worlds of Welfare Capitalism. Princeton: Princeton University Press.  there are three types of social safety nets: (i) the state-centered social democratic welfare state, primarily found in Scandinavian countries, (ii) the market-centered system, as in the case of the U.S., and (iii) a family-based support system typically found in Asian countries, and in Mediterranean societies such as Spain, Italy and Greece. Under the family support system, caring for small children and older parents is conventionally resolved through the immediate or extended family, without relying on the market or the state.

But history informs us that a shift from Gemeinschaft to Gesellschaft and the transition from personal to impersonal ties is a natural part of the process of modernization. The Asian countries are not immune to this social change. Family and intergenerational ties are weakening. Take the example of Japan where women traditionally care for the children, and young adults care for their elderly parents, often times co-residing. In recent years women are more likely to take part in the labor force rather than stay at home. Young adults are now less likely to co-reside with their parents. As a result, Japan faces a dire shortage of childcare and elderly care facilities. The transformation came swiftly, and demand for care facilities far outweighs supply. The state is scrambling to increase supply but will not be able to meet the surge in demand for years to come. The shortage of childcare lowers the well-being of parents and would-be parents. Some women may even opt out of childbearing and choose to continue working, spurring the problem of low fertility and declining population in Japan. The shortage of elderly care will likewise lower the well-being of older people, as they may be forced to live alone without support. Nevertheless, Japan’s case illustrates that the state must act to fill the void left by the weakening family support system, and mitigate the negative effects of modernization on well-being.

Second, and similarly, transition countries such as China, Vietnam and Cambodia must ensure that a well-functioning safety net be in place as they transition towards market capitalism. The experiences of the former Soviet states provide ample evidence that the safety net is a vital source of well-being for their citizens. The higher relative standing of the Scandinavian welfare states provide further support that a state-centered universal social insurance can be effective in improving people’s happiness.

The Easterlin et al. study of China’s transition provides important insights.3 Easterlin, R.A., R. Morgan, M. Switek & Fei Wang. 2012. ‘China’s life satisfaction, 1990–2010’, Proceedings of the National Academy of Sciences 109:9775-9780.  China exhibited a growth pattern consistent with the Easterlin paradox, and social justice and well-being fell following the transition. Between 1995 and 2004, real income in China expanded 250 percent, but life satisfaction remained low or even worsened. This decline is concurrent with rising unemployment, widening inequality and the dismantling of the state-centered social insurance. Yet, rather than prescribing a return to central planning under which life satisfaction was presumably higher, the authors instead advocate jobs, income security and a social safety net as the essential pathways to fostering higher life satisfaction. Interestingly, China appears to be embracing such a strategy, along with the policy principle that strong state intervention can shore up a country’s efforts to bring about greater social justice and well-being. Other parts of the world, which seem currently to be retreating from this principle, should take note.

Hiroshi Ono, Hitostubashi University Business School

Photo: Getting older but still happy © Albert JR, submitted to the IIAS photo contest 2014.