Abstract
In this chapter, we try to clarify functions and limits of the three most important institutions in our society: markets, communities (including families), and governments. We also try to clarify the interactions among those institutions.
A welfare regime can be defined as the combined, interdependent way in which welfare is produced and allocated between state, markets, and family.
Esping-Andersen, G. (1999, p.34)
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Notes
- 1.
A good reference for the explanations of functions and limits of markets and governments is Stiglitz and Rosengard (2015).
- 2.
To be more precise, Pareto efficiency refers to the condition in which it is no longer possible to improve anyone’s welfare without deteriorating that of others.
- 3.
Note that the government policies to mitigate market failures can generate positive or negative externalities. For example, the social security system can have negative effects on our fertility behavior, and under the labor income tax system, our labor will have positive externalities on the society. Public policies need to be designed by considering such externalities.
- 4.
This definition is imperfect as compared to the one for equitable allocation because it does not allow us to compare equity of allocations when equal opportunities are not guaranteed. We can define the degree of equity if we define a measure of differences of opportunity sets.
- 5.
- 6.
The book, Leviathan or The Matter, Form and Power of a Common Wealth Ecclesiastical and Civil, was published in 1651.
- 7.
Governance of an organization means that those who have the rights and/or the responsibilities of controlling the organization, discipline it.
- 8.
Hayami and Goto (2005, p. 310) defines a community as “a group of people tied by mutual trust based on intense personal interaction.” Our definition is broader than that as we do not include “mutual trust” nor “intense personal interaction,” but it is narrower at the same time, as we exclude groups of people tied by profit-seeking motives. In Japan, private companies (kaisha) are sometimes considered as communities. Although we do not consider them as communities, when we consider the personal networks of workers or labor unions in the companies, they can be termed as communities by our definition. See our discussion in Sect. 2.3.1 about roles and changes of labor unions in the market economy.
- 9.
- 10.
See, for example, Kotlikoff and Spivak (1981).
- 11.
In the word murahachibu, “mura” means village and “hachibu” means 80%.
- 12.
Hayami and Goto (2005) stated that the communities, which are “critically needed to correct the failures of the market and the state” (p. 311), are immune to “community failure” in achieving socially efficient resource allocation (p. 343).
- 13.
See, for example, Coleman (1990, Chap. 22).
- 14.
Needless to state, these three institutions have a more complex relationship than the one depicted in Fig. 2.1. For example, change in the communities should have some impact on the development of the market economy, which should be analyzed more carefully.
- 15.
Wagner (1835–1917) is a German fiscal economist who proposed a law of government expansion in a market economy.
- 16.
To be more precise, in economics, public goods are defined as goods and services that are non-excludable and non-rival.
- 17.
See, for example, Morrison (2006).
- 18.
Although there are various criticisms against such an explanation, including Ruggles (1987), which indicates that the effects of the development of the market system on the family structure are more complex than the simple story stated above, the basic explanation above is still convincing theoretically and empirically as argued by many scholars.
- 19.
Sundström (1994) who collected data for Fig. 2.2 points out that the decline in the share makes it more difficult for the frail elderly to receive care from their families. However, he also points out that when the elderly really need care from their children they tend to live close to their children. Thus, the data for the elderly living together in Fig. 2.2 may be overestimating the weakening of families in developed countries.
- 20.
The argument need not be denied because the weakening of communities can indeed contribute to the development of the market economy. If we consider such an effect, we should add an arrow in Fig. 2.1 from “Weakening of Communities” to “Development of the Market Economy” and indicate the cyclical expansion of the market and the weakening of communities. What the following quote stresses is that the development of the market system is the first cause of the weakening of communities.
- 21.
For example, Cliquet (2006) summarized the changes in families and demography in western countries.
- 22.
See, for instance, Ogawa and Matsukura (2007, Fig. 10). It also indicates that the norm of children taking care of their aged parents changed considerably. The share of those who believed that children taking care of their aged parents is a “good custom” or “natural duty” declined rapidly after 1986.
- 23.
Quotes from Myrdal (1940, pp. 206–210).
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Yamashige, S. (2017). Markets, Communities, and Government: Analytical Framework. In: Economic Analysis of Families and Society. Advances in Japanese Business and Economics, vol 16. Springer, Tokyo. https://doi.org/10.1007/978-4-431-55909-2_2
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