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Hitachi Research Institute

President Column

Commentary by our President, Hitoshi Shirai

President Column #7: An Unresolved Issue

The original story for the smash hit movie Always Sunset on Third Street was Sunset on Third Street (Sancho-me no Yuhi), a manga comic of an epic length that author Ryohei Nishigishi commenced in 1974 and has continued as a serialized publication now for over 40 years. In this manga, various human events unfold against the backdrop of the mid-1950s neighborhood of Yuhi-machi 3-chome. Without taking pains to glorify life in the mid 1950s, the manga portrays the poverty and lack of convenience at the time as a matter of course. Yet one cannot help but wonder whether the reason the characters in the story appear to be more full of life and happier than people today is perhaps that the flow of time in that era was less rushed and that people seemed to share closer relationships with one another than today.

The study of economics as a social science was originally aimed at enhancing the welfare of society as a whole, and enhancing the happiness of people who made up that society. Naturally, the kind of happiness people seek will differ according to the stage of their economic development, or according to their culture, religion, and sense of values. The science of economics has focused on the rules of economic phenomena that occur amid market mechanisms based on the view that human beings will take rational action to pursue their own interests, bearing in mind that there are certain limitations to the cognitive faculties of human beings and their capacity to gather and process information. On the other hand, the notion of people's happiness, which was supposed to be the ultimate goal of the science of economics, has not been the main issue now for many years.
Nevertheless, from the 1990s onward, when statistical analyses broadened to include investigation of the degree of people's happiness, research relating to people's happiness began to show some results even in the study of economics. One area in which this was evident was in what is called the “relative income hypothesis,” which states that the level of a person's happiness is not necessarily determined by that person's absolute income but by that person's income relative to the income of others. In other words, even if a person's income increases, if the income of others increases more, the level of that person's happiness declines as the gap in income widens. Another area of research has studied the so-called adaptation hypothesis based on the idea that once a person's income increases, the level of that person's happiness also increases temporarily. However, because people tend to become immediately accustomed to their new status, their level of happiness tends to revert to its former level.
Perhaps, the era of Sunset on Third Street was a time when everyone could simply believe in expectations for a better future where those “who make efforts are rewarded.” At that time many people who benefited from wage increases were able to purchase items such as televisions, refrigerators, and washing machines. Moreover, from the perspective of society as a whole, it was an era when economic disparities were also minor.
As the economy matures, however, growth opportunities in the market are becoming limited. We were shifting from a society where those “who make efforts are rewarded” to a society where those who “take on challenges and succeed are rewarded.” Not everyone will be rewarded, growth in income for society as a whole will decline, and disparities will widen. Based on the two hypotheses of happiness, there will be an increase in the number of people whose level of happiness will decline.
Naturally, the latitude toward such conditions will differ depending on the history, culture, and religion of the country. The notion that people who take on challenges and succeed will be rewarded is the very essence of the American dream, and there is a culture in American society for praising successful people. Nevertheless, even in the United States, significant changes are evident. In September 2011, an astounding protest campaign called “Occupy Wall Street” took place on Wall Street in New York City. Many participants in this campaign held signs with the slogan, “We are the 99%.” Their argument was that while the income of the top one percentile, that is, the wealthiest segment of American society, increased 275% from 1979 to 2007, the income of the middle segment, which comprises 60% of the entire population, increased only by 40% in the same period. In other words, the majority of the fruits of economic growth are concentrated in the wealthiest segment.
Capital in the Twenty-First Century by French economist Thomas Piketty is attracting the attention of general readers in the United States despite being a book of a specialist nature and having an English edition of close to 700 pages. Using proven data, the book shows that from a long-term time axis of more than 100 years, economic disparity has hardly contracted despite the significant growth of the U.S. economy. In 1910, the top 10 percentile of the wealthy segment in the United States accounted for 80% of the entire country's wealth. While this ratio fell to close to 60% at one time following the two world wars, it returned to over 70% by the year 2010. The American dream has been one where society as a whole shares the hope that all people have the opportunity to succeed through their own abilities and efforts even if they happen to be born poor. However, Piketty's book ends by questioning whether people really have opportunities to demonstrate their abilities when enormous disparities already exist at the time they are born, and whether the success stories of Bill Gates and Steve Jobs are in fact extremely rare examples in American society.

While the study of happiness in economics provides some material for considering how society will be in the future, enhancing the happiness of people who make up society is not in itself an objective of the study of economics. In mature advanced countries, the study of economics has yet to answer the question: What kind of society is an economic society where many more people feel happiness while maintaining economic vitality? It can be said that this is an issue that has yet to be addressed in the area of economics.