Understanding Market Mechanism and Economic Education in Japan

Fumio Ohtake (Professor, Osaka University)

As the Japanese economy, along with other countries, is being severely affected by the US recession, triggered by the subprime loan problem, there seems to be a widespread opinion in Japan that the American-style market economy has completely failed. Many are now arguing that all regulations in the financial sector should be strengthened since the subprime loan problem was caused by too much deregulation.

Although such a swing in the public opinion is not unique to Japan this time, criticisms against the market system seem to have gone too far in Japan, as some even say that "the market is evil." What is lacking in this kind of extreme position is a fundamental understanding of the merits of market competition in terms of efficiency and vitalization for the economy as a whole, given that the market system is well managed and fully utilized with preventive measures against its failures.

In fact, according to a recent survey conducted by Pew Research Center regarding the perception of market competition, the proportion of those who think that its demerits exceed its merits is distinctly higher in Japan than in other countries. It appears that more confidence is placed on the market system in China, India or even Russia than Japan. This may be a result of the lack of efforts on the part of the Japanese to understand the mechanism of market competition and to convince themselves of the merits of their own market system.

In this regard, one of the important factors is economic education at the elementary, middle and high school levels. Actually, in most of the textbooks used at Japanese schools, there is no explanation about the merits of the market system, although some aspects of market mechanism such as supply and demand as well as price determination are taken up. On the other hand, market failures such as monopoly are emphasized by stressing that the market fails with the existence of monopoly which is "bad" in itself. In fact, the lack of explanations about the merits of market competition in textbooks is systematic, as it simply follows the official instruction guidelines set by the government.

For example, at the elementary school level, the main purpose of economic education suggested by the official guidelines is to make children understand the present state of Japanese industry and its relation with our daily life, and thus make them interested in industrial development in Japan. Following these guidelines, most textbooks try to explain the market transactions of agricultural and industrial products with the help of international trade. However, they are not required to include the explanations of possible results in our daily life without such market transactions. Similarly, at the middle school level, officially required is to make children understand the basics of the market economy with focus on choice behavior under various conditions, but not on the merits of the market system.

At the high school level, the official guidelines clearly state that students should be taught to understand the relationship between economic activities and the advancement of welfare, at least in the "political economy" course. However, most political economy textbooks fail to convey this important message with virtually no explanation about the merits of the market system and strong emphasis on the problem of monopoly and other market failures. On the other hand, the importance of government intervention is clearly mentioned without much reference to its possible failures.

Needless to say, market competition is severe for everyone, as we must accept market disciplines to survive in our economy. Nevertheless, we are willing to live with the market system, because we know that the merits of market competition exceed its demerits. Thus we need to get along with market competition in the economic world, if not in the field of education. Given this reality, too much emphasis on the demerits of market competition would be counter-productive. Rather, we should share more positive views on the market system with paying attention to regulations and redistribution policies so as to maximize the merits of market competition.