We construct quarterly series of the revenues, expenditures, and debt outstanding for Japan from 1980 to 2010, and analyze the sustainability of the fiscal policy. We pursue three approaches to examine the sustainability. First, we calculate the minimum tax rate that stabilizes the debt to GDP ratio given the future government expenditures. Using 2010 as the base year, we find that the government revenue to GDP ratio must rise permanently to 40–47% (from the current 33%) to stabilize the debt to GDP ratio. Second, we estimate the response of the primary surplus when the debt to GDP ratio increases. We allow the relationship to fluctuate between two “regimes” using a Markov switching model. In both regimes, the primary surplus to GDP ratio fails to respond positively to debt, which suggests the process is explosive. Finally, we estimate a fiscal policy function and a monetary policy function with Markov switching. We find that the fiscal policy is “active” (the tax revenues do not rise when the debt increases) and the monetary policy is “passive” (the interest rate does not react to the inflation rate sufficiently) in both regimes. These results suggest that the current fiscal situation for the Japanese government is not sustainable.

Japan leads, chased closely by South Korea, with China, on a vastly larger scale, not far behind. Not as mercantilist development states nor as threats to America’s high-tech industry, but rather as the world’s most rapidly aging societies.

A wave of unprecedented demographic change is sweeping across East Asia. The region is at the forefront of a trend towards longer life expectancy and declining birthrates, which, combined, yield a striking rate of aging. Japan already confronts a shrinking population. Korea is graying even more quickly. And although China is projected to grow for another few decades, demographic change races against economic development. Could China become the first country to grow old before growing rich? In Southeast Asia, Singapore also confronts a declining birthrate and an aging society. Increasingly, Asia’s aging countries look to its younger societies, such as Vietnam, Indonesia, and India, as sources of migrant labor and even wives. Those countries in turn face their own demographic challenges, such as how to educate their youth for a globally competitive
economy.

Held September 8–9, 2011 in Kyoto, Japan, the third Stanford Kyoto Trans-Asian Dialogue focused on demographic change in the region and its implications across a wide range of areas, including economies, societies, and security. Asia’s experience offers both lessons and warnings for North America and Europe, which face similar problems. Questions addressed included:
 

• What are the interrelationships between population aging and key macroeconomic variables such as economic growth, savings rates, and public and private intergenerational transfers?
   
• How and why do policy responses to population aging differ in Japan, South Korea, and across different regions of China?
   
• What are the effects of demographic change on national institutions such as employment practices, pension and welfare systems, and financial systems?
   
• What policies can or should be pursued to influence future outcomes?
   
• How will demographic change affect security in the Asia-Pacific region?
   
• How have patterns of migration impacted society and culture in East Asia, in comparative perspective?
   
• How will demographic change influence the movement of people across the region and the prevalence of multicultural families?
   
• What lessons can Asia, the United States, and Europe learn from each other to improve the policy response to population aging?

The global balance of power is undergoing a gradual but dramatic shift. While the United States will likely remain a preeminent economic and geopolitical power, the long era of American hegemony is coming to an end. In particular, managing the rise of Asia will likely prove to be the central challenge of international politics in the 21st century. In the face of such striking change, rigidity threatens to make international organizations relics of a bygone era. A substantial update of the international organizational architecture is needed. As two of the world’s leading democracies and economic powers, there is much that the United States and Japan can contribute toward such an effort. This paper will examine how U.S.-Japan cooperation can reinvigorate and update international organizations to meet contemporary challenges.

The first section discusses distributional imbalance as a serious shortcoming of several major international organizations, most prominently the United Nations Security Council and the International Monetary Fund (IMF). Uneven representation can lead to needless tension and undermine the ability of international organizations to facilitate interstate cooperation. The major international organizations must be updated to reflect 21st century realities. The next section examines the economic and geopolitical rise of Asia and potential implications for institutionalized cooperation. Asia is a region with comparatively weak international organizations and inferior representation in universalistic institutions. Without deeper regional institutionalization and commensurate representation in global institutions, Asia’s rise may prove destabilizing for international cooperation. Accordingly, the paper then presents several policy prescriptions for how the United States and Japan can cooperate to update and reform the international organizational architecture.

For the peasants in rural China, the harvest season is the occasion when several different worlds—the business world of large companies, the entrepreneurial world of middlemen, local elites and peasant households—are compressed into the same social space, thereby inducing intensive economic and social interactions and crystallizing social relations among villagers, local elites and markets. Based on ethnographic research on the autumn harvest in a township in northern China, this study sheds light on distinctive modes of market transactions across produces, and diverse interactions between markets and local institutions involving different co-ordination mechanisms, rhythms and social relationships. A more nuanced image of market transactions emerges from these observations, calling for a more refined conceptualization of markets and further research on their implications for institutional changes.

Health systems provide a rich field for testing hypotheses of institutional economics. The incentive structure of current healthcare delivery systems have deep historical and cultural roots, yet must cope with rapid technological change as well as market and government failures. This paper applies the economic approach of comparative and historical institutional analysis (Aoki, 2001; Greif, 2006) to health care systems by conceptualizing physician control over dispensing revenues as a social institution. The theory developed—emphasizing the interplay between cultural beliefs, interest groups, technological change, insurance expansion and government financing—offers a plausible explanation of reforms since the 1960s separating prescribing from dispensing in societies such as Japan, South Korea, Taiwan and China. Technological change and adoption of universal coverage trigger reforms by greatly increasing the social opportunity costs of physician over-prescribing and reshaping the political economy of forces impinging on the doctor–patient relationship.

Big changes are ahead for China, probably abrupt ones. The economy has grown so rapidly for many years, over 30 years at an average of 9 percent a year, that its size makes it a major player in trade and finance and increasingly in political and military matters. This growth is not only of great importance internationally, it is already having profound domestic social effects and it is bound to have internal political ones — sooner or later.

Two kinds of changes are in store: political and economic. The order in which they occur will affect their impacts, and that order is very uncertain. In any case, big discontinuities are likely before 2020.