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Consideration of Social Security Objectives and Functions


For what purposes are social security systems established and what functions are they fulfilling? There are specific objectives and functions for each social security system. In this chapter, however, we will discuss the objectives and functions that are common to every social security system.

First of all, the history of Japan's social security systems will be looked through from the end of World War II to the present to know how they have been established. Next, based on the history, the definition, objectives and functions of social security will be clarified. We expect that the recognition of the history, objectives and functions of social security will help our readers in analyzing the present situation of, evaluating, or examining the desirable future of social security.

Section 1. Social Security's Development History

1.Expansion of the Range Covered by Social Security

(Fields that can be associated with the words "Social Security Systems")

"Social security systems" is a general expression that includes the systems in the following fields. They are social insurance systems including medical and pension insurance programs; public assistance systems to ensure the minimum level of sound and cultural living; social welfare systems for children, mothers and children, people with disabilities and for the elderly; medical care systems; and the systems for public and environmental health.

Generally, with what fields do people associate the expression "social security systems"? According to the latest survey targeting people aged between 20 and 60(Note), 81.7% of the respondents answered that they associated the expression with "social welfare" (welfare for children, people with disabilities and for the elderly).Following this percentage, 76.6% answered "with pension", 74.9% "with medical and health insurance" and 44.4% "with public assistance," as shown in Figure 1-1-1. Comparing the results with those obtained from the survey conducted 22 years ago, the ratio of people who can associate the expression of "social security systems" with the specific fields of social welfare, pension, medical care, etc. has greatly increased. In the survey of 22 years ago, there was one among four respondents who could not associate the expression with a specific field and answered "I don't know.

"The remarkable increase in the number of people who can associate the expression with the specific fields reflects the development and improvement of social security systems. With the expansion of the range covered by the systems and of their scales, more and more people are recognizing the importance of the systems as those that are playing important roles for their daily living.

Nomura Research Institute conducted this survey commissioned by the Ministry of Health and Welfare. The aim of the survey named "Survey on the Consciousness of People about Social Security Systems" was to research into what the generations working in the forefront of society thought about social security. The survey was conducted in January of 1999 targeting 4,000 people aged between 20 to 60 throughout the country, and the number of valid respondents was 2,064 (1,082 men and 982 women). This report refers to the results of this survey also in other parts of the text because the results represent the ideas of the working generations including what the working generations from the youth to the middle-aged think about social security. Hereinafter we will call the survey "Survey on Social Security Systems Conducted in January 1999."

Figure 1-1-1. Fields Associated with the Expression of "Social Security Systems"

Fields Associated with the Expression of "Social Security Systems"

2.Socioeconomic Changes and Expansion of Social Security Benefits

(Socioeconomic changes and social security development)

Presently, social security covers a wide range of fields on a large scale. However, the development to the current level has not easily been achieved. Also before World War II, there were certain systems established and managed for giving support to the needy, or for health administration and social insurance. It was, however, after World War II that Japan's social security systems began to develop on a full scale.

With the economic society and national life undergoing great changes after the war, specific legal systems were established for social security and they have been managed and expanded to meet diversified social security needs of people, with adjustments made to the fiscal situations of each time. A lot of related persons made great efforts for the management and expansion, and citizens as a whole backed up the social security development. The improvement of social security has been greatly contributing to the stable economic development, needless to say to the stabilization of national life.

Now let us take a general view of Japan's social security development from the end of World War II up to the present, taking into considerations great changes made in the economic society and national life.

As shown in Figure 1-1-2, the population has greatly increased and Japan's economy has achieved dramatic expansion and development in the period as a whole.

For the population, it was about 84 million in 1950, exceeded 100 million in 1968, and is about 126 million at present. Thus the population has increased by 1.5 times for half a century. In terms of economy, the GDP that shows the amount of values added by domestic economic activities increased by 125 times to \500 trillion in 1996 from about \4 trillion in 1950. For per-capita GDP, Japan got a lead on the United States in the 1980s and has reached the top level in the world.

Figure 1-1-2. Changes in the Total Population, Economic Growth Rates, and Improved National Income

Changes in the Total Population, Economic Growth Rates, and Improved National Income

On the other hand, however, Japan's population structure has shifted from a "country of young people" with the average age of the entire people in the latter half of the twenties (until the 1950s) to an "aging society." Japan is now in the world top class in terms of aging: the average age of people is over forty and the aging rate (ratio occupied by people aged 65 or older in the entire population) is 16.2%. In terms of economy, Japan has also undergone great changes. After 20 years of consecutive high economic growth (in the 1950s and 1960s), which was unprecedented in the world, Japan entered into a stable growth period and then into a low growth period. There were also another socioeconomic changes in the industrial and employment structures, in local communities and people's lives, in family compositions, etc. The changes in the half of the century were extremely great and fast in speed.

(Expansion of social security benefits)

As explained in 3 below, multiple legal systems have been established in relation to social security since the end of World War II up to the present. Through the expansion and improvement of benefits or by the expansion of the targets of benefit payment, the scale of Japan's social security has been expanded. For figures representing social security scales, "social security benefit expenditure" is generally utilized. "Social security benefit expenditure" is a total sum of money and service annually given to the citizens through social security systems such as social insurance and welfare. The sum is calculated based on the social security criteria set by the International Labor Organization (ILO) for the purpose of international comparison. In Japan, the National Institute of Population and Social Security Research takes charge of the calculation. (Refer to "Indices Representing Social Security Scales" below.)

According to the calculations done by the National Institute of Population and Social Security Research, the social security benefit expenditure totaled \67542.3 billion in fiscal 1996, which was an increase of about \2.8 trillion compared with the previous fiscal year. The amount of expenditure has been annually increasing by about \3 trillion on an average since the beginning of the 1990s. The social security benefits average out to be \536,600 for each citizen and \1528,300 for each household on an annual basis. Such amount of money is distributed to individual citizens and households through social security systems including pension, medical care and social welfare systems.


Indices Representing Social Security Scales

As shown below, there are several types of indices representing social security scales. Of which, the social security benefit expenditure is generally used as an index for the following reasons.

1) International comparison is possible. (The calculations are done based on the criteria set by the ILO.)

2) The index provides an entire picture of the benefits given and burdens imposed through social security systems. (The social security benefit expenditure provides an overview of the benefits and burdens of the entire social security systems including benefits based on social insurance or social welfare systems.)

Based on the ILO criteria, the social security benefit expenditure is classified by systems, such as systems for social insurance, family allowance, public officials, public health, and for public assistance and social welfare, and the expenditure also includes administration expenses. In Japan, however, the social security benefit expenditure is limited to the cost of benefits, and is classified by functions such as "pension," "medical care," and "welfare and other" in addition to the classification by systems.

(Indices for social security costs)

1) Social security benefit expenditure

  • The National Institute of Population and Social Security Research, which belongs to the Ministry of Health and Welfare, makes the estimates and announces the results every year. (For the details, refer to the text and the above.)
2) Total costs related to social security
  • The secretariat of the Advisory Council on Social Security of the Prime Minister's Office does the calculations and announces the results. Compared with the ILO criteria, the range of targeted systems is wider, and the total costs include facilities costs and office expenses in addition to benefit costs.
3) Amount of money transferred in relation to social security
  • The National Income Department of the Economic Research Institute of the Economic Planning Agency makes the estimates based on the System of National Accounts (SNA) to show the amount of money transferred from the general government to households in relation to social security. The index is comprised of "social security benefit," "social assistance money," and "welfare benefits for employees covered by no funds."Public health expenditure for many and unspecified persons is not included in the amount.
4) Social security-related expenditure
  • The expenditure represents the expenditure to be appropriated for social security in the national budget of the general account. It is comprised of "expenditure for public assistance," "expenditure for social welfare," "expenditure for social insurance," "expenditure for public health service" and "expenditure for unemployment." The Budget Bureau of the Ministry of Finance does the calculations concurrently with the budgeting for every fiscal year.

As shown in Figure 1-1-3, the social security benefit expenditure has been expanding year by year. In fiscal 1951 when statistics were prepared for the first time on the social security benefit expenditure, the expenditure amounted to \126.1 billion, which was \1,900 per person.Comparing these figures with the fiscal 1996 figures, the total amount of the expenditure has increased by about 540 times and the per-capita amount by about 280 times. The per-capita national income has increased by about 59 times during the period. The growth rate of the social security benefit expenditure is higher than that of national income.

Figure 1-1-3. Changes in the Social Security Benefit Expenditure

Changes in the Social Security Benefit Expenditure

In fiscal 1970, Japan's aging rate (percentage of people aged 65 or older in the total population) exceeded 7% and Japan shifted to an "aging society" according to the definition given by the United Nations. Comparing fiscal 1996 with fiscal 1970, the social security benefit expenditure has increased by about 19 times in the total amount and by about 16 times in the per-capita amount. The national income has increased by 6.4 times during the period. The ratio of the social security benefit expenditure to the national income has increased by about three times or by about 12 points from 5.77% in fiscal 1970 to 17.21% in fiscal 1996. In accordance with the aging of society, the social security benefit expenditure tends to rise with the increase in the payment of pensions and medical care benefits. During the period from fiscal 1970 to fiscal 1996, the aging rate has been doubled and the number of the elderly has increased by about 2.4 times. These figures imply that the increase of the social security benefit expenditure has been caused not merely by the progress of aging. The raise in the pension payment standards and the increase in the medical expenses for the elderly have greatly contributed to the increase of the social security benefit expenditure.

Compared with the scales of other spending systems, the social security benefit expenditure is larger than the budget for general expenditure to be spent by the government in relation to its policies (about \46 trillion for fiscal 1999). Besides the scale of the expenditure is by about ten times greater than the general account budget of Tokyo that has a population of about 12 million.

3. Social Security's Development History

Table 1-1-4 shows the development of social security from the end of World War II up to the present. The history is divided into four periods taking into considerations the socioeconomic changes and changes in the social security policies made after the end of the war. The laws established related to social security and the keywords of each period are intelligibly shown in the Table. In the following paragraphs, the postwar development process of Japan's social security systems will be explained in reference to the Table.

It should be noted that social security-related laws had already been developed even before the war.Specifically, the Health Insurance Law was enforced in 1927 as the first step towards the development of a public medical insurance system for workers. In 1938, the National Health Insurance System was started for self-employed people and agricultural workers. Furthermore in 1941, a pension insurance system was introduced targeting workers. Thus the framework for social insurance programs had already been established to some extent before the war. Besides the Poor Relief Law was enacted in 1929 for giving support to the needy, which later led to the establishment of the public assistance system. Furthermore the Social Service Law was established in 1938 to supervise the prewar social welfare services.

The systems, however, are inferior to present ones in diversified aspects including the contents, number of the targeted people, and the scales of service. Besides they were at the risk of collapsing in the financial difficulties and economic confusions immediately after the end of the war. It cannot be, however, ignored that the prewar systems exerted great influence on the design of postwar social security systems.

(1) Emergency relief and rebuilding of the infrastructure in the postwar days
(for ten years from 1945 to 1954)

(Postwar recovery and measures for giving support to the needy)

World War II exerted great influence on every aspect of Japan's politics, economy, culture and society. About 1.85 million people were killed and buildings in the urban areas were reduced to ashes in the war flames. One quarter of the national wealth was lost even excluding the military resources, and the national income immediately after the end of the war was about 50% of that of the ten years before. As many as about 5 million people including soldiers and citizens returned to Japan from the Asian regions, and the Japanese people faced unemployment, inflation and lack of food.

It was urgently required to take measures for supporting the lives of the needy including the repatriates and the unemployed as an emergency measure in the social security field. At the same time it was necessary to implement measures for better nutrition and for preventing the spread of infectious diseases such as cholera against the degraded food and sanitary conditions. The postwar social security administration started mainly from the implementation of the emergency measures. In 1946, the Daily Life Security Law was enacted, which led to the establishment of a public assistance system based on the three principles of the National responsibility, in discrimination and equality and of ensuring a minimum standard of living, but the system was still incomplete. Later based on the newly enacted Constitution of Japan, the establishment of basic laws and systems was promoted for implementing social security policies in each field.

In 1947, the Child Welfare Law was enacted, originated from the measures for war orphans and street children.Beyond such measures, however, the Law aimed at improving general welfare for children on the government's responsibility. In 1949, the Law for the Welfare of People with Physical Disabilities was enacted.The Law, originated from measures for war invalids, provided a system to implement measures for physically disabled people including the recovery of vocational abilities. Further in 1950, the Daily Life Security Law was revised to serve as the clear explanation to the provisions of Article 25 of the Constitution of Japan. In 1951, the Social Welfare Service Law was enacted as the basis for the development of Japan's postwar social security services.

Table 1-1-4. Changes in Japan's Social Security Systems

Changes in Japan's Social Security Systems

Changes in Japan's Social Security Systems

Changes in Japan's Social Security Systems

(Constitution of Japan and the recommendations made by the Advisory Council on Social Security)

Constitution of Japan, which ensures people's basic human rights and freedom, provided the basis for building Japan's postwar social security systems. Article 25 of the Constitution clearly states as follows. "All people shall have the right to maintain the minimum standards of wholesome and cultured living and in all spheres of life, the State shall use its endeavors for the promotion and extension of social welfare and security, and of public health." The Constitution thus clearly shows the basic idea of social security systems, and has been the legal basis for the postwar social security-related laws.

For the specific design of social security systems, the Advisory Council on Social Security established within the Prime Minister's Office made recommendations on social security systems (in 1950), which served as the basic guidelines. In the recommendations addressed to Prime Minister Yoshida of that time, the Council emphasized the following necessity: it was necessary for the government to promote social security at its own responsibility. At the same time, it was required for people to fulfill their roles for the maintenance and management of the systems based on the spirit of social solidarity and according to their abilities towards the establishment of social security systems.

In the United States and Europe, the "warfare state" policies were denied after the end of World War II, and the countries pursued the establishment of "welfare states" for economic growth, 100% employment, and improvement of welfare. Japan, referring to the movements in such countries, also began to search for a way towards a "welfare state" in the devastation immediately after the war.

(Establishment of the infrastructure for social security)

In this period, based on the Constitution of Japan, the government's responsibilities were made clear concerning the ensuring of people's right to live, social welfare, social security, and improvement of public health. At the same time, creation of social security systems and improvement of administrative structures were promoted under the strong instruction of the GHQ (General Headquarters of the Allied Powers). For example, the three principles of the aforementioned public assistance system were established according to the instruction of the GHQ.Besides in the fields of public health and social welfare administration, the government tried to introduce science and expertise to the fields. For example, it established a health center system comprised of health experts including doctors and public health nurses, and a system of welfare offices comprised of welfare experts such as social welfare secretaries.

The keywords of this period are "relief for the needy," and "establishment of the infrastructure." Especially for the measures to give support to the needy, the public assistance system played an important role. In 1950, 46% of the Ministry of Health and Welfare's budget was appropriated for public assistance. At that time, the system supported the lives of 2.5% of Japanese people (2 million people, or one out of 40).

(2) Universal medical insurance and pension programs and development of social security systems(from 1955 to the oil crisis)

(High economic growth and social security)

Japan's economy began to show signs of recovery around 1950, and from the start of a big boom in 1955, Japan's economy entered into a stage of full economic growth. In accordance with the rapid growth, the living standard of Japanese people also improved. For about 20 years before 1974, when the economic growth turned into minus for the first time after World War II, Japan rapidly achieved high economic growth at a real economic growth rate of 9.2% on an annual average. In the Economic White Paper announced in 1956, it was declared that Japan was no longer in the postwar period. Only after 12 years from that, Japan's GNP was ranked as No. 2 among the liberal countries and Japan began to be generally called an "economic power."

In line with such economic growth, Japan followed the path to a "welfare state" just like the United States and European countries, setting the promotion of national welfare as an important goal. In October 1956, the Ministry of Health and Welfare published its first Annual Report on Health and Welfare. The Report has been published every year since then to give information about the present situation and tasks of the health and welfare administration widely to the citizens.

The high economic growth played an important role in the improvement of the living standard through the increase of income. As goals in people's daily lives, "three important devices (television, refrigerator, and electric washing machine)" were popularized in the decade from 1955 to 1964 and "three C's (color television, car and cooler)" in the decade from 1965 to 1974.Rapid diffusion of these products is a typical example of an improvement in the living standard.On the other hand, however, the economic growth greatly changed Japan's society and created new social security needs. There were a lot of issues to be dealt with including the following.Shift in the industrial structure (from agriculture, forestry and fishery to the manufacturing industry, and from light industry to heavy and chemical industries). Overpopulation and depopulation caused by a large flow of people from rural areas to the metropolitan areas; lack of doctors in certain villages and districts; low income earners; pollution and destruction of nature; and lack of social capitals (waterworks, sewage/waste disposal facilities, etc.).

In 1970, when the Japan World Exposition was held in Osaka, the aging rate exceeded 7% and Japan began to be classified as an aging society according to the definition by the United Nations.In 1972, a novel written by Sawako Ariyoshi sold as many as 1.4 million copies in six months. This best-selling novel revealed the actual situation concerning senile dementia and described the pains of a family who had to take care of an old person. The care of the elderly began to attract social attention.

Thanks to the high economic growth from 1955 to 1964, people's living standard was improved. Accordingly, it became more important to implement the measures to prevent general citizens from falling into poverty due to illness or oldness, in addition to the measures to give assistance to the poor and to persons needing support.In the middle of the decade, to cover all the citizens, medical care insurance and pension programs were introduced targeting self-employed people and agricultural workers, who had not been covered by medical or pension insurance. By the introduction, the focus of Japan's social security systems was changed from livelihood protection to social insurance, by which the insured prepared for oldness and the risks of illness by paying premiums.

The keywords of this period are "universal medical care insurance and pension programs" first of all; and "prevention of poverty" for the first half of the period (before 1960) and "diversified improvements in benefits" for the second half of the period.

(Implementation of universal medical care insurance and pension programs)

Among the developments of social security systems during this period, the most noteworthy is the implementation of "universal medical care insurance and pension programs." For the backgrounds, there were more and more demands for the establishment of social security systems covering all the citizens in the recovery of the economic society from the postwar confusion.

For the medical insurance system, about 30 million people, who accounted for one third of the total population, were not covered by medical insurance in the beginning of the decade from 1955. They were mainly agricultural workers, self-employed people, and employees of very small companies. These people tended to need public assistance when their income decreased or medical costs increased because of illness or injury.To deal with this serious social problem and to provide medical insurance to such people, the new National Health Insurance Law was enacted in 1958. The Law obligated self-employed people, agricultural workers, etc.who were not covered by employee's insurance to be covered by the national health insurance, which led to the establishment of universal medical care insurance. For the enforcement of the Law, preparations were made based on a four-year plan, and national health insurance services were started in municipalities throughout the country in April 1961.

For the pension system, those people who were not covered by the employees' pension system began to feel uneasy about their old age in the greatly changing circumstances and strongly demanded the improvement of the pension system. After the end of World War II, the feudalistic family and inheritance systems were reformed, and there were great changes in people's ideas about supporting their families. In response to such demands, discussions were started around 1955 about the pension system that would cover all the citizens and ensure income in their old age. In 1959, the National Pension Law was enacted, which led to the establishment of the universal pension system that ensured income for all the citizens. The Law was enforced on a full scale in April 1961.

As a result of the establishment of universal medical care insurance and pension systems in 1961, every citizen was covered by some medical insurance and pension programs that ensured the payment of medical costs and of pensions for the old age. The universal medical care insurance and pension systems have been forming the basis of Japan's social security systems up to present. It is extremely significant that the central systems for the maintenance of national health and stabilization of the old age were established in this period.

(Diversified improvements in benefits and the "first year of welfare")

The level of consumption was raised in people's living in the process of high economic growth. There were, however, problems to be solved including the lack of social capital related to the living environment; pollution; and the low social security level. To deal with such problems, the social security systems were improved including the implementation of the countermeasures against pollution and the improvement of the living environment. Specifically, the limit on the medical treatment covered by medical insurance was removed, the payment rate was improved, and the pension level and the standard of assistance were raised. In every field of social security, there were improvements in the systems and in the payment of benefits. The financial resources for such improvements were generally sufficient, supported by the tax revenues increased in accordance with the economic growth or by the increasing social insurance premiums. Some of the social security systems, however, were facing financial difficulties. For a typical example, the government-managed health insurance system was in the red and was called "3 K's" with the Japanese National Railways and the rice control system. The government dealt with the deficit by implementing emergency measures such as the enactment of special laws and the prolongation of their enforcement periods. Finally, the government shelved the cumulative deficit as of the end of fiscal 1973, raised the insurance premium rates and fixed the government subsidy rates to stabilize the financial situation.

In the field of social welfare, the Welfare Law for the Elderly was enacted in 1963, which was called the first elderly-related law in the world, and major welfare- related legal systems were established. As a result, the social welfare system was based on "six welfare laws"(Note) and the welfare measures were successively expanded. Especially needs for nursery centers increased in accordance with the increase in the number of working women and with the orientation toward nuclear families. Improvements were urgently made to respond to the needs, mainly led by the local governments. In 1971 the Child Allowance Law was enacted, and Japan's social security systems were nearly completed.

In 1973, with the creation of the medical care expenditure provision system for the elderly, it became possible for people aged 70 or older to receive medical services free of charge. In addition, both the medical insurance and pension insurance systems were remarkably expanded. In the medical insurance system, the rate of medical costs to be paid for the independents of people covered by health insurance was raised and high-cost medical care benefits were introduced. In the pension insurance system, the benefit levels were greatly raised and a price/wage indexing system was introduced. As a result of such expansions and improvements, the year 1973 was called the "first year of welfare." Thanks to the price indexing system, the public pension system remained effective even in the inflation following the oil crisis that was provoked immediately after the introduction of the indexing system.

As a result of the aforementioned development of social security systems, the social security benefit expenditure increased from \389.3 billion (\4,400 per person) in fiscal 1955 to \11,769.3 billion (\105,100 per person) in fiscal 1975. The social security-related expenditure, which was included in the government's general expenditure, also rapidly increased during the period. The social security-related expenditure slightly exceeded \100 billion and accounted for about 10% of the national budget in fiscal 1955. In fiscal 1975, the expenditure reached \3928.2 billion and accounted for about 18.5% of the national budget. Starting from the "first year of welfare" in which the systems for medical insurance, pensions and the elderly were improved, the social security scale began to expand in accordance with the progress of aging. For example the number of pension recipients increased and the health expenditure for the elderly expanded.

The "six welfare laws" are as follows.

1. Public Assistance Law, 2. Child Welfare Law, 3. Law for the Welfare of People with Physical Disabilities, 4. Welfare Law for the Elderly, 5. Law for the Welfare of People with Mental Retardation, 6. Law for the Welfare of Fatherless Families and Widows

(3) Review of the systems (from the latter half of the 1970s to the 1980s)

(Oil crisis and review of the social security systems)

In the autumn of 1973, when remarkable improvements were made regarding the benefits paid under the medical insurance and pension systems, the oil crisis was provoked and urged the economic society depending on cheap oil to make great changes. The rapid rise of oil prices caused inflation called "frenzied price inflation," and the annual rate of increase in consumer prices recorded about 22% in fiscal 1974. The inflation pressed corporate profits and ended the high economic growth. In fiscal 1974, the real economic growth rate recorded minus (minus 0.2%) for the first time after World War II. On the other hand, in the social security systems, the benefit levels were greatly revised to respond to the inflation. For example in the medical insurance system, the benefit level was raised by 36% in the revision of the medical fee. Also in the public assistance system, the standard of assistance was raised by 20%. As a result the social security-related expenditure, which provided financial resources for the systems, rapidly increased.

While the demands for administrative services were expanding, the growth rate of tax revenues was slowed down because of economic depression. Economic measures were required to expand the domestic demands, which led to the great expansion of the fiscal spending. As a result, the government decided to issue the first deficit-covering bonds in the supplementary budget of fiscal 1975. Since then, however, the government deficit was increased and the government began to depend on the issuance of government bonds as the financial resources. In the budget of fiscal 1979, the rate of dependence on government bonds reached 40%, recording the highest. To correct such situation, the government set the "financial reconstruction" as a goal of its financial management. Since fiscal 1983, the government has been making efforts to achieve financial and administrative reforms including the formation of minus-based budgets.

In 1980, the second Ad-Hoc Committee on Administrative Reform was established for the careful examination of the administrative and financial reforms. Based on the report made by the Committee and on other reference materials, the government promoted the reduction and rationalization of spending. Besides concurrently with the review of the administrative structures and subsidiaries and the privatization of the three public corporations including the National Railway, the government decided to review the medical care expenditure provision system for the elderly and the medical insurance system.

The oil crisis exerted great influence also on other developed countries. Because of the crisis, the economic growth was slowed down, and unemployment increased. Besides the governments had to bear more social security burdens in accordance with the aging of population. The "welfare states" were endangered and both the United States and the countries in Europe began to review their social security systems and administrative and fiscal systems. The reviewing process, called "Thatcherism" in the United Kingdom and "Reaganomics" in the United States, didn't lead to the reduction of the entire social security expenditure. Instead, the growth of social security benefits was restrained and changes were made to some parts of the expenditure. This means that the countries revised their social security systems in harmony with the financial situations on the assumption that the systems should be maintained as the indispensable systems for the stabilization of national life. Also in Japan, the government made diversified changes to the social security systems as part of the administrative and financial reforms while making efforts to secure budgets for the payment of social security benefits.

In addition to the implementation of the countermeasures against the economic changes, the government had to respond to the advent of an aging society caused by the aging of population, and to provide social security systems to meet the needs of the aging society. There were serious problems to be solved including how to share the health expenditure for the elderly and how to manage the pension system in a stable manner.

In this period, as mentioned above, the government entirely reviewed the social security systems that had been expanding with the high economic growth for the following reasons. First, it was necessary to respond to the changes in the economic society: the growth rate slowed down and the economy shifted to stable growth.Second, Japan's financial situation was degraded and the government had to shift to fiscal retrenchment for financial reconstruction. Third, it was required to adapt the social security systems to the future aging society.

The keywords of this period are "appropriate social security costs and higher efficiency in their use," "fair benefits and burdens," and "fiscal adjustment."

(Creation of a health service system for the elderly, and sweeping reforms of the medical insurance and pension systems)

As a typical example of reforms carried out on the social security systems in this period, a health service system was created for the elderly, and the free medical services for the elderly were suspended. Medical services for the elderly were made free in 1973. As a result, the elderly began to go to hospital more often than necessary, which led to the rapid increase of health expenditures for the elderly. These expenditures imposed heavy burdens on the medical insurance programs including the national health insurance program. In 1982, the health service system for the elderly was created to tackle this problem by promoting the health of people aged 40 or older and by establishing a system for fairly sharing the health expenditures for the elderly.Specifically, to make the elderly aware of the importance of their health and to prevent them from receiving excessive medical services, it was decided that the old patients themselves would bear parts of the medical costs. At the same time, for the fair sharing of medical costs for the elderly by all the citizens, a new burden-sharing system was introduced. Under the system, not only the national government and local governments but also people insured under each of the medical insurance programs would make financial contributions to fund the medical expenses for the elderly. Thanks to the system, the financial burden imposed on the national health insurance program, in which the ratio of the elderly to the total number of the insured was relatively high, was remarkably mitigated.

In 1984, the Health Insurance Law was partly amended. Traditionally, the medical costs of employees were 100% covered by the health insurance programs for employees. The percentage, however, was changed and it was decided that the insured would pay 10% of the medical costs. Besides a medical care service program was newly introduced for retired employees to deal with the following problems. First, retired employees usually joined the national health insurance program after they retired, which led to the decline of the program's benefit level. Second, it was not rational that the participants of the national health insurance program had to bear the medical expenses of the retired. In the national health insurance program, the percentage of the medical expenditures to be defrayed from the national treasury was changed based on the following assumption. It was assumed that the introduction of the health service system for the elderly and of the medical care service program for retired employees would decrease the financial burden on the program.

In the pension system, a sweeping reform was carried out in 1985, to ensure basic pensions to all the citizens, to ensure fair benefits and burdens among different pension programs, and to stabilize the management of the pension system. Specifically, to improve the employee's pension programs divided among occupations, a basic pension system was introduced targeting all the citizens. The traditional employee's pensions were positioned as providing additional benefits on top of the basic pension. Besides to ensure fair benefits and burdens among different generations, the benefit levels of the employees' pension programs were reviewed. In addition, women's right to pensions was established and the disability basic pension system was introduced.

(4) Establishment of social security systems in response to the aging society with a decreasing birthrate(in the 1990s)

(Aging society with a decreasing birthrate and social security)

From around the 1980s, it became important to tackle the problem of the aging society. Japan is unique in that the aging progressed in a short term due to the rapid decrease of the birthrate and to the prolongation of the average life span and in that the level of aging at the peak is higher than the United States and Europe. It took indeed only 24 years for Japan's aging rate to be doubled from 7%, which was the lowest rate to be defined as an aging society, to 14%.(Note) In the estimate on population made in 1986, it was predicted that Japan would become a "super-aging society" with one out of four aged 65 or older in the first half of the 21st century. In the estimate made in 1997, however, it was predicted that one out of three would be aged 65 or older by around 2050. Rapid aging of the society and the downscaling of the family size made people worry about the long-term care of the elderly as the largest uneasiness in the old age. The number of old people to be cared is expected to increase throughout the country, from about 2 million (1993) to 2.8 million (2000), and to 3.9 million (2010).

For the years required for the percentage of people aged 65 or older to be doubled from 7% to 14%, it took 85 years in Sweden, 46 years in the United Kingdom, and 116 years in France. In Japan, however, it took only 24 years: from 7.1% in 1970 to 14.1% in 1994.

In addition to the countermeasures against the aging, it became important for the government to tackle the decreasing birthrate. In the 1990s, as demonstrated by the "1.57 shock," the number of children was clearly decreasing. The total fertility rate, which is a theoretical figure representing the number of children that a woman bears in her life, decreased to 1.57 in 1989, breaking the postwar lowest rate of 1.58 recorded in 1966.(Note) People were quite surprised by the rate, which was called "1.57 shock."

The total fertility had been declining since the middle of the 1970s, falling below two. In the future population estimates made before the 1990s, it was expected that the rate would be recovered to above two. Since around the "1.57 shock," however, it became clear that the decreasing tendency would continue, and people were showing more interests and concerns to the decreasing birthrate. The total fertility rate continued to decline and was as low as 1.39 in 1997. The number of people aged younger than 15 was exceeded by the number of people aged 65 or older, and it is about 15% of the total population as of 1998, recording the lowest percentage in the past. In the future population estimate made in January 1997, it was predicted that Japan's population would reach its peak in 2007 and then would begin to decrease. This means that Japan will become a society with decreasing population for the first time after the Meiji era.

While social security was occupying more weight in the national economy, the economy in the 1900s was clearly becoming sluggish after the collapse of the bubble economy. The average real economic growth rate from fiscal 1991 to fiscal 1998 was as low as 1.2%. In fiscal 1997, the rate turned into minus (-0.4%) for the first time in 23 years after fiscal 1974, which followed the oil crisis. The rate is also minus (-1.9%) for fiscal 1998. The growth rates have been remaining at low levels also for wages and corporate profits. Because of the severe economic situation, both employers and employees are paying more attention to the burdens they have to bear for the social security systems. The government is excessively dependent upon public bonds to cover the decrease of tax revenues and to implement a series of economic measures. The social security-related budgeting is also placed under a difficult situation.

On the other hand, it is predicted that new demands will be created for social security, including the need for long-term care that will increase in accordance with the progress of the aging society with a decreasing birthrate. It is important to stabilize the social security systems to properly respond to such needs. The stabilized social security systems will reduce or remove people's uneasiness about their future, and will lead to the expansion of consumption. Besides it is expected that new employment opportunities will be created in social security fields.

It is necessary to harmonize social security with national economy from a wide point of view taking into considerations the tendencies described above.

(New development of social security)

In the latest period up to present, there have been new developments in the social security fields. For the first specific example of such developments, there was a progress in the countermeasures against the problems related to the long-term care of the elderly.

To build happy and vivacious communities characterized with longevity and welfare in response to the advent of a fully aging society in the 21st century, the Ten-year Strategy to Promote Health Care and Welfare for the Elderly (Gold Plan) was made in December of 1989. The Golden Plan aimed at expanding the service infrastructure in the fields of health care and welfare for the elderly. Based on the Plan, it was decided to set the specific goals for the in-house welfare services and institutional services and to implement measures to attain the goals within the ten-year period from fiscal 1990 to fiscal 1999. In the middle of the period (in 1994), the Plan was reviewed including the resetting of the goals to higher levels, and the New Golden Plan has been implemented since fiscal 1995.

1966 was the year of "Hinoeuma," which is one of the zodiac signs. The superstition about the sign seemed to exert influence over the birthrate of the year.

Furthermore, to respond to the problem of long-term care that is the largest concern of people for their old age, plans for a new type of nursing system began to be examined around 1994. Such a system was required to support the care of the elderly needing such care by the entire society, to provide the elderly with comprehensive, user-oriented services, and to improve the service quality through the participation of multiple service suppliers. After examinations at the meetings of the Advisory Council and one-year deliberation at the Diet, the Long-term Care Insurance Law was enacted in December 1997.

The long-term care insurance system unifies into a single system the welfare programs and medical services for the elderly that have been provided separately. Under the system based on the social insurance mechanism, the users will be able to receive comprehensive care services according to their needs. As a long-term care insurance system on a full scale, Japan's system will be the second one following the system already implemented in Germany. Besides for Japan, the system will be the first new social security system created after the establishment of the national health insurance and national pension systems in the 1960s.

For the second specific example, in the field of social welfare, there have been improvements in the welfare system and planned developments in the infrastructure for the system. Such improvements have been made in response to the needs for welfare services that have been increasing or diversified in accordance with the aging of society and decrease of the birthrate. The review of the welfare system has been supported by new ideas promoted in the welfare field including the following. People began to accept the idea of normalization inspired by the International Year of Disabled Persons, etc. More people began to utilize welfare services and the service quality was improved accordingly. More importance was placed to in-house welfare services, and comprehensive services began to be provided for health, medical treatment and welfare. The welfare administration was promoted mainly led by local municipalities for the residents. The ideas of "user orientation" and "self-support" were accepted. Furthermore the government began to utilize the abilities of private entities.

In 1991, the eight welfare-related laws were revised including the Welfare Law for the Elderly. As a result, it was decided that the municipalities would take leadership in promoting the welfare administration, and that they would improve the infrastructure for health care and welfare services for the elderly according to the specific plans. Besides in the field of welfare for the elderly, the Golden Plan was made. In the field of welfare for children, the Angel Plan was made.Furthermore in the field of health care and welfare for people with disabilities, the Government Action Plan for Persons with Disabilities was made. The Plans set goals to improve the infrastructure while inputting the budget in a planned manner according to priorities. These three plans are long-term plans to be implemented over five to ten years. In addition to this common feature, they were all made jointly by the related ministries and agencies and they incorporate measures to be implemented by other related ministries and agencies.

Furthermore in the long-term care insurance system, services will be provided based on the contracts concluded between users and service providers, not through the traditional service provision system implemented by the government. (Traditionally, welfare services were provided as administrative measures, and the administrative organs determined whether a service was necessary or not, the service contents, and the service providers.) The new concept (user-oriented provision method giving options to users) has been materialized in the change of the admission method taken at nursing centers made by the revision of the Child Welfare Law in 1997 and in the planned structural reform of the social welfare infrastructure.

As the third specific example, structural reforms of the social security systems have been promoted since the latter half of the 1990s. In the degradation of the financial structure under the sluggish economy after the so-called collapse of the bubble economy, the social security benefit expenditure has been expanding by about \3 trillion every year and has exceeded \60 trillion. This is a serious problem to be solved, and structural reforms have been promoted targeting the entire social security systems to impose fair social security burdens on every citizen and to give proper responses to people's demands for social security in harmony with the national economy.(Refer to Section 1 of Chapter 4 for the details.)

(Development of the social security systems)

In the preceding paragraphs, we took a general view of the history of Japan's postwar social security systems.In short, until the first half of the 1970s, the focus of the systems was placed on "relief for the needy and prevention of poverty," and on "improvements in benefits" to attain the objective of catching up with the United States and Europe set in the design of such systems. Since the second half of the 1970s, to harmonize the systems with the changing economic society and with the national life, "fair benefits and burdens" and "establishment of long-range, stable systems" were pursued. The systems were adjusted and rebuilt in line with the reforms of medical and pension insurance systems, review of the social welfare system and with the creation of the long-term care insurance system. It can be said that efforts have been made for the new development of social security.

In the recommendations on the rebuilding of social security systems that the Advisory Council on Social Security made in July 1995, the Council evaluated that the developed social security systems had been playing a great role in the following three aspects. First, they contributed to the stability of people's living.Second, they narrowed the gap between the rich and the poor, and improved the living standard of the low- income class. Third, they contributed to Japan's stable economic growth.

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