On taxes, reform, the bureaucracy, and politics in Japan

The debate about hiking the consumption tax is in full force in Japan.  For many, the claimed necessity of increasing the tax shows the failure of politicians and bureaucrats to properly manage the nation’s business.  In fact, that is the correct way to look at the situation.  Unless, of course, you are a member of the unelected bureaucracy or the political class.

We ran across a recent article by Mainichi which gives a somewhat sympathetic view of the bureaucracy.

In the eyes of the general public, the stereotypical Finance Ministry bureaucrat is one of the nation’s most intelligent and elite, and a graduate of the University of Tokyo’s Faculty of Law. If this actually describes the majority of Finance Ministry officials, why is it that Japan has a national debt of 1,000 trillion yen?

This, of course, is one of the most valid questions that a Japanese taxpayer can ask.  To which the bureaucrats answer, “it’s not our fault.”

When it comes down to it, the framework is such that we can’t say ‘no’ to politicians. If we really revolted, we’d be fired,” said one Finance Ministry bureaucrat in his 40s. He recalled that during the rule of the Liberal Democratic Party (LDP), a legislator who came to file a budget request and was upset by the response threatened him, saying: “Are you trying to make me lose my Diet seat?!”

Well, the Japanese media is not littered with stories about bureaucrats being fired which can only mean, if this former (but unfired) bureaucrat is telling the truth, that these intelligent and elite public servants are being wasted as mere paper-shufflers for the revolving door politicians who do get fired from time to time, though, admittedly, for indiscreet comments more often than for poor performance.  Therefore, the responsibility for Japan miserable situation must fall on the politicians.

While the same Finance Ministry official explained that the debt-increasing mechanism has remained fundamentally unchanged under Democratic Party of Japan (DPJ) administrations, he added: “The LDP went through the motions of making budget requests even when it knew that the requests would not go through, for the sake of saving face in front of their supporters. But the DPJ’s argument is: ‘If you don’t approve our requests 100 percent, politics is not being led by politicians. The bureaucracy is getting in our way.’ It’s difficult to coordinate (a resolution).

Of course, the DPJ won power in 2009 expressly on the old Ozawa complaint that the bureaucracy held a death grip on the nation’s economy, an argument that resonated with the voting public.  So, there seems to be a problem determining which group is responsible for Japan’s chronic debt problems.

In fact, they both are.  The following article from 1996 tends to show that the problems facing the Japanese people have changed little over the past 15 years.

If there is one broad undercurrent to Japan’s campaign season, it is mistrust of government.

Even Japan’s once vaunted bureaucracy is under attack. It has endured a terrible streak of miscues, cover-ups and bad luck in the last several years and has made itself a target.

Among the criticisms heaped on the bureaucracy have been lax oversight at the Finance Ministry that permitted a savings and loan crisis, a cover-up at the Health and Welfare Ministry over HIV-tainted blood transfusions and a slow response to the deadly 1995 Kobe earthquake.

Of course, now, the problems are the safety concerns of radiation exposure, the welfare funding crisis, and the slow response to the Tohoku earthquake and tsunami.  The more things change the more they remain the same.

All the major political parties–including the Liberal Democratic Party, which leads the current government in a coalition–are running on platforms of reforming the bureaucracy by reducing the number of ministries and agencies.

The parties seem in basic agreement that Japan needs to deregulate its economy to stimulate growth and the way to do that is to loosen the bureaucracy’s grip on power. Much of the campaign has focused not on whether to shake up the bureaucracy but which party can best carry off so-called “administrative reform.”

As we pointed out, the DPJ won on using the same promises, proving only that nothing has been done in that regard for the past 15 years.

The puzzling part is that as hard as the parties have campaigned to reform and slash government, no one seems to believe they can accomplish it.

“Without a complete overhaul of the system these pledges are impossible to carry out,” the national Mainichi newspaper said.

What a prescient observation.  Nearly a generation of Japanese have grown to adulthood while their parents are allowing the government to have the same debate they had in 1996.  But while hasn’t changed, the economy and debt situations have, and for the worse.

Analysts say the skepticism is due mostly to the fact that everyone in Japan knows that the bureaucracy, which engineered the rise of Japan Inc., is more powerful than the parliament or the prime minister. That leads most experts to conclude that the bureaucracy won’t allow itself to be pushed around by the next parliament and prime minister.

An article in the national Asahi newspaper measuring the reaction of the bureaucracy to proposed reforms said members of one ministry quietly campaigned for candidates that were friendly to them.

As for opponents, one unnamed bureaucrat suggested that political leaders who attack the bureaucracy do so at their own risk: “If you pit yourself against a bureaucracy that has a tight grip on information and industries, you cannot carry out your job as a minister,” one bureaucrat was quoted as saying.

The simple truth is, politicians come and go.  Some are good, most are lousy.  For the most part, however, the public is able to rid itself of the bad politicians, if not from the legislature, at least from policy power positions.

When Hatoyama and Ozawa came to power in 2009, they were assailed in the media and by the US almost immediately.  And while the pubic complaint against this administration centered in the Futenma base relocation plan, the bureaucracy did its part to weaken the administration.

Akitaka Saiki, then director-general of the Foreign Ministry’s Asian and Oceanian Affairs Bureau, met with Assistant Secretary of State Kurt Campbell on Sept. 18, soon after Yukio Hatoyama created his first DPJ-led Cabinet.

Saiki was also quoted as saying that the DPJ government “felt the need to project an image of power and confidence by showing it had Japan’s powerful bureaucrats under control.”

Saiki called such efforts “stupid,” and said the DPJ “will learn,” according to the cable.

So…who wields the ultimate power in the Japanese government?  Suffice to say, Hatoyama and Ozawa have token power after their resignations and yet the bureaucrats who helped to undermine them continue in their “public service”.

Then there is another unfortunate practice specific to the bureaucracy which has been part of the debate about the power of the bureaucracy for years.  Event he great reformer Koizumi could do nothing about it, but not for lack of trying.

2002 – Prime Minister Junichiro Koizumi on Tuesday ordered his cabinet ministers to take steps to halt the so-called ”amakudari” practice of senior bureaucrats retiring early to join government-affiliated organizations as high-paid executives.

2011 -More than 4,200 retired and active bureaucrats found new posts at corporations with close links to government in the year after the Democratic Party of Japan took power, despite a DPJ election pledge to abolish the practice, it has been learned.

We all learned more about the practice after the Fukushima disaster when it was exposed that many people who worked in the nuclear regulatory agency and METI, which was responsible for overseeing the operation of the nuclear facility, moved on to jobs with TEPCO, the facility operator.

While the disaster at the Fukushima nuclear plant continues to rage, it was discovered on April 8 that Toru Ishida, former head of the resources agency under METI, quit the ministry last summer and was hired as a senior adviser to Tokyo Electric Power Co. in January.

Many ministry officials have taken highly paid postretirement jobs at utility firms, triggering public suspicion that the power industry is too cozy with the government.

This also shows the ruling Democratic Party of Japan was unable to root out such “amakudari” (“descent from heaven,” the practice of providing retired ministry officials with lucrative jobs in private firms and quasi-government entities, although the DPJ has been attempting to stop it.

And the practice may well have been the root cause of Japan’s asset bubble and ensuing policy of bank bailouts.

2001 – …the human relationship prevailing between the regulatory authorities and private
banks referred to as “amakudari” is a form of collusion between the regulator and banks
that endangers the safety net mechanism in Japan. Statistical analysis of data on regional
banks shows that those banks accepting post-retirement officials from the
Ministry of Finance have reduced capital adequacy levels and increased non-performing
loans.

Mainichi’s former bureaucrat speaks on this subject.

“The bureaucracy’s greatest tragedy is that it has completely lost the confidence of the public.” What does he mean by that?

It’s only natural for the public to turn away if the bureaucracy has a guilty conscience — in other words, ‘amakudari,’ or the cozy relations between bureaucrats and private industry (that allow retired senior bureaucrats to take comfortable positions at private and semi-private companies in industries they used to oversee as bureaucrats). The practice must be completely abolished. This is true not just of the Finance Ministry, but of all ministries and agencies.”

This bureaucrat said that he has witnessed “amakudari” of retiring bureaucrats from the time he was working at the Finance Ministry. He has also seen blatant “amakudari” taking place at other ministries. No matter how hard bureaucrats work for the nation and for its people, it’s no surprise that the public looks upon them with suspicion when such cozy ties are rampant, he explained.

“When they first enter ministries, I think all bureaucrats do so with high expectations for themselves. But when they repeatedly see senior officials retire and get high-ranking positions at private firms, they stop going out of their way to speak out against ‘amakudari.’ That’s why my view that all ‘amakudari’ should be banned is considered crazy among bureaucrats.”

Given the environment within the bureaucracy and the inherent powerlessness of the short-term politicians whose best chance to pass legislation is if their agenda coincides with that of the bureaucracy (and at that point, they are merely the bureaucracy’s puppet), one can only surmise that, as poor as Japan’s political class is, the unelected bureaucracy is the root of Japan’s economic problems.  Nothing changes for the better unless the bureaucracy is rebuked in all cases by the Japanese people.  Any revolt against Japan’s politicians is a waste of time and effort.  Unless the bureaucracy is forced to reform, Japan’s slide into irrelevancy will continue.

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