Report on Japanese Deregulation

APEC Monitor, 9 November 1997

Contact: APEC Monitor NGO Network
Kokubunji Bld. 6F
1-7-14
Kokubunji, Kita-ku
Osakashi, 531, Hyogo, JAPAN
URL: http://www1.meshnet.or.jp/~apec-ngo
e-mail address:apec-ngo@mxa.meshnet.or.jp

The situations of Japanese Domestic Liberalization called as Deregulation and our position: Aiming for Empowerment of Japanese Civil Society

1. Administrative Reform
2. Financial Reform
3. Economic Deregulation
4. Labor Market Deregulation

I. Administrative Reform

Japanese administrative reform in the period of Post World War II is based around two major research commissions; the Provisional Administrative Research Commission, which was formed during the economic growth period (1961), and the Second Provisional Administrative Research Commission which was formed in 1981 based on the neo-liberalist movement of time. The Administrative Reform Commit tee formed in November 1996 is the third comprehensive attempt at administrative reform.

The chairman of the Administrative Reform Committee is Prime Minister Ryutaro Hashimoto, and it is he who is in charge of leading the reforms. The results of the administrative reform committee's hearings were released as an intern re port on September 3rd 1997. And, the final report is expected to be released sometime this November.

What is the goal of this administrative reform? According to the intern report , the goal of this administrative reform is to fundamentally overhaul the present overgrown post WWII administrative system, aiming to create a liberal, and fair society, by creating a more simplified, efficient, and transparent governmental administration.

Specifically this means, 1) a strengthening and drastic overhaul of the cabinet and secretariat functions; and to achieve administrative comprehensivity, strategically, and mobility, a reorganization of the central ministries according to their administrative goals. 2) thorough access to administrative information and accountability towards citizens, policy assessment function increases, and the realization of a more open administration. 3) a thorough division of bureaucrat and civil duties by vastly decreasing present responsibilities through the creation of an agencification system, thereby simplifying administration, and making it more efficient. 4) the report states that it is necessary to come up with suitable ideas for appointing, and promoting civil servants, as well as thinking about the way in which they retire. Also, a thorough carrying out of the abolishment and relaxation of regulations, entrusting to the private sector those duties which should be entrusted, and lessening the amount of influence that the national government has in local governmental affairs, are listed as the main premises for reform.

More specifically, 1) Increasing the authority of the Prime Minister (Increased power to the cabinet and secretariat and the establishment of a cabinet office, and a Management and Coordinating Agency, 2) Ministry reorganization, in other words, separation and reunification of ministries and agencies, privatization, and agencification, 3) reform of the national civil servant system. In the intern report, the direction of deregulation is very clear. In the past half century, the Japanese people's energy has heated up, emitting nothing but dazzlingly brilliant light which has brought about economic ‘prosperity’, yet at the same time, a large fiscal deficit, and regulations which extend to every corner of citizens lives, have left behind a huge social legacy of standardization and obstruction, an d casting a dark shadow on the countries future. So, in order to bring life t o society, a thorough abolishment and relaxation of regulations is necessary, along with the promotion of private sector application. With this type of recognition, the intern report states that decentralization is also an important form of deregulation. Freedom of Information and thorough accountability are listed as necessary for achieving a more transparent administration, but states that it is up to citizens and the market to check up on administration and it is for this reason that the application of the private sector is important.

In regards to (2), the reorganization of ministries, the intern report proposes that the present 22 ministries and agencies be reorganized into 1 office and 12 ministries. And, in order to carry out this reorganization, it will be necessary to reduce the amount of national administration, decentralization and other means must be considered, and with regards to the scope of national administrative duties, a distinction must be made between the planning and drafting of bills section, and the executive section. With regards to the latter section, as a principle the report states that this should be done by encouraging out-sourcing.

Ministry reorganization demands efficiency, and it is deemed as necessary in order to overcome the bad effects of vertically divided administration and citizens over-dependency on administration, however, in fact what will happen is that ministries with specific concessional powers will remain, while adjustment ministries will end up being dissolved. The intern report states that a horizontal adjustment system will be formed, but the ideology for ministry reorganization and the process in which the reorganization is to be carried out are not understood by the public, and in reality the bill appears to have been created by a tug of war with vested interests.

In terms of out-sourcing, it has been decided that independent administrative corporations will be the receivers of these responsibilities. In terms of those duties which can not immediately be made into independent administrative corporations, they are to be made into an extra-ministerial post for the time being, and then when the time is right, turned into independent administrative corporations. Presently, among the duties that the government must undertake, it is said that those that can be entrusted to private corporations should be entrusted, and those that the government should directly undertake should definitely be undertaken by the government. And, for those duties that lie in between, they are to be made into independent administrative corporations. With regards to the running of these newly founded agencies, it is stated that a shift must be made from advance management to an after check system, where government intervention is kept to the very minimum, and the skills of the private sector are utilized. The sectors that are to be made into independent administrative corporations have yet to be decided, but are to be listed in the final report to be released this November. Presently, those sectors are postal services, national forest and land management, printing and mintage.

With regards to the change of postal services to agency, presently an intense debate is taking place. With the reorganization of the central ministries, the Ministry of Posts and Communications is to disappear, but according to the intern report, it has yet to be decided whether or not to privatize the duties presently allocated to the ministry. Of the three duties (Postal Services, Postal Life Insurance and Postal Savings) presently allocated to the Ministry of Posts and Communications, the intern report states that postal services should remain under government control by becoming an extra-ministerial post under the Management and Co-ordination Agency (to be called the Postal Services Agency), while Postal Life Insurance should be privatized, and Postal Savings should be considered as a candidate for privatization.

However, at the end of October, Prime Minister Hashimoto stated that he wanted to make all three duties into independent administrative corporations while maintaining the employees status of national civil servants. This appears to be an attempt to reach a compromise between the Administrative Reform Committee which suggested only partial privatization, the Committee of Special Post Office Chiefs, a large vote gathering organization, and members of the Liberal Democratic Party who are in favour of keeping the services under national control. However, Koizumi Minister of Welfare has stated that he will resign if these duties are not privatized, which has created a lot of confusion.

If postal services are privatized or made into an independent administrative corporation, and profitability is considered when running these operations, it is thought that under-populated areas will be hardly hit. And, with regards to the privatization of postal savings and postal life insurance, it can be praised that the ties between the Ministry of Finance and a treasury investment and loan will be broken. But on the other hand, if they are made into independent administrative corporations, the body which takes control of these duties will come under question as a corporation that is not transparent, and on which citizens surveillance and participation are not guaranteed, that will leave the problem fundamentally unsolved.

Rather, what is really necessary is reform of the Ministry of Finance and investment and loan management policies, and not just the simple privatization of postal savings and postal insurance.

The type of administrative reform that we are hoping for is a system which is transparent and where the participation of citizens is guaranteed. In the intern report, the second specific recommendation states that, thorough access to administrative information and accountability towards citizens, policy assessment function increases, and the realization of a more open administration is necessary.

However, in reality, decentralization the key to achieving this has been discussed, but with regards to freedom of information, the intern report has yet to state its position.

To promote citizen participation, the Administrative Procedures Law was enacted in 1994. Also the Freedom of Information Law and a proposal on decentralization prepared by the Committee for the Promotion of Decentralization are to be introduced to the diet sometime this year. Compared to the Intern report, the Fourth Recommendation on Decentralization (Oct. 9th) has taken a step backwards. For example, the intern report states that 80% of duties should be entrusted to local government bodies.

But because of opposition from central bureaucrats, the recommendation states that 60% of duties should be delegated to local government authorities, leaving 40%, or double the original amount, of responsibilities to the national government.

Also, by not making third party organizations arbitrary and instead, making them into recommendation organizations it has the possibility of weakening the equal position which exists between the national government and local government bodies. The biggest problem is that in the forcible use procedures on lands for The U.S. Forces in Japan, procuration signatures and notice inspection duties have been put under direct national jurisdiction. Giving the national government the right to emergency decision claims and the acting authority of decision has left local governments no form of resistance. Also, there has been little transfer of powers, and in terms of transfers of tax revenue and subsidies, the direction of reform has been stated but there has been a lack of specific proposals. It is questionable whether or not the voice of citizens is being considered when decentralization talks are taking place.

Hashimoto Administrative Reform, like that of the Second Provisional Administrative Research Commission is thought to be based on neo-liberalist platform, however there is an opinion that it is not as clear as the Second Provisional Administrative Research Commission. The reason being that this time, administrative reform is taking place due to bureaucrat bashing. And this reform can be seen as a way to overcome the sectionalism which exists between ministerial bureaucrats. Also, former Commissioner General of the Economic Planning Agency, Hidemasa Tanaka described Japanese politics as being, a headless whale, criticizing the government for thinking about the shape of government without debating the direction in which they are heading, and questions exactly what type of Japan the present administrative reform is trying to achieve. This suggestion is said to be one of the biggest problems facing Hashimoto Administrative Reform. However in the intern report, it states that several problems exist because of regulation and privatization, and suggests that these problems will be solved by relaxing regulations and by carrying out privatization. Also, for example, the premises for the creation of a Ministry of Industry are that future industrial administration requires thorough market fundamentals, the elimination of individual intervention, the withdrawal from protective subsidy administration. The fact that this is clearly stated in the report shows that neo-liberalist ideals are at the base of this reform. The main focus of a reform which favours corporate citizens over private citizens is not going to reach the goal of a true citizens civil society.

II. Financial Reform

Present Japanese Economic Rebuilding and Reform began with the Second Provisional Administrative Reforms Committee which was set up in March 1981. In particular, Nakasone Administration which came to power in 1983, carried out financial reform under the slogan of financial rebuilding without tax increases. However, this slogan turned out to be nothing more than lip service, as a popular tax increase, in other words the introduction of a consumption tax, was beginning to be examined within the government. The features of this administrative reform include, 1) a thorough cut back on the official departments, and a reduction of the number of civil servants, 2) the introduction of private vitality, 3) the shifting of government debt to the citizens by increasing user fees for services.

These administrative reforms have continued up to present, with a brief convergence during the bubble era, after the popping of the bubble economy. The government embarked on a full-fledged structural reform policy which aims to pass the burden of debt caused by the mistaken policies of bureaucrats and politicians to the taxpaying citizens. At present, Japanese National debt has bulged to approximately 250 trillion yen, and combined with the debt accumulated by local government bodies, total financial debt amounts to just over 500 trillion yen. As a plan to repay these debts the government is promoting the three year period from 1997-2000, as an intensive reform period during which time it hopes to carry out administrative structural reform.

At present, in order to cut fiscal spending, the government is seeking to pass legislation to reduce public works spending by 7% and to cut Official Development Assistance spending by 10% by the year 2003. However, it is expected that these laws will face to impediments in the process of consideration by the interests of ministries and politicians supported by pressure groups and the pressure toward recovery of business condition. Furthermore, it is worried that unnecessary or wasteful big infrastructure projects of domestic public investment or ODA budget will continue to take place while the budget for Basic Human Needs will end up being cut.

Until now, fiscal reform has included, 1) the privatization of the national railways, 2) the privatization of the National Telecom, 3) the revision of the (medical) health insurance law, 4) unification of the public pension system and social security readjustment and reduction, 5) cuts in education spending in the form of reduced subsidies for private universities.

According to this, total national railways debt now amounts to 28 trillion yen, and is to be repayed by taxes, in other words the debt is to be shifted to taxpayers. Also, in terms of medical expenses, medical fees for the elderly which were free up until 1983, were increased in 1984 by an amendment to the health insurance act, requiring insurance holders to pay for 10% of the total cost of their medical fees. And since then, the personal burden for medical expenses has increased as a result of several rate increases. In order to raise an extra 30 trillion yen a year, the government is considering raising the personal burden of medical expenses for the elderly, fixed percentage fees and increasing the cost of health insurance premiums after the year 2000.

Also, a unification of pension plans is being carried out in order to make up for the large deficit of the prewar national railways pension by combining it with employee's pension plan, and the mutual aid pension plan. As well, to make up for the increase in the number of payouts, and the decrease in number of contributors, the minimum age for payouts has been increased to 65. Furthermore, the introduction of a consumption tax was decided by the forceful passing of the Six Bills Concerning Tax System Reform in December 1988. In order to lessen the taxpayers' pain, the tax increase was introduced in the form of an indirect tax. (Prime Minister Nakasone himself broke his promise pledged in the diet of not introducing any large indirect taxes by trying to introduce a sales tax, a type of consumption tax, and was forced to resign in 1987 because of the strong opposition from citizens of all levels of society.)

The rate of consumption tax which was originally only 3% was increased to 5% this past April. At the time of the increase, it was said that the increase was necessary to meet welfare budget goals, but in fact, because of a decrease in income tax, the welfare budget has been cut leaving many taxpayers with nothing more than a tax increase.

It is said that income tax and residence tax rates have been simplified and reduced, however these cuts are warmly received by the wealthy, but non beneficial for the poor classes. In terms of income tax, a system with 12 levels and the highest rate being 60%, was simplified to a system with only 5 levels with the highest rate reduced to 50%. For example, a person with 20 million yen income received a 500 thousand yen reduction in taxes, while a person with 50 million yen income received 1.9 million yen reduction in taxes; a shift to a tax system which clearly favours high income earners. Also, corporate taxes have been reduced from 42% to 40% in 1989 and then from 1990 on to 37.5% resulting in a yearly 1700 billion yen tax reduction.

On the other hand, the commodity tax which impose a tax on luxurious goods was abolished with the introduction of the consumption tax. However, this outward appearing tax reduction when closely examined actually only reduces the tax rate on luxury items such as diamonds and foreign cars from 20% to 3% while at the same time puts a 3% tax on products bought by all consumers such as food, clothing and medical expenses. In other words, the abolishment of the commodity tax clearly did not benefit all citizens to the same extent.

Also, a 20% comprehensive separate tax was applied on all bank deposit accounts, lowering the tax rate previously only applied on high sum deposit accounts, while at the same time adding a tax to the small amount of interest earned by low income earners on their savings accounts. As well, although the government can impose a total taxation on profits from sales of shares as capital gains, they only see 5% of total sales as a profit and impose comprehensive separate tax of 20% on that. And then, traders have no need to pay those tax if traders get loss. So, taxation on capital gains turned to be loophole tax system.

Although these change of tax system was done under the name of reform of ratio between direct and indirect tax, it is clear through these examples that the tax system has actually ended up being hurting low income earners and benefiting high income earners by becoming a very regressive and unfair system, allowing the rich to become richer and the poor to become poorer. Furthermore, another problem that has arisen is that electric, gas, and meal taxes which up until now have constituted local government bodies main tax base have now been unified under the consumption tax causing a shrinking of funds for local government bodies. As a result, the national government has had to help local governments make up for their lost revenue, by allocating tax money to in the form grants and subsidies, thus creating a much more centralized system, and threatening fiscal bankruptcy and the collapse of local government system. Also, one of the platforms of the present administrative reform act is to decentralize power by shifting national responsibilities to local government bodies, however, the problem of local government body fiscal funding has yet to be solved, as central bureaucrats are opposed to the idea.

III. Economic Deregulation

Economic deregulation in Japan has been undertaken by the Committee for Deregulation with demands from the United States for more open markets, and receiving influence from American deregulation and neo-conservative ideology while listening to the opinions of business world, some economists and bureaucrats.

The Japan-America Structural Impediments Initiative which started in 1989, changed from negotiations on the export of individual products to Japan, to include macro-economic policies. Later, with the transition to the Clinton Administration, the bilateral talks continued under the title of U.S.-Japan Framework Talks on Bilateral Trade. The goal of these talks is to reduce the current balance deficit between the US and Japan, by increasing US exports of goods to Japan, and as a negotiating strategy, the government tried to win over the support of the Japanese consumers. Among the over 200 category demands, regulations which control company actions, such as the strengthening of the Act Concerning Prohibition of Private Monopoly and Maintenance of Free Trade, holding companies, affiliation, and collusion were also included. And at the same time, they demanded the macro-economic target of an increase in public works spending (totaling 43 billion yen over ten years) and issues of the present discussion on deregulation like a change in the property tax system (Taxation on farm lands at the same tax rate on housing land in the urban area), revisions to the regulations on big-size retail shops, and a shrinking of the price gap between Japan and other countries.

Also, during the U.S.-Japan Framework Talks on Bilateral Trade, deregulation itself became a negotiating article, and from the end of 1997, the Japanese government has decided to continue to take into consideration the recommendations of the Committee on Deregulation.

Japanese Pro-deregulationists, while receiving support from abroad above, are pushing economic deregulations by force of circumstances of administrative and fiscal reforms caused by bureaucratic distrust and fiscal deficit. They say that advantages of deregulation include, 1) deregulation promotes competition, and competition amongst companies brings down prices, which then leads to an increase in real income, 2) at the same time, new firms are able to enter the market creating business opportunities, 3) and as a result, increased employment is realized.

However, over the short term, employment shrinks, and over the long term, a gap develops between those people who lost revenue as a result of having no employment during the short term, and those people who had continual employment. Unfortunately, with regards to this problem, there has been little or no debate, a lack of forecasting, and a lack of preventative measures being undertaken.

Deregulation policy is also an attempt to remain competitive with other developed nations, and measures such as corporate tax cuts, and the promotion of mergers (such as in the concrete industry, and the financial services industry) are also being pursued.

Extremist deregulationists go as far as saying that as a principle all regulations, including social regulations should be abolished. And by cutting away social regulations under the name of the principle of personal responsibility, they insist that social regulations should be kept to a minimum. However, on the other hand, it appears that some bureaucrats can't consider the thought of giving up control of some main industries and business. At the same time, the Ministry of Finance considering balancing the budget and neo-conservativists assists deregulationists and promotes inequality by a relaxation of the progressive income tax system, a decrease in the social welfare budget, and an increase in personal user fees.

Deregulation was introduced as one of political issues on reforms of our central government bureaucracy like Disclosure of Information, Reform of Special Administration Corporations, Decentralization of Power,and Reform of Central Ministries f Privatization. However, Disclosure of Information and Decentralization of Power were put on the back, and deregulation and privatization were given top priority, it can't be said that great importance is attached to the citizens sector as self conscious consumers. For example, a deposit system for encouraging the recycling has yet to be introduced because of strong opposition from business world, and Japanese mountains and oceans are covered in products imported from abroad and turned into garbage, also, Japan's PL Law puts the burden of proof on the consumers shoulders making it an on-consumer friendly act.

In this way, deregulation spurred on by foreign pressure and industry demands has made the consumers life much more unstable. Also, deregulation of freight truck weight standards, has meant that bridge repairs and other public works construction is needed resulting in an increased social burden.

Also, the governments stance towards the Framework Convention on Climate Change is another good index in order to judge the direction in which the government is heading. Earth benefits, or grass roots benefits can only be secured by the citizens sector, and from this point of view, citizens surveillance of bureaucrat regulations, and surveillance of corporate regulations is necessary in present day Japanese society.

Japanese bureaucrats have their own authority, and have a secured budget, and these powers and regulations are not transparent. As well, there are regulations, controls or directions promoting selfish interests for bureaucrats and business groups. From this point of view, we don't deny the necessity of carrying out reforms of regulated areas where there are adhesive structure which has developed because of the collusion between bureaucrat and business including special administrative corporations and private companies. With regards to this adhesive structure which have worked for the promotion of deregulation in Japan, it is necessary to regulate the practice of appointing of former officials to important posts in private companies.

We have a responsibility and a right to oversee the direction of society as the third sector or citizens sector, who demands and reforms companies as well as governments to realize both of Earth benefits and grass roots benefits.

Indeed, it may be necessary for application of market mechanisms when carrying out regulation reform. However, this doesn't mean that we abolish regulations, and leave every thing to the present company based business world of non-interference (laissez-faire) market mechanisms. Economic deregulations in the Japanese circumstances of weak social regulations to companies means that the pressure of competition can strengthen Keiretsu, special relationship between companies, and pyramid structures of companies and unequal and unfair master-servant relationship between companies among that pyramid structure further. Therefore, it is necessary that Japanese civil society establishes social systems to check the behavior of companies like regulations to mutual holding of shares between companies and expanding disclosure of information inside companies.

VI. Labor Market Deregulation

1. The content of the deregulation of the Labour Market.

The deregulation of employment and Labour area is specifically the reform of the Labour law system.

The items that have been examined or are being examined now are as follows:

1) Reform of the Manpower Dispatching Business Law: the dispatching business as a principle would be liberalized.

2) Reform of the Pay-for Employment Introduction Service : The liberalization of employment introduction service. With this reform, the government gave up its role of adjusting the Labour market. This law was put in to force in April 1997.

3)Reform of the Labour Standards Law

A) Abolishment of the article for protection of women: The abolishment of the regulation of after hours Labour, graveyard shift Labour, and holiday Labour was decided this June. The date that this law takes effect is April 1999.

B) The extension of employment contract period (this will be decided by the end of 1997): Under the present system, except for employment without any agreement on its period, employment contracts over one year are prohibited; however, this contract period is being reexamined now.

C) The increase in the scope of discretionary work: In the discretionary work system, the workers can distribute the Labour time on their own. In the present system, this is limited to 11 types of work. Now, the industrial world is insisting on the increase of this scope, such as to white collar workers.

D) Introduction of a Yearly Variational Working Hours System: An attempt to flexiblize the upper limit of working hours in order to ensure days off. In fact, this system has already been introduced in supermarkets etc.

2. What kind of Effects can be predicted?

From the side of employers, for example, they can reduce the number of full time employees, lower their Labour expenses, and simplify the employment adjustment process with the reform of the Dispatching Business Law. From the side of employees, for example, the discretionary work system is said to lead to longer working hours and Labour strengthening.

It is thought that deregulation will have a big effect especially to women.

There are pros and cons to the article for protection of women itself, and indeed, there are female workers who will obtain bigger chances with its abolition. However, the rate of part time female employees is rising, and 37.8% (White Paper on Labour 1997) and 70% of all part time workers are female. Since there is a large wage gap between men and women, the female workers who can be employed at lower wages than their male counterparts, are considered to be more beneficial to employers. It is predicted that when the article of protection for women and the conditional regulation of working hours are abolished, the shift to the graveyard shift of female workers and the increase in the number of female part-time employees will be promoted.

What is Labour de-regulation?

In 1985, the Manpower Dispatching Business Law was reformed and the article of protection for women was deregulated. These changes which became exceptions to the Labour market have led us to reconsider the Labour law system. This reconsideration indeed is what has been the target of deregulation in the area of industrial relations up to now. In the light of liberalization, a deregulation, in fact has been started already be the Nakasone Administration which carried out a privatization of national enterprises through Administrative Reform whereby the power of trade unions was reduced.

Labour deregulations aim at marketizing the Labour field and creating flexibility in the Labour market.

In other words, this is an attempt to abandon the so called Japanese employment system, often characterized by a lifetime commitment. Deregulation in the area of industrial relations, in a narrow sense, means a reform especially in a certain area of Labour law, for example the Labour Standards Law. This deregulation, however, goes beyond what is generally thought to be a range of deregulation, influencing industrial actions in various areas.

One of the objectives of deregulation is the creation of employment, of which the very consequence can be observed in such places such as New Zealand, and many European Nations, where liberalization of the Labour market was promoted, what has been brought about by this creation is an aggravation of Labour conditions, a widening of the gap between the rich and the poor, and a worsened life for the weak people in society.

The market has a rule and that is the concept of fair trade. The social security system, trade unions, and comprehensive law institutions concerning Labour are all systems that guarantee fair trade in the Labour market. So far, the Japanese system ensuring fair trade has said to be insufficient. The Management and Co-ordination Agency declares that we have now entered the age of Mega-competition, and it is now the time that a company chooses a country, (1997 White Paper on Deregulation) emphasizes the necessity of administrative reform and deregulation to cope with international reform and competition.

The government is engaging in a reform of the Labour law system as a part of the deregulation process in order to gain competitive power at an international level. Deregulation in the area of industrial relations, then, can be called a dumping war over Labour conditions; the objective being retainment of international competitive power.

The government maintains that deregulations should be meant for seikatsusha (citizens or consumers).

This seikatsusha in turn implies no one but labourers, in general. We should ask ourselves, who wishes the deregulation of Labour, who is the one to profit. Certainly, in a financial world, regulations on industrial relations are simply regulations and nothing more. However, from labourers point of view, it is a reward that he or she has won through the industrial conflict. The basic Labour right which has a quite different dimension from so-called vested rights, is threatened under the deregulation process.