Decentralization Reforms

Abstract

Strengthening the autonomy of local government had been an unfulfilled dream for years. When certain opposition parties entered the government in the middle of 1990s, an opportunity for such reform suddenly opened. This chapter describes how this reform plan was crystallized and executed.

1 Background of Reform

1.1 What Is Decentralization?

What exactly is the decentralization of power? In the abstract, it seems to mean empowering local governments to make policy decisions on their own initiative, but what this involves in practice is ambiguous. This abstract definition is silent regarding the resources and personnel needed to actually execute policies. Moreover, unlike in federalized states, where the roles of government are divided between the central government and subnational governments at the constitutional level, unitary states—including Japan—have not predetermined the allocation of such resources. Rather, it is not at all uncommon in unitary states for local governments to be akin to branch offices for implementing policies decided by the central government. A major characteristic of decentralization is that although it is a widely used term, it has not necessarily been given a clear definition.

In contemporary political science, it is common to divide decentralization into several components. For example, public administration scholar Soga Kengo, in discussing decentralization and local government, distinguishes two aspects: the scope of government activity and autonomy.¹ The scope of activity is determined by how resources (financial and human) are distributed to different levels of government, e.g., concentrated in the central government or dispersed among local governments. Autonomy is determined by how governments make decisions or how decision-making authority is allocated. This authority can either overlap between central and local governments, or it can be separated with each acting independently.

Many researchers agree that there is a distinction between political and administrative (de)centralization, on the one hand, and fiscal centralization and diffusion, on the other. It is also possible to divide this classification into three categories: policymaking authority, the distribution of personnel and authority in terms of administration, and the distribution of financial resources. Alternatively, when looking at developing countries, there are many cases in which the establishment of local governments is the first step to decentralization. Therefore, there are also scholars who, from an international comparative perspective, introduce the concept of political decentralization as distinct from administrative and fiscal decentralization, with political decentralization entailing a constitutional change in which political-administrative units at the sub-national level are given democratic legitimacy and autonomy.²

In the case of postwar Japan, although arguments have periodically appeared in favor of a “dō-shū” system, which would consolidate prefectures into larger “states,” political decentralization has never been the focus of debate. That said, with the Occupation reforms after World War II, Japan’s system of local government underwent major changes. The Constitution of Japan includes a chapter on “local self-government,” and provides for the public election of chief executive officers (governors and mayors) and assemblies. Until the Occupation, local government leaders had been selected by the central government. In other words, the new postwar institutional framework guaranteed local self-government, granting a degree of political autonomy to local governments and giving a political voice to local residents.

1.2 What Was Being Sought?

Despite, or perhaps because of the ambiguity that remains in the definition and substance of decentralization, calls for it have continued unabated in postwar Japan. The focus has been on two non-political features of decentralization, namely the administrative and the fiscal. The division of the Home Ministry (Naimushō) followed many twists and turns, but ultimately the Ministry of Home Affairs (Jichishō) was established in 1960 with jurisdiction over local self-government. On the one hand, the Ministry of Home Affairs represented the interests of local governments in the central government. In particular, in the fiscal realm, it worked to maintain and expand the local allocation tax system that began in 1954 to ensure that the central government had the authority to secure financial resources that local governments were free to use. Through councils and study groups such as the Local Government System Research Council (Chihō Seido Chōsa-kai), the Ministry of Home Affairs also played a major role in seeking solutions to the challenges faced by local governments.³

On the other hand, the Ministry of Home Affairs was also the supervisor of local governments. It habitually kept a close eye on the fiscal and administrative situations of local governments and provided constant guidance by seconding its personnel to many local governments. The Ministry of Home Affairs was positioned as a protector or guardian of local governments, supervising, as well as supporting them, on the axiomatic premise that they lacked the capacity to manage their own finances and administration autonomously.⁴

The national government’s involvement with local governments also involved other ministries, primarily in so-called agency-delegated functions (kikan-inin jimu) on the administrative side and subsidies (national treasury disbursements) on the financial side. Agency-delegated functions were administrative functions performed by the heads of local governments on behalf of the central government, such as passport issuance and river management. Because these functions are essentially administrative duties of the central government, they are not subject to the autonomous decision-making of local governments. But because the burden of carrying out these tasks needed to be borne by local government officials, they were strongly criticized as constraining local self-government. Ministries such as the Ministry of Construction (now the Ministry of Land, Infrastructure, Transport and Tourism) and the Ministry of Agriculture, Forestry and Fisheries distributed subsidies to local governments that met the qualifications for various operational programs. Although the subsidies became part of local financial resources, there was still strong criticism that the arrangement violated the goal of local self-government, since localities had no say over these programs.

Fundamentally, the theoretical goal of decentralization in postwar Japan was to curtail these administrative-fiscal engagements and to expand the scope of policies that could be controlled autonomously by local governments. The new Constitution and the Local Autonomy Act certainly achieved political decentralization. However, there was an underlying recognition that the extent to which this political autonomy could actually be used was limited by the comprehensive involvement of the Ministry of Home Affairs and the control of other ministries and agencies.

1.3 Recognized Challenges

Even though local self-government is institutionally guaranteed by the Constitution, it was widely recognized that self-government was limited to political autonomy in publicly electing chief executives and councils, while control over administration and finance remained under the influence of the central government. There were regular reports that, because urban planning was funded by subsidies from the central government, the scenery was always similar no matter which train station or area you went to, or that it took multiple rounds of negotiations to receive a permit by the Ministry of Transport to move a bus stop 100 m. These stories often appeared in the discourse advocating decentralization up to the early 1990s. Even though the message that it was now the “Era of Localities” had been put forth repeatedly since the late 1970s, after the end of high-speed economic growth and catch-up modernization, there was a widely shared perception that the central government was severely restricting the originality and creativity of local governments.

While advocating the same idea in principle, there are notable differences in the substance of decentralization between Japan and other developed countries. In the United States, where a federal system was adopted and the states exist as constitutional entities, there has been emphasis on the high degree of guaranteed local autonomy, and local governments possess the right to establish charters (legislation that is akin to a constitution in defining the basic structure and powers of a local government). In Britain, the proposition of the nineteenth-century thinker John Stuart Mill that “Power may be localized, but knowledge, to be most useful, must be centralized,” and the discourse that the United Kingdom is “modern” in its emphasis on local autonomy, has been common since the 1960s. Many researchers have analyzed new town planning in the U.K., as well as urban planning in Germany, as attempts to ensure a comfortable living environment for local residents based on autonomous policy decisions.⁵ It is worth noting also the longstanding modernist schema that Japan, with its insufficient decentralization, was lagging behind the West.

During the period when decentralization reform was being undertaken, the idea was backed by statements from former local executives (prefectural governors and municipal mayors) who had become national politicians. For example, among the LDP (Liberal Democratic Party) Diet members elected in the 1980 general election—towards the last hurrah of the 1955 system of LDP dominance—14 had experience as governors or mayors.⁶ However, it was not until the early 1990s that former local executives began to advocate decentralization based on their experience. Many of them belonged to political parties other than the LDP. Political scientist Saitō Jun points out that decentralization reform “became one of the driving forces in uniting the non-LDP camp” during the change of government in 1993.⁷ Although there were many LDP members who had been local politicians and it was not the case that no politicians in the LDP advocated decentralization, it is clear that this issue was recognized as a policy priority that symbolized the downside and the deadlock of long-term LDP dominance under the 1955 system.

A leading example is Hosokawa Morihiro, who re-entered national politics after serving as governor of Kumamoto prefecture and served as prime minister in the non-LDP government that came to power in 1993. At the end of his tenure as governor, Hosokawa published “The Logic of Locality,” co-authored with Iwakuni Tetsundo, a former senior vice president of Merrill Lynch who had become mayor of Izumo City in Shimane. In it they harshly criticized the concentration of power in Tokyo and local control by the national government bureaucracy as outdated and stressed the need for decentralization.⁸ Hosokawa’s advocacy remained consistent even after his return to national politics in the House of Councillors elections of 1992. Takemura Masayoshi, who left the LDP in 1993 to form the New Party Sakigake and served as chief cabinet secretary in Hosokawa’s cabinet, had also served as a reformist governor of Shiga after a career as a Ministry of Home Affairs bureaucrat. Politicians such as Hosokawa, Takemura, and Iwakuni were catalysts in bringing decentralization to the public’s attention and making it a major issue in national politics.

2 A New Rationale

2.1 Increased Attention on Responsiveness

Modernist perspectives emphasizing the significance of decentralization emerged in a new guise in the 1990s, and provided a theoretical basis for detailed responses to the policy issues emerging with the arrival of Hosokawa and others. The Interim Report of the Committee for the Promotion of Decentralization, issued on March 29, 1996, shortly after Murayama Tomiichi was replaced by Hashimoto Ryūtarō as prime minister, conveyed the background and various reasons for promoting decentralization, such as: “institutional fatigue of the centralized administrative system,” “response to the changing international society,” “correction of the centralization of power in Tokyo,” “formation of richly individualized local communities,” and “response to the aging society and declining birthrate.” The report goes on to state that “the decentralized society we should aim for” requires “the expansion of local residents’ right to self-determination” and the establishment of “self-governing responsibility of local government organizations.”

Particularly noteworthy points are “institutional fatigue of the centralized administrative system” and “response to a changing international society.” Until the 1980s these factors were rarely cited to explain the significance of decentralization. For example, looking back on reports of the Local Government System Research Council, the main arguments for decentralization from the 1970s to the 1980s were that it would improve efficiency in response to growing administrative demands and that local autonomy should be increased to meet the public’s growing preference for diversity. By contrast, the Interim Report of the Committee for the Promotion of Decentralization states the following. It is a bit long but let me quote from it as follows.⁹

• 1. Institutional fatigue of the centralized administrative system

  The centralized administrative system that had been gradually formed since the Meiji Restoration was further strengthened under the wartime regime. Although the postwar reforms greatly changed this prewar system, they did not completely sweep away the centralized administrative system, as seen in the continuation and expansion of the agency-delegated functions system (kikan-inin jimu seido). Amidst the subsequent development and expansion of administrative activities during the high-growth period, new forms of centralization were accumulated, as seen in the increased density of administrative guidance (tsūtatsu gyōsei) and the expansion of the administration of subsidies (hojokin gyōsei).

  This centralized administrative system since the Meiji period was adapted for the efficient utilization of concentrated, limited resources through focused allocation among sectors and regions. It is undeniable that this contributed to the rapid modernization and economic development of our country, which was still a latecomer at the time, and helped it catch up to the standards of advanced countries in a relatively short period of time.

  However, a centralized administrative system has maladies of its own. Namely, it restricts the autonomy of local communities for the sake of the unity of the nation-state, and it undermines the foundation on which local economies exist for the sake of the development of the national economy. The excessive concentration of power, finance, human capital, and information at the center plunders local resources and robs localities of their vitality. The emphasis on uniformity and fairness in national standards neglects the diversity of regional conditions, and promotes the decline of each region’s unique lifestyle and culture. This can be compared to an organism whose cranial nerves alone have become unusually swollen while other organs have atrophied.

  In this way, the centralized administrative system has both merits and demerits, but the international and domestic environments surrounding our country’s politics and administration are now rapidly changing. And as a result, today the centralized administrative system is no longer compatible with the circumstances and challenges of a new era, and its negative aspects have become more conspicuous. Put differently, we think that the old system has fallen into a kind of institutional fatigue and has lost its ability to respond appropriately to new situations and challenges…

• 2. Responding to a changing international community

  With the end of the Cold War, the framework of the international community has changed dramatically. Economic activities have rapidly become borderless, as cross-border exchanges have become extremely active not just at the government-to-government level but also at the levels of regions and civil society, and the search for a new international order for politics, economics, and society continues. In this international environment, the number of international coordination problems that must be shouldered by the national government is increasing dramatically across all administrative fields. Nevertheless, the response of national ministries and agencies to these kinds of international coordination problems does not appear to be sufficiently rapid or precise.

  At this juncture, in order to enhance the ability of national ministries and agencies to respond to international coordination problems that only the national government can handle, we should promote decentralization, and reduce the burdens associated with the intense involvement of national ministries and agencies in domestic issues, thereby making them more agile and simplifying and strengthening their roles.

Although the arguments raised in the Interim Report were very different from prevailing arguments for decentralization, they were not unusual during this period. Similar content can be seen in many official documents, such as the “Report on the Promotion of Decentralization” by the 24th Local Government System Research Council from November 22, 1994. The logic used in electoral and administrative reforms, which, while starting from each person’s self-determination and individuality, sought to strengthen the public sector’s ability to respond to the challenges of both the international and socioeconomic environments, appears here, but with the subject of individuality changed to the local community.

The keywords used in this instance were “global levels” and “international standards,” words that were frequently used in political reforms other than decentralization, as well as in various reforms in different socioeconomic spheres. Public administration scholar, Nishio Masaru, who became a theoretical pillar of decentralization and played a major role in realizing reform as a member of the Local Government System Research Council and the Committee for the Promotion of Decentralization, later wrote in the context of discussing the significance of decentralization:

If Japan’s administrative system is to approach the global level of advanced countries … the fusion between the national government and local governments must be greatly eased.

If Japan’s local government system is to be brought up to global standards comparable to those of advanced nations, it will be necessary to reduce the size of this revenue/expenditure gap and fiscal transfers.¹⁰

Nishio had in mind mainly administrative aspects in the case of the former and mainly fiscal relations in the case of the latter. In other words, the scope of the central government’s activities in cooperation with local governments was too broad, and the proportion of central government revenue transferred to local governments in the form of local subsidies and taxes, which then become local government expenditures, was too large. These ideas led directly to the concrete themes of decentralization, namely the abolition of agency-delegated functions and the transfer of financial resources from the central to local governments.

At the same time, however, there is no doubt that this idea was in line with the notion that the central government should concentrate as much as possible on responding to international challenges. To put the previously quoted “global standard” another way, using an expression popular in the 1990s, if a “normal country” is to make a contribution commensurate with its national strength to the formation and maintenance of international order, the capabilities and scope of activities of the central government must also be that of a “normal country,” and a central government should not devote too much administrative and fiscal capacity to cooperation with local governments. Instead, it is desirable for local governments to increase their autonomy and play a greater role in the socioeconomic lives of their residents through their own decisions and ingenuity.

Thus, the theory of reform until the 1980s espoused by liberal modernism in its arguments for decentralization became the leading idea for decentralization from the 1990s onward. It was also a process of localization of liberal modernism in this domain.

2.2 Different Ways of Thinking

Support for decentralization has long been strong among local politicians and experts on local governance, and seems to have become the prevailing view in academic circles as well. The argument for decentralization as part of the political reforms of the 1990s came to the fore when these traditional ideas were connected with the ideas guiding political reform as a whole. As we shall see later, it succeeded, and the movement to promote decentralization gained strength.

However, different ways of thinking existed among researchers. In contrast to the pro-decentralization theory that was premised on the idea that local self-government in postwar Japan effectively did not exist with the exception of political autonomy, alternative theories have argued that local governments did develop policies on their own initiative.

A typical example is the “horizontal political competition model” advocated by Muramatsu Michio, a scholar of public administration.¹¹ Muramatsu argues that the view of local self-government on which the argument for decentralization long relied is the “vertical administrative control model,” and criticizes it for overly stressing the relationship between central government ministries and local government administrative departments—the “administrative route”—by which local governments are made to accept policies. He then demonstrates, using various survey data, that the political autonomy of local governments—especially the fact that their chief executives are elected—does influence policymaking, and that, by means of the reciprocal cooperation between LDP Diet members and local conservative politicians, localities’ wishes influence the central government through the “political route.” In addition, he points out that local governments are in competition with their neighbors and other local governments of the same size, and do not merely acquiesce to the will of central government bureaucrats.

Consistent with this view was another argument made during the same period by political historian Amakawa Akira.¹² In his analysis of the formation of the local government system during the Allied Occupation, Amakawa points out that local self-government in postwar Japan was politically decentralized, with central and local governments elected completely separately, but administratively fused, with the central and local governments working together to develop policies. He also notes that political decentralization allows local governments with different agendas from the central government to take advantage of administrative-fiscal fusion to develop their own desired policies while utilizing the human and financial resources of the central government. This “decentralized and fused model” can be linked to Muramatsu’s model of horizontal political competition. In other words, neither financial dependence on the central government, which has traditionally been criticized as “thirty-percent autonomy” (because local taxes comprise only 30% of total local revenues), nor the acceptance of personnel seconded from the central government, necessarily means that local governments make policy decisions that are subordinate to the will of the central government. Rather, since 70% of all government expenditures are made by local governments, where the political will of executives and assemblies is reflected, local governments in Japan are exceptionally active for a unitary state.

The ideas of horizontal political competition and decentralization/fusion-type local government have had a significant impact on subsequent empirical studies of local government. For example, Inatsugu Hiroaki, a public administration scholar, showed that personnel transfers from the central government to local governments were not simply a consequence of control and subordination, but were based on the interests of local governments, as in cases where local governments lacked the homegrown talent to tackle new policy issues.¹³ Under this fusion-type administrative-fiscal relationship, local governments have succeeded in “putting profit before fame,” obtaining substantive benefits under the guise of subordination. Itō Shūichirō, another public administration scholar, empirically showed that when local governments enact ordinances, it is significant whether neighboring or similarly sized local governments have enacted similar ordinances. His analysis of policy spillovers showed the reality of horizontal competition, which is quite different from the conventional view that the central government’s control and involvement standardizes the policies of local governments.¹⁴ Furthermore, many studies in later years showed that the political or partisan positions of local government executives and assemblies are closely related to the prioritization of policies. Today these arguments are no longer a minority view.¹⁵

However, these new research trends may not have had much influence on the debate over decentralization. Of course, in the social sciences, newly proposed ideas are seldom accepted immediately, no matter how original or persuasive they may be. A more common path after a new argument is proposed is for research results based on it to accumulate and, in parallel, for existing phenomena to be reinterpreted, until it gradually becomes accepted by a large number of people. Additionally, even after becoming the new standard view in the academic world, it takes a long time to propagate outside of academia and among practitioners. In the case of decentralization, the ideas proposed by Muramatsu and Amakawa were still in the process of spreading within the academic community.

At the same time, it is clear that these views were difficult to reconcile with the conventional arguments for decentralization. If horizontal political competition is more significant than vertical administrative control, then Japan’s local governments, which already secured political autonomy through postwar reforms, would not need much more transfer of authority or financial resources. If, under a decentralized and fusion-type relationship, the close relationship with the central government in terms of administration and finance is instead a resource for local governments to develop their own policies, then it can be concluded that it would be beneficial to maintain and strengthen this relationship rather than transform it. In fact, among fiscal transfers from the central government, the local allocation tax, which does not specify the purpose for which money must be spent, was not necessarily poorly regarded by interested parties and experts. In sum, this conflict between conventional and new interpretations is likely one of the reasons why the views that emerged from the 1980s onward were not given much weight in the debate over decentralization.

3 Beyond Approving General Arguments and Opposing Specific Arguments

3.1 Penetrating the Heart of Government

The process of decentralization can be divided into first- and second-phase reforms, according to the Office for Decentralization Reform of the Cabinet Office.¹⁶ The first phase of reform refers to the process that began with the “Resolution on the Promotion of Local Decentralization” passed by both houses of the Diet in June 1993, followed by the following significant events: the final report of the Third Provisional Council for Administrative Reform in October of the same year, which focused on decentralization; the passage of the Act on Promotion of Decentralization in May 1995; the establishment of the Committee for the Promotion of Decentralization based on the law and the committee’s five recommendations; and the passage of the Omnibus Decentralization Act in July 1999. The Omnibus Act came into effect in April 2000, and the Committee for the Promotion of Decentralization was dissolved in July 2001.

The reforms leading up to the Omnibus Decentralization Act abolished the agency-delegated functions system, which had been regarded as a means by which the central government controlled local governments, and transferred other powers from the central government to prefectures and from prefectures to municipalities. In general, the intention of the reform was to weaken the centralization of administrative power. This reform can also be seen as an opportunity to reverse the consistent trend towards centralization that had continued since the abolition of feudal domains in 1871. It was an extremely significant change.

It is no coincidence that the Japan New Party led by Hosokawa Morihiro picked up seats in the House of Councillors elections the year before the resolution passed both houses of the Diet, and that Hosokawa himself became prime minister immediately after the resolution was adopted. As mentioned earlier, it was quite natural that the Hosokawa administration—with chief cabinet secretary Takemura Masayoshi and Construction Minister Igarashi Kōzō having experience as governor of Shiga prefecture and mayor of Asahikawa city, respectively—would strengthen interest in decentralization. Ishihara Nobuo, who had been the administrative deputy chief cabinet secretary since the LDP-led Miyazawa administration, was a former administrative vice minister for the Ministry of Home Affairs, and his interest in decentralization was also not insignificant. In a cabinet decision in February 1994 entitled “Measures to Promote Administrative Reform in the Future,” the Hosokawa administration called for the formulation of a “policy outline to reform the relationship between the national and local governments in order to promote decentralization” during the same year, and thereafter to immediately “aim for the enactment of a basic law on the promotion of decentralization.”¹⁷

In the past, the argument for strengthening the autonomy of local governments through decentralization had been made as a counter-discourse to (or criticism of) LDP politics. This was the case, for example, with progressive local governments such as the Tokyo Metropolitan Government under the administration of Minobe Ryōkichi. The decentralization movement therefore had little impact during the LDP’s single-party dominance, but with the advent of the Hosokawa administration, it quickly penetrated the heart of the policy process. At the same time, decentralization merged with reforms in other areas, such as electoral reform and administrative reform, connecting it with the ideals of liberal modernism. As noted above, the report of the 24th Local Government System Research Council in 1994 and the Interim Report of the Committee for the Promotion of Decentralization in 1996 used language similar to that of various reforms of the same period.

Furthermore, Takemura and Igarashi also served as minister of finance and chief cabinet secretary, respectively, in the Murayama Tomiichi administration, a coalition of the LDP, Socialist Party, and New Party Sakigake. Their policy request was accepted by the LDP with surprisingly little objection. According to the memoirs of Kan Naoto, who was then chairman of the Sakigake policy research council, Hashimoto Ryūtarō, then chairman of the LDP Policy Affairs Research Council, “immediately accepted” the abolition of agency-delegated tasks, which had been included in the government plan that Kan and Sekiyama Nobuyuki, then chairman of the Socialist Party policy review council, had drafted.¹⁸ When the Murayama administration was formed, the ruling parties’ policy agreement clearly stated the promotion of decentralization as an important pillar, and the prime minister’s policy speech also referred to a proposal for a “basic act on the promotion of decentralization.”¹⁹ Of course, institutional reform is not so easy that it can be achieved just by being mentioned in a coalition agreement or in the prime minister’s policy speech. However, the fact that the ruling party’s basic stance was established by these proposals was significant, and the subsequent resistance to the reform process was limited to that coming from central government bureaucrats.

Considering that the Act on Promotion of Decentralization of 1995 was passed and the Committee for the Promotion of Decentralization was established under the Murayama administration, it is clear that decentralization was the policy issue that saw the most significant and decisive progress in the early 1990s. It is fair to say that the members of the New Party Sakigake played a central role in this process. The LDP-Socialist-Sakigake coalition government was often criticized as an unholy alliance without principles, because the LDP and the Socialist Party, which had opposed each other under the 1955 system, joined forces as ruling parties. While some aspects of this criticism are undeniable, the coalition arrangement did oblige the LDP to accept some of the policy initiatives that non-LDP forces had previously emphasized. Decentralization was one such policy area.

3.2 Three Directions

Subsequently, reform was generally divided into three components. One was the merger of municipalities. As the decentralization of administrative functions proceeded, questions about the size and capacity of local governments, which would have to shoulder the weight, inevitably came to the fore. A policy of encouraging small local governments to merge had already been set forth in the 1995 revision of the Act on Special Provisions of the Merger of Municipalities, and major parties had begun advocating it in the late 1990s. However, real progress was made only with the ratification of the Omnibus Decentralization Act of 1999 and the three merger laws of 2004: the Act on Special Provisions of the Merger of Municipalities (New Merger Act), the Act Partially Revising the Act on Special Provisions of the Merger of Municipalities (the Revised Merger Special Measures Act), and the Act Partially Revising the Local Autonomy Act. These laws were notable for adopting various administrative measures that provided favorable treatment for, and mitigated the upheaval experienced by, local governments that undertook mergers, as well as for setting March 2005 as the deadline for receiving the most generous preferential treatment under the Revised Merger Special Measures Act. As a result, mergers proceeded rapidly, peaking around 2005.

The second component was fiscal separation. Just as local governments needed greater capacity to administer newly decentralized functions, such as through municipal mergers, it had long been argued that fiscal fusion had been a factor that restricted local autonomy. As such, the Committee for the Promotion of Decentralization also turned its attention to subsidy reform in the 1990s.

This concept had already been presented in the February 1999 report of the Economy Strategy Council, chaired by Higuchi Hirotarō, chairman of Asahi Breweries, with economist Takenaka Heizō and others participating. Obuchi Keizō was prime minister at the time, but his administration was unable to capitalize on the report directly, as Obuchi succumbed to sudden illness roughly a year later. An all-out effort had to wait until the Koizumi administration, which took office in 2001, when the Council on Economic and Fiscal Policy (CEFP) began to play a major role in determining macroeconomic policy.

Prime Minister Koizumi Jun-ichirō, who chaired the CEFP, and Takenaka Heizō, who managed it as the responsible minister of state, aimed to revitalize Japan’s economy through the promotion of structural reform and the downsizing of government. The reexamination of fiscal relations between the central government and local governments was part of this effort. Specifically, reforms to national subsidies, tax transfers, and the local allocation tax were undertaken from 2003 to 2005 as the so-called Trinity Reforms (Sanmi ittai kaikaku). Because changes to subsidies and tax transfers have long been stressed by those who have called for decentralization, and because of their large fiscal scale, some have called these particularly important reforms.²⁰ On the other hand, local governments have been dissatisfied with the fact that local allocation taxes were also curbed as part of reducing central government spending, and some economists point out that local debt reform has been inadequate.²¹

The third component is the further promotion of administrative decentralization. This movement began in April 2007 with the launch of the Decentralization Reform Promotion Committee, based on the Act on Promotion of Decentralization Reform ratified in December 2006. Public administration scholars, Itō Masatsugu and Soga Kengo, view this as the starting point for the second phase of decentralization.²² Subsequently, in December 2009, the DPJ-led cabinet of Hatoyama Yukio approved the “Plan for Promotion of Decentralization Reform,” and as a result, an Omnibus Decentralization Act has been enacted almost every year since April 2011. What is being promoted is the transfer of authority from the central government to the prefectures and from the prefectures to the municipalities, as well as the relaxation of various mandatory regulations by the central government. Since 2014, a “call for proposals” system has been adopted in which local governments propose specific details for administrative decentralization, such as the transfer of authority and deregulation, and some of these proposals have been implemented.

Although the reforms as a whole have been carried out over a long period of time, the decisive periods in which basic principles were established were the 1990s, when the first reforms were carried out, and the early 2000s at the beginning of the Koizumi administration, when the Trinity Reforms were implemented. The municipal mergers and post-2006 reforms are extensions of these two reforms. In the first reforms and the Trinity Reforms, a different philosophy was added to the classic argument for decentralization that had been repeatedly advocated until the 1980s. The philosophy, which generated a strong impulse for reform, was the recognition of “institutional fatigue of the centralized administrative system,” as was discussed earlier. While local autonomy had value in and of itself, the fact that the central government was expected to guide and carry out joint activities with local governments worsened Japan’s overall fiscal health and sapped resources for essential tasks relating to foreign and security policy, while also leading to the imposition of uniform policy programs that local governments did not necessarily want. This rationale had elements that could be applied to reforms in various areas. This is why almost all major political parties supported decentralization as an important policy issue in the 1990s.

3.3 Characteristics of Majority Formation

There were two major characteristics of how majority support for decentralization was formed. The first is the almost complete absence of actors opposed to decentralization in general. As we have already seen, many views existed on what decentralization referred to and what the main issues should be if reforms were to be promoted. The definition of decentralization was ambiguous, and it was argued that in postwar Japan, the will of local governments had already been realized to a considerable extent, not only in the political sphere but also in the administrative and fiscal spheres. However, for many actors involved who were not specialists in theories of local governance, the expansion of autonomy through decentralization was a fundamentally desirable policy direction. This is especially true of the Hosokawa and Murayama administrations, which played a major role in the first phase of reforms. Since the early 1980s, the specific details of reform had been developed by experts who considered the priorities of decentralization to be the relaxation of administrative control and the paring back of the fused fiscal relationship. In the terminology of political science, decentralization reform was a “valence issue” that had broad consensus.

In such instances, disagreement takes the form of opposition to individual items; opponents accept the general principle but oppose specific arguments. The forces that can do this are actors who, in simple terms, are intimately familiar with all the practical details, which in the case of decentralization can mean only central government bureaucrats or local government officials. Since there is little reason for local governments to oppose decentralization, it is the central government bureaucrats who will resist. In fact, the biggest challenge in advancing decentralization reform was how to suppress the resistance of national ministries and agencies in preparing the specifics of the reform, for instance in deliberations by the Committee for the Promotion of Decentralization.

In his later retrospective analysis, Nishio Masaru, who played a major role in the first round of reforms and municipal mergers, notes that the Committee for the Promotion of Decentralization continued to diligently conduct group hearings with ministries and agencies, and in drafting reform policies respected the “Kasumigaseki rules” the ministries and agencies had formed.²³ The main stage for reform was not Nagatachō, where the Diet and LDP headquarters are located, but Kasumigaseki, where the central government ministries and agencies are located.

The second characteristic is that the call for decentralization itself had, so to speak, become a common sense or routine argument. To realize large-scale reform, it was necessary to bring in a different philosophy and involve its proponents. While the academic views of experts had evolved since the 1980s, taken as a whole, calls for decentralization have existed almost continuously during the postwar period. One could argue that the idea of decentralization had been advocated for so long precisely because this advocacy alone was insufficient for reform. As Nishio Masaru clearly states, “Even before that time, local government stakeholders (local government officials, the Ministry of Home Affairs, the Local Government System Research Institute, and local government researchers) had been demanding decentralization, but their power alone could not influence politics. In the 1990s, however, forces promoting decentralization emerged from the political, business, and labor worlds, and these voices developed into a chorus of mixed voices that finally moved the political system.”²⁴

What was essential in enabling the “mixed chorus” promoting reform was the positioning of decentralization as a part of political reform. Viewed differently, this means that for the idea of political reform to become localized in the area of decentralization, it needed to be linked to existing arguments for decentralization. Let us again listen to Nishio’s view. Nishio cites the resolution by both houses of the Diet in 1993 to promote decentralization, the splintering of the LDP and the party’s general election loss (i.e., the formation of the non-LDP Hosokawa administration), and the acceptance of the final report of the Third Provisional Council for Administrative Reform by the Hosokawa administration as the direct starting points of the first decentralization reform. “If we place this within the flow of a slightly longer timespan,” he writes, “the first decentralization reform was a structural reform that first became possible as part of the confluence of administrative reforms that had continued from the 1980s and the stream of political reforms that were triggered by the Recruit scandal at the end of the 1980s and the string of subsequent scandals in the 1990s.”²⁵ “Political reform” here refers to electoral system reform.

A similar pattern can be seen in the Trinity Reforms under the Koizumi administration. On the one hand, expanding the discretionary financial resources of local governments is a traditional argument for decentralization, and Nishio places the Trinity Reforms in the “expanding degrees of freedom track” for local governments.²⁶ Kajiwara Hiromu, Kitagawa Masayasu, and other “fighting governors” who attracted attention during the reform process likely shared this perception. On the other hand, achieving greater local discretion required support for reduction of the role of the central government that Koizumi Jun-ichirō and Takenaka Heizō were pursuing, i.e., the argument for “small government.” In other words, by accepting the Council on Economic and Fiscal Policy as the main arena for policy reform and linking up with the “small government” theory, and by paying the price of a substantial reduction in local allocation tax, it had finally become possible to expand the fiscal freedom of local governments by reviewing subsidies and transferring tax revenue.²⁷ The “small government” theory of the Koizumi administration was easy to support not, for example, because it was bolstered by Takenaka’s personal commitment as an economist to the ideas of neoliberalism, but rather because it was an extension of the “institutional fatigue of the centralized administrative system” that had already become widely accepted since the 1990s.

4 What Happened?

4.1 Anticipated Consequences

Decentralization proceeded from the confluence of two streams: the traditional argument for decentralization, and the reform of the “centralized administrative system.” The latter refers not only to reduction of the means of administrative control and financial fusion that central government ministries and agencies imposed on local governments. It also meant dismantling the state of politics and public administration that had been perfected in the 1980s and which was protected by strong pro-status quo interests. One of the most notable examples of this was the overwhelming focus on particularistic politics under the LDP’s long-term dominance, where bureaucrats sometimes actively cooperated with one another in order to expand their own authority and budgets. This was undoubtedly an undertone of the political reforms that intensified in the 1990s.

The reforms were probably envisioned to have at least two consequences. One was greater autonomy for local governments in terms of administration and finance, and the other was a reduction of the involvement of central government ministries and agencies. The reduction of central ministries’ involvement in local government could be interpreted as a realization of “small government,” that is, as a reduction of the role of government overall, but in general, it actually reflects the idea that central government should devote its human and financial resources to tasks that only the central government can perform, such as foreign and security policy, or to macro-level issues facing the nation as a whole. This prioritization of responses to broad issues over individual issues may be construed as a prioritization of the “macro” over the “micro” more consistent with electoral and administrative reforms aimed at centralizing power within the national government.

In fact, the central government’s interference in, or guardianship over, the actions of local governments has been weakening. Public administration scholar, Kitamura Wataru, compared surveys of central government bureaucrats conducted in the mid-1970s and mid-1980s with the results of a similar survey conducted in 2001. He found that as time passed, central government ministries responsible for public finance (such as the Ministry of Finance), public works (such as the Ministry of Land, Infrastructure, Transport and Toursism), welfare (such as the Ministry of Health, Labor, and Welfare), and local administrations (such as the Ministry of Internal Affairs and Communications, formerly the Ministry of Home Affairs) all grew more favorable to the expansion of autonomous local sources of revenue. He also found that the frequency of contact with local governments decreased in ministries with jurisdiction over the dispensation of subsidies for public works and welfare.²⁸ If autonomous local sources of revenue expand, the room for involvement of the central government will naturally be reduced, and the frequency of contact will probably decline. At the end of the first phase of decentralization, central government ministries were already aware of the clear transformation of their relationships with local governments.

4.2 Capacity Issues for Local Governments

That said, there has not been enough consideration of how local governments behave and how their organizations and institutions live up to their increased autonomy, when the relationship between the central and local governments changes from “decentralized and fused” to “decentralized and separate” and the expansion in local autonomy in administrative and fiscal affairs is combined with preexisting institutionalized political autonomy. Since decentralization focused on the transfer of authority and financial resources to local governments, there was insufficient attention given to how local governments themselves should behave when they receive such transfers, and to alternative institutional frameworks outside of municipal mergers.

This problem typically manifests itself as an issue of local governments’ administrative capacity. In the case of large local government units such as prefectures and ordinance-designated cities (seirei-shitei toshi), recruitment for administrative staff is competitive, and it is relatively easy to secure personnel with high potential. Judging by the universities from which new hires have graduated, some of them appear comparable to bureaucrats at central government ministries and agencies. However, the smaller the municipalities are, the more difficult it becomes to secure personnel. Local governments are certainly trying to reform their human resource practices, but the results of these changes are still largely unknown. In the past, when the central government was heavily involved and local governments simply needed to follow instructions, the lack of capacity was less noticeable. However, this is no longer the case due to increases in administrative and fiscal autonomy. While there are some examples where reforms and policy changes are being made, there are cases where small municipalities have delegated policy analysis to outside consulting firms.²⁹

The political aspect of this issue cannot be ignored. Local governments have “presidential” systems of governance: Article 93, paragraph 2 of the Constitution stipulates that “the chief executive officers of all local public entities, the members of their assemblies, and such other local officials as may be determined by law shall be elected by direct popular vote within their several communities.” In a presidential system, the formation of a majority in the legislature is integral to the policy process, although there are some aspects that differ depending on the powers granted to the president.³⁰ This also applies to Japan’s local governments. However, Japanese local governments, especially municipalities other than ordinance-designated cities, have adopted at large multi-member district electoral systems, in which the entire municipality is comprised of a single electoral district from which all assembly members (from several to 50 or more) are elected. In this kind of electoral system, the legislature is often comprised of representatives from small parties or independents, so it is not easy for the mayor to form a majority. And since the share of the vote necessary to win election is low, individual assembly members tend to focus on activities that stress the distribution of benefits to their own supporters and not consider the municipality as a whole.³¹

If fiscal autonomy is increased without changing this type of institutional structure, there is a danger that the chief executive will take advantage of the assembly’s inability to coordinate against him and make arbitrary policy choices, or that excessive distribution of benefits to curry favor with the assembly will lead to profligate spending. From the perspective of voters, it is not uncommon for employed persons who are subject to tax withholding to pay more in local resident taxes than in national income taxes. However, while there is strong interest in the ways that national taxes are spent, and dissatisfaction with the ruling party can be expressed through elections and other means, the composition of local assemblies is difficult to change, making it difficult to monitor the use of local taxes, even when these are large amounts. Nevertheless, reform of the political system of local governments has not at all been considered in the process of decentralization.

4.3 Coordination Problems Between Central and Local Governments

It must be said that the relationship between the central government and local governments has become less seamless. Prior to the decentralization reforms, there were three main pathways between the two. The first was administrative, secured through the connection between central government bureaucrats and local government officials. The second was fiscal. It is undeniable that central government subsidies, along with personnel exchanges and the agency-delegated administration system, helped to make the administrative pathway effective. As already described in this chapter, these two routes had been criticized for fostering excessive involvement and control by the central government in local administrative and fiscal affairs. Finally, the third pathway was political, exemplified by the “keiretsu-style” relationships, whereby conservative lawmakers in local assemblies served as vote-gathering machines for LDP Diet members. These relationships have also served as a two-way channel, so that local interests are reflected in policymaking at the national level and the government’s policies are reflected at the local level.³² This is what is meant by the “pipeline to the center” often recited by conservative local politicians.

Decentralization has significantly weakened all three of these pathways. We have already touched on how the first phase of decentralization and the Trinity Reforms have weakened the administrative-fiscal fusion relationship, but the biggest impact on the political pathway has been electoral system reform in national politics and the merger of municipalities in the regions. Electoral reform centralized the LDP’s internal decision-making structure and increased the possibility of parties other than the LDP assuming power. In such cases, the “pipeline to the center” through keiretsu-style political relationships loses its meaning. Meanwhile, municipal mergers have led to a significant reduction in the total number of municipal assembly members able to join these keiretsu-type networks. In particular, the decline in the number of town and village assembly members has been exceedingly large: the total number has fallen from 37,703 at the end of 2003, just before the peak of municipal mergers, to 11,166 at the end of 2017. It is difficult to believe that this will allow traditional keiretsu-style relationships to be maintained.³³

That said, there has certainly been an increase in the number of local governments making policy decisions that differ from the central government’s, a phenomenon that has made coordination between the two sides more difficult. This trend seems to have been spurred on by an entrenched belief that decentralization is desirable. A number of policy issues in recent years have been particularly susceptible to local government opposition, such as problems with U.S. military bases in Okinawa Prefecture and the question of whether to restart nuclear power plants in various regions, making coordination between the central and local governments that much more difficult. Even in the area of public finance, the Trinity Reforms did not entirely solve the problem of local government funding, and some municipalities have called for an increase in the allocation of funds from consumption tax hikes in order to further increase autonomy. Since it will be difficult to reverse these trends, coordination problems between the central and local governments are likely to become an increasingly important issue in Japanese politics.

As a result of the first decentralization reforms, the Central and Local Government Dispute Management Council (Kuni-Chihō Keisō Shori Iinkai) now deals with cases where conflict arises between the central and local governments.³⁴ However, it is difficult to argue that it is functioning adequately. This may be because there are many areas in which the division of authority between the two levels of government is legally ambiguous or because the council is reluctant to examine issues. In 2019, the council recommended reconsideration of a new rule by the Ministry of Internal Affairs and Communications (MIC) that excluded Izumisano City, Osaka Prefecture, from the “hometown tax” (furusato nōzei) system. The response from MIC officials was that the council “worked like it was supposed to work for the first time.”³⁵ However, it remains to be seen how this will affect the relationship between the central government and local governments in the future.