Wednesday, November 25, 2009

Japan's Subsidy Culture on Trial

For the past week the citizens of Japan have been the stunned witnesses of an unfamiliar phenomenon: a new regime addressing the excesses of its predecessor. In clockwork proceedings of subdued brutality, the grimly-named Government Revitalization Unit (GRU) has been reviewing the budgetary support of 447 programs, a fraction of the thicket of government supported programs that had proliferated over the fifty-four year rule of the Liberal Democratic Party (LDP). For those watching the live webcasts or the excerpts broadcast on nightly television, the proceedings have been the first solid evidence that the government is serious about bringing change to Japan. For the participants, particularly members of the elite central government bureaucracy, the proceedings have demonstrated their diminished horizons under Democratic Party of Japan (DPJ).

The GRU proceedings are decidedly humble-looking affairs. The sessions are being held in a commandeered Tokyo gymnasium, with the three GRU working groups separated by temporary partitions. The commissioners and those summoned to testify sit on simple chairs at folding tables set up in an O arrangement, while the press and observers sit in ranks of chairs set up alongside. Should anyone wish to talk, he or she has to pick up an old style handheld microphone from the table.

Each GRU session is an hour long. It is half venture capital investment conference, half Stalinist show trial. Bureaucrats in charge of a government budget allocation or executives from non-profits explain as fast as they can what a program is doing and why it deserves continued funding. Experts from the Finance Ministry offer their assessments of the history of the government's support of the program. GRU commissioners then pepper the program's defenders with questions -- what progress the program has made toward its stated goals, which the private sector competitors fulfill the same function – anything to pick apart the funding request. The program's defenders quietly plead for understanding and more time; the commissioners cut them off. Just before the hour ends, the commissioners vote and the session chair announces its decision.

The GRU judgments so far have been stunning in their consistent negativity. Of the 244 budget requests reviewed during the first five days, 243 have been rejected. "Reapply with a new proposal," "No budget increases," "Reduce budget request," "Cease activity" have been the responses. Just one program has received the GRU's stamp of approval: a Health, Welfare and Labour Ministry fund supporting theater productions in the nation's after-school activity centers.

The GRU sessions have given the citizens a sense of the immense scale of the activities the government of Japan has been funding. The GRU's ludicrously large task of examining 447 programs – a task it is halfway to completing – represents only a fraction of the 3000 programs and funds now receiving central government support. Thanks to the 243 negative assessments, some 1.4 trillion yen (about $15 billion U.S. dollars) will be returning to the Finance Ministry for redistribution in the regular budget.

While the sessions have resulted in the elimination of funding for possibly valuable science programs (the lost funding for the national supercomputer program looks more and more likely to be restored) they have for the most part demonstrated to the public what the public had long suspected: that an immense amount of their tax yen was going to waste on frivolous or hopeless projects.

The sessions have also exposed just how poorly the nation's bureaucrats perform when they are asked to explain themselves. The defense of the funding requests has been at times lackadaisical, at other times obtuse. Some of the defenders have even made the mistake of questioning the commissioners' right to run the sessions as they see fit – a stunning display of petulance for persons who are essentially begging for mercy.

The poor quality of the defense has been particularly surprising given the direct threat the decisions pose to many current and former bureaucrats. Sitting bureaucrats of the Finance Ministry have been willing collaborators with the GRU commissioners as the Ministry has an institutionalized loathing of these funds and subsidies. For the officials of other ministries, the reduction of the budget allocations under a ministry's purview threatens that ministry's prestige and power. The non-profit organizations and institutions that have been the primary recipients of these ministry-administered funding are furthermore the major suppliers of amakudari ("descent from heaven") positions – sinecures for bureaucrats whose services are no longer needed by their ministry. Eliminating the government funding effectively eliminates the sinecures: without subsidy, non-profits do not have the means of paying the retired bureaucrats. Loss of subsidy also kills their motivation: the main reason why non-profits would hire retired bureaucrats was because the retirees could attract the funding.

Given that the judgments of the GRU pose threats to livelihoods and lifetime earnings, the lack of intensity and sincerity in defense has been striking. Some of those testifying have even laughed along with the commissioners at the ridiculousness of the programs they have been sent to explain. For the public watching the proceedings over the Web and in nightly news excerpts, this indifference has been the most galling revelation: that not even those with a potential to personally profit from these allocations think them fully defensible.

The big winner in the process so far has been the DPJ. The party promised the voters in August that a DPJ victory would bring radical change. Through the GRU sessions, the DPJ seems to be delivering it. Whether it is the change the country needs is another question: cutting back on current government spending programs is an unorthodox way of addressing the problems of a deflation-wracked economy performing far below its productive potential. Nevertheless, the GRU proceedings have reinforced the DPJ's image as the party that cares about how tax revenues get spent. For a citizenry exhausted by the weight of decades of iniquitous government spending, the sight of members of the bureaucracy and their dependents squirming is satisfaction enough.

Image: The Tokyo Metropolitan Government Offices. Shinjuku, Tokyo Metropolitan District. November 1, 2008. Image credit: MTC


Anonymous said...

I think their move is brilliant, and not poor economics. They have taken a leaf out of the Republican playbook. Over-extend state spending (the R's do it through tax cuts and/or wars) then use this as a justification for cutting spending. The beauty of the DPJ is they're doing it for childcare. So individual consumers will make up the deficit in demand, rather than amakudari-saki driving Toyota Crowns. It is a joy to behold, so long as Fujii follows through.

rabuho said...

Just a note: the decisions made by the committee are not at all final. You're already seeing pushback from municipal and prefectural governments as well as from within the administration.

Still, though, the fact that the government is doing this review--in a public manner, no less--and intends to continue it next year is heartening. And ultimately, I think that Hatoyama and Fujii will strongarm everyone into going along with any cuts in order to meet their target for next year's budget.

Unknown said...

Although I think the overall process of examination of the budget is useful and stopping amakudari is nothing but a plus, my two fears are the lack of time to properly evaluate cases and that a 20% cut in funding is not going to lead to a 20% cut in bloated salaries - I fear the savings are going to come from cutting the useful work.

Joshua Zimmerman said...

Finally Japan is taking steps to stop their horrible spending addiction. Maybe the new government will start looking at all the pointless construction projects that flourish around Japan, and are mainly used to employ people in the countryside.

Jan Moren said...

Basically a sound idea, and well executed. But there needs to be a second review from a political and societal perspective too (the super computer project is one example). Lots of things may not be a fiscal net gain but still important to do for other reasons.

Joe said...

This is also really beginning to freak out local government organizations. I work at a municipal office, and for the past several years, every time I heard about new program proposals (whether from my department or not), I would ask my bosses where the funding would come from. They would invariably say, "We'll be getting a large chunk from the central government."