The Winding Road to Decentralization

Decentralization in the Early 2000s: Strengthened Local Autonomy

A series of decentralization reforms started in April 2000, at the end of Prime Minister Obuchi Keizō’s administration (1998–2000), and continued through September 2006, when Koizumi Jun’ichirō was nearing the end of his term in office (2001–6). These included the abolition of notorious “agency-delegated functions,” which required local governments to implement public policies decided by the central government, and the delegation of fiscal power to local governments by reducing general and specific grants and shifting tax-collection power from the central to the local government level.

Under the previous system of agency-delegated functions, local governments had to deliver centrally determined public services, such as social welfare, education, and public works, with no discretionary power. Moreover, the pre-2000 administrative system did not permit any local assembly to engage in the implementation of agency-delegated functions, despite the fact that local governments had to bear more than half of their implementation costs. This centralized administrative system came under fierce criticism from local political leaders and academics.

In the current system, which was newly introduced in 2000 by Obuchi Keizō, both central and local governments are legally of equal standing in the provision of public services. Local governments can also return responsibilities for certain public services to the central government in cases where they judge themselves unable to take them on.

Under Koizumi Jun’ichirō, drastic decentralization reform was delivered on the fiscal front. The central government transferred part of its fiscal authority to local governments, decentralizing its tax-collection power in exchange for reducing general and specific grants to local governments. Local authorities thus gained much more fiscal autonomy at the expense of the resources previously transferred from Tokyo.

It can be said that the reforms of the early 2000s enabled local governments to take the initiative in providing public services by strengthening their administrative and fiscal responsibilities.

The Late 2000s: Credit-claiming and Immobilism

Since September 2006, when Prime Minister Abe Shinzō formed his first government (2006–7), successive premiers and other political leaders at the central level have declared their commitment to the abolition of regional branch offices of central ministries and removal of restrictions on specific subsidies at the local level.

The reform packages promoted during this period included measures to do away with central government organs’ regional branches. The aim of this was to disperse the regional responsibilities of each ministry to the prefectures, and then to integrate regional staffs and budgets at the prefectural level. (The prefectures strongly opposed this, though, particularly in deliberations at a temporary council of the central ministries and local authorities in the Cabinet Secretariat—which would be formally established as a permanent council in April 2011.) Later, seven prefectures in the western Kansai region, including Osaka, Hyōgo, and Kyoto, created the Union of Kansai Governments in December 2010 to request that the central government devolve ministerial functions to the Union at the regional level.

Meanwhile, the organs of the central government have fiercely opposed these reforms. For the central ministries, both regional branches and specific grants and subsidies are important power resources allowing them to affect policy implementation at the local level. The ministries obtain local information and knowledge via their regional branches and influence policy through the allocation of grants and subsidies.

The nation’s political leaders have been placed in a dilemma, trapped between central bureaucrats’ antireform demands and prefectures’ proreform arguments. They have been reluctant to antagonize either side in further pursuit of decentralization reforms. Confronted with the “twisted Diet” since July 2007, in which the ruling parties control the House of Representatives but have lost the majority in the House of Councillors, central politicians have worked to please voters by claiming credit as reformist politicians on the one hand and carefully avoided any blame from prefectures and central bureaucrats on the other. Consequently, decentralization reform was somewhat adrift through the end of the decade.

However, at the beginning of 2010, a powerful political movement to reform the urban governing system suddenly emerged in Osaka. Maverick prefectural governor Hashimoto Tōru unveiled his proposal to create an Osaka Metropolitan Government. After winning in the local elections in Osaka, Hashimoto’s party successfully threatened both the ruling and opposition leaders at the central level, prodding them in August 2012 to pass an act allowing the creation of special wards in major city areas—similar to the 23 wards of central Tokyo—where municipal mayors and assembly members can be directly elected by the residents.

How can we concisely explain recent developments in Japan’s decentralization reforms throughout the first decade of the 2000s? One approach is to focus on the interaction between central and local politicians. Central political leaders failed to look beyond partisanship and make any surefooted moves, confronted with political instability. Among local political leaders, meanwhile, prefectural governors emerged for the first time as influential political actors affecting the recrafting of institutional relations between central and local governments. Finally, political leaders in urban areas like Osaka emerged to lead the debate on redesigning local government systems.

Pro-Decentralization Alliances Emerge

Let us turn our attention to the “demand side” of decentralization moves, the requirements of the local governments. In the late 1990s, globalization and rapid advances in information technology drastically altered the interests and policy preferences of domestic political actors, in turn causing political changes. In the politics of decentralization, both the local politicians and business figures of the time sought to abolish the system of agency-delegated functions—a cause supported in particular by six associations of regional leaders.(*1) Neither of these groups, however, supported decentralization steps to raise fiscal autonomy at the local level.

Local governments attempted to take advantage of increasingly vigorous economic activity by granting permission to companies to establish operations in their municipalities. However, in order to develop farmland into an industrial park, for example, a small town would need to submit a pile of documents to the upper-tier local government, the prefectural authorities, the regional branch of the Ministry of Agriculture, Forestry, and Fisheries, and, at last, the Ministry of Agriculture in Tokyo. In 1995, it took over one year to complete a full land-use permit for non-agricultural purposes, so local government often failed to capture sources of possible revenue and employment creation.

Not only local politicians but also business leaders were irritated at the highly centralized and complicated administrative system. Both groups found common cause in pursuing devolution and delivered strong requests to the LDP administrations of the time to transfer decision-making power from the central to local governments to enable swifter response to business demands.

As for the “supply side” of decentralization, the LDP had no other option but to deliver the demanded reform in the late 1990s. The party was kicked out of power in 1993 for the first time since its formation in 1955. It managed to retake power in 1994, but faced with a serious financial crisis and economic recession, the LDP government was preoccupied with worry that the opposition might successfully wrest away the reins of government more decisively. For the leaders of the Liberal Democrats, both local politicians and business leaders were vital supporters, and the party did not hesitate to abolish the agency-delegated functions.

Still, the LDP leaders were concerned about the resistance they were likely to encounter from central bureaucrats in the policymaking process if they attempted to win the favor of local political and business leaders. The Liberal Democrats carefully avoided reforms aimed at fiscal decentralization, implicitly promising not to curtail general and specific grants from the central to local governments.

Thus a balance was achieved between demand and supply in the politics of decentralization as the system of agency-delegated functions was abolished.

The Trinity Reforms in the Early 2000s

After forming a coalition government with the New Kōmeitō, the LDP successfully secured a majority in both houses of the Diet, achieving a certain level of stability. Koizumi Jun’ichirō became prime minister in April 2001. His administration soon embarked on a program of structural and economic reforms “without sanctuaries” to reconstruct national finances, backed by the solid legislative backing he enjoyed.

The fiscal decentralization reforms under Koizumi were called the “Trinity Reforms.” First, the local allocation tax grant, an unconditional, lump-sum grant to local governments, was curtailed through simplification of the complicated formulae biased in favor of rural areas. Second, specific grants and subsidies, under a strict control of spending ministries, were drastically curtailed. Finally, revenue-collection power for some key national tax items was transferred from the central to the local level to compensate for the loss of fiscal resources transferred to local governments.

On the demand side of the decentralization reform, prefectural governors preferred expansion of their discretionary power vis-à-vis the central ministries. The National Association of Governors had become a significant political force that was able to affect policymaking in the capital by electing its chairperson by a majority vote of the nation’s 47 governors, thereby aligning prefectural interests.

On the supply side, the Koizumi government worked assiduously to curtail the transfer of resources to local governments on the one hand while carefully avoiding the central ministries’ resistance on the other. Prime Minister Koizumi and other political leaders in and outside the cabinet delegated to local government representatives the right to draft decisions on which specific grants and subsidies should be curtailed and which tax authority should be transferred from the center to the localities.

The demand and supply sides thus meshed in the Trinity Reforms, which introduced a greater degree of separation into the intertwined relations between central and local governments. However, it is fair to argue that most municipal authorities groaned under the serious fiscal deficits that were worsened by Koizumi’s reforms. The first task of Abe Shinzō, Koizumi’s successor in the Kantei, was to relieve municipal governments from this fiscal pain—and he had to tackle this task in an atmosphere of political instability caused by successive national elections.

Wider Local Disparities

The abolition of agency-delegated functions brought many policy initiatives and responsibilities under the aegis of local governments, but the second of the Trinity Reforms slashed the grant money available to them. The more vulnerable these local bodies were to budgetary fluctuations, the more dissatisfied they became in the early 2000s with the results of the reforms.

Decentralization deepened the split between prefectures and municipalities. A survey conducted in 2001 showed that prefectural governors were satisfied with the abolition of agency-delegated functions because they had obtained discretionary power to implement public policy. On the contrary, municipal mayors faced heavier administrative and fiscal burdens that were no longer handled by the central ministries.(*2)

The Trinity Reforms brought about tensions between wealthy and poor areas. Even before the reforms there had been economic gaps among localities, but the reform widened the disparities, particularly among municipalities. In a 2007 survey of municipal mayors, 79.4% of the 806 respondents showed negative attitudes toward the reforms of the early 2000s.(*3) Mayors of the poorer municipalities in particular were dissatisfied with decentralization.

This dissatisfaction of many municipalities had a considerable impact on the demand side of the reforms. Municipal mayors, who were encountering more serious fiscal difficulties in providing public services, gradually emerged as the main actors in the decentralization debate.

Political Calculations from the Supply-side Perspective

On the supply side, meanwhile, the leaders of the ruling LDP were unable to ignore the mayors’ negative attitudes. The party relied heavily on assistance from local politicians for success in national elections, and the nation was entering an era in which these were to be held more and more frequently.

The defeat of the LDP-led coalition government in the upper house election in July 2007 made it almost impossible to pursue further administrative reorganization and decentralization. The Democratic Party of Japan and other opposition parties occupied a majority of the upper house, successfully thwarting the passage of government-sponsored bills. This was a “weakly twisted Diet,” in the sense that the LDP-led coalition held a two-thirds majority in the House of Representatives, enabling it to override House of Councillors decisions. But in such a situation, the government could not expect any bills, including those on decentralization, to pass the Diet swiftly or smoothly.

Coalition members found themselves in a situation where they had to appeal to local leaders and voters by showing proreformist attitudes, at the same time flattering the bureaucrats to achieve their policy goals in the “weakly twisted Diet.” They fully understood that regional branches of the ministries were unlikely to be abolished, due to fierce opposition from the central bureaucracy. Nevertheless, they sought to present a positive attitude toward decentralization to gain votes.

In September 2009 the DPJ wrested power away from the LDP and formed its coalition government, advocating “regional sovereignty”—here meaning radical decentralization moves like the abolition of regional branches of the central bureaucracy’s organs, curtailment of conditional grants and subsidies, and a transfer of national tax sources to the localities. Prime Minister Hatoyama Yukio made his first policy speech in October, dedicating approximately 5% of its total length to decentralization. The Local Sovereignty Strategy Council chaired by the prime minister unveiled a policy of raising local autonomy and reducing central commitments to local government, following the direction of Koizumi’s separationist Trinity Reforms.

Although the DPJ at first struck a pro-decentralization stance, the Hatoyama government reluctantly backed away from this policy direction with the House of Councillors election looming in July 2010. Next unveiled as the DPJ’s decentralization policy was the abolition of regional branches of central ministries, a step that the party knew was impossible to deliver soon but that appealed to the voters. With a worried eye on the upcoming election, the Democrats’ leaders chose to stick to the decentralization policy promoted by the three LDP-led governments in the 2006–9 post-Koizumi era.

In spite of this change of direction, the DPJ under Kan Naoto—who had become prime minister in June 2010—lost its upper house majority in the July contest. Unlike the post-Koizumi LDP administrations, the DPJ-led government did not enjoy a two-thirds majority in the lower house, meaning that the coalition could not override decisions made by the opposition-controlled House of Councillors. This was now a “strongly twisted Diet,” in which the parties of the ruling coalition parties could no longer effectively control the bicameral legislative process.

On the decentralization “supply side,” with the exception of a brief period during the 2009–10 Hatoyama administration, it has proven tremendously difficult for any government to pursue decentralization from 2007 onward. After Prime Minister Noda Yoshihiko took office in September 2011, his first policy speech focused on the reconstruction of Tōhoku after the March 11, 2011, disaster; decentralization policy was only mentioned in passing. What had been the number-one policy of the DPJ had been abandoned.

It can be concluded that to some extent, the direction of decentralization policy depends on whether national political leaders face political instability due to frequent elections and Diet power dynamics. In the late 2000s, such instability clearly fostered confusion and inconsistency in the supply-side leaders’ policy approaches.

The View from the Demand Side

On the local side, this era saw municipal governments in urban areas bogged down with heavy financial burdens. For example, in the city of Osaka, large inflows of commuters from surrounding areas caused the daytime population to balloon by a million people, raising the total expenditures of the city government. This has given rise to gaps between those who benefit from the city and those who shoulder the burden of paying for local public services.

Some local political leaders have argued for the drastic reorganization of urban government. The Osaka city mayoral and Osaka prefectural gubernatorial elections in November 2011 saw respective victories for Hashimoto Tōru and Matsui Ichirō, two champions of this reform. Once in office Mayor Hashimoto and Governor Matsui unveiled a scheme to create an Osaka Metropolitan Government—doing away with Osaka’s status as an ordinance-designated city and bringing about greater vertical integration of the city and prefecture of Osaka—to solve a raft of urban problems.

The victory by Hashimoto and his allies in local elections in the Osaka area represented a threat to the national leaders of major parties like the DPJ and LDP. The established parties were strongly concerned with the potential for lost seats around Osaka in the next general election.

On the demand side of decentralization politics, local leaders in urban areas succeeded in persuading politicians in Tokyo to submit the bill to create special districts in urban areas through referendum, as mentioned above. The pressure from the regions was sufficient to get the bill passed in August 2012 and enacted in the following month. This legislation was one sign that the political tide was running in favor of Hashimoto, boding well for his quest to create a metropolitan government in Osaka.

Changing the Direction of Decentralization Reform

The decentralization politics throughout the first decade of the 2000s show that the direction of reform depends on the political instability with which central political leaders are confronted, rather than their partisanship or ideology.

The LDP won a decisive victory in the December 2012 general election, forming a coalition government with the New Kōmeitō that enjoyed a two-thirds majority in the lower house—producing a weakly twisted Diet once more. If the Liberal Democrats under Abe Shinzō, who has taken office once again as prime minister, is victorious in the upper house election in August this year, they will have two years to pursue radical administrative reform, free from any national election pressures. Abe will be able to pursue decentralization if he wishes to do so. Whether he can successfully deliver on this, like Prime Minister Koizumi a decade ago, depends on whether he can present a clear reform blueprint.

On the demand side, mayors in urban areas have emerged as influential political actors. Whether they can make their preferences reflected in the policymaking on the supply side depends on whether they can pose a credible threat to the central political leaders with the authority to redesign the local government system. If local leaders gain more momentum in local elections, they may be able to wield enough influence to bring about this change.