The Challenges Ahead for Decentralization Reform

What Type of Decentralization Best Suits Japan?


There is a consensus that Japan will need to thoroughly reform its overly centralized system of government if it hopes to reduce its massive deficits. Sasaki Nobuo, a professor at Chūō University and advocate of a new system of regional blocks, describes several paths Japan could take toward decentralization.

Under the new government led by the Liberal Democratic Party, initiatives are underway to decentralize political power in Japan. The preceding administration led by the Democratic Party of Japan had likewise sought to break down the centralized system but failed to make much progress, due in part to the party’s reliance on the bureaucrats of government ministries. In December 2012, during the campaign for the House of Representatives election, both the LDP and its coalition partner, New Kōmeitō, publicly pledged to replace the current system of 47 prefectures with a new system of regional blocks (dōshūsei), but the issue did not become a cornerstone of debate during the campaign. Attention will be focused on how the country will be steered by the new prime minister, Abe Shinzō, who has advocated that system of regional blocks. This merits the closest attention because the task of moving Japan toward a decentralized state, with regional autonomy, is a matter of urgency.

Centralized Government

Japan’s public sector economy, consisting of general government expenditures at the national and regional level and social security funds, equates to roughly 30% of gross domestic product, with a huge chunk of those expenditures, around two-thirds, handled by local governments. This enormous level of administrative activity at the regional level is hardly seen anywhere else in the world, with the exception of Canada. Yet a closer look at Japan’s administrative structure reveals that the activities of the national and regional governments are entangled and there is no clear division of roles, which results in blurred responsibility.

Up to now, the relationship between the national government and regional governments fundamentally has involved the former handling the task of formulating policy for each field and the latter then implementing those policies under the direction of each ministry. Revenue obtained through national taxation is redistributed to localities through the local allocation tax and subsidies, thereby bolstering the financial resources of areas with poor revenue streams. This is the process through which policy implementation is regulated. Here we have the basic structure of government administration in Japan.

The economic growth that Japan enjoyed after World War II can be attributed in part to the strong leadership displayed under a centralized system of government that unified public services nationwide and secured a level of fairness for citizens. The aim for Japan in the twentieth century, as an agricultural nation seeking to industrialize, was to catch up to and overtake other countries in its pursuit of modernization. This meant that the country at the time was basically satisfied with public policies that placed a greater emphasis on equilibrium than on regional autonomy; there was a strong consensus in Japan that the fundamental role for government was to realize a “national minimum” across the country, with the government ensuring a certain minimum level of livelihood for its citizens.

However, in the twenty-first century, which is an age of “city-states” centered on tertiary industries, the thinking has shifted toward the view that each region should proactively offer a diverse range of public services that suits its own needs and follow its own unique approach to city planning. As a result, there have been calls for decentralization that would free the regional governments from restrictions from the national government and place the emphasis on the principle of autonomy, rather than on equilibrium. Decentralization reform was initiated in 2000 through amendments to the Local Autonomy Law, and there are also moves toward decentralizing tax administration.

Unlike the past, when Japan was simply aiming to catch up with and overtake the West, the task now is to forge a system of public policy that can give birth to a new type of nation oriented toward regional sovereignty. During the December election campaign, the main political parties pledged to move away from the system of centralized control and sweep away the overreliance on bureaucrats. There were also stirrings of regional political organizations, such as the Osaka Restoration Association, which advocates replacing the current Osaka city and prefectural governments with a broader Osaka metropolitan government, containing special wards (similar to the structure of Tokyo). This movement in Osaka to create a new administrative structure on their own is a powerful sign of the uprising aimed at forging greater regional sovereignty. This burst of energy has shaken Japan’s political world and seems likely to foster moves where regions break free of the centralized system.

Relationship Between the National Government and Local Governments

The move toward revising Japan’s administrative system is likely to gather strength in the future, but it is important that the debate regarding the exact direction be based on an understanding of the characteristics of the relationship up to now between the national government and local governments, including the strengths and weaknesses of each side.  

There are various academic ways of grasping the relationship between the national government and local governments, but government administrators themselves often employ a system of categorization in terms of centralization/integration.

As shown in Diagram 1, explanations can be based on classification along the two axes of centralization/decentralization and integration/separation, but the situation can also be grasped in terms of a centralized model leaning toward more government services provided by the national government and a decentralized model where the emphasis is on services provided by local governments. Meanwhile, a separation model system is one that leans toward making a clearer demarcation between the services directly provided by the national government and those provided by local governments. Conversely, an integration model refers to a structure where individual public services are provided in a way that involves both the national government and the regional governments.

Considering all the factors listed above, we can identify four different types of government administration: (1) centralized and separate, (2) decentralized and separate, (3) centralized and integrated, and (4) decentralized and integrated.

(1) Centralized and separate The national government almost exclusively handles administration, while local governments have almost no authority or responsibility. The national government has branches at the local level to handle administrative work, which means that there are cases where there is no need for the involvement of local governments. Russia, China, and other socialist nations, and prewar Japan
(2) Decentralized and separate Local governments have a certain degree of autonomy for handling administrative functions on their own without the involvement of the national government. In many cases, there is a restricted list of services that can be provided by local governments. Britain, United States, Canada, Australia, and other Anglo-Saxon countries
(3) Centralized and integrated The national government delegates certain functions but maintains its authority and control over revenue streams and only entrusts local governments to implement its policies. The authority and revenue maintained by the national government allows it to exercise control over the implementation of policy at the local level.  France, Germany, Italy, and other continental European countries, and postwar Japan
(4) Decentralized and integrated The national government is involved from the outside, devising guidelines on administrative procedures and adjusting revenue streams, but the actual planning, implementation, and evaluation of administrative work is at the discretion of local governments. Sweden, Norway, and other northern European countries

In the case of Japan prior to the end of World War II, the prefectures were the comprehensive agencies of the national government, while municipalities only had very limited autonomy. Under this system of centralization/separation, the national government handled many tasks, but after the war, when the prefectures along with the local municipalities were granted a certain degree of autonomy under a centralization/integration model, most of the administrative tasks were carried out by local governments as “agency-delegated functions” commissioned by the national government.

Given the relationship of centralization and integration between the national government and local governments, legally speaking the government was structured with the ministries at the top and their local branch offices beneath them, and the national government exercises detailed control over local governments through subsidies, memorandums, and government directives.

The merit of that centralization/integration system was firstly that the national government could exercise strong direction, allowing for strong leadership in the private-public sector. Secondly, through this unified governmental authority, equal services could be provided across Japan. The advantages of this system were most apparent when Japan, following the Meiji Restoration (1868), fused its private and public sectors in pursuing its modernization goal to catch up with and overtake other countries. This allowed Japan to join the ranks of the Western great powers; incomes rose, goods became more widely available, education expanded, and the people became more affluent.

Five Key Aspects of Decentralization Reform

Whatever the structure of government may be, it can become antiquated after two or three decades and become a hindrance—and after a century a system can fall out of alignment with the era itself. A classic example of this, I think, is the centralized political system of Japan. This discrepancy can be viewed as a fundamental cause for the inward-looking mood that pervades Japan today. The problems of Japan’s current system are increasingly coming to the fore with the increasing demand for diverse public services and trends toward prompter services and greater citizen participation.

The issues at play regarding the dynamic between Japan’s national government and the local governments can be summarized as follows.

The first issue concerns the authority that the national government and local governments have vis-à-vis each other. Even though the relationship between the national government and local governments is supposed to be a cooperation between equal parties, under the law there are higher level ministries that delegate functions and provide subsidies to lower level ones, creating a subordinate relationship.

The second issue pertains to the dual roles of governors and mayors. The public officials at the local level are supposed to have an exclusive role as the elected representatives of their localities, but they are also assigned tasks to perform on behalf of the national government, resulting in an overlapping of roles. Moreover, these delegated functions comprise roughly 70% to 80% of their administrative tasks.

Third, there is the issue of responsibility for administration. Under the model of centralization/integration, the national government is involved in the thinking stage (plan), then the local governments handle the implementation (do), and both sides take responsibility for the outcome (see). But under this structure it is not clear how far the responsibility of each lies, and there was no requirement that either be assigned blame for the failure of a policy or explain how tax revenue was used.

The fourth point is that the local governments cannot adequately respond to local needs because they only have narrow discretionary power. The role of the local governments as providers of the “national minimum” services offered throughout Japan takes up the bulk of their activities, which leaves them little opportunity for discretionary policies suited to local needs. As a result, tax revenue and time are spent without meeting those needs, leading to inefficient and ineffective administrative services.

The fifth and final point is that there are many harmful effects of the top-down model of government. The vertical structure where departments within local governments take on the tasks of the national ministries has negative effects at the local level and impedes the provision of the comprehensive services residents are seeking.  

Decentralization reform essentially boils down to the task of addressing these five points.

The First Volley of Reform: The 2000 “Comprehensive Local Autonomy Law” 

Needless to say, bringing about a great transformation of the system of governance is no easy matter. Bureaucrats and lobbyists accustomed to the centralized system, and knowing the personal advantages it brings them, have fought tooth and nail to maintain their vested interests. Meanwhile, there are local mayors, governors, and assembly members who see a future for themselves under a decentralized system and have been emphasizing the merits of such a system and making various reform proposals. But even some of the local governments who look favorably on decentralization have shown hesitation on reform over doubts about their own policy-creation ability and financial capabilities and their concerns about widening social disparities. It was amidst those doubts that the Comprehensive Local Autonomy Law was adopted in 2000 as the first volley of decentralization reform. The main provisions of the law are as outlined below.

  1. Elimination of the system of delegated functions
    The backbone of a decentralized system is to eliminate 561 “agency-delegated functions,” which are the functions that the government ministries delegate to prefectural governors, municipal mayors, and local governments; and replacing many of them with “local autonomy functions.”
  2. Reducing or eliminating contributions to local governments
    The inclusive, authoritarian system of nationwide guidance and control under the former system of agency-delegated functions was eliminated, and the involvement of the national government limited to technical advice and preliminary discussion.
  3. Loosening or eliminating mandatory personnel
    The mandatory restrictions on personnel, such as the hiring qualifications for the staff of local governments or numeric quotas based on population figures were significantly relaxed.
  4. Expansion of local government autonomy
    In Japan it had not been possible to create regional rules to respond adequately to certain necessities because the rules and regulations could only be approved, in principle, within the boundaries of the national law. But under the comprehensive law it is possible to shift, within certain limits, toward prioritizing regional rules and regulations.
  5. Creation of new national/regional rules
    The comprehensive law aims for the general principles of the national government’s involvement to adhere to the principles of law, fairness, and transparency, and in line with this aim seeks to eliminate cases where unclear government guidance is made or directives are issued on the sole basis of administrators’ judgment. It also puts in place new mechanisms for handling disputes between the national government and regional governments. 
  6. Securing sources of regional tax revenue
    A key principle for regional autonomy is not only that each region makes its own decisions and takes responsibility for those decisions, but also the principle of self-reliance. In the case of Japan, though, under so-called “30% autonomy,” regions have few tax-revenue streams of their own. In order to establish autonomous revenue sources, the comprehensive law abolishes the system of approval for non-statutory ordinary tax and creates non-statutory earmarked taxes. It also eliminates the limit on tax rates for municipal residents taxes and the authorization system for issuing bonds was changed to a consultation system.
  7. Upgrading the regional system
    The law recognizes the need to upgrade the regional system of governance that will be relied on for decentralization. Since 2000, there has been a major effort in Japan to merge municipalities; in a period of ten years the number of municipalities was reduced from 3,232 to 1,719. This reform was based on the concept that an increase in the scale of municipalities would enhance their capabilities, but doubts remain about whether the merged municipalities are in fact on a scale that is appropriate to their respective areas.

What’s the Best Brand of Decentralization for Japan?

From the outset, decentralization reform has not reflected a clear philosophy. Once the shift to a decentralized system is made there will be no turning back, so it is necessary to have some in-depth discussion regarding the sort of decentralized system that is the objective.

The two options are, again referring to the model introduced in Diagram 1, either the (2) decentralized and separated state or the (4) decentralized and integrated state. That being the case, unless Japan can decide which of the two it is aiming for, the calls for decentralization will not lead to consistent reform.

Following World War II, not long after a new Constitution was adopted for Japan, a report on Japanese taxation by the Shoup Mission was issued. The mission advised Japan to have its municipalities take a leading role and to clarify the respective roles of the national government, prefectures, and municipalities. My impression is that the report was recommending the model of (2) decentralization/separation, but Japan ended up heading toward the model of (3) centralization/integration, where the hierarchical vertical relationship between the national government and regional governments became fixed in place, with the bulk of the administrative tasks of the national government handled by the regional government as agency-delegated functions.

As for the decentralization reform that was begun in 2000, in terms of the goal being to decentralize, it corresponds to (2) and (4) in Diagram 1. However, in terms of the content of reform during the first stage, it is not clear whether the goal is to head toward signpost A of decentralization/separation or rather signpost B of decentralization/integration.

It seems certain that the ideal to aim for is the Anglo-American model of decentralization/separation, characterized by a high level of regional autonomy. I think the best option for Japan would be for its prefectures and municipalities to secure their own autonomy and tax-revenue sources, and engage in independent governance that meets the needs of their respective areas, in line with the participation of local residents.

However, there are enormous disparities between the main urban areas and provincial cities or rural areas, and the overconcentration in Tokyo continues unabated. Given this situation, it seems to me that the realistic option for the decentralization of Japan in the twenty-first century, at least initially, is the decentralization/integration model. My recommendation is to limit the involvement of the national government to the external role of drawing up policy guidelines and rectifying disparities in the level of fiscal resources between areas. One positive thing about the trinity reforms carried out by the administration of former Prime Minister Koizumi Jun’ichirō was that they were aimed at decentralizing the tax-revenue streams by transferring some tax-revenue sources to local authorities, reducing or eliminating national subsidies to local governments, and reviewing tax grants. But the Koizumi reform of the strings-attached subsidies made the fundamental mistake of only reducing the level of subsidies while leaving in place the separate involvement and authority of the national government. One senses that it was a reform tailored to the interests of the central bureaucrats. Even if the result is a move toward autonomous administrative activities, it is not decentralization in the true sense because there is still a dense entanglement of centralized rules and regulations corresponding to specific laws.

What is thus needed for the second round of decentralization is the following sort of wide-ranging reform: (1) reducing the density of centralized rules and regulations and loosening or abolishing the legally required mandates and frameworks, (2) expanding sources of regional tax revenue, (3) additional transfer of administrative authority to the regional level, and (4) enhancing citizens’ self-government, while also fundamentally reforming the governmental structure by replacing the current prefectures with a system of regional blocs, thereby putting in place the basic architecture for a region-centered nation.

Yet, even if further moves toward decentralization are made, there will be spheres for which regional autonomy is not feasible. There is, for instance, the task of devising national policies in such areas as foreign diplomacy and defense, crisis management, administration of justice, finance, currency-management, economic stimulus, and land use. There is also the task of creating the basic framework for the policies carried out by the regional governments in such fields as social welfare, health care, education, culture, agriculture, and infrastructure. These are all areas where it is better for the national government to offer guidance, from the perspective of the overall administration of the state. From this perspective, the future moves toward decentralization will need to clarify, to the greatest extent possible, the respective roles of the national government and regional governments. 

(Originally written in Japanese on February 13, 2013.)

Democratic Party of Japan Liberal Democratic Party decentralization Osaka Restoration Association regional sovereignty national minimum centralization Sasaki Nobuo regional blocks regional self-government prefectural system ministries Koizumi administration Abe administration