The Challenges Ahead for Decentralization Reform

Decentralization: Who Is It For?


Decentralization of power has been on Japan’s agenda for 20 years, but how much real progress has been achieved? We interviewed Katayama Yoshihiro, who won high marks for his performance as governor of Tottori Prefecture (1999–2007) and who promoted decentralization as a member of Kan Naoto’s cabinet (2010–11).

Katayama Yoshihiro

Professor, Faculty of Law, Keiō University, specializing in local government and regional public finance. Born in Okayama Prefecture, 1951. Graduated from the Faculty of Law, University of Tokyo. Joined the Ministry of Home Affairs (now the Ministry of Internal Affairs and Communications) in 1974. Resigned in 1998 and was elected governor of Tottori Prefecture in 1999. Served in this post for two four-year terms. Minister of internal affairs and communications in the cabinet of Kan Naoto (Democratic Party of Japan) 2010–11.

The Lack of a Clear Mission

TAKENAKA HARUKATA  Twenty years have passed since the National Diet decided to promote the decentralization of power in 1993. Over the intervening years we’ve seen repeated discussions within the government and by expert panels, abolition of the system of “agency-delegated functions” (under which local governments were assigned tasks to perform on behalf of the national government), sweeping mergers of municipalities, implementation of the so-called trinity reform program of fiscal decentralization, and adoption of legislation concerning consultation between the national and local governments. How do you assess these reforms?

KATAYAMA YOSHIHIRO  I think they can be assessed in various ways, but the biggest problem is the lack of clarity about the mission of decentralization itself. The image of what decentralization means varies among those who are involved depending on their position.

For example, when the national government abolishes local branch offices of its ministries and agencies, some people see this as a form of decentralization, with operations being shifted from the national government to local governments and with authority being shifted from the center to the regions. But other people see this as part of the program of administrative reform. In other words, they look at it from the perspective not of decentralization but of streamlining the government and cutting expenditures by doing away with the local offices. The “trinity reforms” of the Koizumi Jun’ichirō administration [2001–6] were motivated by sharply contrasting agendas among those involved. The same goes for other types of decentralization. I think the mission needs to be clarified.

TAKENAKA  It’s true that a mission with a vague definition can’t be a common cause. What are your own thoughts about the proper orientation for decentralization?

KATAYAMA  I used the word mission, but when it comes to basic issues like this, I always try to think in simple terms. This means asking “Who is it for?” and “What is it for?” So who is decentralization for? I believe it’s indisputably for the sake of residents. Everybody wants the conditions of the region where they live and work to be as comfortable as possible. Achieving this is the job of local governments. And it’s better for people to make their own decisions about their region. I believe that this is the essence of the matter.

Local Administration Bound Up in National Laws

TAKENAKA  What specific areas should local residents be making their own decisions about?

KATAYAMA  Of course not everything should be decided locally. In the case of education, for example, the national government should decide on the overall framework, including the number of years of elementary school and junior high and teachers’ qualifications. But it would be reasonable to give the regions a certain amount of leeway in areas like the curriculum of studies and the division of the student body into classes. Meanwhile, even repair work on municipal roadways now effectively needs to be submitted for consideration by the Ministry of Land, Infrastructure, Transport, and Tourism before it can be carried out. This sort of activity has no direct connection with the shape of the country, so it seems to me that it should be left up to local governments.

TAKENAKA  What steps are needed to change the current setup?

KATAYAMA  The items that are determined by national law will all need to be addressed through the passage of revised legislation by the Diet. For example, local government bodies formerly needed national approval every time they wanted to issue bonds. They needed to get the approval of the Ministry of Internal Affairs and Communications and the Ministry of Finance not only when they wanted to borrow public funds but also every time they sought to raise funds from private-sector financial institutions. During my term as internal affairs minister [2010–11] we changed that to an arrangement allowing each local government to freely raise funds from the private sector, so long as the borrowed amount is within a set limit. Implementing that change required a revision of the Local Government Finance Act. Every such change to the existing framework requires that sort of painstaking revision.

The Determined Efforts of a Reformist Governor

TAKENAKA  During your eight years as governor of Tottori Prefecture [1999–2007], you achieved various locally initiated reforms. I imagine you must have run into many difficulties at the prefectural level because of the concentration of power in Tokyo.

KATAYAMA  Yes. Our top priority in terms of roads at the time was to complete the branch line of the Chūgoku-Ōdan Expressway connecting Himeji and Tottori. When we went to Tokyo and spoke to people at the Transport Ministry to seek action on this, they would tell us that funds were insufficient and so only a portion of the project could be undertaken during the current fiscal year. But at the same time we were getting visits from officials of the Ministry of Agriculture, Forestry, and Fisheries who were trying to sell us on the idea of building new agricultural roads, because apparently they had budget funds to use. Even though the funds were coming through different routes, it seemed to me that as long as it was a question of using money from the national government to build roads that Tottori Prefecture needed, the choice of projects ought to be left up to the prefecture, but it wasn’t possible to achieve this at that time. Later, when I was minister of internal affairs and communications, we replaced the system of designated-use subsidies from the national government to a system of lump-sum grants to give the local governments greater freedom of choice.

TAKENAKA  Now that the Liberal Democrats are back in power, they’re moving to reverse the switch to lump-sum grants. Is that because they fear this change will weaken the authority of the national government?

KATAYAMA  I imagine the idea originated in Kasumigaseki [the Tokyo district where the main government ministries are located]. The Cabinet Office was in charge of distributing the lump-sum grants, but the funds were derived from the budgets for subsidies belonging to the Transport Ministry, Agriculture Ministry, and others. This meant that, for example, the officials at the Transport Ministry had less money to hand out as subsidies for roads, and those at the Ministry of Finance had reduced scope for oversight. I think that the idea of reversion to the previous setup reflects the opinions of bureaucrats like these.

Politicians would probably also prefer to operate under the traditional arrangement, where representatives of local governments come to them with requests, which the politicians then use their influence on the bureaucracy to get implemented. But if the Liberal Democrats honestly want to present their party as a “new LDP,” they ought to get rid of that old modus operandi. If they keep on involving themselves at the project level and boasting, “I had this road built,” they’ll never achieve government led by elected politicians.

TAKENAKA  I understand you were instrumental in achieving an enlargement of the immigration and quarantine setups at Yonago Airport [in Tottori Prefecture].

KATAYAMA  At the time the airport was planning to start regular international flights to Incheon in South Korea, but we were told that there weren’t enough officers for CIQ [customs, immigration, and quarantine] operations. CIQ is an area of national government authority, and the word from the capital was that it was impossible to increase the number of officers under the overall plan for civil service personnel numbers. So we suggested that, if the national government didn’t have the personnel, it should let our prefecture provide them. For example, we could provide physicians from prefectural hospitals to conduct quarantine operations for passengers. We also had research institutions that could provide officers to handle animal and plant quarantine. And the prefectural police could handle immigration control. But that wasn’t getting us anywhere, so I said I’d take the matter to Prime Minister Koizumi and ask for permission to handle it by setting up a special zone for structural reform. All of a sudden the wheels started turning. The bureaucrats get serious when they think their own powers are in jeopardy. In the end they added several hundred officers to the CIQ contingent.

TAKENAKA  When a major earthquake struck western Tottori Prefecture in 2000, you provided subsidies from the prefectural budget for the rebuilding of homes.

KATAYAMA  Yes, we offered a subsidy of three million yen for people in the disaster area who wanted to rebuild their homes within the prefecture. But we encountered fierce opposition from the national government. The Ministry of Finance and other ministries with a say in the matter were unanimous in opposing our move. This was related to the government’s experience at the time of the Great Hanshin-Awaji Earthquake [which struck Kobe and its environs in 1995]. On that occasion the national government didn’t provide assistance [for the rebuilding of homes] on the grounds that it would be unconstitutional to use public funds from tax revenues for individual wealth building. So if the government endorsed Tottori’s program, it would contradict its earlier explanation.

But when I met with officials of the central government and asked what article of the Constitution contained this prohibition, the answer I got, after a moment of silence, was, “It’s a principle.” [Laughs] I could understand the bureaucrats’ thinking: Kobe accepted our explanation, and we don’t want Tottori to reopen the case. But my priority was to help the residents of our prefecture who had lost their homes. So we ended the meeting amicably but in sharp disagreement. And before we parted I cautioned against any move by the national government to reduce its grants and subsidies to our prefecture in retaliation against our program, saying that if such a thing were to happen, we would have no choice but to go public with the matter. In the event, our special revenue-sharing grants from the national government for that fiscal year were substantially increased. Disclosure is the most powerful weapon that an underdog can use.

Has Any Real Progress Been Made?

TAKENAKA  Over the past two decades both the Liberal Democratic Party and the Democratic Party of Japan have adopted platforms calling for decentralization of power, but which of the two has been more effective in promoting this reform?

KATAYAMA  That’s hard to say. Partly it’s a question of awareness. When the LDP and New Kōmeitō were in power before [in the years through 2009], there was an awareness that, at least in theory, decentralization was a must. But in practice there was extreme reluctance to act, because it would mean curtailing the discretionary powers of Diet members and bureaucrats. So there was some progress, but it was slow.

When the DPJ took over [in 2009], they had campaigned with a manifesto that called for a shift from a government led by bureaucrats to one led by elected politicians, promising bold reform to promote decentralization. Their intentions were good. But—and this is characteristic of the DPJ—they had completely failed to build a consensus within the party itself. The politicians appointed to top positions at government ministries and agencies immediately started backpedaling, resisting the reform process. I was the minister responsible for decentralization, and so it was my job to present the case for the relevant reforms at meetings and persuade the other ministers. I often found myself wondering why I had to argue with DPJ politicians in support of a reform process that they had promised in their own manifesto. Though decentralization was ostensibly the top priority of the DPJ reform program, only a tiny minority of the DPJ legislators seriously pursued this matter; most of them were blithely indifferent to the issue.

Another point is the interpretation of “local self-government.” This has two aspects: One is organizational autonomy, which is the idea of giving local government bodies greater freedom from the national government. The other is popular autonomy, which is the idea of making it easier for the residents of local jurisdictions to have their will reflected in local government affairs. Both these aspects must be addressed in order to achieve proper decentralization, but both the DPJ and the LDP focused only on the organizational aspect.

So the talk about transferring power from the center to the regions has referred to shifting authority from bureaucrats in Kasumigaseki to governors and mayors of local jurisdictions and shifting legislative power from the National Diet to local assemblies. There’s no mention of local residents in this connection. Prefectural governors and assemblies may gain increased power, but residents are left out of the picture. It could be described as the decentralization of authority “of the governors, by the governors, and for the governors.” Since local self-government includes popular autonomy, moves to decrease the central government’s role ought to include consideration of steps to give residents a greater say, such as through changes in the operation of prefectural assemblies and increased opportunities for direct participation in politics by residents to serve as a supplement to the assemblies. When I was serving in the cabinet, we came up with legislation for this purpose, but just after we completed our draft the Great East Japan Earthquake struck, and unfortunately we were unable to get it enacted.

Promoting Citizens’ Participation in Local Government

TAKENAKA  I believe that promoting regional autonomy will require reform of the system of regional taxes, with a focus on the shifting of revenue sources. To what extent do you think revenue sources should be shifted from the center to the regions?

KATAYAMA  Of course the best arrangement from the local perspective is for national taxes to be reduced and local taxes increased. But if the taxes are set at a uniform rate sufficient to cover the administrative costs of the less affluent prefectures, the Tokyo Metropolis will end up with a big surplus. So, with a view to economizing resources, I think it makes more sense to set the taxes at a level that will allow Tokyo’s metropolitan government to break even and have the national government provide for adjustments and supplements to cover the shortfalls of prefectures around the country.

The issue is where to shift the burden of covering the deficits that are occurring under the existing setup, which combines the so-called local allocation tax [a revenue-sharing system] and local taxation. These deficits are currently covered by funds from the national government and the issuance of local government bonds, but this isn’t a healthy arrangement. Properly speaking, local residents should be the revenue source of last resort. When considering some major new project, the question should be put to the people of the local jurisdiction: “Do you agree to higher taxes to pay for this undertaking?”

As it now stands, the overall structure of national and local finances is one in which the tax rates are fixed but there’s leeway in the amounts of the local allocation tax and subsidies from the national government, meaning that local government representatives can get more money by going to Tokyo with their caps in their hands. The last resorts for local government finance are the national government and local bond issues. I would suggest turning this around by fixing the amounts of the local allocation tax and subsidies at levels that will allow local governments to provide a certain level of standard administrative services and having them go to their local residents if they want to spend more. If the system of local self-government included this sort of interaction between residents and their governments, it would help prevent cases like that of Yūbari in Hokkaidō, where the local government went bankrupt. We should shift to a system under which local residents are the last-resort revenue source.

TAKENAKA  If the tax system varies from one locality to another, we can expect to see competition among jurisdictions. And economic disparities will emerge between jurisdictions that are making efforts and those that lack awareness. Won’t we end up facing concerns of this sort?

KATAYAMA  A certain amount of competition is fine in my view. At the same time, I think it’s necessary for the national government to create standard specifications in certain areas, such as compulsory education and welfare for those with disabilities, and to take responsibility for guaranteeing the requisite financial resources. This is the idea of setting a “national minimum.”(*1) So I would suggest a framework under which certain rules would be set for public finance and local governments would be free to do more, subject to the approval of their residents.

I did some studying of Britain’s system of local government, and I found that at the municipal level the share of independent revenues isn’t that great. In many places it’s not much different from the share in municipalities in parts of Japan experiencing serious depopulation. But they’re able to maintain their administrative vigor through adjustments in a revenue source called the “council tax.”(*2)

For example, when there’s a plan to rebuild a school, the local government explains that it will entail a hike in the council tax, and the local assembly debates whether to approve this. The local authorities also receive budget funds from the national government, but the amounts are predictable; they don’t have to go to London and beg for the money. And when planned spending is more than expected revenues, they can calculate the necessary hike in the council tax rate by dividing the expected deficit by the total tax base. This calculation serves as the basis for the debate in the local assembly. So at least there are no bankruptcies at the local government level. This is what it means to make local residents—in other words, local taxpayers—the revenue source of last resort.

Above all, this gives life to local assemblies. The original purpose of legislative assemblies is to debate taxes. They ought to operate on the understanding that if spending is increased, taxes will go up. But here in Japan the taxes are effectively fixed, so local assemblies focus just on expenditures, and nobody argues about taxes. Our local assemblies are probably unusual in this respect by comparison with the international standard.

Under the present setup, the national government makes all the decisions about tax law—not just the basic rates but also the highly detailed special provisions. This means that local chief executives and assemblies don’t have to confront residents with tax matters. Since they don’t have to think about taxes, local assembly members focus exclusively on increasing expenditures. I believe that having local residents decide on the framework and rates for their own taxes is the starting point for local self-government.

TAKENAKA  Thank you for sharing your valuable thoughts with us today.

(Translated from a January 21, 2013, interview in Japanese. Photographs by Yamada Shinji.)

(*1) ^ “National minimum” as used here refers to the minimum standard of living that the government guarantees for the people.

(*2) ^ The council tax is a local tax in England, Scotland, and Wales; residents pay it to the local government of the jurisdiction (“council area”) where they live, and the tax revenues are used to pay for the administrative services related to the taxpayers’ everyday lives. 

Democratic Party of Japan Liberal Democratic Party DPJ LDP Decentralization of power regional sovereignty centralized power Katayama Yoshihiro local self-government national minimum