Beyond Bureau Pluralism
Masahko AOKI (Professor, Stanford University, and Director, RIETI)
It has gradually been recognized among the general public that the difficulties faced by the Japanese economy stem from structural factors and cannot be resolved solely by traditional counter-cyclical macroeconomic measures. The policy prescription derived from this realization is said to be "structural reforms." However, when it comes down to crucial questions such as what reforms are really necessary and in what way they can be achieved, no clear visions are provided; or we might say that there has yet been no basic consensus in dealing with these questions. Although everyone would agree that no increase in the government's budget deficit should be allowed without scrutiny, and that structural reforms are needed to reduce the size of the deficit, there is much resistance to concrete reform measures. This is a kind of wall due to the well-known attitude: "yes to the general concept, but no to their specifics." Why does this attitude arise in the first place? How can we overcome this obstacle? We need to have a deeper understanding of these problems.
The attitude symbolized by "no to specifics" is one of the institutional characteristics of Japan's political economy in protection of vested interests. I call this "compartmentalized pluralism" or "bureau pluralism." In short, the essence of this mechanism is as follows. First, the inter-organizational mobility of people is quite low, since the sharing of information, values, results, etc. within organizations tends to play an important role in Japan. All parties involved tacitly share the expectation that the economic value of employees' human capital is ensured and enhanced by the viability and growth potential of the organization to which they belong, rather than by competition in the labor market. And all leaders at all levels of the organization are given the critical task of protecting and enlarging the vested interests of their organization.
On top of the hierarchy of such private organizations there is a "business association" in a wider sense. Although the members of each business association compete with each other, they try to pursue their common interests together towards the outside by approaching the appropriate bureaus of relevant ministries or mobilizing the power of politicians. Since government ministries have characteristics similar to their private counterparts, a coalition structure emerges between each ministry and a business association under their jurisdiction so long as they share common interests or they expect each other's viability through mutual dependency. And the overall adjustments of vested interests among various business associations are done primarily through negotiations over budgetary and power allocations within the administrative organization, accompanied by political intervention by "zoku" (interest group) politicians.
The tripartite relationship among business associations, relevant ministries, and "zoku" politicians has its historical origin in the so-called "iron triangle," an exclusionary coalition structure among the elite groups of industrial organizations, bureaucrats, and politicians in the pre-high-growth period, but has since progressed gradually into a more comprehensive and pluralistic relationship within the confines of representative democracy in Japan. Therefore, business associations may be considered to include not only industrial organizations in the narrow sense, but also other interest groups such as agricultural populations, special post masters, medical organizations, educators, veterans family groups, etc. The formation of such a comprehensive and pluralistic coalition structure and the adjustment of vested interests in the administrative process among those organizations have secured a rare degree of equity in income distribution and the general sense of security among the Japanese public.
This "bureau pluralism" used to possess strong merits in Japan in the past, but it became increasingly difficult to maintain its positive mechanism in the 1990s. There are many intertwined reasons for this, but let us focus on two important ones.
First, equitable income distribution under bureau pluralism had been achieved until the 1980s by leading (exporting) industries that secured the interests of low productivity industries and disadvantaged interest groups through the devices of international price differentials, fiscal transfers, entry restrictions, etc. However, such devices can no longer be maintained due to severe competition in the world market. Hence, an ad hoc measure has been adopted, that is, transferring the operating cost of bureau pluralism to future generations or, in other words, the accumulation of the budget deficit.
The second reason is the impact of the IT revolution. Thanks to the IT revolution, people can now exchange information beyond traditional boundaries. While the American economy which produced the so-called Silicon Valley phenomenon has been able to adjust its industrial organization fully to this change, the Japanese economy-- which was increasing its productivity by detailed information sharing through the compartmentalized folds of internal organizations--was hardest hit by this revolution. The most important implication of the IT revolution for the Japanese economy may be that we should question the way in which traditional organizations are compartmentalized into closed core units. What is often called the "sense of a dead end" for Japanese society might be interpreted in a somewhat positive light as the feeling of tight constraints imposed by traditional compartmentalization, like old clothing that no longer fits a growing body.
If this is the essence of the current situation in Japan, a basic structural reform that is needed now is probably the reorganization of the framework for bureau pluralism. I myself do not have a clear-cut answer as to how such a reform should be accomplished. However, it seems clear that complementary changes should occur simultaneously in three domains.
First, in the private business domain, organizational experiments based on information connections free of traditional business or organizational compartments should be conducted at the grass roots level and be subjected to market competition.
Second, in the administrative domain the re-designing of the kind of safety net that transcends traditional compartmentalization and regulation reform to remove those compartments should be systematically implemented to complement the restoration of competition and vitality in the private business domain.
Third, in order to make reform possible in the administrative domain we need clear political will for structural reform and "new political leadership" that is qualitatively different from the old style in which compartments are "dealt with" by conveying compartmentalized interests to administrative processes. Ultimately, however, what supports such a political will is voters' choices in the political domain. We need to rebuild a mechanism in which a national minimum and a safety net for socially disadvantaged needy people are secured beyond bureau pluralism for vested interests, and that eventually will be based on the sense of citizenship of individual voters who support the private-sector economy with self-responsibility and full vigor. Thus, reforms in these three domains are complementary to each other and will be mutually reinforcing in the process.
(The original Japanese article appeared on the homepage of RIETI; http://www.rieti.go.jp/column/2001/0001.html)