Public Policy Planning & Consulting Co. (SEISAKU-KOUBOU) is a public policy consulting firm based in Tokyo, covering broad policy areas such as economic policy, fiscal policy, regulatory policy, administrative reform, international trade and investment, etc.
PPPC provides consulting and briefing services to the clients in the central/local governments, Diet, local assemblies and the private sector.

This blog is aimed at providing general information, latest updates and some of our analytical reports about Japan's public policy in English.
The contents include;
- updates on some important government councils, especially those in which our executive officers serve as the members,
- weekly reports on latest news in Nagata-cho, the political center in Japan, (partially).
- analytical reports and articles by our members and distinguished experts outside the firm,(partially).


Surprising Measure by Local Assembly

(YAMAMOTO Yoichi, PPPC Visiting Researcher)

Many people should be sick of scandals by local assemblyman. There are many reports on deplorable affairs of local assemblyman every single day such as slurs, emotional outburst, use of quasi-legal narcotic, and others. Although being indifferent myself, the author found an astonishing news.

An article of Chunichi Shimbun on July 24 titled “improper remark, spearhead turns to accuser assemblyman” is a subsequent report of the news saying that a city councilor of Shinshiro city, Aichi prefecture, stated “(why not) distribute punched condoms?” in the hall. The news reported that the assembly held a meeting on July 23 to discuss measures.

Normally, we would expect it ends with an apology of the councilor concerned; however, Shinshiro city did not. The assembly regarded another councilor who criticized the gaffe in his blog as the main culprit, and drafted a new rule to restrict assemblyman’s information releases.

The concerned gaffe is stated by a nonpartisan assemblyman Tomonaga Osada in June as a proposition “how about distributing punched condoms to couples who submitted registration of marriage (as countermeasure to aging)?” Although it didn’t attract much attention in the beginning, it was made public by a blog post by Yohei Asao, Japan Communist Party, on July 14 which was followed by media reports taking the gaffe as part of scandals by local assemblyman. Even though it was a public remark in the official meeting of assembly, citizens wouldn’t have noticed only if Asao did not mention it in his blog.

Nonetheless, in the meeting on July 23, certain assemblyman voiced doubts on “releasing personal view before stating it in the assembly” and “certain considerations should have been given, e.g., noticing the other side, if releasing it with individual names.” Other members followed, and agreed to establish new rules on releasing opinions in the twitter or blog.

However, what’s wrong with an assemblyman, not mayor, who releases personal opinions? It is an important duty of the assemblyman to reflect voices of the residents on questions and to release personal views in front of the assembly. Also it is a strange idea to notice in advance the elected, subject assemblyman. If such an idea is reasonable, any party headquarters or Cabinet Office would be chaotically busy.

In the first place, the concerned remark does deserve criticisms. If Osada really thinks it is an effective idea to distribute punched condoms as countermeasure to depopulating society, obviously he is not as talented as being an elected official. Perhaps he might have said it as a light joke in the official session of the assembly, but it would also mean he lacks seriousness and manner as an assemblyman.

The assembly must face the issue seriously, if not resignation by Osada, instead of sidestepping the criticisms and accusing the councilor who revealed the gaffe. Further, it must not move against the stream of seeking transparency of the assembly.

According to the Ministry of Internal Affairs and Communications, the number of local assembly members in the country amounts to up to 34,476. There will likely be increasing voices as “we don’t need that many.” The local assemblies face the challenge of reducing the seats drastically, or proving their own significance of being by truly working for the sake of citizens.

Taxi Fare Regulation and Decentralization

(HARA Eiji, PPPC President)

In this May, there were consecutive rulings in Osaka and Fukuoka district courts to suspend the regulation by the central government over taxi fares.

The background was
l  Based on the legislation passed in the last year’s extraordinary Diet session, it’s been arranged that the Ministry of Land, Infrastructure, Transport and Tourism decides the “official latitude” of taxi fares.

For example, the fare of mid-sized cab in Osaka city is set as “maximum 680 yen, minimum 660 yen” and any fares above or below the latitude would not be licensed.

l  Opposing to this decision, several taxi business operators having managed the business with reduced fares (MK taxi and others) maintained the reduced fare below the minimum after April.

Meanwhile, the MLIT instructed the operators to increase the fare. And further, the MLIT announced to release a compelling order to change the fares to the business operators.
Then the taxi operators appealed for a suspension of the order to the judiciary and the appeals were accepted in the Osaka and Fukuoka courts.

With regard to the taxi fares, it’s been ruled as “same fare in same region” since 1955, but the regulation has been relaxed gradually since 1990s given criticisms that such uniform regulation should be revised (“zone fares” was introduced in 1997).

In 2002, the “automatically-admitted fare” system was introduced (the fare below the maximum would be automatically licensed. Fares below the latitude would be examined individually), which opened possibility of discount taxi such as one coin.

However, the 2002 deregulation was later brought into criticisms as a symbolic example of “excessive deregulation under the Koizumi administration.”

It was argued that relaxation of not just the fare but the entry into the business caused an increase of taxicabs on the streets and excessive competition, which resulted to worsened working environments of the drivers and tragic accidents, etc. And there was a reregulation on the taxi fare in 2009 by the Taxi Correction and Promotion Law.

And it was the so-called “Law to decrease taxi” in the last year’s extraordinary Diet session that was proposed to enhance the regulation further. By the legislation, it‘s been returned to the framework in which the central government decides the “official latitude” of the taxi fare.

Still, the rulings in Osaka and Fukuoka district courts did not deny the entire framework of “official latitude.” These were the rulings that there was room for consideration on the price-setting as “maximum 680 yen, minimum 660 yen” in Osaka city.

However, if working environments or safety standards need to be reconsidered, it should be responded by labor regulation or safety regulation measures. It is nothing but a ducking of the issue to return to the “official latitude” framework. The author thinks the whole framework itself is not appropriate.

There is another point for discussion.

Even if the official latitude would be maintained, the problem is who decides the latitude.
While it is the MLIT under the current framework, should it not be the local governments well informed of the actual situation of the region that would arrange the latitude of the taxi fare?

Although the enthusiasm for decentralization reforms has been cooled down lately, it is hoped that local governments voice that such issues should be decided on their own discretion.


Assemblyman’s Privilege: Political Activity Funds

YAMAMOTO Yoichi (PPPC Visiting Researcher)

Ryutaro Nonomura, who became an international laughingstock for his emotional outburst at a news conference, resigned as Hyogo prefectural assemblyman on July 11. But this must not be an end; rather, it should be considered as an opportunity to drastically review the way of political activity funds in both the national and local assemblies.

The starting was that Nonomura spent 3 million yen of political activity funds for 195 long-distance, one-day business trips he supposedly made in fiscal 2013 that were concentrated in the Kinosaki hot spring resort in Toyooka, Hyogo Prefecture, and three other locations. After being asked by reporters about his dubious spending, Nonomura captured global attentions for screaming and wailing.

Political activity fund is an expense officially allowed for local assemblyman that can be spent on office rent, personnel expense, trips, etc.; in Hyogo prefecture, the assemblyman can spend this fund up to 500 thousand yen per month and 6 million yen per year. Nonomura received 4.84 million yen in fiscal 2011 and 6 million yen in fiscal 2012 and 2013, totally 18.34 million yen in the past three years. While the unspent amount should be returned, Nonomura was spending them all. However, 3/4 of the spending lacks receipts and Nonomura reportedly provided vague answers or said, “I do not remember.”

This incident uncovered the overly lenient checks on assemblyman’s spending. The Hyogo prefecture has a provision stating receipts may not be submitted in such cases as that an assemblyman bought tickets through vending machines or in hasty. Nonomura seems to have abused the provision, but the rule doesn’t make sense as reasons not to attach the receipts because modern vending machines do have the capacity to print receipts.

It also became clear that Nonomura and others bought sheets of postage stamps. This is as problematic because they are exchangeable for cash. They should have used the postpaid mail or other services to prove the fact that they really used mails.

The assembly’s secretariat should also be accused of receiving the reports which do not indicate what the money was spent for. Any private companies would not accept such reports. Checks against the assembly must be stricter as they are funded by tax money.

As a matter of fact, the situation is better in the local assemblies although unsatisfactory. At least the reports on earnings and expenses by assemblyman are checked ex post and inappropriate expenses are to be pointed out. On the other hand, the political activity fund provided to the Diet members does not accompany obligations to report the receipts and disbursements and there is no way to investigate them.

The Diet members in both Houses are provided with 1 million yen/month. There are neither compulsory reports nor rules to return them. While younger lawmakers, often struggling for funds, spend the money for renting office or hiring personal secretaries, ample veteran lawmakers simply keep the money in their pocket as the “second salary.”

Furthermore, since it is assumed that the money is on expenses, there is no tax imposition. It means that veteran lawmakers receive 12 million yen of the net income in addition to 21 million yen of the annual income. It is nothing but a privilege.

While the rules with regard to political activity fund are under such problematic circumstances, few lawmakers voice reconsiderations on the situation. Even the opposition lawmakers, once noisy over the sexist slurs in the Tokyo metropolitan assembly, have remained relatively silent over Nonomura in fear that public criticism turns against themselves.

However, the Diet members should account for all the receipts and disbursements because they are funded by tax; just like in the local assemblies. All the expenditures must be reported with receipts every year, and any unspent-amount should be returned.

It seems that Diet members and local assembly members expect that the situation calms down after Nonomura resigned. Should it not be. There is no end to this issue until the political activity funds in the Diet and local assemblies are to be revised to an appropriate extent. 


Current State of Agricultural Reform

(HARA Eiji, PPPC President)

In the new Japan Revitalization Strategy revised in June, we were able to observe firm advancements in the agricultural reform.
It may be applauded that the Cabinet mentioned reforms of Japan Agriculture which has long been considered as a difficult challenge.
Yet, it does not mean a happy-end by itself. Let us summarize the past achievements and remaining challenges here.

First, in the field of agriculture, many have shared an understanding on what should be done for many years.
The bottom line is to heighten productivity in the management of agriculture and to rear up farmers with ambitions and abilities. To that end farmlands need to be consolidated and agricultural policy must break with measures that distribute subsidies to al farmers uniformly.
Such a viewpoint has been shared from the 1960s when Basic Act on Agriculture was enacted and Ogata village kicked off. However, there have hardly been major advancements for generations and it resulted to the present agricultural situation.
In the 2000s, under the Basic Guideline on Economic and Fiscal Policy in 2002, such measures as the following have been taken.
i.              Expansion of corporate entry into agriculture
ii.              New grant system limiting subject to ambitious farmers with certain size of farmlands
Although there were certain accomplishments due to these efforts, it hasn’t fully come to light as there was a certain kind of backward movements.

Under the current circumstance, the remaining challenges in the agriculture can be listed as follows.
1.         Businesslike management of agriculture
<Relaxation of conditions to be qualified as agricultural production corporation>
Currently, only the agricultural production corporations are allowed to own farmlands and there are strict conditions on an establishment of the corporations regarding financial composition, membership of directors, etc. Such restrictions have prevented Japanese agriculture from switching into businesslike management styles.
2.         Measures to consolidate and make effective use of farmlands
<Reform on Agriculture Committee>
Currently the agriculture committees in the municipal government, composed of elected (often nonelected) local bosses, dominate authorities over the right to use and shift ownership of farmlands. It often results to exclusion of entry of newcomers.

For more, there have been debates to promote effective utilization of farmlands from the viewpoint of tax.

3.         JA reform
Traditionally, many farmers who are not likely to grow have barely survived by thoroughly depending on the JA (procure materials from JA, borrow loans from JA, receive government grants via JA, produce goods in accordance with JA instructions, deliver goods to JA, etc.). Meanwhile, independent, autonomous management style of agriculture has been disliked.

4.         Reform on rice adjustment system and price control
It refers to the rice adjustment system and exclusion of price competition by trade barriers.
With regard to these challenges, efforts of the Abe Cabinet can be summarized as the table1.
l  Farmland Consolidation Banks Act was enacted in 2013,
l  Regional experiments of reforms have been arranged in the National Strategic Special Zones in 2014

In addition, there were further advancements in the revised Japan Revitalization Strategy in June.
As is clear from the table1, there have been advancements on the themes which have long been considered as difficult, and surely it makes a big step forward.

Efforts of the Abe Cabinet

è  implemented in spring 2014
Measures arranged in the Revised Japan Revitalization Strategy in June
Condition of Agricultural Production Corporation

Exceptional measure on directors (accepting single director)
l  Relaxation of conditions of directors
l  Relaxation of conditions on membership (no limits up to 1/2 members)
è Next Diet session
Consolidation, utilization of farmlands
Farmland Consolidation Banks
l  Shift of authority from agriculture committee
l  Expansion of effective use (farmer’s restaurant)
Reconsidering composition of agriculture committee
è Next Diet session
JA reform

l  Credit loans to agriculture
l  Relooking JA-Zenchu
l  Corporatization of JA-Zennoh
è Next Diet session
Reform on rice adjustment system and price control
l  Abolishment of rice adjustment system?
l  Participation in the TPP negotiations

In the meantime, there are remaining challenges to be noted.

       The Japan Revitalization Strategy is only at the stage of drafting and specific measures are to be arranged hereafter.
       There are further points to be reconsidered in each challenge (table2).
I.          With regard to conditions to establish agricultural production corporation, it is still problematic that the law provides “more than 1/2 of investors must be those engaging in agriculture.” This provision makes it difficult for ordinary companies to enter into agriculture by owing farmlands, and for ventures to seek being listed, as well.
II.       While it was arranged to transfer from the election of committee members to nomination by mayors with assembly’s consent, it might result to a mere fact that the same members will be selected as ever. It requires further specific organizational devices to really change the actual state of the agriculture committee.
III.     With regard to the JA reform, it is yet clear what kind of organizations both Zenchu and Zennoh will be rebuilt into (although Zenoh will be “corporatized,” it is yet known who will be the shareholders and by what percent). It all depends on the future discussions on their organizational designs.

Items arranged in the Revised Japan Revitalization Strategy and remaining challenges
l  Condition of Agricultural Production Corporation
²  “more than 1/2 of investors must be those engaging in agriculture”
è Neither ordinary companies can entry, nor can agricultural production corporations be listed.
²  “further relaxation of condition will be reconsidered after five years…”
l  Agriculture Committee
²  “abolishing the election system,” “nomination by mayors with a requirement of the assembly’s consent”
l  JA reform
²  “central union will shift to a new autonomous institution”
²  “Zennoh will be able to turn into a stock company invested by JA”

We need to keep paying attentions to these points in eye if the next ordinary session of the Diet.

Euro Membership: gain or loss?

(TAKAHASHI Yoichi, PPPC Chairman)

Economies of Eastern European countries have shown fairly good performances lately. Poland will likely record more than 3% of economic growth rate in FY 2014. Similarly, the Czech Republic’s prospected economic growth rate in 2014-2016 will mark 2-3%. Both economies have shown a remarkable performance despite concerns caused by negative growth in Ukraine. On the other hand, Greek economy is yet to get out of uncertainty.

Within Europe, many Euro-member countries have marked low growth while non-Euro-member economies have accomplished economic growth. The author thinks it is not coincident because such an incident could be predicted by a famous theory in international finance.

A Nobel Prize winner Robert Alexander Mundell is known for his theory on optimal currency area, whose essence can be summarized as conditions for using common currencies such as euro.

First, in order to utilize common currencies, it is required that fluctuations of economy and inflation rates in each country accord with each other. Second, trade inter-dependencies must be high among the member countries in order to standardize the economies. Third, economic flexibility and open labor markets are required so that structural coordination is available and people can move across the boundaries.

Because same interest rates are applied in member countries under the common currencies, any monetary policy would not work as long as there are varieties in economic fluctuation and inflation rates in each country. The three conditions above are thus required to make macro-monetary policy function.

Given the conditions, there would not be much problem if it was just the major countries such as France and Germany that use the common euro currency, but economic performance would automatically decline by enforcing the minor countries such as Greece to join the membership.

Nonetheless, as result of political intensions of France and Germany to expand the euro currency irrespective of such economic calculation, the current euro has expanded beyond Mundell’s optimal currency area.

To note, there was a political calculation to support Greece as fort against Islamic countries. Greece has historically confronted with Turkey and invested a lot in military expenses. There are illegal immigrants flowing from north-African countries and Greece has served as front-gate to prevent immigrants from spreading all over Europe. In the bottom line of the Greek tragedy there was such a political intension behind the euro-expansion orientation.

At the same time, there is a gaining for the major member countries such as France and Germany by increasing the peripheral member countries. As the ECB’s interest rate is set at relatively-lower to accord with that of France and Germany that dominate majority of price indexes of euro.

Among the euro member countries, while prices of export goods can be controlled in the slowly-inflating economies such as France and Germany, export goods of quickly-inflating economies such as Greece would lose the price competitiveness. Consequently, France and Germany have enjoyed the fruits of increasing exports; they were the beneficiaries of euro-expansion.

Now the euro has come beyond the optimal currency area and will turn into decline as a whole. The positive sign of East-European economies seems to be the other side of that coin.

Let us confirm by siting the data. The graph below shows the average economic growth rates in the euro and non-euro countries since 1999 when the euro was established.

     Economic Growth of euro-member countries and non-euro countries in Europe

Non-euro countries have performed better in most of these years. It seems not to be promising to join the euro which is now beyond the optimal currency area.