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).


Scotland’s Independence

(TAKAHASHI Yoichi, PPPC President)

Media are full of reports regarding the referendum on Scotland’s independence. BBC is full of the news in eye of the voting on September 18.
Polls suggest the results would be too close to call.
There was a similar referendum in Quebec in Canada in 1995. At that time, while “yes” side exceeded in the prior census survey, “no” side finally gained the victory. This time, there is an optimistic view that Scotland finally stays for suggestions of Queen Elizabeth or Prime Minister Cameron.

What is the United Kingdom, from the first place? The U.K. is composed of England, Whales, Scotland and Northern Ireland, which respectively sends the national team to the World Cup soccer games. While I was staying in U.K. during the World Cup, my friends told me not to call the national team as “British” in Scotland, given the team was England.

The national flag symbolizes the complicated history of the commonwealth. England’s mark is the red cross on white background, Scotland is white cross on blue, and Ireland is red cross on white, which all comprises the Union Jack.

The reason I pay attention to the Scotland issue is from the perspective of decentralization. According to the decentralization theory in the economics, decentralization is superior to centralized regime in terms of efficiency just like the market mechanism is basically superior to bureaucratic allocation of resources. Yet, even in this case, it is premised that the central government engages in the national defense, financial and monetary policy.
From such perspectives, it consequently leads to the principle of “near is better” that the private sector does what it can, and the government takes the leftovers, and that the local governments do what they can and the central government takes the rest. However, looking at the true state of U.K., while it could be said that the private sector is doing what it can, the central government is dominant within the central-local demarcation.

The U.K. is a uniquely centralized country in the international standard. It is a surprising fact given that the other Anglo-Saxon countries are having much more decentralized regimes. True, there are little local assembly or local taxes in the U.K. Because there is no local tax, there is no need for local assembly to decide local taxes. Most local governments are managed by allowance from the central government.

Recently, the Blaire administration started the decentralization moves by first establishing local assemblies in Scotland, Whales and Northern Ireland, which reinvigorated Scottish independence. Main independence supporters are young citizens and poor residents. Frustrations of the weak are turning to the independence campaign, seemingly.

The present situation is, it seems to me, that the central government had forcibly pressured voices for decentralization reform for long, and its outcome was the poor management of the local economies, hence the people’s frustration unmasked as the current independence movement. However, administrative infrastructure is not prepared as the state has long been centralized. Virtually no local tax exists in Scotland and the local finance depends almost exclusively on allowances from the central government. It is also guessed that the Scottish bonds owe to the central government. Therefore, once Scotland becomes an sovereign state, existing loans from the central government will likely be exchanged with the existing bonds that the current central government has. It means that new loans will be imposed to the new state which has little financial resources from the beginning. The new Scotland will face the risk of financial crisis as soon as it gains independency.
The new Scottish government will no longer receive supports from the central government. Leaders of the independence campaign will seek the North Sea oil as alternative financial sources, but the North Sea oil is declining itself, so financial management of the new state will not be easy. Also it has nuclear facilities in its territory.

Independence also means that a new government must issue its own currency. British pound is a legally-based currency in England and Whales issued by England Bank, and legally speaking there are rooms for Scotland Bank and others to issue new currency. However, there is no know-how of monetary policy in Scotland. Henceforth, the “yes” side insists an easygoing idea of currency treaty centered on England Bank.

To avoid possible troublesome conflicts such as above, many capitals may evacuate from Scotland, or even from the entire U.K. Scotland’s independence will cause the conservatives in the U.K. to take advantage in the country, which might lead the British society to lean nationalistic, and even the government to retreat from E.U. Only vicious circles can be predicted on its way.


Purpose of the Cabinet Reshuffle

(TAKAHASHI Yoichi, PPPC Chairman)

Many would call Abe’s new Cabinet as “tax-hike Cabinet.” Indeed, Prime Minister Abe retained Finance Minister Aso and tapped Justice Minister Tanigaki, LDP president at the time of trilateral agreement which decided to raise the consumption tax rate, for LDP secretary-general: a political maneuvering to suppress anti-tax-hike discussions. Tanigaki said in a press conference that the rails are built.

Such views are halfway correct, but the purpose of the Cabinet reshuffle this time seems to be a preparation for a long-term administration and the government should be elaborating measures in eye of economic recovery and growth.

The consumption tax hike is not a choice as economic policy, as repeated many times, but it is politically difficult to topple the idea entirely (it may case anti-Abe campaigns).

In fact, there was a possibility of general election while postponing the tax-hike within the year if Shigeru Ishiba was replaced from all the Cabinet or LDP executive posts and runs for LDP’s leadership race against Abe next year. But Ishiba finally assumed a new Cabinet post aimed at boosting the regional economies (minister not handling personnel of the bureaucrats: often regarded as one-rank lower than other ministers) so Abe does not need to do political gambles any more.

Then, what are possible consequences of the political gambling of tax-hike suspension?
LDP lawmakers have long wanted a tax-hike while they were expelled from the power, and any moves against the tax-hike would confuse them.

The central government officials in charge of budget including the Ministry of Finance will be confused, too. As they already submitted the budget requests premised on a tax-hike, if the tax-hike is suspended they must compile the budget plan once again from the scratch.

Local governments will be frustrated, too. As expectations for distributive policy are increased due to the new position of local revitalization minister, any suspension of tax-hike will disappoint the local government officials. Moreover, it will deprive the new minister Ishiba of his jobs and therefore will likely drive him to stand against Abe once again.

The economic world will be disappointed as well, because the consumption tax hike is always discussed in combination with a corporate tax reduction. Suspension of tax-hike means postponement of corporate tax reduction.

The newspaper companies will also be confused, as they have suggested that newspaper be subject of reduced tax-rates to the MoF, premised on a scheduled tax-hike. If the tax-hike is suspended, automatically the discussion on reduced tax rates will disappear, which will inevitably damage managements of the newspaper companies which are already suffering from the decreasing sales.

Looking at these political risks above, there seems to be no reason for Abe to challenge the gamble after having put down his political rival Ishiba.

Given that the politics is a matter of how much political capital should be allocated to where, any pessimistic discussions like social security will be handled in the LDP side led by Tanigaki. On the other hand, as the economy will likely turn downward due to the tax-hike, the Cabinet side led by Abe will have free hands on the economic measures in large scales. Abe Cabinet will probably announce monetary relaxation and economic stimulus at some point.

It could be said that the reshuffled Cabinet is well organized to settle down the urgent challenges for the moment such as the tax-hike, TPP talks and national security. Yet, it seems to be unfitted to battle the general election, with exception of some fresh faces like the new industry minister Yuko Obuchi. Perhaps the new Cabinet is of a short-relief role, with some expectation for long-term administration. It is a big test for each minister to appoint whom to the newly-established position of Advisor to the Minister, including from the private sector.