On the Revised Temp Labor Act

(HARA Eiji, PPPC President)

The Revised Temp Labor Act is becoming one of the controversial issues in the current Diet session. The opposition Democratic Party of Japan and some media have taken critical attitudes to the draft bill that this is an excessive “deregulation” in accordance with requests of the business side which desires to make use of temp workers more easily.

However, the content of the revised bill is, in short, a specification of the rules; one that attempts to transfer the existing, complicated and ambiguous rules into more clarified ones. As a matter of fact, it entails not only the “deregulating” contents but also “reregulating” aspects.

The existing Act has divided the occupations into “26 expert types” (digital-device operating, secretary, interpreter, etc.) and the “others”, to which having applied different rules.

l  There is no limit of receiving temp workers in the 26 expert types

l  There have been one-year limit (exceptionally three-years limit) in the others

Yet, there have been various questions to the existing distinction that how much can be fitted into the 26 occupations or whether the law applies when someone engaged into undescribed jobs, etc.; all rooting from the fact that the rules have been too unspecified and complicated. From the beginning, there has been an outdated aspect that operation of digital device has been considered as an expert duty.

In the revised bill this time, by abolishing the existing distinction of “26 expert jobs” and the “others” and it attempts to set

l  Individual: maximum three years if the same worker kept working in the same office

l  Office: maximum three years of accepting temp worker in the same office, yet, extendable after hearing opinions of majority in the office

Seemingly it can be regarded as a “reasonable improvement” of existing inadequacy in the current legislation. In the deregulation-reregulation spectrum,

l  Reception of temp workers in the “other jobs” will be extendable with certain conditions,

l  It entails a “reregulation” aspect in the reception of “26 expert jobs” by imposing new time limit

In the current extraordinary Diet session, while the opposition lawmakers have sought to raise the issue by repeating questions whether the temp workers will increase by this revision of the Act (Lower House Budget Committee on October 3), such arguments might not be constructive given the content of the bill mentioned above.

Rather, the point of discussion should be what to do with the issue of irregular employment as the next step to the “temporary improvement” this time.

It is absolutely doubtless that irregular employees are in severely unstable situations compared to the so-called regular workers and something must be done. The problem is how solutions are to be presented.

The first scenario is to deny irregular employments and to attempt to make all workers regular. Many of the legislations proposed and implemented in the DPJ administration basically originated from such perspectives.

However, there are points to be raised in this scenario.

l  First, not-all irregular workers necessarily desire to be regular employees, and there are certain numbers of irregular workers who has chosen to be irregular employees by themselves (according to debate on October 3, the ratio is 50% in the government’ view and 40% in DPJ’s calculation).

l  Making all irregular workers regular sounds like an effort to improve the employment situation, however, it may in turn deprive opportunities of many others in reality (in extreme cases, e.g., overall banning of irregular employment might create complete unemployment of many others because all the irregular workers cannot be regular at once).

Then the more realistic approach is the second scenario that dispels gap between the regular and irregular, i.e., penetrating the principle of “same job, same wage,” while admitting variety of labor.

While in Europe and others, the principle of “same job, same wage” is manifested in the general legislation, it is naturally perceived that there are gaps between irregular and regular in Japan. Efforts to solve the situation should be now discussed.

To add, the gap between irregular and regular does not only exist in the private sector, but also in the central government offices including the Ministry of Health, Labor and Welfare which has jurisdiction over the employment policy.

There is an advertisement for open recruitment of irregular employees in the website of MHLW that says \7,000-10,000/day for assistant or secretary duties. Needless to say, this is apart from the working conditions of the general government employees protected by job security and the National Personnel Authority (http://www.mhlw.go.jp/general/saiyo/hijoukin.html).

What to do with the irregular employment? Hot to attain the principle of “same job, same wage”? Solutions must be proposed, first by the central government ministries.

It is hopeful that discussions in eye of the drastic reform on this issue will be made in the Diet.

In the meantime, there are further challenges;

l  Basically, it should seek attainment of “same job, same wage” principle and the regulations binding various ways of working should be eradicated

l  Rather than “making all irregular regular,” it should seek “valuing various ways of working” + “prohibition of different treatments on irregular workers”

l  “Valuing various ways of working” is also important from the view of increasing fluidity of the labor market. It is incorrect to assume that “all irregular desires to be regular”

l  The issue of “prohibition of temp day laborer” left untouched.

Number of Temp Workers = 1.3 million (data released in March 2014)

What is it that Promotes Economic Growth?

(TAKAHASHI Yoichi, PPPC Chairman)

What is it going to be like in 2050 if the economy shifts at the current speed? Currently Japan’s GDP per capita is more or less $40,000, raking 20^th in the world. By definition, the “advanced country” refers to those whose GDP per capita is more than $10,000 so Japan indeed is an advanced country. However, the average growth rate of Japan in the recent 20 years is 0.8%, which almost the lowest in the whole world. If the current trend continues, Japan’s GDP per capita in 2050 will be around $50,000.

As the U.S’s average growth rate is 3.6%, its GDP per capita will be $190,000 in 2050 from the current $50,000. In Euro, where the growth rate is 3.8%, its GPD per capita will be $150,000 from the current $40,000.

The world’s average growth rate is about 4.3%. It means a $10,000 will be equivalent with $50,000 in 2050. At that time, Japan will no longer be an advanced country. Though not the least developed, it will be a middle-income country or so.

Transition of GDP per Capita (US$)

(World Bank: speculation of 2050 from transition in the last 20 years)

Then how do we realize an economic growth? This is the most difficult question which if one knows its answer there will be no need of economics. Paul Krugman once said if one can figure this out then the world’s poverty can be solved all at once so deserving Nobel Prize. There is no simple answer to this difficult question, but the author has started to have a partial clue.

The following are correlation of GDP per capita and various other economic indexes. If the correlation coefficient is low, maybe there is no interrelation. If there are, then the cause and effect should be investigated.

As result of these efforts, what attracted my attention was the influence of money, which showed coefficient of 0.5; a little less than enough to conclude there is correlation but outstanding compared to the others.

Looking at the data of individual countries, the expansion rate of money has influence on the growth rate with a time rag of one-two years, though its cause and effect are yet known. Maybe it is an effect of economic growth in the past, but we can increase or decrease supply of money through monetary policy. And it seems quite natural that such an artificial factor could be a cause of economic growth rate.

Of course this is not to say that the money-supply alone can explain economic growth, but so far other possible elements are yet to be found. Please see the correlation studies below.

Money-Supply (horizon) and GDP per Capita (vertical) (1994-2013)

Population Increases (horizon) and GDP per Capita (vertical) (1994-2013)

Tax Revenue Ratio to GDP (horizon) and GDP per Capita (vertical) (1994-2013)

Public Education Expense Ratio to GDP (horizon) and GDP per Capita (1994-2013)

Research and Development Expense Ratio to GDP (horizon) and GDP per Capita (1994-2013)

Higher Education Rate (horizon) and GDP per Capita (1994-2013)

(Source: from World Bank, all the charts drafted by PPPC)

Regulatory Reforms in the National Strategic Special Zones

(HARA Eiji, PPPC President)

It was this January when Prime Minister Abe announced “to drill through the ‘bedrock regulations’ in the National Strategic Special Zones” in Davos, which means 10 months has already passed. Given that many of the bedrock regulations are based on laws and therefore their reforms require legislative revisions, the time left in the current extraordinary Diet session is quite limited. It is a test for the Cabinet to what extent it could tackle with these challenges in this extraordinary and the next ordinary Diet sessions.

The National Strategic Special Zones Act was enacted in 2013, in which certain deregulations were accomplished in the themes of floor-ratio regulation, specification of employment rules (guideline and consulting center), partial relaxations of floor-to-bed ratio in hospitals, partial reform of agricultural committee, etc. Simultaneously, the NSSZ Advisory Council and NSSZ Regional Committee were established as Prime Minister-led framework to break through the regulations.

Nonetheless, there was no addition of regulatory reform menu in the ordinary Diet session convened in January 2014. Consequently, after the Cabinet reshuffle in September, the additional reform menu to be proposed in this extraordinary Diet session under the new leadership was arranged in the NSSZ Advisory Council meeting on October 10.

The menu is as follows (details are available from the following website)

http://www.kantei.go.jp/jp/singi/tiiki/kokusentoc/dai9/shiryou1.pdf

1.         Improvement and Globalization of Business Environment

1.1          Establishment of one-stop center for various applications to promote corporatizing and venture businesses including foreigners

1.2          Notarization of statutes by notary outside official notary center

1.3          Utilization of foreign human resources supporting housekeeping

1.4          Promotion of acceptance of diverse foreigners including entrepreneurs

1.5          Promotion of activities by those having the bar qualification in foreign countries

2           Opening Public Infrastructures to the Private Sector

2.1          Opening management of public schools to the private sector (lifting ban on privately-managed public schools)

2.2          Relaxation of human resource movement across the public-private boundary

3           Construction of Sustainable Social Security

3.1          Revision of qualification as chairman of medical corporations

3.2          Relaxation of working hours of aged workers engaging in agriculture and others

3.3          Creation of “local nurses” (tentative)

4           Construction of New Model of Local Revitalization

4.1          Simplification of procedures for establishing NPOs

4.2          Expansion of leasing and utilization of the national forests by the private sector

There was certain advancement in the fields including the longstanding challenges such as efficient use of public infrastructures and social security experiments along with creation of global business center (urban) and local revitalization model (rural).

Still, it is not a hundred percent score given the “two years” goal. Especially, there are yet satisfactory measures in the fields of…

l  Reforms in agriculture which can be the last card of “local revitalization” (corporate entry, etc.)

l  Advancements in the employment reform to promote further mobilization of human resources into growing industries

l  Reforms of medical care, nursing and nursery

For now, the menu arranged this time must be processed smoothly in this Diet and further efforts in eye of the ordinary Diet session are expected.

Choose the Right Economists

(TAKAHASHI Yoichi, PPPC Chairman)

In Kasumigaseki, the author was one of the few natural-science-based staff studied mathematics in college while the colleagues were dominated by those having backgrounds in social sciences. Given that background, there are mysteries in the world of economic policy.

One regular style in the natural sciences is the pattern to raise a hypothesis and to prove it through experiments. If it is not proved in controlled laboratories, then you attempt to prove the accuracy of your hypothesis by citing the natural phenomena. In mathematics, needless to say, it is not experiments but the logic that proves your hypothesis. If it is not proved, then your hypothesis can be recognized as an error, and it could be disproved if counterevidence were found.

However, in the social sciences, namely in the world of economics, while it adopts the style to gather the past data to prove hypothesis, the theories proved by the past data are rarely utilized in the policymaking process to make future predictions. If one makes an economic prediction, then any outsiders would know in the future whether the prediction was right or wrong.

Economists or scholars do not make such forecasts in Japan, as it may become challenges to them. But one of a few chances just came in; the consumption tax hike to 8% from this April decided last October. This is a good opportunity to test the ability of economists or scholars because the accumulation in the economics is already adequate to make economic forecasts after the tax-hike.

This (http://www5.cao.go.jp/keizai-shimon/kaigi/special/tenken/) is the list of names of people called by the government to state their views, including Japan’s leading economists and scholars. Most of their views were that impacts of the tax-hike to the economy would not be damaging ones, and unfortunately, by now, they proved to have been incorrect. The implication could be either that they only stated their desires without using the economic theories or they do not understand the economic theories from the first place.

This (http://gendai.ismedia.jp/articles/-/40156) is a list of private-sector economic forecasters, whose forecasts are as rarely-correct as dice games. And most of them spoke favorably to the consumption tax hike as its impact on the economy would be small, which also proved to have been wrong.

The government released its official view that the present economic situation is partly due to the irregular weather conditions, but it only sounds as an ex-post excuse. In fact, there is a possibility of economic forecast models taking into consideration the weather conditions; when the author was working in the Ministry of Finance, I once tried to entail the average temperature in summer to estimate the volume of consumption of beer in calculating the liquor tax income. However, it is a matter of the single item of beer and not about the whole macro-economy. Indeed, the weather conditions might affect fluctuation of a specific industry but not the entire macro-economy.

Also, to note, the government’s traditional stance should have been the one not to take weather conditions into consideration. This is to evade criticisms that the government did not take countermeasures to possible disasters despite its weather predictions.

In any case, this is a waste of time listening to opinions of the people who made wrong economic forecasts last year. Nonetheless, the government schedules to hold hearings from the people who stated their views a year ago in order to decide another tax-hike to 10% from next October.

Listening to opinions of the people who made error predictions, you risk making a wrong choice once again. What is the government’s intension to hold hearings from such people? Perhaps disobeying words of the people who made errors may result to good consequences.

National Strategic Special Zones: new challenges found in meetings in September

(HARA Eiji, PPPC President)

With regard to the National Strategic Special Zones, meetings of the “Regional Committee” were held consecutively in the “Kansai” and “Fukuoka” zones last week (September 24, 25).

Those who attended the meetings include the new minister-in-charge Shigeru Ishiba, along with the relevant governors and mayors, and the author myself as a member of the NSSZ working group. Through the meetings, it was strongly recognized that the framework of the regional committee itself must be enhanced.

The regional committee was created as quasi-independent mini-government in the Zones composed of the central government (minister), local government (mayor/governor) and private sector. The committees were launched one after the other after selection of the six zones in spring, and entered full-dress discussions since this June. Still, it seems that the committees haven’t functioned in their full capacity yet.

Especially in the Kansai zone, it was sometimes observed that representatives of the central government, local governments and private sector haven’t shared their views on the topics adequately and discussions fell as far apart.

As it was discussed in the meetings, in order to make the committees function fully as an independent mini-government, it requires a firm, full-time secretariat; no way that they gather once a month to hold meetings (it doesn’t mean to establish a new bureaucratic organ but to create a common secretariat by attracting personnel from the central or relevant local government).

On a related note, it was widely reported that the Osaka City assembly rejected proposal of NSSZ-related ordinance and suspended its project (to utilize housing apartment to hotel businesses by allowing exceptions of the Hotel Business Act).

On this project, while it was proposed that the minimum days of staying (7-10days) of target exceptional measures would be arranged by the ordinance, it was questioned from the view of neighboring residents in the discussion process and led to rejection of the ordinance. As the result, the NSSZ-relevant project itself was suspended.

Set aside the political situation of Osaka City that any proposals by the mayor besides the NSSZ-related ordinance face difficulties passing the assembly, the issue relates with the essential nature of the NSSZ design.

The NSSZ is designed as a framework to implement regulatory reform measures experimentally in the local boundary, and the reform measures are to be provided in the NSSZ Act as reform menu; and in each zones the central government, local government and private sector implement the reforms altogether.

The incident in Osaka means that a local government denied the regulatory reform menu discussed and approved in the national Diet. However, such a situation that assemblies of the central and local governments respectively discusses the regulatory reform menus one after another may contradict with the goal of the NSSZ to implement regulatory reform experiments in a speedy manner.

While enhancing the framework of the regional committee, roles of the national Diet, local government and regional committees need to be further clarified in line with the purpose and aim of the NSSZ.

In the autumn’s extraordinary Diet session, it is scheduled that a revised NSSZ Act will be submitted to arrange the additional regulatory-reform menu (foreign worker’s visa, privately-managed public schools, etc., which were entailed in the revised growth strategy in June). Meanwhile, the NSSZ faces the challenge of enhancing the framework of the regional committees to realize effective regulatory reforms.

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.