the Failure Of Japan's Financial Decentralization.

So far with my last two posts, I have explained how Decentralization merits carrying out for our economy and factors needed for its success. Finally this time, I’m going to tell you how Japan’s financial decentralization taken by the Koizumi government went for the goal of the reform.

The primary goal of the reform was to reduce the budget deficit of central government, which I showed in my first post, by cutting the massive transfers and subsidies to local governments and transfer the sufficient amount of the reduced financial resources to local taxes so that the locals gain more self-determinable financial revenue to engage themselves to provide profit-concerned efficient activities for their citizens’ needs. However, the reform did fail to achieve the goal in many senses due to two reasons .

The first factor made the reform unsuccessful was that the central government did not offer (transfer) adequate financial resources to its local government  (the lack of the 1^st condition I mentioned in the last-week post.) From 2003 to 2006, Japan’s central government reduced the transfers and subsidies to the local governments by 5 trillion dollars and transferred 3 trillion dollars (only about 7% of the annual revenue for the local governments) into the local taxes in order that local governments exercises more independent public activities for their citizens’ wants without the central helps or interferences. However, because the increase in local tax revenues was far short of the reduction in transfers and subsidies from the central government, the reform did not succeed in empowering or establishing the financial autonomy of the local governments. Therefore, The reform didn't help the local government to improve their own tax revenue to be financially independent but ended in forcing them to cut their expenditures by firing the local public employees and reducing public services.  

The second reason was simply the lack of capacity at local level, which is the 2^nd condition for successful decentralization in my last post. The local public employees used to just provide services and goods the central government asked them to. Therefore, there were not enough professional personnel who could manage public activities and act independently from the central to govern their regions efficiently.  

The central government had to have trained local personnel and dispatched some professionals from the central government before starting to conduct the reform to support the financial decentralization of the local governments to be done rightly and effectively.

On the bottom line, the Koizumi reform ended up in reducing the budget deficit only temporarily (after 2008, the deficit has been increasing again). And making the local governments financially independent by strengthening their tax bases completely failed, and the effective decentralized governance couldn't be accomplished during the koizume reform. Although Japan has still been trying to succeed in making an efficient decentralized governance system by strengthening the local tax bases and shifting more governmental authorities and responsibilities to the local, there still have many problems needed to be solved to decentralize efficiently and properly.   

Necessary Ingredients For Successful Decentralized Governance.

This time, as I mentioned in my last post, I’m going to inform you what conditions are needed to success in a decentralized governance.

 In order to make effective and sustainable decentralization, it requires that some conditions must be respected. Here below, I list some of the most important conditions.

1. It requires adequate financial resources to ensure the accomplishment of the works under the local responsibility.  Local governments must have the legal authority to make revenues to support the costs of their services and governmental tasks. Therefore, the fiscal relationship between the central and local government must be defined clearly.
2. Capacity must exist at the local government level. It means they must have well-educated and sufficient professional personnel so that local government can manage public finances and maintain proper accounting procedures to provide public services efficiently.
3. It requires accountability and transparency in order to make sure that there must not have abuse of power in local governments.  If accountability and transparency are not strong enough at locals, corruption and clientelism might be raised.
4. Legislative framework that specifies the responsibilities and powers of local governments must be clearly defined in order to avoid interference and overlapping with central government.

My simple opinion is that to have efficient decentralization achieved, at first central government must have built not only political or economic infrastructures but also educational infrastructures in order to make citizens and personnel at local governments ready for engaging in social and political activities.  Without the foundation of functioning central governance, decentralization should end up being functioning inefficiently.    

Check out this site. there are much essential information about decentralization.
http://www.fao.org/docrep/005/y4256e/y4256e05.htm

 

Advantage Of Decentralization

The concept of decentralization is influenced by mix economic, political and social factors. Thus in utilizing the concept of decentralization it would be useful to fully understand its dynamics. 

Today, I’m going to present some main advantages of decentralization.

They include:

• Facilitating good governance by empowering the local population and allowing them to participate in matters affecting their lives. This allows for the local people to be watch dogs on the system and ensure that public officials deliver quality goods and services.

• Improving public service delivery. The lower levels of government can deliver services such as education, health, sanitation etc effectively because at the lower levels of government, politicians and civil servants are more aware of the needs of their community that will be more responsive to providing such services. Preferences of local populations are better known at lower levels of government.

• Local governments can produce the same goods and services at lower costs than central governments because the “middle-men syndrome” and bureaucracy involving contract procedures would be reduced and therefore cost of producing and providing goods and services will be minimal.

• Improving the efficiency of central governments. Decentralization allows a central government to concentrate more on national and international issues, which has been generated especially due to the recent world globalization.

• Decentralized units may need less professionalization and can engage manpower from civil society thus administration costs will be lower and procedures simpler.

               etc.

However, it should be stated that for decentralization to succeed certain ingredients and conditions are necessary.    On my next blog, I will talk about the certain ingredients and conditions necessary for succeeding in achieving a well-functioning decentralization.

☆If you want to know more about the advantage of decentralization, see wikipedia or google "decentralization" . you can find various theses and articles about it on WWW.  or if you simply have some question about my blog, please give me some comments! I will try to answer them as much as I can with my knowledge.☆

To be continued.

Japanese Long Recession.

       Before introducing merits and demerits of a centralized and decentralized government, first I’d like to talk a little about the Japanese economic history from the middle of 1900 to the present so as to let you start thinking about and have some senses of how an centralized government has impacts on an economic growth and a level of people’s lives in a society.

      
      After WWII had ended, Japan entered an age of high economic growth, which lasted around 1990. The centralized Japanese government had great rolls in local development, which significantly result in Japanese high economic growth: It standardized its educational system and built equalized infrastructures in locals so that everyone in the nation received the same environmental quality of livings, and Japanese government made people beneficial for the growth.  

      
     However, this centralized system started not working well after the period of Japanese bubble burst. Japan has been in recession for more than a decade since early 90s, when the Japanese economic bubble had burst in 1991. The graph below shows gross government debt of selected OECD countries (% of GDP). 

                                                          (This data is from OECD Economic Outlook)

“Why Japan has been suffering sharp increase of the budget deficit?”

      As the bubble had burst in Japan, many localities suffered from the decline of their industries and had to rely more on the central government in order to keep the local services stable and maintain the level of people lives in the whole nation. Although the central government kept continuing to support the local governments by compensating the revenue shortfall and subsidizing the local industries, it did NOT help local governments to recover their local-level economies. 

        One approach that Japanese central government conducted to start dealing with the problem was to "decentralize" the government activities. I will talk about why Japan has been needed to decentralize its government, and how "decentralization" works for the problem.

To be continued to my next blog.

Centralized or Decentralized?

   HOW’S IT GOING (? . ?)?

      First of all, I simply introduce myself to everyone coming to see this blog. Thank you for coming! I am Kazunari Nakajima, an international student from Tokyo in Japan who loves playing soccer and surfing. In UCSD, I’m majoring in Economics.  My name is sort of difficult so please just call me “Kaz”.  

      On this blog, I would like to start writing about the Japanese local financial reformation and whether “decentralization” of government activities is better or worse for people in our societies, Which I worked on and researched over last quarter as a research assistant of Prof. Hoshi at IR/PS.

“Do you believe that our government utilize our budget efficiently?“

and

“Does their activities really benefit us?”

I BELIEVE everyone has negative answer for the questions. My answer is also “Not at all! We are in recession!” But It’s kind of impossible and too difficult for us to be informed how exactly the government spent our taxes to exercise social services for the people in our society.    

Here is another question!

“Is it better to have centralized or decentralized government for our society?”

http://www.imageofcent.dicent.

what is your answer for this question? 

With my knowledge through my research on local financial reform taken by Japanese Prime Minister, Jyunichiro Koizume, I am going to show and discuss how the two governments (Centralized and Decentralized) are differ in the way they operate, and which is better for our society in the world.

To be continued.