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.
I am strongly interested in Japanese long recession, and I suppose the fundamental reason why Japanese economy cannot climb out of a recession for a long time is that Japanese nations are really afraid of changing of Japanese traditional social structure while they know it is necessary to turn the economy around. It means nobody gives up special interests; for example, most nations think Japanese labor market need to be more flexible, but Japanese regular workers oppose any reforms. Beside Mr. Koizumi, served as a prime minister of Japan from 2001 to 2006, was a good or bad politician, he had crowd-pulling charisma and power to destroy the structure. I suppose Japan will never pull out of a recession unless such a man such as he will be a prime minister of Japan again.
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