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Bureaucrats, Politicians, and Policy Change in Japan

 by

Masato Kamikubo

About the Author

The objective of this paper is to examine a hypothetical model of the Japanese policy-making process by focusing on the relationship between the transition of political power between government agencies and the subsequent policy changes in the process of administrative reform in the 1990s. The main argument put forward is that, in the Japanese policy-making process, politicians and bureaucrats interact with each other, and that the transition of power relations between government agencies is influenced by the consequences of conflicts between politicians and results in major policy changes.

This paper is divided into three parts. First, the objectives of this paper, previous studies of the Japanese policy-making process, and a theoretical framework will be explained. Second, our hypothetical model of the Japanese policy-making process will be presented. Third, in order to prove our model, a case study, “The Transition of Political Power between the Ministry of Finance (MOF) and the Ministry of Home Affairs (MOHA) over the Issue of Taxation System Reform in the 1990s” will be examined.

The Objective of This Paper

It can be indicated that in fact there were many changes of policies in Japanese politics in the 1990s, and several cabinets have attempted administrative reform. For example, in 1997, the Hashimoto government tried various reforms, including streamlining the bureaucracy by reducing the number of ministries and agencies from 22 to 13 by the year 2001 (Shinoda 1998, 719; Nakano 1998, 300). Another example was the “Big Bang” reform of the money markets. Until the 1980s, the Japanese money markets had been restricted through various MOF regulations. This is called the ‘Gosō-sendan Hōshiki’ (Convoy System) [1]. However, in the 1990s, Japanese governments drastically implemented various reforms of the money markets, such as the amendment of the Foreign Exchange and Foreign Trade Control Act, the repeal of the minimum commission charge in the stock exchange, deregulation of the establishment of bank holding companies, the deregulation of the separation of fields of operation between banks and securities firms, and so on (Kihara 2002, 28). As a result, the Japanese money market changed dramatically from a strictly regulated market to a comparatively free one.

It is considered that in Japanese politics the policy-making process has been relatively fixed and that major policy changes have rarely occurred. However, in this paper it is argued that these policy changes occur more frequently than has been previously thought and so it is important to examine the relationship between these policy changes and the political conflict between government agencies in the Japanese policy-making process. A model in which the transition of political power between political actors over the implementation of policy results in policy changes will be presented, and it will show a new perspective on the study of the Japanese policy-making process.

Two Schools of Thought on the Japanese Policy-Making Process

In this section, previous studies of the Japanese policy-making process are introduced. Studies of Japanese politics, in particular studies of the policy-making process, can be generally divided into two schools: the ‘dominant bureaucracy school’ (Kanryō-shudō Ron) and the ‘dominant politicians school’ (Seijika-yūi Ron).

The Dominant Bureaucracy School

Traditionally, the mainstream argument of Japanese political science was that Japanese politics has been dominated by the bureaucracy (the ‘dominant bureaucracy school’). One of the most famous works in the previous literature is Johnson’s book, MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975. Johnson analyses the bureaucracy in Japan: in particular, the relationships between the Ministry of International Trade and Industry’s (MITI) industrial policies and Japan’s economic growth. As a result, he concluded that MITI led Japan’s economic growth by strategically choosing particular industries which were expected to grow and contributed to national economic development by fostering them on a long-term basis. As a result, Japanese industries obtained a competitive position, and Japan accomplished a high level of economic growth (Johnson 1982).

In both Zysman’s and Okimoto’s works, ‘the autonomy of the bureaucracy’ in the policy-making process is indicated. They pointed out that if the bureaucracy had pursued the long-term reinforcement of the competitiveness of industries, individual enterprises would resist the bureaucracy, so the bureaucracy shut off the pressures of several interest groups in order to practice industrial policies on a long-term basis (Okimoto 1989; Zysman 1983).

In these ways, it can be seen that the bureaucracy has dominated policy-making processes in Japan. Several scholars conclude that the existence of a strong bureaucracy has made it possible for Japan to accomplish rapid economic growth.

The Dominant Politicians School

The second school of the study of the Japanese policy-making process is the ‘dominant politicians school.’ This school takes an opposite view to the ‘dominant bureaucracy school,’ which is that politicians have more power than the bureaucracy in the policy-making process because politicians have developed expert knowledge about policies and have also increased their influence on the policy-making process. There are two types of approaches in the ‘dominant politicians school’: the pluralism approach and rational choice approach.

Pluralism

In the 1980s, a number of studies in Japanese political science took the pluralism approach. Generally speaking, Japanese pluralists have analysed the processes by which the LDP has improved its ability to cope with the various demands of voters in policy-making. Inoguchi and Iwai analyse the Zoku Giin (political tribes) in the LDP (Inoguchi and Iwai 1987). In this work, they examine the competition between individual politicians over votes in elections, the collection of political donations, and the acquisition of high ranking positions within the LDP. Next, they analyse the formation process of political tribes in the LDP and the relationships between these political tribes and LDP factions. They go on to say that in these processes the political tribes fulfil several social needs and obtain expert knowledge and important information concerning particular policies in order to win various internal LDP competitions. As a result, the political tribes have gradually matured to be able to intervene in the policy-making process previously dominated by the bureaucracy (Inoguchi and Iwai 1987, chapters 1 and 4). Similarly, Sato and Matsuzaki also define Japanese politics as a pluralism which is controlled by both the LDP and the bureaucracy, and they emphasise the phenomenon in which the LDP’s politicians gradually improve their leadership over the bureaucrats in the policy-making process (Sato and Matsuzaki 1986).

Rational Choice Approach

The second approach of the ‘dominant politicians school’ is the rational choice approach. The rational choice approach in political science is an analogy of rational choice theory in economics in which a politician’s rational choice is assumed to seek re-election.

In the rational choice approach to Japanese politics, it is generally said that the policy-making process can be explained through the behaviour of backbencher parliamentary members who pursue their re-election. The conclusions in this approach are that the view of the ‘dominant bureaucracy school’ is mistaken.

Several important examples of research have applied the rational choice approach to analyse Japan’s politics. For instance, Ramseyer and Rosembluth describe the principle-agent relationship between the LDP and the bureaucracy (Ramseyer and Rosembluth 1993). Cox and Rosembluth examine, through rational choice, the candidates’ selection system of the LDP in the multi-party districts system (Cox and Rosembluth 1995). In addition, there are many writers, such as Reed, who apply rational choice theory to the study of the Japanese electoral system (Reed 1991, 335-356).

One of the most famous works applying the rational choice approach is Ramseyer and Rosembluth. They apply the theory of principle-agent relationships and interpret Japan’s policy-making process as follows:

• Politicians in the LDP have weak loyalty to the party because the LDP put up plural candidates in one constituency under the multi-party districts system, so that candidates fight to bring funding and benefits from the central government to their constituencies rather than to realise national interests.
• Voters do not recognise that the pork-barrel policies driven by the LDP cause a loss to Japanese society, or they do not decide their voting behaviour on the basis of such information. As a result, an ineffective distribution of funding and subsidies has been allowed by voters for a long time.
• Politicians in the LDP depend heavily on the bureaucrats’ expert knowledge and abilities in policy-making and its execution. Nevertheless, they try to monitor the bureaucrats’ management of policy execution so as to look after their own interests.

As a result of these three conditions, as the number of Diet members in the LDP increases, the demand for the distribution of funding and subsidies becomes larger, and so the national budget for distributive policies has dramatically increased. Ramseyer and Rosembluth claim that politicians have established control over the bureaucracy so that the LDP has completely taken control of the initiative in the policy-making process. In other words, they argue that the ‘dominant bureaucracy school’ is a misunderstanding. Rather, they claim that Japanese politics should be interpreted in a way that reflects the fact that politicians dominate the bureaucracy (Ramseyer and Rosembluth 1993, Chapters 1-5).

However, recently political science does not focus on the above two schools, but on the relationship of interaction between bureaucrats and politicians in the policy-making process. For example, Kato presents a model of bureaucratic behaviour in which bureaucrats pursue the benefit of whichever government office they belong to. She examines the behaviour of politicians and bureaucrats, and the relationship between them in Japan’s reform of the taxation system from the 1970s to the 1990s (Kato 1996). Her argument is that bureaucrats do not keep important information to themselves in order to exclude the influences of politicians in the policy-making process. Rather, she goes on to say that bureaucrats pass it to politicians and use politicians’ power to realise benefits to the bureaucrats’ organisations (Kato 1996, 32).

This paper does not take the standpoint of either the ‘dominant bureaucracy’ or the ‘dominant politicians’ schools and basically agrees with the standpoint that politicians and bureaucrats interact with each other in the policy-making process.

Theoretical Framework

In this paper, two theoretical frameworks will be adopted: Harvard A. Simon’s concept of ‘bounded rationality’ and new institutionalism.

Bounded Rationality

In order to examine the behaviour of the bureaucrats, Harvard A. Simon’s concept of ‘bounded rationality’ will be used. This concept is a kind of rational choice theory which is a research approach based on the assumption that individuals rationally maximise their profits (Downs 1957: Buchanan and Tullock 1962: Riker, 1992).

However, there are many criticisms of the rational choice theory (Allison 1971: Simon 1955, 99-118: Cohen 1977). The reason for this is that many scholars think it is obviously difficult to consider that a political actor’s rational choice would be the same as an economic man’s rational choice as defined in economics. Therefore, several scholars present alternatives to rational choice theory (Williamson 1975, 1985: Stinchcombe 1987, 347-351). Simon’s ‘Bounded rationality’ is one of the most famous examples of alternatives to rational choice theory (Simon 1957, 1976: March and Simon 1966). Simon denies the premise of ‘economic man’, which consists of two elements, as rationality and self-interest. Economics defines a human’s rational decision-making process as follows:

• To list all choices.
• To confirm the ends of all choices.
• To compare and evaluate the difference between each consequence.

It goes on to say that ‘economic man’ is a man who behaves in accordance with the above three processes. However, Simon points out that a person’s abilities have limitations in these three processes (Simon 1957, 241-260).

• First, a person’s rational choice needs perfect knowledge and an estimate of the results. However, in reality a person would be able to obtain only partial knowledge of the results.
• People need to imagine their future in order to compensate for the lack of perfect knowledge and experience of the results of their choice.
• In reality a person would be able to find out only two or three options among all options which can be taken.

Thus, Simon tries to modify the premise of economic man. He defines the person’s behaviour as ‘administrative man’, who satisfies appropriate results. Next, he assumes that a person’s choices would not be naturally given, but are given through the process that people make decisions out of several conditions (Simon 1976, chapter VI).

Simon refers to ‘bounded rationality’ as restructuring the theory of rational choice into a theory that can be applied for analysing human behaviour through realistically modelling it, instead of introducing a concept of irrational behaviour as an alternative to rational choice (Simon 1957, 241-260).

In my opinion, the concept of ‘bounded rationality’ is effective in investigating the behaviour of individual bureaucrats and politicians in organisations. The reason for this is that the organisations seem to limit the human ability to collect and recognise information which can influence their choice of policies.

New Institutionalism

New institutionalism, which emerged in the 1970s, will be introduced as a theoretical framework. Traditionally, institutionalism was a mainstream approach in political science, however, from the 1950s to the 1960s a behavioural revolution swept over the whole of social science radically changing the methodology of political science (Peters 1999, 6-11). ‘Behavioural science’ was first advocated as a new term by scientists at the University of Chicago in 1946. In the behavioural revolution, social scientists argued for a similarity between natural science and social science. At the same time, they aimed at the unification of several sciences. In addition, they asserted that it was necessary to develop a theory in which political science could be recognised as a real science. As a result, the main subjects in political science were changed from the study of formal institutions to the study of political processes. Gross defined ‘Political Process’ as referring to the activities of people in various groups as they struggle for – and use – power to achieve personal and group purposes, in opposition to traditional political science involving the study of formal institutions. (Gross 1968, 265) The study of political process has diversified, such as through Buchanan and Tullock’s ‘economics theory of politics’, Olson’s ‘rational choice theory’, Crenson and Lukes’s ‘study of non-decision’, and Lowi’s ‘new study of interest groups.’(Wiarda 1985) As a result, the studies of institutions, the traditional topic of political science, became neglected.

However, as part of the diversification of the study of the political process, the statism approach emerged. Seidelman argues that there are phenomena which we cannot understand without the concept of the state, and similarly, Stepan comments that the roles of states have expanded since the 1930s (Seidelman 1985: Stepan 1978, 3).

After these various transitions of schools in political science, ‘new institutionalism’ occurred in the 1980s. New institutionalism is a theory which expands statism. There have been many researches applying new institutionalism, such as March and Olsen, Williamson, North, and others (Williamson 1985: North 1990). March and Olsen define new institutionalism as implying that political institutions influence society, economy, and history, so that institutional frameworks decisively shape the character of individual behaviour. They go on to say:

…political actors are driven by institutional duties and roles as well as, or instead of, by calculated self-interest; politics is organised around the construction and interpretation of meaning as well as, or instead of, the making of choices; routines, rules, and forms evolve through history-dependent processes that do not reliably and quickly reach unique equilibria; the institutions of politics are not simple echoes of social forces; and the polity is something different from, or more than, an arena for competition among rival interests. (March and Olsen 1989, 159)

In addition, according to March and Olsen, new institutionalism does not deny the importance of either the social context of politics or the motives of individual actors (March and Olsen 1989, 17). In other words, new institutionalism can be described as a theory blending elements of an old institutionalism into the non-institutionalist styles of recent theories of politics (March and Olsen 1989, 2).

Consequently, new institutionalism, which unifies rational choice theory and traditional institutionalism, is adopted as a theoretical framework in this paper. This is an attempt to combine both rational choice theory and traditional institutionalism which is a common trend in the social sciences.

Modelling the Japanese Policy-Making Process

In this paper, the attempt to blend both rational choice theory and traditional institutionalism will be executed using the following steps:

• The behaviours of the bureaucrats will be deduced using the concept of ‘bounded rationality’.
• The interaction relationship of bureaucrats and politicians in the policy-making process will be examined using the new institutionalism approach, and a hypothetical model of Japanese policy-making process will be presented.

Deducing bureaucratic behaviour

Several scholars have constructed  models of bureaucratic behaviour in political science; for instance, Downs, Tullock, and others, use the model of maximising utility. This means that bureaucrats pursue the maximisation of benefits to the organisations that they belong to (Downs 1957: Tullock 1965). Similarly, Niskanen claims that the bureaucracy pursues the acquisition of funding (Niskanen 1971). Brennan and Buchanan model the behaviour of bureaucrats in monopolising information, so that they also monopolise the authority of deciding the national budget (Brennan and Buchanan 1980, 17-23). Consequently, several writers establish models in which the bureaucracy occupies exclusive power over the politicians and taxpayers in the policy-making process, so that the taxpayer is subordinate to the bureaucracy.

In this paper, on the basis of these previous literatures, the behaviour of bureaucrats is assumed as follows:

• First, bureaucrats pursue the expansion of the interests of the government agency they belong to.
• If it is impossible to expand their interests, they try to maintain the interests they have already obtained.
• A reduction of their interests would be the worst scenario for bureaucrats.

In this paper, it is assumed that bureaucratic behaviours will change depending on their relationship interaction with politicians. More specifically, politicians’ actions will influence bureaucrats’ choices about the expansion or maintenance of their current interests.

Modelling the Relationship between Bureaucrats and Politicians

Next, our hypothetical model of the Japanese policy-making process in which changes of power relations between the government agencies result in the major policy changes will be presented as follows:

• The Ministry of Finance (MOF) usually has dominant power over the Japanese policy-making process because it has obtained the authority to draw up the national budget. On the other hand, other government agencies usually try to maintain these current interests;
• However, the power relationship between MOF and other government agencies sometimes changes, so that MOF loses its dominance;
• As a result, subsequent policy changes occur in the government, that is, other government agencies could implement their policies which had previously been rejected by MOF.
• The government agencies use politicians to win their conflicts with other agencies over the implementation of policies they promote. In other words, a government agency can change its power relations with MOF only when the power relations between politicians are changed.

A new model of the Japanese policy-making process is presented as ‘a conflict between one government agency and another’. Basically, MOF has interests which oppose the interests of other government agencies, such as the Ministry of Economy, Trade and Industry, the Ministry of Land, Infrastructure, and Transport, the Ministry of Public Management, Home Affairs, Posts and Telecommunications, and so on [2]. The main interests of MOF are balancing the annual expenditure and annual revenue in the national budget. In addition, MOF tries to control budgetary distribution in order to dominate the other government agencies. Naturally, the interests of other government agencies would be to try to expand their budgets. Therefore, conflicts between MOF and other government agencies over budget-making often occur. Thus, the conflict between government agencies is played in the arena of forming the national budget because all the policies which the government agencies pursue can be implemented through the drawing up of the budget.

It is basically understood that MOF has usually possessed dominant power over the Japanese policy-making process because it has obtained the authority to draw up the national budget, and other government agencies have needed to obtain their budgets in order to implement the policies they promote. However, in this paper it will be assumed that the power relations between MOF and other government agencies were sometimes changed, so that the policies opposed by MOF were adopted by governments. The reason for this is that it is assumed that the conflicts between government agencies are affected by the consequences of the struggles for power between politicians.

A Case Study: The Transition of Political Power between the Ministry of Finance (MOF) and the Ministry of Home Affairs (MOHA) over the Issue of Taxation System Reform in the 1990s

In order to verify the hypothetical model of the Japanese policy-making process, one case study, MOF versus MOHA over Tax Reform in the 1990s, will be analysed. The case study will be divided into three parts. First, the history of MOF versus MOHA over the Tax Reform will be described. Second, the process of introduction of the District Consumption Tax in the Murayama Government will be investigated. Finally, this process will be explained using our hypothetical model of the Japanese policy-making process.

The History of MOF versus MOHA over the Tax Reform

In this section, the history of the conflict between MOF and MOHA over the tax reform from 1978 is described as background to the tax reform in the 1990s. In 1978, the Ohira government presented a document called ‘The Outlines of General Excise Tax’ in which, an allotment of new tax revenue to local government was first specified as the District Consumption Tax. However, the LDP lost its majority seats in the general election of October 1979. (Usui 1995, 10) The reason for this was that voters opposed the introduction of the General Excise Tax. As a result, on December 20, 1979, the Government Tax System Research Council (GTSRC) submitted a report suggesting that the General Excise Tax not be introduced in the 1980 fiscal year. The next day, both the House of Representatives and the House of Councilors, passed a resolution, ‘The Resolution Regarding the Reconstruction of National Finance’, in which the government clearly declared that the General Excise Tax would not be implemented as a measure to reform the national finance system. (Mutai 1995, 28)

Six years later, in September 1985 Prime Minister Yasuhiro Nakasone asked GTSRC to examine a new taxation reform plan. As a result, the study council tried to introduce a new type of indirect tax on general consumption called Uriage-zei (Turnover Tax). The Turnover tax was also rejected as public opinion was still opposed to the introduction of any kind of indirect tax (Mutai 1995, 28-29). However, it is important to note that the proposed ‘Turnover Tax’, the District Consumption Tax, which had been first examined in 1978, was changed to a kind of ‘donation tax’ from central government to local government.

In November 1987, GTSRC examined an indirect tax system for the third time. In April 1988, it submitted a mid-term report to Noboru Takashita, the Prime Minister. On the basis of this report, the LDP discussed and decided ‘The Outlines of a Drastic Reform of the Taxation System’ which led to the Consumption Tax Bill being passed by the National Diet in December 1989 (Mutai 1995, 29). It is important to note that the proposal of the District Consumption Tax, which had been examined since the proposal of the General Excise Tax in 1978, was excluded from this Consumption Tax Bill. The reason for this is that MOF had opposed it.

MOHA, which supervised local governments, had promoted the implementation of the District Consumption Tax because it considered that there were serious problems in the local tax system. Generally speaking, the percentage of local tax in the total revenue of local governments is only 40%. 60% of revenue is transferred from central to local governments as chihō-kōfuzei (tax allocated to local government), and zaisei-tōyūshi (treasury investment and loan). This system resulted in the phenomenon known as ‘zaisei-sakkaku’ which means that local governments overestimate their budgets as they can use both local tax and transference revenue from the central government. As a result, the spending of local governments had greatly increased, resulting in a large amount of accumulated debt. Thus, MOHA claimed that local residents must pay more local taxes, and local taxes must be made independent of national taxes (Hayashi 1995, 122). On the other hand, MOF claimed that local governments could obtain enough revenue through the transference of revenue from central government as subsidies (Igarashi 1995, 181-184).

As mentioned previously, it is assumed that MOF tries to control all revenue sources and budgetary distribution in order to dominate all other government agencies, and that MOF will oppose other government agencies which pursue the expansion of their interests. This assumption is compatible with the behaviour of MOF in the process of the tax system reform. The reason for this is that a transfer of the source of tax revenue to local governments would result in the reduction of MOF’s interests which is the worst scenario for any bureaucracy. Therefore, MOF rejected the introduction of the District Consumption Tax.

In the early 1990s, increasing the Consumption Tax rate became an important issue in the National Diet. The reason for this was that it was predicted that as Japan was rapidly becoming an aging society, expenditure on social security would need to be increased (Usui 1995, 17-19). Thus, it is assumed that a political conflict between MOHA and MOF over a transference of the Consumption Tax revenue to local governments would occur again.

The Introduction of the District Consumption Tax in the Murayama Government

In this section, the proposal of the District Consumption Tax in the Murayama government in 1994 is investigated. The Murayama government was determined to begin the tax system reform all over again, and the District Consumption Tax re-emerged as a key issue. In September 1994, the government decided to hike the consumption tax rate from 3% to 5%, and transfer 1% of tax to local governments as a revenue source. The Taxation System Reform Act including the introduction of the District Consumption Tax was passed through the National Diet on October 17th 1994. In the following section, the political process behind the introduction of the Direct Consumption Tax is examined from three perspectives: the emergence of political leaders; bureaucrats’ behaviour in influencing political leaders; and, political leaders’ decisions.

Emergence of Political Leaders

First, the cabinet members of the Murayama government, in particular, Hiromu Nonaka, the Minister of Home Affairs, Masayoshi Takemura, the Minister of Finance, and Kozo Igarashi, the Chief Cabinet Secretary will be focused on. These three politicians had similar experiences of administrative positions in local government before they became Diet members. Nonaka was a former Deputy Governor of Kyoto Prefecture, Takemura was a former Shiga Prefectural Governor, and Igarashi was a former mayor of Asahikawa. In addition, Murayama himself was a former executive of the All-Japan Prefectural and Municipal Worker’s Union (Nonaka 1999, 167-168). From our point of view in this paper, it is assumed that the reason why the District Consumption Tax was realised in the Murayama government is that politicians who had had experiences of local administration had entered into the cabinet.

Bureaucrats’ Behaviour

Second, the bureaucrats’ behaviour is examined. MOHA considered that the Murayama government was a golden opportunity to implement the District Consumption Tax because the politicians who were interested in the promotion of local autonomy had entered the Cabinet. MOHA started to try to influence politicians in order to realize a District Consumption Tax. As a result, politicians started to act in order to introduce the District Consumption Tax. For example, Home Affairs Minister Hiromu Nonaka asked GTSRC to discuss the problem of a District Consumption Tax, and on 7th April 1994, this Council decided to investigate the introduction of the District Consumption Tax. (Asahi Shinbun, 8 April, 1994) Thus, the conflict between MOF and MOHA over the District Consumption Tax began again.

In the discussions of GTSRC, MOHA argued that the introduction of the District Consumption Tax was necessary. However, MOF pointed out the following problems:

• It was necessary for approximately 3300 cities, towns and villages to pass local regulations through local assemblies in order to introduce the District Consumption Tax collected by each city town, and village;
• Tax havens would be produced even if only one local assembly rejected the regulation.

It went on to say that a District Consumption Tax should be collected by the metropolitan and district governments, but as this taxation system seemed similar to the existing Donation Tax to local government as a national tax, it was not necessary to change the taxation system. Consequently, MOF refuted MOHA completely on the basis of tax theory, and MOF optimistically thought that the District Consumption Taxes would not be realized in the summer time of 1994 (Igarashi 1995, 182-184).

Political Leader’s Decisions

Thirdly, political leader’s decisions are investigated. On September 20, 1994, Finance Minister Takemura, Chief Cabinet Secretary Igarashi, and Home Affairs Minister Nonaka agreed to introduce the District Consumption Tax. This was completely unexpected at MOF because it believed it had defeated MOHA over the discussion of tax theory. There were some reasons why this agreement was made. The first reason was because of the presence of Finance Minister Takemura. Takemura was a former civil servant in MOHA and a former Shiga governor, so he was a very enthusiastic supporter of decentralization and the expansion of district sources of revenue (Igarashi 1995, 184-185). Similarly, Home Affairs Minister Nonaka, the former Kyoto lieutenant governor, was also keen to promote decentralization. He repeatedly asserted the advantages of decentralization to the mass media (Nonaka 1999, 166).

On the other hand, MOF, which had had a close relationship with the LDP, lost political power because the relationship between MOF and the LDP became weak when the LDP lost power in 1993, and there were few cabinet members who had a close relationship with MOF in the Murayama government. MOF could not influence the Murayama government in order to oppose effectively the MOHA proposal (Kato 1996, 294-297).

At the meeting on September 20, Takemura presented a compromise for the introduction of the District Consumption Tax despite the fact that he was the head of MOF. He proposed making the District Consumption Tax a national tax where local governments would commission the central government to collect the revenue (Igarashi 1995, 184-187). As has been mentioned, MOF claimed that the District Consumption Tax was the same as a donation tax. It went on to say that since a donation tax was already functioning, it was not necessary to change the system. Takemura used this MOF logic to present a compromise plan between MOF and MOHA. He claimed that the District Consumption Tax, which local governments would commission the central government to collect, was the same as a donation tax, so that if the donation tax was functioning, the District Consumption Tax was also realisable. Nonaka accepted this proposal, and in this way a 2% consumption tax increase with a 1% revenue of it to local governments as a District Consumption Tax were decided by the Murayama government (Igarashi 1995, 184-187).

Conclusion

The policy-making process of the District Consumption Tax is examined as a case study of the model in which the transition of political power between government agencies over the implementation of policy results in the major policy change. Our model of the Japanese policy-making process will now be verified as follows.

First, the behaviour of the bureaucrats in the process of tax reform in the 1990s was investigated. In this paper, it is assumed that the bureaucrats do not always act to maximise the profits of the government agency that they belong to. They may sometimes do so, but they may also sometimes act to maintain present conditions. The bureaucrats’ behaviours are influenced by the power relationships between different government agencies which, in turn, are decided by the power relations between politicians. The difference in MOHA’s actions for implementing the District Consumption Tax between the time of the LDP regime and after the Murayama government was formed can prove this assumption. In the LDP era, MOHA understood that it was difficult to introduce the District Consumption Tax because MOF, which had dominant power over the policy-making process because of its authority to draw up the national budget, opposed it. However, after the Murayama government was established, MOHA tried to introduce the District Consumption Tax because several politicians who supported the promotion of decentralisation had joined the government. Consequently, MOHA changed its behaviour from the maintenance of present conditions to the expansion of its interests because of the transition of political power between politicians.

Next, the policy-making process of tax reform since the Murayama government is modelled as follows:

• Since 1978, MOHA had tried to introduce the District Consumption Tax, but this had been rejected by MOF. This is compatible with the assumption that MOF essentially has held dominant power over the Japanese policy-making process because it has the authority to draw up the national budget.
• However, in the Murayama government MOHA succeeded in implementing the District Consumption Tax. This fact can be explained through the assumption that the power relations between MOF and other government agencies sometimes change, so that a policy change can occur in the government.
• MOHA could use its political power because the politicians who had a close relationship with MOF resigned from office, and the politicians who had interests in promoting decentralisation took office. This is consistent with the assumption that government agencies use politicians to win their conflicts with other agencies in order to implement the policies they promote.

In conclusion, the policy-making process of the tax reform is compatible with our hypothetical model of the Japanese policy-making system. However, this model can be criticized for being overly simple in just focusing on bureaucrats and politicians. In reality, the policies have not been decided through such simple two way measures as there are many other actors that can influence the policy-making process, such as interest groups, mass media, the voters, other countries, and so on. A next step in the modelling of the political process is to include some of these complicating actors in order to make the model better match reality.

Notes

1. The Convoy System is where MOF restricts the entrepreneurial activities of larger companies in order to protect smaller ones who might go bankrupt in open-market competition. MOF’s aim was to prevent smaller companies from going out of business (Ishizawa 1995, 151).

2. The reorganisation and reduction of the number of government ministries and agencies from 22 to 13 was implemented on 6th January 2001

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About the author

Masato Kamikubo is a PhD Candidate at the University of Warwick (Coventry, UK). He received his BA in Philosophy and Humanities from Waseda University (Tokyo, Japan) in 1991, and his MA in Politics from the University of Warwick in 2001. His research interests are political institutions (the electoral system, party system, parliamentary system and presidential system, and coalition government), new institutionalism, rational choice theory, and Japanese politics. His PhD dissertation title is An Analysis of the Nature of Interaction Relationships between Politicians and Bureaucrats in the Policy-Making Process: With Particular Reference to the Case of Japan.

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