Module: Public Management and Organization Development

Sub-Module1:Public Management Trends and Administrative Reform

Contents

Introduction: Public Management and Administrative Reform 1 I. The Evolution of Urban Management Techniques in 3 1. Urban Management before the War 3 2. Urban Management in the Years of Rapid Growth after the War 4 3. Urban Management in the Aftermath of the Fiscal Crunch 6 II. The NPM Tide and Features of NPM 9 1. The Post-bubble Recession, Adverse Demographic Trends, and Fiscal Crisis 9 2. The Features of NPM 10 3. The Spread of NPM and the First Stirrings of Administration Reform 11 III. Cases of NPM-style Reform in Japan 13 1. 13 2. 14 3. Fukuoka City 14 4. Yokosuka City 15 IV. Methods and Directions of Reform 15 1. Budgetary and Public Accounting Reform 15 2. Application of Market Principles through PFI 17 3. Local Independent Administrative Agencies 18 Conclusion: The Limitation of NPM 18

Tables and Figures

Figure1.Number of local public corporations established 8

Public Management and Organization Development Sub-Module1 Public Management Trends and Administrative Reform

Sub-Module1:Public Management Trends and Administrative Reform

Introduction: Public Management and Administrative Reform

Activities of public administration have two aspects: its external functions, which are performed as part of the government’s core mission of running society through delivering services; and its internal functions, namely properly managing the bureaucratic institutions responsible for the first aspect so that they can perform that job more efficiently. Because the modern science of public administration started out as the study of how to steer the bureaucracy, the term management in this context originally referred exclusively to administrative management conducted internally to ensure the efficiency of institutional action at the policy implementation stage. Today, however, it has come to mean specifically public management — steering bureaucratic institutions so that they are better able to respond at all stages of the policy cycle, from formulation to implementation and evaluation. This shift in the central focus of the discipline of public administration occurred in the wake of the oil crisis of the 1970s. Finding themselves in dire financial straits, the developed countries mobilized the traditional techniques of public administration, such as slashing budgets and staff, in an attempt at cutback management; but these steps proved inadequate, and more fundamental reforms could not be avoided.

By the 1980s administrative and fiscal reform had become part of the common political agenda of the developed countries. The British government committed itself to harnessing market mechanisms through deregulation and privatization; in the area of public administration, meanwhile, it decoupled policy formulation and implementation, and vested the agencies charged with responsibility for the latter with greater autonomy over staffing and finances. At the same time it identified performance targets for these agencies in Citizen’s Charters, and set itself the goal of establishing a new system of evaluating performance by monitoring whether or not those targets were met. The tide of reform spread to Australia and New Zealand, and the United States too pursued a similar course. In Britain, which spawned the trend, no fundamental change occurred in the basic direction of reform even after the Labor Party replaced the Conservatives in power. The wave reached Japan as well: in 2001 the government established its own system of independent administrative agencies on the British model, and mandated the implementation of policy/program evaluations by all the government ministries.

Since the 1980s, one consistent feature of administrative and fiscal reforms has been the urge to place greater trust in and stimulate market mechanisms. But consider the other

- 1 - Public Management and Organization Development Sub-Module1 Public Management Trends and Administrative Reform side of the coin: the fact is that the modern state expanded its functions in the first place because markets triggered a host of social problems that people looked to government to solve. In the real market, conditions of perfect competition were never achieved, for there inevitably arose monopolies, oligopolies, and the like — what economists call “incomplete market.” And even if conditions of perfect competition had existed, whatever ability the market had to correct itself would not have been enough to overcome external diseconomies such as pollution or cleavage between the rich and the poor — a shortcoming that economists call “market failure.” The inability to trust totally in the workings of the capitalist economy was the very reason that the modern state grew in size and expanded its scope of action. Now, however, mainstream thinking has reversed course: there is incessant anxiety over the bloated state of the public sector, and government comes under constant attack for its shortcomings and inefficiencies, such as the way in which overregulation stifles private sector initiative. It is now argued that government suffers from an innate defect that might, on the model of the economists’ “market failure,” be called “government failure.”

But existing government services cannot be abolished altogether; therefore the services traditionally provided directly by government have in so far as possible been transferred to a medley of non-government players including companies and NPOs, while the government increasingly concentrates on designing and coordinating this diverse network of public service providers. This fresh approach, along with the thinking behind it, has come to be styled “New Public Management” (NPM); and in describing the changing view of what the government’s role should be, commentators speak of the shift “from rowing to steering” or “from government to governance.” Observers of public administration today thus are more interested in the question of public management, which pertains to the interaction between the bureaucracy and the environment in which it operates, than in that of administrative management, which pertains to the bureaucracy’s internal functioning.

This chapter surveys the impact of the NPM trend on local governments in Japan. To clarify the differences between NPM and traditional approaches to public administration and finance, it will first be necessary to review past action by local governments. Section I, therefore, examines the experiments of urban management techniques in Japan. Section II gives a brief account of the NPM tide sweeping Japan at the turn of the twenty-first century and enumerates the features of the concept. Section III describes several cases of what are regarded as NPM-style reforms in different prefectures and municipalities. Section IV examines several widely discussed methods of reform to be found in the NPM toolbox, and maps out the future direction of reform. Finally, a

- 2 - Public Management and Organization Development Sub-Module1 Public Management Trends and Administrative Reform limitation intrinsic to NPM is discussed.

It is worth noting that the private sector is ill equipped to take over such classic government functions as national defense and policing. It is not these core functions that NPM advocates privatizing or contracting out, but rather more peripheral ones. This chapter, therefore, tends to focus on the periphery of local-government services, where a certain degree of corporatization or outsourcing is feasible.

I. The Past Experiments of Urban Management in Japan

The term public management is not particularly new: a journal of that name was already being published in the U.S. in the 1930s. In Japan, too, the concept of public management took root before World War II as urbanization progressed. This section reviews the historical transition of urban management methods in Japan, the most striking characteristic of which is that, for better or for worse, they have since before the War been predicated on cooperation between the public and private sector.

1. Urban Management before the War When the Meiji government was formed in 1868, it faced the urgent task of modernizing the country. The immediate priorities were to perform an accurate assessment of the country’s lands and population and to establish a national system of compulsory education; but having few financial resources at its disposal, the new regime had to depend on the cooperation of traditional community organizations to establish a household registration system and build primary schools. The job of running the registration system was left to prominent locals who had been appointed as village headmen or deputies; money to erect schools was raised from donations by local residents and proceeds from the sale of publicly owned forests. The new government’s modernization program had to rely on community organizations dating back to the previous era to get jumpstarted.

The next task at hand was transplanting modern industry to Japan and nurturing its seeds. But the amount of private capital available in the country was nowhere near enough that the market could accomplish this on its own; so Japan adopted a policy of setting up government-run corporations in the armaments and light industry sectors, as well as state-owned enterprises like the post office, the telegraph and telephone service, the tobacco monopoly, and Japan National Railways. These government enterprises were eventually sold off for a pittance when, with the growth of private industry, players emerged capable of taking them over. These sales of government assets precipitated

- 3 - Public Management and Organization Development Sub-Module1 Public Management Trends and Administrative Reform occasional political struggles because they were regarded as nothing more than backroom deals between the government and politically well-connected businessmen; still, they also laid the foundations for the later rise of the zaibatsu (financial combine). As the country industrialized, people gradually started migrating to the cities to meet the growing demand for labor. The surge in demand triggered by World War I unleashed a particularly rapid wave of urban expansion and development. Economic and social problems began to manifest themselves with the progress of urbanization, and city governments, faced with soaring demand for public services, found themselves hard pressed to develop sanitation, water, and sewage facilities, provide electric power, and build municipal railways. Municipal governments had little enough experience to deal with such completely new challenges; incidents like a corruption scandal over the water supply that engulfed the municipal assembly only made matters worse. Amidst these situations, a movement arose calling for the decoupling of municipal administration from politics as a means of enhancing efficiency. Intellectuals of the day employed the term “management” interchangeably with “public administration,” a usage that reveals their concern about the efficiency of government services. The phrase “urban management” implied that an urban municipality was a single integrated enterprise embracing a wide range of city-run services; it was used in contexts where the question arose of the overall operational efficiency of that enterprise. Urban management called for setting aside the political aspects of city government, such as clashes of views and interests, and striking the optimum balance between the costs residents paid and the benefits they received; it thus saw matters through the prism of a social balance sheet.

2. Urban Management in the Years of Rapid Growth after the War Japan embarked on the path of rapid economic growth in 1955, when the government’s economic white paper declared the postwar era over. In the 1960s the issue of municipal management again came to the fore. To deal with an influx of companies and population, local governments found themselves having to boost administrative efficiency — by installing computers, for example — and resort to financial maneuvers like issuing bonds. Two strategies adopted by many urban municipalities in the face of these challenges were attracting new businesses to the community, and setting up extra-governmental organizations. In their eagerness to attract new businesses as a source of corporate tax revenues, local governments engaged in cutthroat competition among themselves. As soon as the Law on Promoting Construction of New Industrial Centers took force in 1962, obtaining designation as a “new industrial center” became a primary political objective; the upshot was what was described as “the biggest lobbying campaign” ever mounted by Japan’s

- 4 - Public Management and Organization Development Sub-Module1 Public Management Trends and Administrative Reform regions to win the central government’s favor. The sheer energy that went into this municipal rivalry deserves special note.

The widely adopted policies to accelerate the rapid economic growth and regional development, however, had the downside: they ultimately ended up devastating the environment and leading to urban sprawl. Moreover, most local governments found their balance sheets in a worse state than before, since any extra tax revenues that entered their pockets were more than offset by the growing fiscal demands attendant on urbanization. Their dire financial plight triggered the emergence of a new approach to local government. In addition to directly running public enterprises in areas like water, transit, and hospitals, local governments began contracting out functions to a bevy of extra-governmental bodies, most notably: (1) a triad of local public corporations set up under special legislation and wholly owned by local governments — namely, land development corporations, housing corporations, and local road corporations; (2) public-service corporations set up under the Civil Law — namely, incorporated foundations (zaidan hojin) and incorporated associations (shadan hojin); and (3) joint-stock companies partially owned by local governments — what are known in Japan as “third sector” companies. Institutionally speaking, such organizations were not government agencies and their employees were not on the public payroll; they thus enjoyed considerable autonomy, since they were not subject to legal restrictions on their finances and personnel decisions. Local governments made flexible use of such outside bodies as a means of steering their way between the Scylla and Charybdis of deteriorating finances and increasing demand for services.

The background of the extra-governmental organizations is as follows. After the Local Public Enterprises Law passed in 1952, the enterprises conducted under its provisions soon found themselves enmeshed in financial difficulties. Public enterprises were in principal supposed to stand on their own feet financially, and the scope of their financial independence only grew when the law was amended in 1960 and again in 1963. But the results failed to live up to expectation; indeed, the bottom line of local public enterprises deteriorated even further because of utility rate caps and inflation, and it soon became common practice for the local governments to cover their deficit from the general accounts. In 1966, therefore, the law was overhauled yet again, and a system of national-government subsidies was brought in. Even so, local public enterprises showed little improvement in financial health; they simply ended up becoming dependent on the central subsidies they received to balance their books.

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The local housing corporation was the earliest body to emerge in the first category, the triad of local public corporations; it became institutionalized in 1965 out of a need for action to remedy the housing shortages caused by rapid urbanization. Existing local public enterprises proved insufficient to the task of dealing with the deteriorating housing conditions that resulted from the rapid economic growth, and local governments required an external arm that could act outside the scope of the constraints imposed on local government bonds.

In addition to such public corporations, local governments also contracted out functions to a second category of extra-governmental bodies: incorporated foundations and associations set up under the Civil Law. Despite the financial difficulties with which they struggled, local governments at one point actually expanded the scope of the directly-provided services with the goal of better fulfilling their responsibility to serve the public. For example, in the 1960s it became something of a trend for municipalities to assume direct management of sewage disposal. But the local governments in such dire financial straits that they had to outsource in the first place could not possibly afford the extra cost that taking on more services would impose; as a last resort, therefore, they would establish public-service corporations under the Civil Law to contract services out.

As for the third category, joint-stock companies partially owned by local governments first appeared in the 1950s, but it was in the 1960s that they started to spread rapidly. These mixed-owned enterprises under the Commercial Law were designed to promote infrastructure development by harnessing private-sector funding and technology for the purpose of urban development projects. During the 1960s large-scale development projects jointly funded by the public and private sectors were undertaken by the likes of the Port of Kobe Wharf Co., Ltd., Tomakomai Development Co., Ltd., and Osaka Prefectural Urban Development Co., Ltd.; but in many cases bankruptcy was their eventual fate. At any rate, such joint-stock companies, whereby private-sector players were recruited to pursue government goals, became an established part of the system.

3. Urban Management in the Aftermath of the Fiscal Crunch The twin oil crises of 1973 and 1979 brought Japan’s high-growth phase to an end. As the motif of the economy turned to low growth, local governments, already financially strapped enough as it was, were forced to become even more reliant on the extra-governmental, private-sector organizations. Meanwhile the detrimental aspects of public-private sector collaboration increasingly came into the spotlight.

The local housing corporation was eventually joined by two other types of public

- 6 - Public Management and Organization Development Sub-Module1 Public Management Trends and Administrative Reform corporation enshrined in special legislation: the local road corporation in 1970 and the land development corporation in 1972. Thus emerged what are commonly referred to in Japan as the three local public corporations. In the chart below, the sudden jump in the number of extra-governmental bodies to be observed in the years 1973 and 1974 is due to the wave of land development corporations that were established nationwide at the time. The number of such bodies set up by local governments continued to climb throughout the 1970s; their scope of activity, meanwhile, expanded beyond land, housing, and roads to encompass welfare and other face-to-face services as well. For local governments with their meager revenue base, contracting out functions to these outside players remained standard practice.

This tendency if anything accelerated with the administrative reforms of the 1980s. A slew of mixed-owned enterprises were launched in the wake of the 1986 Law on Special Measures to Promote Specific Projects through Utilization of Private-sector Capacity and the 1987 Law for Development of Comprehensive Resort Areas.

As the following figure shows, the number of joint-stock companies and incorporated foundations started to soar in 1988 or thereabouts. Joint-stock companies began to increase in 1984, the year after the government obtained a set of key recommendations on administrative reforms; incorporated foundations proliferated at a more rapid rate than ever from around 1988, after a five-year cap on budgetary allocations was lifted and the public purse strings were loosened.

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Figure1:Number of local public corporations established

(year) 250

200

150

100

50

0

5 6 7 8 9 0 1 2 3 4 5 6 7 0 67 68 69 70 71 72 73 74 7 7 7 7 7 8 8 8 8 8 8 8 8 88 89 90 91 92 93 94 95 96 97 98 99 01 20 Joint-stock companies Limited liability companies Incorporated associations Incorporated foundations Housing corporations Local road corporations Land development corporations

Source: Regional Policy Study Group (ed.), Digest of Local Public Corporations, 2002 edition (in Japanese) (Gyosei)

Such extra-governmental bodies had two problems: first, they lay beyond the control of the citizenry, the real state of their operations and finances being veiled in obscurity; second, they received infusions of public cash without adequate discussion of either the need for and purpose of such money or where exactly responsibility lay for how it was used. This was especially true of mixed-owned enterprises and public-service corporations, whose establishment is governed by the provisions of the Commercial Law and the Civil Law; they existed in something of a legal limbo, and public monies were poured into them with unrestrained abandon. Eventually, in the late 1990s, a series of major bankruptcies brought to light the mixed-owned enterprises’ free-spending ways. Today more than 30 percent of them continue to operate in the red, and their net liabilities total almost ¥400 billion. Similarly, 40 percent of enterprises in the three-corporations category are in the red. In consequence, local governments have to spend even more tax money to cover their deficits or relieve them of their liabilities, thereby increasing the burden on local taxpayers.

Because extra-governmental bodies are distinct entities from the local governments that set them up, they have not been subject to oversight by the local assembly and citizenry;

- 8 - Public Management and Organization Development Sub-Module1 Public Management Trends and Administrative Reform hence sloppy business planning and Pollyannaish management projections ran out of hand. Collusion between officialdom and the private sector thrived, resulting in grossly irresponsible management. That sorry state of affairs resulted in growing distrust among taxpayers and fueled demands for administrative and fiscal reform.

II. The NPM Tide and Features of NPM

This growing distrust led to more insistent calls for local-government reforms. Then, in the late 1990s, debate over administrative and fiscal reforms took a new twist under the influence of the NPM concept. This section begins with a brief account of Japan’s current predicament and why reforms are needed; it then describes the features of the NPM concept, and examines its impact on local-government reform in Japan.

1. The Post-bubble Recession, Adverse Demographic Trends, and Fiscal Crisis What is the state of Japan at the turn of the century as the NPM tide sweeps the country? Since the economic bubble burst in 1990, Japanese economy has remained mired in a prolonged slump, though with frequent ups and downs. In the meantime, the outstanding long-term debt of the national and local governments combined climbed from ¥410 trillion in 1995 (82.0% of GDP) to ¥646 trillion in 2000 (125.9% of GDP); as of FY 2005 it stands at some ¥774 trillion (151.2% of GDP). Japan’s fiscal crisis is particularly grave, as is plain from a glance at the level of outstanding long-term debt in the other advanced economies: Britain’s, Germany’s, and France’s stand at somewhat over 30% of GDP, and the U.S.’s is in the 50% range.

The country’s fiscal crisis is expected to grow even worse because of plummeting birthrates and the aging population. Japan’s total fertility rate now stands at an extremely low 1.29; according to forecasts, the population will peak sometime in FY 2006 and then go into decline. To aggravate matters, the baby-boom generation born after the war is about to start reaching retirement age; and when they do, receipts from national and local income taxes will drop, while spending on healthcare, welfare, and other forms of social security will jump. Most seriously affected will be bedroom communities on the outskirts of metropolitan areas. The city of Tama, a bedroom suburb of Tokyo, is in dire peril of going bankrupt in the near future because of a combination of factors: a dwindling workforce and declining tax revenues due to falling birthrates and a rising median age, the need to pay out large sums in retirement allowances as the city employees on its payroll retire en masse, and the dilapidated state of municipal facilities. The only way it will be able to cover the cost of those retirement allowances, it is said, will be by floating a special bond issue for that express purpose.

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Every local government in Japan today faces a fiscal crisis of a greater or lesser extent. Such is the predicament the country finds itself in, and hence the great interest in NPM-oriented reforms as a means of streamlining finances.

2. The Features of NPM NPM can be understood as the extension to the public sector of the market-oriented thinking that gained ascendancy in the U.K. and U.S. in the 1980s. It can be boiled down to four essential features: an outcome-oriented approach, a customer-service orientation, application of market principles, and decentralization.

The first pillar of NPM is an outcome-oriented approach to management, one that stresses results. NPM calls for setting performance targets, measuring success in achieving them, and then — and this is the most salient point — using those measurements in the budget compilation process. Measurements of and improvements in performance are all integrated into a “plan-do-see” management cycle, the intention being to create a feedback effect whereby the results of one policy are assessed in the course of deciding on the next. If an activity of public administration is thought of as comprising four stages, namely, funding, job volume, volume of operations, and benefits, then what is being measured here is volume of operations. Take collection of household garbage as an example. The sanitation department is allocated funding in the budget to spend on staff, equipment, and so forth; that funding enables it to hire sanitation workers and buy garbage trucks. The number of hours that those workers are actually on the job and the distance that the garbage trucks travel constitute job volume. The amount of garbage collected as a result of these inputs and the frequency of garbage collections per week constitute volume of operations. Outcome-oriented management is concerned above all with whether or not volume of operations meets the numerical targets that have been set for it.

The second fundamental principle of NPM is adopting a customer-service orientation in the provision of public services. The objective here is to improve local residents’ level of satisfaction; thus the focus of public administration shifts from internal management of inputs and procedures to the individuals outside government who are the beneficiaries of the outputs. The benefits of household garbage collection include keeping the streets clean so that they are not piled up with garbage or strewn with litter, and reducing the amount of money and labor that individual households must expend on disposing of waste. The quality of the service can be measured in terms of the level of satisfaction it engenders among residents.

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The third cornerstone, applying market principles, is designed to bring about improvements in quality and efficiency by encouraging competition both inside and outside government. The need to adhere rigorously to legal guidelines governing inputs and procedures renders public management inflexible and inefficient, it is argued; so competitive market principles should be adopted as a way to boost efficiency. Virtually every local government contracts out the job of cleaning the building in which it is housed.

The fourth cornerstone, decentralization, is designed to achieve greater flexibility by transferring authority and responsibility for delivering public services, at least in so far as possible, to the entity that actually provides them. Decentralization is an effective way of addressing the varying needs of citizens in different regions; it is also consistent with a customer-service oriented approach. The Japan International Cooperation Agency (JICA) — though not a local-government body — has been devolving functions to its foreign local offices and granting greater discretionary powers to the directors thereof in an attempt to reduce the time and money spent on coordinating decisions with headquarters in Tokyo. This reform promises several advantages. Local groups can expect to get a prompt decision without being fobbed off with talk about how “we’re waiting for an answer from Tokyo”; staff for their part have to be more on their toes, for they can no longer resort to the stock excuse that “we haven’t got a reply from Tokyo yet, so there’s nothing we can do.”

These basic elements are all typified by the policy of creating independent administrative agencies with the goal of separating policy-making and execution. This policy is outcome-oriented and customer-service oriented in that the spun-off executive arm is evaluated for its success in achieving predetermined performance targets; it is market-centered in that the principle of private-sector management is adopted to the greatest extent possible; and it is consistent with the demands of decentralization in that authority and responsibility are transferred to the executive arm.

3. The Spread of NPM and the First Stirrings of Administration Reform At the central-government level, Japan has long pursued NPM-style reforms: it set about privatizing the triad of national public corporations in the 1980s, and in 2001 it brought in a system of independent administrative agencies on the British model. But it was not until the late 1990s that this trend percolated down to local governments.

Osborne and Gaebler’s Reinventing Government, which had a considerable impact on the

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Clinton administration in the United States, was published in Japanese translation in January 1995, and it became a primary inspiration for Masayasu Kitagawa and his regime when he was elected of Mie Prefecture that same April. At that time there was already a growing move at the local level to implement organizational reforms and adopt systems for evaluating government performance — as typified by ’s “periodic assessment” (later restyled “policy assessment”), which reassessed the need for public-works projects after a certain period had elapsed since the decision had been made; or Shizuoka Prefecture’s “operational inventory,” to be described below. In Japan, then, the NPM concept merged with the tide of program evaluation as it penetrated to the local-government level.

Other types of reform, such as decentralization and deregulation, have also exerted a significant impact. In 2000 Omnibus Law to Promote Decentralization took force; this replaced the hitherto-hierarchical relationship between Japan’s central government, prefectures, and municipalities with an equal partnership, and it required local governments to manage themselves in accordance with the principle of local self-determination. Currently progress is being made in decentralizing taxes and revenues. In all aspects of local government, self-determination is increasingly becoming the order of the day.

As deregulation has progressed, a number of municipalities have been designated “special zones for structural reform” and as such undertaken numerous model projects on an experimental basis. For example, the cities of Nara and Kurashiki, both tourist attractions, have imposed more stringent restrictions on unauthorized advertising and banners than those embedded in the state law by enabling their immediate removal in order to preserve the local scenery. Obtaining designation as a special zone has enabled the city of Beppu, host to many students from abroad, to simplify procedures for approving the use of public housing as dormitories for international students. The groundwork is thus gradually being laid to enable local governments to formulate policies tailored to local conditions.

The wave of local-government reform now sweeping across Japan’s regions has sprung from several sources: the NPM concept itself; the growing trend toward evaluating quality of public services, pioneered by certain local governments, with which that concept became intertwined; the goal of administrative reform in the broad sense of the term, including decentralization and deregulation. With that background in mind, let us turn next to examining several cases of NPM-style reforms undertaken at the local-government level in Japan.

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III. Cases of NPM-style Reform in Japan

There exists no exact definition of NPM; this section, therefore, examines policies either generally regarded as exemplifying the NPM approach or explicitly claiming it as their inspiration.

1. Shizuoka Prefecture Shizuoka Prefecture furnishes one example of a local government in Japan that has publicly declared its adoption of NPM. Since 1994, when Yoshinobu Ishikawa assumed the governor’s office, the prefectural government has been taking steps to improve productivity of public administration, among which two are especially well known, the operational inventory system and so-called organizational flattening. An operational inventory is a chart that collates descriptions of the administrative programs implemented by individual departments with specific policy goals. By so doing it clearly defines organizational objectives; it also makes it possible to gauge the extent to which those objectives are met through the use of indicators of outcomes. It does not entail a complete overhaul of administrative programs or major cuts in expenditures; rather, it was originally designed as a means of reforming the mindset of prefectural employees.

“Organizational flattening” was implemented throughout the central arm of the prefectural government in 1998 and 1999. This was a structural reform that involved abolishing all middle management posts — deputy departmental director, division chief, councilor, senior engineer, assistant division chief — and replacing them with just two positions, general office manager and office manager. The government had been previously divided into “divisions”; but that arrangement often compelled a single unit to take charge of multiple objectives, which in some cases had no connection whatsoever with one another, with the unfortunate result that the organization lost sight of what exactly its mission was. So the old divisions, numbering roughly one hundred, were jettisoned, and the prefectural government was reorganized into somewhat over two hundred smaller “offices” each assigned its own goal. This reduction in size of organizational units not only thinned out middle management, but also resulted in the replacement of the existing system of collective supervision by multiple managers — typically three, namely, division chief, technical assistant, and administrative assistant — with one in which the office manager exercised sole authority.

This organizational flattening has elicited mixed reviews, but at the very least it has greatly accelerated the speed with which regular decisions are approved and raised

- 13 - Public Management and Organization Development Sub-Module1 Public Management Trends and Administrative Reform prefectural employees’ awareness of organizational objectives. Shizuoka Prefecture’s reform program is a concrete example of the pursuit of outcome-oriented management.

2. Mie Prefecture Along with Shizuoka, Mie was the first place in Japan to implement a systematic, comprehensive assessment of quality of government services. Upon taking office in April 1995, then-governor Masayasu Kitagawa launched his Sawayaka (refreshing) campaign, the word sawayaka being an acronym formed from the initial letters of the Japanese words for “service,” “easy to understand” (wakariyasui), “enthusiasm” (yaruki), and “reform” (kaikaku). In 1996 his government instituted a system for evaluating administrative programs with the goals of improving policy quality and ensuring greater government accountability. All aspects of public administration assigned funding in the budget became subject to the system; evaluation was performed internally (i.e., took the form of self-evaluation); and programs were as a rule evaluated after the fact except in the case of new programs, which were evaluated beforehand. The evaluation results were then made public — a groundbreaking move at that time.

Mie Prefecture originally brought in this evaluation system as a tool for reforming the mindset of its employees; hence calculation of costs did not at first figure that largely in it. But then, in FY 2001, the prefecture set up a policy system designed to overhaul all the governmental activities; at the core of this lay the so-called Mie Evaluation System, an expanded evaluation system that extended to the program level, the results being reflected in the budget-compilation process. This new approach made it possible to measure progress in implementing the prefectural government’s overall plans while also giving due regard to appropriate allocation of management resources. As a result Mie’s reforms have gradually come to conform to the NPM model.

3. Fukuoka City The city of Fukuoka is pursuing what it calls the “DNA Campaign,” which is summed up in the triple slogan of “Start with what you can,” “Do a satisfactory job,” and “Don’t forget your sense of fun.” “DNA” stands for the three Japanese words “can” (dekiru), “satisfactory” (nattoku), and “sense of fun” (asobi-gokoro) contained in this slogan; it also reflects the aim of altering the municipal government’s genes, as it were, by transferring more authority to staff. This campaign, it is claimed, constitutes an example of NPM in that it aims to harness private-sector management techniques to the municipal government; nonetheless, it focuses primarily on overhauling the mindset of the city’s present staff and improving the workplace atmosphere. Its goal is to promote reforms in, for example, the planning of operational reforms, and to get the whole organization

- 14 - Public Management and Organization Development Sub-Module1 Public Management Trends and Administrative Reform committed to them.

4. Yokosuka City After Japan’s economic bubble burst, the city of Yokosuka found itself struggling to pay off the principal and interest on loans incurred as the result of several ambitious projects; it therefore undertook a series of administrative and financial reforms, including the adoption of a system of evaluation. Yokosuka’s evaluation system has several peculiarities. First, it incorporates evaluation into the city’s master plan. Evaluation results are consolidated for each of the three levels in the master plan: overall policy framework, general directions in policy implementation, and specifics of policy execution. Second, it is run in collaboration with the citizenry. Third, it takes advantage of information technology. In this regard Yokosuka was already well positioned, since the city had been enthusiastically pursuing the goal of becoming an e-savvy municipality and had all the necessary infrastructure in place. Fourth, the evaluation system obtains outside input from citizen commentators and a community-building evaluation committee.

As the above examples reveal, self-styled NPM reforms in Japan have not necessarily involved the relentless pursuit of efficiency, outsourcing, and privatization; the NPM’s proper goals. Instead, they have concerned themselves primarily with changing the mindset of government employees. But even if that is the case, recent reforms do reflect NPM thinking to the extent that they attempt to streamline management through the implementation of performance evaluations.

IV. Methods and Directions of Reform

Whether or not they have already implemented NPM-style reforms, local governments in Japan will no doubt continue to face the challenge of administrative and financial reforms, especially in light of the current financial circumstance. This section describes several widely discussed methods of reform to be found in the NPM toolbox.

1. Budgetary and Public Accounting Reform As a historical survey will reveal, public accounting reform has not traditionally been enumerated among the tools in the NPM toolbox; but in recent years it has assumed a prominent place on the NPM agenda.

One problem with the traditional practice of municipal administration in Japan was citizens’ frequent lack of access to accurate information on municipal accounts. Besides

- 15 - Public Management and Organization Development Sub-Module1 Public Management Trends and Administrative Reform the income and revenue recorded in their general accounts, local governments often had a pile of miscellaneous debts hidden away — deficits on special accounts, non-performing assets held by one or another of the three types of local public corporations, money invested in mixed-owned enterprises that was now irrecoverable. To eliminate this obscurity and ensure that accounting records present an accurate picture of a local government’s finances and track record, there is a growing tendency to compile financial records in the form of balance sheets or profit and loss statements. The publication of such balance sheets was pioneered by the city of Usuki in Oita Prefecture, and many other jurisdictions have followed suit, including the prefectures of Tokyo, Mie, and Kumamoto; the cities of Mitaka, Muroran, Kobe, Fuchu, Hino, Sagamihara, and Fuji; and Tokyo’s Suginami Ward.

It should be noted in passing that, in the case of local public enterprises directly run by a local government, a system of special accounts that earmarks specific revenues for specific expenditures makes perfect sense, as long as those accounts are truly independent. But special accounts, of whose very existence local residents may not be aware, can end up doing more harm than good by undermining the ability of the citizenry and the local assembly to keep them under control. For that reason cities like Takatsuki have brought in a system of consolidated accounts that integrates general accounts, special accounts, and corporate accounts into one, whereas previously separate books were kept for each.

In terms of making financial information easier to keep track of, one innovative idea is that of “policy implementation costs” devised by the city of Kokubunji. Take for example government vaccination programs, which may assume one of two forms: mass immunization at schools and the like, performed by physicians during lunch break; or individual vaccinations that can be administered by your regular doctor. Implementing a mass immunization program requires hiring personnel to carry out such functions as purchasing and storing vaccines and other supplies, arranging a site, getting staff to and from it, and lining up the necessary vehicles from the local government’s fleet. For that reason other sections, too, will find more work on their hands: processing the extra personnel’s payroll deductions, performing the paperwork needed to lend out vehicles, notifying the public of where to go to get one’s shot. If, on the other hand, vaccines are administered individually, the cost to the budget for the fiscal year in question will be greater, since the local government will have to pay a larger commission to the local medical association; but only a single employee will be required to administer the program. After working out the total cost that each approach would entail, Kokubunji, being well equipped with medical facilities, was found opted for an individual vaccination

- 16 - Public Management and Organization Development Sub-Module1 Public Management Trends and Administrative Reform program. Such calculations of cost also have the benefit of revealing how much money actually goes into existing programs, so that citizens can engage in more informed debate on the content of public services.

2. Application of Market Principles through PFI Private Finance Initiative (PFI) is a method of providing public services that emerged as part of the administrative reforms implemented in the UK under the Conservative governments of Thatcher and Major. Even after Blair’s Labor government took power, PFI continued to be promoted, and the term public-private partnership (PPP) — emphasizing the cooperative relationship between the two sectors — came into currency. The PFI concept reached Japan as one aspect of the NPM, and in July 1997 the central government adopted the Law on Promotion of Public Facility Development through the Use of Private Funds, or the PFI Law as it is known. PFI involves tapping the private sector’s financial resources, management capacity, and technological expertise for the purpose of building, maintaining, and operating such public facilities as gymnasiums and homes for neglected children. The approach offers several advantages. First, since bidding is open to all rather than just to a select few, market principles are given freer rein and costs are optimized. Second, several private-sector companies band together to bid as a group that offers an integrated project package encompassing design, construction, operation, and maintenance; hence the private sector too gets to review project details and costs. Third, private-sector firms that have heretofore been shut out of public-works projects now find the door open.

When it comes to implementation, however, PFI presents problems. First, PFI requires that private-sector players make a definite, long-term commitment to designing, constructing, operating, and maintaining a facility; but today the only companies in Japan that possess the requisite technology and know-how to accomplish that are large construction firms and trading companies with a nationwide presence. These large construction firms and trading companies are hungry for big projects that entail plenty of initial investment in construction work; hence PFI ends up being restricted to major projects, and from the start smaller local companies give up any hope of a piece of the action.

The second problem with PFI is that at the regional or local level, conversely, there is more concern with protecting and nurturing small business, stimulating the local economy, and creating jobs than with improving the efficiency of public-works projects; therefore priority tends to go to awarding contracts to medium and small businesses based in the area. For that reason it has become the fixed practice to farm out the job of

- 17 - Public Management and Organization Development Sub-Module1 Public Management Trends and Administrative Reform maintaining and managing existing public facilities to such local firms under separate contracts, while the PFI approach is adopted only for constructing new facilities, since in those cases it provokes little opposition.

This policy of favoring smaller, local companies and dishing out separate contracts to them is at loggerheads with the project integration and open tendering required for PFI to succeed. But the straitened financial circumstances in which local governments find themselves show no signs of easing anytime soon, and eventually they will have to take the knife to the longstanding practice of awarding separate contracts to smaller, local firms. In point of fact, the Local Autonomy Law was amended in June 2003 to create a “designated manager” system, and cases have appeared of private-sector firms running public libraries and daycare centers. This trend can only be expected to gain steam, and the question of how local governments can best tap the potential of the private sector will soon loom larger than ever.

3. Local Independent Administrative Agencies The local version of the independent administrative agency is one example of an institution created as part of the package of NPM-style reforms that however has completely failed to catch on. Since the governing legislation only came into force in April 2004, it is perhaps too soon to dismiss the local independent administrative agency as stillborn; but with a handful of exceptions there are no jurisdictions that have actually set one up.

Local independent administrative agencies are intended to replace local public enterprises that run, say, hospitals and transit services, but in these areas places like and the city of Yokohama have gone one step ahead: they are actually privatizing public hospitals and municipal transit. Setting up a local independent administrative agency is a fairly timid measure compared to a wholesale privatization, and the format is not under serious consideration for adoption except at certain publicly run universities.

Conclusion: The Limitation of NPM

Various other methods of administrative reform might come to mind within the context of NPM, but here we break off our discussion to turn to one final question: the limitation of NPM. To put it in a nutshell, that limitation lies in its failure to pay sufficient attention to the question of who makes the actual decisions in the policy-formulation process.

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NPM assumes that the information obtained from the evaluation process will ultimately be fed back into the budget-compilation process. But a budget is by its very nature the result of balancing a wide range of interests; it emerges from a political bargaining process that involves the head of the local government, its various executive branches, and the local assembly, as well as all kinds of community groups and local organizations. NPM is predicated on a belief in the technical validity of the various tools in its toolbox; but on the other hand, for the sake of the democratic process, it is essential that the budget possess political legitimacy as a means of determining allocation of resources. It will not do if, as a result of the political process’s having receded into the background, the government’s bureaucratic organs start making ostensibly technical decisions that are in fact political decisions in disguise. It should be recognized that the information yielded by the NPM evaluation process does not provide scientific solutions to the question of how to boost local-government efficiency; rather, it is simply one of many things to be taken into account in reaching a political decision.

What indeed is efficiency in the first place? In answering this question in the context of democracy, Lilienthal advocated the concept of “efficient citizenship.” Efficiency in this case is measured in terms of the social benefits enjoyed by local citizens — what might be described as their level of contentment; in other words, it is a matter of the degree to which individual welfare is attained through proper allocation of resources (Lilienthal 1945). As long as local governments can formulate spending plans in each policy area that accord with the preferences of local citizens — even if taxpayers end up paying more — they will have succeeded in allocating resources efficiently in the sense that they have been faithful to the aggregate will of the citizenry.

If the aim is to ensure that local governments achieve greater efficiency in administering taxation and finances, therefore, criticism needs to be directed primarily at the excessive control exercised by the central government over local finances. Currently the Japanese government is in the process of implementing a so-called trinity of reforms that entails simultaneously cutting state subsidies to local governments, transferring tax revenue sources to them, and overhauling the local grant system; but this program is making little headway, since agreement has yet to be reached on what tax revenue sources are to be transferred. Nonetheless, if, as the government has decided, some eight trillion yen can be shaved off the roughly twenty trillion yen that Tokyo dishes out to local governments in the form of grants and added to their regular revenue sources instead, the central government’s stranglehold on local finances would be considerably weakened. For Japan, then, the task at hand is to ensure that these reforms are put into action so that local governments come a step closer to achieving the ultimate goal of genuine

- 19 - Public Management and Organization Development Sub-Module1 Public Management Trends and Administrative Reform revenue autonomy, which would allow them to set their own taxes at will without being constrained by the central government.

In all the debate over NPM, then, sight has been lost of the question of who ultimately makes the decisions. And that is reason for caution, for making decisions and taking responsibility are two sides of the same coin, and when the decision-makers disappear from view, you run the risk of ending up with a “nobody-in-charge society” (Cleveland 2000). At the beginning of this chapter we described how public administration has shifted focus from inside to outside, from administrative management of the bureaucracy itself to management of a network of diverse actors; that being the case, the bureaucracy’s responsibility to society at large needs to be more clearly defined.

Bibliography

Hood, C. (1991), “A Public Management for All Seasons?” Public Administration, vol.69, no.1: pp.3-19. (One of the most important articles about “new public management” (NPM), which the author first named. Rather than supporting the idea of the new style of public management, he showed there are at least three types of management style related to three basic values of governance, and NPM seeking efficiency is just one of them.)

Lilienthal, D. (1945), TVA: Democracy on the March, Pocket Books. (This influential book showed through the story of TVA that the scientific planning and the grass-roots democracy could go hand in hand in the New Deal period. The author established the TVA power system and served as the board chairman from 1941 to 1946. A Japanese translation is available.)

Osborne, D. and T. Gaebler (1993), Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector, Plume. (A best-selling, practical book focusing on the transition of governance, from old public administration to new public management. According to the authors, the government should be more catalytic, mission-driven, customer-driven, anticipatory, market-oriented, result-oriented and decentralized.)

Cleveland, H. (2000), “The Future is Uncentralized” Public Administration Review, vol. 60, no. 4: pp.293-297. Hood, C. (1998), The Art of the State: Culture, Rhetoric, and Public Management, Clarendon Press.

(Takashi Nishio and Ryuran Kato)

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