Monday 18 March 2002

Australian Financial Review

From his suite in the plain-looking Cabinet Office building in the Nagatcho district in central Tokyo, Nobuteru Ishihara plots political and bureaucratic trench warfare armed with only a small staff, a reformer's zeal and a big sense of humour.As Cabinet Minister for Administrative and Regulatory Reform, 44-year-old Ishihara's job is to privatise or abolish 117 special public corporations, deregulate a range of protected sectors, and strip away special benefits provided to 26,000 non-profit government bodies, some of which have enjoyed privileged status since the Meiji era of the late 1800s.In effect, Ishihara is the line manager running the Koizumi abattoir for bureaucratic sacred cows.In any nation, that would be a daunting task. In Japan, where bureaucratic influence is part of the culture, it is gargantuan.And after 11 months on the job, Ishihara knows it isn't getting any easier. He concedes that the forces of resistance are growing."We expect the anti-reform resistance will grow bigger, " he says, "and not only within the ruling [Liberal Democratic Party-led] coalition. There are also a lot of anti-reform supporters in the opposition."But he says that while Prime Minister Koizumi can retain favourable poll ratings of about 50 per cent, the reform agenda will hold."If it falls below 40 per cent, it could slow down the reform, as we could start hearing the voices of anti-reform resistance louder," he said.Despite the resistance, Ishihara insists that good progress is being made in streamlining Japan's bloated public sector.He points to the recently passed 2002 fiscal budget which slashed \1.1 trillion ($16 billion) from the budgets of the special government corporations.Ishihara jokes about how that budget cut was transformed from a planned saving over three years to one which must be absorbed in just 12 months."When I talked with the Prime Minister about the reduction, he asked me how long it would take. I said to him, `If you can give me three years, I can do it.'"The Prime Minister accepted that at the time, but then a week later he came back to me and said, `You should do it within the year.'"

Ishihara explodes with laughter at his own misfortune.He adds, quickly, that despite the size of the Japanese budget, slashing \1 trillion was equivalent to shaving a fifth off Japan's defence budget - the second largest in the world.Ishihara, like other new-breed LDP politicians, is cut from familiar political cloth, but nevertheless evinces discomfort with, and a keenness to change, the ways that have prevailed in Japan for the past five decades.His father, Shintaro, was also an LDP politician, and in 1991 famously wrote a controversial book, The Japan That Can Say No: Why Japan Will Be First Among Equals.Even though now retired from the Diet, Ishihara the elder, now governor of Tokyo, is still seen as a potential future prime minister.Some analysts even suggest privately that Koizumi's inclusion of Ishihara the Younger in his Cabinet is part of an insurance policy against a move by his father.But Ishihara is one of a number of youngish (40 to 50-year-old) LDP politicians who are frustrated with the political and bureaucratic practices of the past and impatient for radical change.Although many are second-generation politicians, they are committed to both the shake-up of economic policy and the way it is made.A few blocks from Ishihara's suite, in the House of Representatives' Building No 1, Yasuhisa Shiozaki is one such LDP politician carving out a reputation as an impressive thinker.A former Bank of Japan economist, Shiozaki has the policy wherewithal to challenge prevailing thinking in the Ministry of Finance and the Financial Services Agency.And he differs with his friend Ishihara on elements of his privatisation plan.The Koizumi Government should be much bolder, Shiozaki says, including by taking the immediate step of selling off all existing shares in the partly privatised national telco NTT, the tobacco company Japan Tobacco and Salt, and the national rail network JR.All of these were partly sold off in the mid-1980s but have been left alone since, in part because of a slump in the stockmarket.But even in Japan's depressed market, Shiozaki estimates potential returns of \5 trillion from the NTT, JT, and JR sales alone.But in a recent interview with The Australian Financial Review, Shiozaki said he had no doubts about the opposition to any such plans."The Ministry of Finance, they are the biggest impediment. They tend to think it is not the right time to sell government assets," he said.But Japan can't afford to wait, says Shiozaki, who spruiks a 10-year plan to solve Japan's economic problems. (It's now an 11-year-plan because the first year has been wasted.)Shiozaki says the privatisation proceeds are necessary for a safety net to catch those who will suffer from stage one of his reform plan: the relentless disposal of non-performing loans, along with associated corporate and industrial structural reform.If pursued vigorously, they loan clean-out could be accomplished within two years, he argues.Years three and five should be used to rein in public spending before using the last five years to tackle reform of the social security and pension systems as well as tax reform.Shiozaki's big criticism of Koizumi's approach to date is one of timing - that he tackled fiscal reform before he took on the banking sector's problems.That decision means the economy is running on weak demand just as it needs to tackle the painful task of loan and corporate restructuring.Another growing impatient with Koizumi is another LDP young turk, Yoshimi Watanabe, whose late father Michio Watanabe came close to the prime ministership in 1991.At a specially convened meeting with Koizumi last month, both Shiozaki and Watanabe were asked to outline to Koizumi what steps he should include in his anti-deflation plan unveiled at the end of February.A chart that Watanabe put together graphically illustrated the gravity of Japan's circumstances.The end result of the current policy incrementalism would be a financial crisis characterised by widespread panic, Watanabe warned.But the anti-deflation package, released a few weeks ago, was a fizzer.As Watanabe told the AFR recently: "We have seen this again and again in the past. We have already experienced three major crises and this is the fourth.

"After every crisis we have this topical remedy. Then we leave the original problem unfixed without fundamental remedies, and we see another crisis after three years."The problem is, Watanabe says, the next crisis may come sooner than expected."I am afraid this time things won't hold for another three years - probably six months at best."Back at the Administrative Reform Office, Administrative Reform Minister Ishihara, continues to confront bureaucratic static.The big-ticket items on the privatisation agenda - the government-run financial corporations and the highway corporations - both have small armies of political protectors.The financial corporations, including the postal savings system, which houses a massive 35 percent of all deposits, are on the back-burner for the moment.The four highway corporations, which build the toll roads in a country nearly buried in bitumen, are the more immediate prize.Ishihara won the first round of this battle, ensuring that he, not the politicians known as the road tribes, would choose the committee to oversee their privatisation.But Ishihara also knows that a privatization plan which forces road construction to go where demand is, and not where the local politician wants it, is going to encounter opposition."It is interesting to see that sometimes when you have a powerful politician, the road becomes attracted to the magnetic force and bends toward him" Ishihara says. "In the old days it was the Shinkansen [very fast train] route."He also knows that many of the public corporations he wants to abolish or privatize fall within the administrative umbrella of other ministries.His keenness to streamline or abolish is not always shared by senior bureaucrats in other ministries, many of whom plan a well-paid semi-retirement in these public corporations.So the help is not always forthcoming.

"We have given [ministries] directions such as cancel that project or that the corporation can be streamlined here or there," he says.But there is no way of ensuring these instructions are heeded, forcing Ishihara's office to increase what he calls surveillance work to ensure that the ministries comply with his directions.He says the agency doesn't even have information on the biggest privatisation of all, the Japan Highway Public Corporation."[Details of the JHPC] haven't been provided to this ministry, even though we have asked for them," he says.He then cites, with grim humour, the response provided by the Honshu-Shikoku Bridge Authority when asked about its debt levels."They replied, `Well, 2 or 3 trillion yen,'" he says, grimacing at the casual nature of the response."That's a \1 trillion difference!"Protected sectors such as the medical profession are another target.Ishihara relishes the fact that he released the draft proposals for deregulation just before last year's mid-year elections."You see, the medical sector, especially the doctors' associations, are very powerful LDP supporters - except me [laughing] - and the plan was against their interests. So I was criticized a lot.The timing was especially annoying to them, but as I thought it was a very important sector for reform, I chose the timing intentionally."Then there are the 26,000 special non-profit corporations, many of which neatly evade tax.The legislation conferring special benefits on these bodies was written in 1899 and has not been changed since.No-one seems to know why."We don't know why nobody has done anything in the past and that is the issue we have to tackle," he says.It is difficult to grasp the whole picture. It's like trying to grab a cloud."But we are working hard and taking a step by step approach."

（日本語訳）行政改革・規制改革担当大臣としての石原氏の仕事は、行政改革、公益法人改革、規制改革など。抵抗勢力の激しい反対は今後益々強くなるはずだが、小泉首相は５０％の支持率があれば改革は実現可能だと言い切る。そのような厳しい抵抗の中、石原氏は2002年度予算で１兆１千億円もの特殊法人向け予算を削減。これは大きな前進であると本人は評価する。特殊法人には族議員の存在があり、改革は大変困難である。官も天下り先がなくなるため、民営化には消極的だ。明治３１年の民法制定から、公益法人に関しては一度の改訂もなされていない。「なぜこのようなことになっているのか、このこと自体、私たちが一歩一歩取り組まなければならない問題であろう。」と石原氏は言う。