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News Release

Working Towards Small and Efficient Government

July 21, 2005

Overview

The Honebuto no Hoshin 2005 ["Big-Boned Policy 2005"] reform document drawn up in June 2005 clearly identifies achieving small and efficient government as a mainstay of structural reform, alongside a radical review of the social security system. The framework for this consists of a reform of overall personnel spending to be achieved by reducing the number of government employees and market testing. Achieving small and efficient government is also an important element of the structural reform of public finances. A basic policy that there should be no increase in taxation without a reduction in expenditure has been put forward as one of three principles for the integrated reform of government income and expenditure with a view to improving the basic fiscal balance, alongside the principles of vitality and transparency.

However, it is not certain that small and efficient government can be achieved. First, in the reform of overall personnel spending, the focus is on a net reduction in the number of civil servants. However, owing to its vigorous pursuit of administrative reform, especially since the 1980s, Japan's public sector is small as compared with that of other major developed nations, and it is likely that the scope for a net reduction in the number of civil servants is not extensive.

In the United Kingdom, the United States, and other countries that have had success with the market testing approach, government organizations and employees have begun to take a positive attitude to market testing. This is because today, when civil servants are exposed to almost the same risk of redundancy as private sector employees, active participation in market testing helps to secure employment and ensuring the success of projects can help to boost pay. By contrast, while Japan's civil service system in theory allows for redundancies as a result of the reform or abolition of organizations, in practice such redundancies are taboo and it is possible that the level of remuneration in Japan is high as compared with the other major developed nations.

In the United States, the wages of local government employees were sharply reduced at the beginning of the 1960s owing to the tightness of public finances. Against this backdrop, although there were differences between States, schemes for negotiation between workers and management gradually became systematized. In the past, public labor and management negotiations were uncommon on the grounds that (i) public services were essential to human life and could not be suspended, (ii) civil servants were subject to certain restrictions in the performance of their duties, (iii) remuneration systems were generous as compared with the private sector. However, in reflection of changing conditions, such as the introduction of wage reviews, labor and management negotiation systems have gradually been established.

This suggests that, if Japan is to achieve small and efficient government, performance evaluation and disclosure systems relating to public services need to be improved and expanded as a matter of urgency. Only then will it be possible to evaluate the levels of service attained and the scope over which services are provided in terms of user satisfaction and problems experienced, and to conduct evaluations of individual services including whether or not services are needed and attainment versus targets, while comparing Japan with other countries, with reference to a range of quantitative indicators including costs such as equipment and personnel expenses, productivity and cost-effectiveness. Improving the quality and efficiency of public services will require the application of the principles of free competition. In addition to establishing performance evaluation and disclosure systems, key issues will include (i) expanding the organizations that provide public services and (ii) building greater resilience into the civil service system.

For more information on the content of this report, please contact: Hidehiko Fujii the Japan Research Institute, Limited.

Tel: 03-3288-4615
E-mail:fujii.hidehiko@jri.co.jp

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