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The Need for Decentralization to Overcome Stagnation in the Regions:
- The need for a full-scale transfer of power and fiscal resources to prefectural governments -

July 19, 2006

Overview

In May this year, following the example of the chiho roku dantai, [six local government organizations] the 21st Century Vision for Regional Decentralization Discussion Group, hosted by the Minister of Internal Affairs and Communications, published a plan for decentralization reform. The Discussion Group's paper calls for the resolute implementation of decentralization reforms until birthrate decline, population aging and population decline begin in earnest.The medium projection of Japan's future population released by the National Institute of Population and Social Security Research in January 2002 is that Japan's total population will begin to decline from 2007 onwards, but the year-on-year fall in numbers is set to reach the 100,000 mark only in 2010 and to exceed 300,000 only from 2015 onwards. This suggests that full-scale population decline is another 5-10 years away, and it is therefore possible to take the view that there is still ample scope for the pursuit of decentralization reform.

In provincial areas, however, the pace of population decline is already far greater than that assumed in the government's population projections. Against a background of declining fertility rates, population migration from provincial areas to metropolitan areas is accelerating. This is due to the stagnation of regional economies, indicated by a lack of growth or decline in employment. Moreover, the pace of population decline in the regions is expected to accelerate still further. Effective measures to revitalize regional economies should therefore be drawn up and implemented vigorously as a matter of urgency.

Since the 1970s, the developed nations have launched a variety of initiatives aimed at regional economic development. Today, thanks to decentralization, it is generally regional governments that play a central role in these initiatives. In Japan, too, the intention is to build strong regional governments capable of implementing their own economic development measures. The Discussion Group has proposed a regional system that would amalgamate Japan's existing prefectures into "states".This is the natural direction to pursueifone realizes the correlation between the scale of regional economies and their vitality.

However, in the United States, Germany and France, where "state" systems are already in operation, the population of a state is generally about the same as that of a prefecture in Japan, and most of the population and employment growth takes place in states with smaller populations. New York State in the United States, Westphalia in Germany, Ile-de-France in France, and other states with a high population density, both population and employment show relatively little growth. This is largely because, in metropolitan areas, the rise in costs that results from the concentration of population tends to restrict growth, while, in provincial areas, unique revitalization measures that make active use of the resources of industry, government and academia, and of both domestic and overseas resources, have been pursued with vigor.

In this light, it would appear that there is little reason to delay a full-scale transfer of power and fiscal resources until after the changeover to a "state" system. The following three reforms are a matter of priority if decentralization is to bring about regional economic regeneration and restore soundness to local government finances:

(i) The full-scale transfer of power and fiscal resources to prefectural government

To ensure a rapid and effective transfer, the decentralization reforms implemented in France in 1982 with a view to breaking the pattern of over-concentration in the Parisian area and the centralization of power, should be taken as a model.

(ii) The establishment of effective regional regeneration schemes

These schemes should harness the strengths of the British approach to regional regeneration, which involves a diverse range of entities so as to boost motive power while applying the principles of free competition with a view to exploiting the unique strengths of the individual regions.

(iii) The strengthening of regional government management functions

Regional regeneration is a project aimed at overcoming fierce competition with other regions, both in Japan and overseas. The strategic and flexible "city manager" system, adopted in the United States, is likely to be effective.

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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