The empty elites at the seat of power

THE PRESUMPTION of the bureaucratic mandarins in an administrative state is that they are the elites who determine policy. The politicians are merely extras in a drama that they script and direct.

When Ishii Hirohisa, briefly the Finance Minister in the Hatoyama administration–but more importantly the former head of the Finance Ministry’s Budget Bureau, was named deputy chief cabinet secretary in the new Kan Cabinet, reformers in Japan collectively groaned. They already knew that the DPJ government’s promise to reverse the roles of the bureaucrats and politicians had become inoperative shortly after they took office, but now they knew it was dead. Mr. Fujii was brought back into the Cabinet specifically to keep and eye on and give instructions to provide advice and guidance to Mr. Kan. That’s the prime directive of the elite bureaucrats dispatched to serve in a Cabinet, especially those from the Finance Ministry.

Most Japanese have no idea who the deputy chief cabinet secretary is at any given time, and they seldom are quoted in the newspapers. But everyone’s hip to the game now, and the people who pay attention pay attention more closely to what Mr. Fujii says than to what the replaceable extra now playing the Finance Minister says.

Here’s what Mr. Fujii said during a speech in Tokyo on the 7th, responding to questions raised by some that if/when the consumption tax is raised, the rate should be lower for food and other daily necessities:

“A method of selecting (rates) by category, such as beefsteak or beef donburi, won’t work…(Lowering the rate on certain categories of products) would create vested interests.”

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The closest analogue to the Japanese consumption tax in Europe is the value-added tax. Here are the tax rates for some European countries as of the present, with the rates for certain categories as of 2008. (I assume they still apply.)

United Kingdom
VAT rate: 20%
The rate for food, publications (books, newspapers, magazines), children’s clothing, and pharmaceuticals: 0%
The rate for household fuel/electricity: 5%

France
VAT rate: 19.6%
Food: 5.5%
The rate for publications varies from 2.1% to 5.5%
Pharmaceuticals: 2.1%
Movie, drama, and concert tickets: 2.1%

Germany
VAT rate: 19%
Food and publications: 7%

Sweden
VAT rate: 25%
Food: 12%
Publications: 6%
Movie, drama, and concert tickets: 6%
Pharmaceuticals: 0%

In contrast–

Japan
Consumption tax: 5% on everything

The Finance Ministry knows this—I found the list of rate discounts in a Japanese magazine, and the ministry was the source of their information. As the elite bureaucrats at that ministry would have it, these discounts create vested interests.

This illustrates the nature of the battle that Japanese reformers must fight: a civil war within government. It would be entertaining, if not educational, to hear an explanation how these exemptions create vested interests. True, one reason the Japanese print media keeps raising the issue of staggered tax rates is that they are intrigued by the British exemption for newspapers and magazines. Exemptions in their case, however, would not create vested interests—their interests already are deeply entrenched.

The lower rate in France for cultural events is worth noting. It’s not surprising that the French would consider culture to be as important for daily life as food and medicine.

It’s also worth noting that one of the complaints from the Left about the consumption tax is that it’s regressive—i.e., it falls on everyone equally regardless of income. The champions of progressive taxation would prefer a system of lower consumption tax rates on daily necessities to lessen the burden on those with lower income. But though he’s a man of the left, the congenitally cloth-headed Mr. Kan suggested instead that people with lower incomes could receive consumption tax rebates after an increase. After all, why streamline government and make it more efficient by not collecting some tax money to begin with when the role of government can be expanded, and dependency and a sense of entitlement to the tax spoils can be created among the citizens instead?

Further, exemptions or lower rates on the same categories that the U.K. exempts would negate the need for the DPJ’s budget-busting child allowance payments that Mr. Kan described as “epochal”.

That Mr. Fujii dismisses the idea out of hand exposes the emptiness of the Finance Ministry elites. That fine education doesn’t disguise their true nature as glorified bean counters with a will to power. The more money that flows to them, the more power they have.

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One of the primary objectives of Eda Kenji and Watanabe Yoshimi in creating Your Party was to break the stranglehold of the Japanese bureaucracy on government. Before starting his career as a politician, Mr. Eda was an employee of the old Ministry of International Trade and Industry and also served as an aide to Prime Minister Hashimoto Ryutaro. The Hashimoto Cabinet conceived the idea of creating a policy council of advisors from outside government to help formulate the budget. It was to be called the Economic and Fiscal Policy Advisors’ Council. Hashimoto, well aware of the games the bureaucrats play, insisted that the word “fiscal” be included in the title.

Mr. Eda describes what happened in Datsu Kanryo (Disassociating from the Bureaucracy), an extended dialogue with Mr. Watanabe. The bureau that serves as the liaison between the Cabinet and the Finance Ministry was asked to draw up a framework. The paper they submitted no longer had the word “fiscal”. When Mr. Eda asked why, the ministry bureaucrats explained it wasn’t necessary because the word “economy” in a broad sense encompasses fiscal policy. He reinserted the word and sent the request back, aghast at how blithely the bureaucrats had disregarded the instructions of a prime minister.

When the bureau resubmitted their proposal, they had removed the word again. Mr. Eda said they went through the charade three or four times before they finally relented. The reason, of course, was that the Finance Ministry didn’t want to relinquish control of fiscal policy formulation to anyone else. Lest you think this was a pointless game, the manipulation of terminology is one of the Kasumigaseki tools to debone reforms in practice while maintaining the appearance of implementing reform. They were abetted for years by those LDP legislators who served as de facto lobbyists for each ministry.

During the course of the conversation Mr. Watanabe said he had seen the same thing several times when he was the minister of reform in two LDP governments. He added that when he proposed a major reform of employment practices for national civil servants, one bureaucrat working as a Cabinet aide told him that unless he withdrew the proposal, the bureaucracy would stage a “coup d’etat”. What he meant was that they would find a way to bring down the government.

Every politician in Japan knows they are capable of it. When the Hashimoto Cabinet tried to remove the oversight of the financial services industry from the Finance Ministry, an unexpected credit crunch emerged just before an upper house election—along with the revelation of the previously suppressed news that a major Japanese securities company was bankrupt.

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During his speech in Tokyo, Mr. Fujii made a veiled reference to the nation’s recent prime ministers and complained that they lacked a sense of urgency. He made of point of saying that he was not singling out the current prime minister, but the message was clear.

Prime Minister Kan has been put on notice by the people who think they control the Japanese government.

Don’t feel sorry for Mr. Kan, however. He began waving the white flag even before he became prime minister.

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Pull another string…

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