State and Administration in Japan and Germany: A Comparative Perspective on Continuity and Change [Reprint 2012 ed.] 9783110868951, 9783110144628

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de Gruyter Studies in Organization 75 State and Administration in Japan and Germany

de Gruyter Studies in Organization International Management, Organization and Policy Analysis

An international and interdisciplinary book series from de Gruyter presenting comprehensive research on aspects of international management, organization studies and comparative public policy. It covers cross-cultural and cross-national studies of topics such as: - management; organizations; public policy, and/or their inter-relation - industry and regulatory policies - business-government relations - international organizations - comparative institutional frameworks. While each book in the series ideally has a comparative empirical focus, specific national studies of a general theoretical, substantive or regional interest which relate to the development of cross-cultural and comparative theory are also encouraged. The series is designed to stimulate and encourage the exchange of ideas across linguistic, national and cultural tradition of analysis, between academic researchers, practitioners and policy makers, and between disciplinary specialists. The volumes present theoretical work, empirical studies, translations and 'state-ofthe art' surveys. The international aspects of the series are uppermost: there is a strong commitment to work which crosses and opens boundaries. Editor: Prof. Stewart R. Clegg, Faculty of Business and Technology, University of Western Sydney, Macarthur, Campbelltown, Australia Advisory Board: Prof. Nancy J. Adler, McGill University, Dept. of Management, Montreal, Quebec, Canada Prof. Richard Hall, State University of New York at Albany, Dept. of Sociology, Albany, New York, USA Prof. Gary Hamilton, University of Washington, Seattle, Washington, USA Prof. Geert Hofstede, University of Limburg, Maastricht, The Netherlands Prof. Pradip N. Khandwalla, Indian Institute of Management, Vastrapur, Ahmedabad, India Prof. Surenda Munshi, Sociology Group, Indian Institute of Management, Calcutta, India Prof. Gordon Redding, University of Hong Kong, Dept. of Management Studies, Hong Kong

State and Administration in Japan and Germany A Comparative Perspective on Continuity and Change

Edited by Michio Muramatsu and Frieder Naschold

w DE

G Walter de Gruyter · Berlin · New York 1997

Editors: Michio Muramatsu, Prof. Dr., Kyoto University, Faculty of Law, Kyoto, Japan Frieder Naschold, Prof. Dr., Director, Science Center Berlin, Berlin, Germany

With 25 figures and 16 tables

® Printed on acid-free paper which falls within the guidelines of the ANSI to ensure permanence and durability. Library of Congress Cataloging-in-Publication Data State and administration in Japan and Germany : a comparative perspective on continuity and change / edited by Michio Muramatsu and Frieder Naschold (De Gruyter studies in organization ; 75) Includes bibliographical references. ISBN 3-11-014462-X (cloth : alk. paper) 1. Bureaucracy - Japan. 2. Japan - Politics and government. 3. Bureaucracy — Germany. 4. Germany — Politics and government. I. Muramatsu, Michio, 1940II. Naschold, Frieder. III. Series JQ1631.S73 1997 350'.000943—dc20 96-30384 CIP

Die Deutsche Bibliothek — Cataloging-in-Publication Data State and administration in Japan and Germany : a comparative perspective on continuity and change / ed. by Michio Muramatsu and Frieder Naschold — Berlin ; New York : de Gruyter, 1997 (De Gruyter studies in organization ; 75 : International management, organization and policy analysis) ISBN 3-11-014462-X NE: Muramatsu, Michio [Hrsg.]; GT

© Copyright 1996 by Walter de Gruyter & Co., D-10785 Berlin All rights reserved, including those of translation into foreign languages. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording, or any information storage and retrieval system, without permission in writing from the publisher. Printed in Germany. Printing: Gerike GmbH, Berlin. — Binding: Mikolai GmbH, Berlin. — Cover Design: Johannes Rother, Berlin.

Foreword

A comparison of politics and administration in Germany and Japan at first seems to be a comparison between extremely similar states. This volume, however, goes one step beyond this to also explore the differences between the two countries — the differences in their administrative systems and their political party systems, the differences in the international environment which they faced after World War Two and during the Cold War, as well as the differences in the individual policy areas which are studied in this project, including the different roles which the federal system, political party systems and the administrative system play in the policies of the two countries. Whereas in the 1980s scientific and political discussions in some OECD countries, such as Germany, centered on "new production models" in private industry, in the 1990s, interest has increasingly turned towards structural change in the public sector. The nature of structural change in the public sector seems relatively clear involving innovations of existing forms of administration. In the case of Germany, the existing state and its administrative tradition of an integrated public sector administration based on the classical principles of administrative organization. The New Public Management Movement aims to modernize this form of administration and has drawn on theories of public choice theory and pragmatically applied managerialism. The counterpart of New Public Management in Japan occured in the early 1980s in the form of the Second Provisional Administrative Reform Commission under the Suzuki and Nakasone Administrations. The issues were slightly different, but the orientation towards innovating upon existing forms of adminstration was similar. In order to better understand this new trend towards innovating existing forms of administration, it is necessary to conduct comparative studies of the national state and administrative systems of Japan and Germany. At the end of the 19th century and beginning of the 20th century, Japan partially looked to the German state as a model; currently many German ob-

VI

Foreword

servers are fascinated by Japanese "lean government." However, the empirical evidence on which such views were (and still are) based has often been thin. During a 1992 meeting in Kyoto, the two editors of this volume decided to make an attempt to go some way to closing the research gap regarding comparative analysis of the state and administration in Japan and Germany. Thanks to the support provided by the Deutsche Forschungsgemeinschaft (DFG — German Research Association) and the Japanese Society for the Promotion of Science (JSPS), we were able to invite a small circle of experts from Japan and Germany to a symposium in Berlin at the Science Center Berlin ( W Z B ) and to a second symposium at the International Exchange Center in Kyoto. In both cases conceptions and draft essays were subjected to intensive analysis and review in three days of discussions. While the final product cannot claim to offer a systematic international comparison, it does offer a study of two countries that are of great interest in this regard, and one that represents a contribution to the literature of comparative public administration. We would like to express our thanks to a number of institutions for the support provided in completing this study, including the two national research institutions, the Deutsche Forschungsgemeinschaft and the Japanese Society for the Promotion of Science who offered financial support for the symposia; to the W Z B and the International Exchange Center in Kyoto for their hospitality in holding the symposia; to the Walter de Gruyter publishing house for its competence in publishing the results of our research; to Andrew Watt (Berlin) for an excellent translation of the texts originally written in German and, last not least, to Gebhard Glock who managed the project secretariat in his usual competent way.

Michio Muramatsu Kyoto University Frieder Naschold Science Center Berlin

Table of Contents

Foreword

V

Comparative Research on the State and Administration in Germany and Japan: The Framework Michio Murarmtsu and Frieder Naschold

1

1

Comparative Goals

3

2

Comparing Policies

4

I

Macrostructure and Macropolitics

Post-war Politics in Japan: Bureaucracy versus the Party/Parties in Power Michio Muramatsu 1 2 3 4 5 6 7

Introduction Pluralism and the Bureaucracy Characteristics of the Japanese Bureaucracy History of Japan's Bureaucracy Maximum Mobilization and Personnel Administration Budget Formulation: The Case for Integration Concluding Remarks References

11

13 13 15 19 23 26 30 35 36

Vili

Table of Contents

From State of Authority to Network State: The German State in Developmental Perspective Gerhard Lehmbruch 1 2 3 4 5 6 7 8 9

The German State as a Model for Meiji Japan Institutional Continuity and Change in the German Policy Institutional Options and "Bounded Rationality" in State-building Processes Institutional Layers of the German Polity: Federalism and the Legacy of the Old Reich The Administrative State and the Varieties of State Interventionism Parliamentarism and Party Government The Corporatist Legacies of the "Old Reich" and of the 19th Century Ambiguities of Citizenship in the German Nation-state The German State and European Integration References

Administrative Reform in Japan: Semi-autonomous Bureaucracy under the Pressure toward a Small Government Mitsutoshi Ito 1 2 3 4 5 6 7 8 9

Introduction The Genesis The Reform Agenda Why Small Government? The Performance of SPARC Semi-autonomous Bureaucracy Administrative Reform and Coalition Politics The Local Level Reform Concluding Remarks References

Modernization of the Public Sector and Public Administration in the Federal Republic of Germany — (Mostly) A Story of Fragmented Incrementalism

39

39 40 43 45 48 51 53 59 61 61

63

63 64 65 66 67 69 72 74 75 77

79

Hellmut Wollmann

1

Reconstruction of Public Administration in Post-war (West-)Germany in Neglection of Reforms

81

Table of Contents

2

3

4

5 6

II

Public Sector Reforms in the 1960s and Early 1970s Within an Expanded Welfare State 2.1 Federal Level 2.2 Länder Level 2.3 Local Level Period between Mid-1970s and Late 1980s: Years of Economic Recession, Budgetary Squeeze and Neo-liberal Beliefs Gaining Ascendancy 3.1 Federal Level 3.2 Länder Level 3.3 Local Level Development Since the Late 1980s: Upsurge of a "Modernization of the Public Sector" Debate in Germany vis-à-vis Changed International and Domestic Contexts 4.1 Federal Level 4.2 Länder Level 4.3 Local Level German Unification and Administrative Reform Concluding Remarks References

90 91 95 96 97 98 101

Policy Arenas and Networks — A Comparative Policy Approach

105

Social Policy in Japan: Building a Welfare State in a Conservative One Dominant Party System Kuniaki Tanabe 1 2 3 4 5 6

IX

Introduction Analytical Framework Analysis of Social Security Legislation Integration of Social Programs into a Coherent System Impacts of Social Policy on Social Stratification in Japan Conclusion References

82 82 85 85

86 87 88 89

107

107 109 Ill 118 123 129 131

χ

Table of Contents

State and Society in German Social Policy: "Path-dependent" Responses to New Challenges Adrienne Héritier 1 2

3

4

Introduction Basic Features of the German Welfare State 2.1 Historical Origins 2.2 Patterns of State-Society Relations Impacts of Economic Structural Change and the Transformation in the East: Rising Unemployment 3.1 Welfare Assistance: Shifting the Burden of Poverty to the Local Level 3.2 The Implantation of State — Society Relationships in the Five New Länder: Extending the Existing Networks of Health Care Funds 3.3 "Path-Dependency" in the German Welfare State: An Insurance Solution in Long-Term Care Conclusion References

Financing the Japanese Industries: Industrial Policies of The Financial Ministry and Financial Policies of The Industrial Ministry Masaru Mabuchi 1 2 3

4

5 6

Introduction The Structure of Society The Structure of the State 3.1 The Ministry of Finance 3.2 The Bank of Japan 3.3 The Ministry of International Trade and Industry The Structure of Policy Networks 4.1 Financial Policy Network 4.2 Industrial Policy Network 4.3 Between Industrial and Financial Policy Networks Mode of the Linkage Conclusions References

133

133 134 137 140 143 143

145 150 153 154

157

157 160 161 161 164 167 169 169 171 171 177 180 181

Table of Contents

XI

Industrial Policy in Germany: Old Issues and New Challenges Frieder Naschold

185

1 2

185

3 4

5

Introduction The Macroeconomic Framework for Industrial Policy in Germany: Productivity, Welfare and Work Organization 2.1 Historical Productivity Trends and Changes in the International Productivity Hierarchy 2.2 The International Productivity Hierarchy, Changing Hegemonic World Centres and Production Regimes 2.3 Productivity and Welfare National Profiles and the Effectiveness of Industrial Policy Four Cases of Industrial Policy in Germany 4.1 The Performance of Germany's Core Industrial Sectors 4.2 Public Sector Politics in Germany 4.3 Industrial Policy and Sectoral Change within German Industry 4.4 Industrial Policy in the New Federal States German Industrial Policy in the Context of the European Union: Potentials, Limitations, Oppositions References

Cooptation or New Possibility? Japanese Labor Politics in the Era of Neo-Conservatism Ikuo Kume 1 2

3

4

Introduction Labor and the State in the 1980s 2.1 Administrative Reform and Labor 2.2 Employment Policy: Small Government for Labor? 2.3 Labor Ministry Offensive: Deregulating Labor Policy? Analysis 3.1 Coalitional Base: Labor-Management Coalition for Small Government 3.2 Institutional Base: Policy Network of Labor Conclusion References

186 187 188 188 190 200 200 206 210 213 216 218

221

221 222 222 226 230 234 234 236 242 243

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Table of Contents

Concerted Cooperation and Immobilismi Labour Policy in Germany and the Regulation of Early Exit Maria Oppen 1 2 3

4

5

6

Introduction Retirement Age Policy as an Element of Labour Policy Politics "of Production": Broad Strategic Direction Determined by State Regulation 3.1 Security in Old Age 3.2 Non-decisions: The Fate of Part-time Retirement 3.3 Employment Maintenance Politics "in Production" 4.1 Protection against Dismissal and Rationalization 4.2 Problem-solving and Cooperation at Firm-level Retirement Age Policy and the Constitution of the "Exit-regime"... 5.1 Change and Stability 5.2 Concerted Cooperation 5.3 Prevention and Compensation 5.4 The Link between the Logics of Compensation and Extemalization 5.5 Steering and Control 5.6 Design Principles and Patterns of Orientation Outlook References

Three Contentious Issues in the Political Process of Telecommunications Liberalization in Japan: Neglect of Infrastructural Problems? Koichiro Agata 1 2

3

Subject and Goals of Investigation Actors 2.1 Ministries 2.2 The Cabinet and its Advisory Council 2.3 The Governing Party and Politicians Belonging to it 2.4 Opposition Parties and Unions 2.5 Telecommunications Companies: the NTTPC or NTT 2.6 The USA as International Actor Three Contentious Issues 3.1 Corporate Status: Privatization 3.2 Flotation of Shares

247

247 249 255 256 261 263 266 266 268 271 271 272 273 274 275 276 277 279

281

281 283 283 284 284 285 286 286 287 287 292

Table of Contents

3.3

4

Liberalization of the Telephone Network, Infrastructural Access, and Customer Premises Equipment Markets Conclusions References

XIII

III The Governance Structure

Revising the Interpretation of the Japanese Economy: Political Intervention and Market Competition in the Distribution System Hideo Otake 1 2 3 4 5

The Emergence of Revisionist Theories Concerning Japan The Japanese Political Economy as Seen Through the Large-Scale Retail Store Law A Re-evaluation of the Japanese Political-Economic System A Re-evaluation of the Large-Scale Retail Store Law Conclusions References

Future Perspectives of State and Administration in Japan and Germany Michio Muramatsu and Frieder Naschold 1 2

3 4

State and Administration in Japan and Germany in the Context of Modernization Trends in OECD Countries State and Administration in Japan and Germany: Two Modernization Profiles 2.1 Japan: Persistence of Governance by Rule and Reduction in Public Sector Employment 2.2 Germany: Persistence of Governance by Rule and the Use of Skilled Labour Issues and Trends in Modernizing the Central State in Japan Issues and Trends in Modernizing the Central State in Germany ... 4.1 Three Basic Requirements of Government Policy 4.2 Redefining Public-sector Tasks: Political Task Controlling .... 4.3 Modernization of Central State Organization

295 299 301

305

307

307 311 314 319 321 322

325

325 329 329 330 332 335 335 336 338

XIV

Table of Contents

4.3.1

5

Reducing the Complexity of Ministerial Organization through Differentiation between Administrative Agencies 4.3.2 Flattening Hierarchies 4.3.3 Task Integration within Work Units 4.3.4 Decentralization of Responsibility for Tasks and Resources 4.3.5 Re-evaluation of the Degree of Horizontal Integration of Public Service Provision 4.3.6 Product-Segmentation and Process-chain Optimization 4.4 From Personnel Management to Personnel Development 4.4.1 Continuous Professionalization 4.4.2 Training for Managerial Staff 4.4.3 Work Structures Conducive to Learning 4.4.4 Fixed-term Contracts for Executive Staff 4.4.5 Personal Responsibility for Results, Employee Evaluation and Linking Pay to Job Requirements 4.4.6 Greater Equality among Personnel Concluding Remarks References

About the Contributors

339 339 340 340 340 341 341 342 342 342 343 343 344 344 345

347

Comparative Research on the State and Administration in Germany and Japan: The Framework Michio Muramatsu and Frieder Naschold

A comparison of politics and administration in Germany and Japan at first seems to be a comparison between extremely similar states. This would seem to be especially true if the comparison were limited to the post-World War Two administration of the two countries. But even before World War Two, and especially more than a hundred years ago, both Germany and Japan began their efforts to modernize as late starters in the scene, although Japan was even more delayed. Also both countries' efforts in modernization were initiated from above. Pre-World War Two Germany was a model for Japan in its modernization efforts, both academically and practically. In other words, Japan's elite consciously tried to catch up with Germany. They achieved this objective, but in a distinctly Japanese way. Then both countries, after experiencing defeat in war, also achieved rapid economic revival. Politically, both countries shared the experience of an authoritarian regime, fascism or a military dictatorship, and both went through occupational reforms following World War Two and subsequently have followed the path of democracy. The efforts to compare Germany and Japan as similar states would be aimed at discovering the causes which resulted in such a common path. In doing so, such causes would have to be found in factors commonly shared by Germany and Japan, for example in such variables as the common ethos of a "catch-up" type of economic development, or similar cooperative systems between labor and management. This volume, however, goes beyond this approach by exploring the differences between the two countries. While staying within a framework of similarity between the two countries, we recognize also that the the importance of comparing Germany and Japan lies in the attention paid to differences. In other words, despite the fact that the politics of the two countries have similar frameworks at the macro level, many differences can be found when various individual aspects of the politics of the two countries are studied. The institutions of the two countries are quite different, and are the

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Michio Muramatsu, Frieder Naschold

causes of the differences in their policies with respect to industrial, welfare, labor, and administration reform policies. When the contents of their respective policies, or the processes which produced such policies, are compared from the standpoint of the differences in their institutions, of primary importance among these is the fact that Japan is a unitary state while Germany is a federal state. The administrative systems of the two therefore differ greatly. In Germany, regional differences in policy are significant and actual policy making powers are entrusted to the states. The Civil Service Law and other administrative systems also differ from state to state. Such institutional causes are powerful candidates as causes of policy differences. Second, the political party systems of the two countries also differ. In Germany, the Christian Democrat Union and the Christian Socialist Union were in power after the war. The Social Democrats were also powerful shortly after the war, and the Free Democrats (FDP), while small in size, actively sought to participate in government. While the economy was performing well, however, the Social Democrats had no opening to exploit. In 1969, however, circumstances enabled the Social Democrats to come to power with the FDP, an objective for which the Social Democrats had been preparing. While the German party system is usually called a moderate multi-party system, it also seems actually to function as a two-party system. In comparison, the Liberal Democratic Party was the only party able to hold power in Japan, in part because the social democratic movement had split between the Socialist Party and the Democratic Socialist Party, and in part because, during the Cold War, the Socialists had been judged to be unrealistic and too ideological to be entrusted with power. The international environment faced by the two countries after World War Two and institutionalized with the Cold War, also differed greatly. For a long time, Germany was divided into east and west. Anti-communism was an important factor influencing both the ideological range of German politics and the form of alliances entered into by German political actors. During the last ten years, Germany's international environment has once again been changing greatly. Germany's central role in the development of the European Union, and the reunification of East and West Germany are environments distinct to Germany. Japan meanwhile was undivided. It is an island rather than one of many continental nations, and was involved in few multi-national arrangements. Its relations with the United States, however, was more overwhelmingly its most critical international relationship. Although the Cold War and anticommunism also had an impact on Japan, the ideological range of its party system was fairly broad.

Comparative Research on the State and Administration in Germany and Japan

3

The policies of Germany and Japan also differed in the individual policy areas studied under this project. Regardless of the existence of similar policy needs and social pressures, both of which were created by social and economic conditions, we see different policies produced in the two countries. We hypothesize that the various post-war politico-economic institutions of Germany and Japan, while sharing the frameworks of historical experience, liberal democracy and capitalism, had many different variations. Specifically our interest in the differences in systems and policies stems from several concerns and goals.

1

Comparative Goals

First, the German interest in Japan is, simply, in Japan's administrative system, which has been called "small and strong," and which is believed to have produced effective policies for Japan. According to OECD statistics regarding government activities and public sector employees, relied upon by European and American researchers, Japan's bureaucracy ranks among the bottom five in terms of size. One explanation for this is that a fully developed welfare state as it is defined in the United States and Europe did not exist in the case of Japan. Japan's government has, however, been called "strong" in addition to "small." Chalmers Johnson's research on the Ministry of International Trade and Industry represents this view. For Johnson, Japan is a "developmental state," a rather monolithic state with extremely centralized power and a high degree of integration, whose primary goal is economic growth. Its performance was effective, and it is argued that the government was efficient. In other words, the small and strong government is also "smart." The Johnsonian image of Japan's state, however, has recently been criticized and revised by many Japan specialists. For example, R. Samuels, D. Okimoto, F. Rosenbluth, M. Muramatsu and E. Krauss, among others, have pointed out the limits of the regulatory capabilities of Japan's government and bureaucracy, the conflicts among government organs, the existence of a middle zone in the form of a partnership between the private and public sectors, and the importance of the regions and the local level. Simply put, these were denials of the "strong state" image, and the discovery of an advanced, if not particular, form of political pluralism. We are interested in reconciling these two differing images of Japan, and creating a unified image. These concerns about the Japanese bureaucracy on the German side also are pragmatically motivated by interest in a new management movement.

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Michio Muramatsu, Frieder Naschold

Although German researchers had thought that their bureaucracy was extremely efficient, they have recently been modifying that perception and had been taking increased interest in the new managerialism. The Germans had a reason for believing in the efficiency of German bureaucracy. Leading German researchers, such as El wein and Brinkmann, had until recently argued that the German government was very efficient from a comparative perspective. When compared to other OECD countries, the data showed that the German government's efficiency was quite high. Among researchers of the German bureaucracy, however, doubts began to arise concerning the myth of German administrative efficiency, when compared to other countries. Although England, New Zealand, Australia, Holland and Sweden started structural reforms of their public sectors, German administrative reforms had virtually ground to a halt since the 1970s. The supposedly "small and strong" Japanese bureaucracy thus came to be noticed in Germany, which had become a late starter in administrative reform. What sort of roles do the federal system, political party system and the administrative system, play in the policies of the two countries? While it is clear that the researchers of both countries were interested in political institutions in this project, the Japanese were especially interested, as mentioned above, in the federal system, political party system and administrative system. We also were interested, however, in the path-dependency of each policy area. By this we mean that we were particulary interested in how past policies have been maintained until today and institutionalized within the policy system, and to what extent this influenced the content of policies. We wanted to emphasize the way in which current systems and rules are constrained by or dependent upon the history of past policies. While Germany is a country with similar frameworks as Japan, it has developed its policies as a modern state for a longer period. We would hypothesize that the quality of its policies must therefore be higher than Japan, and on the other side of the coin that the constraints of its past must also be greater.

2

Comparing Policies

Before going into an analysis of the paired papers, we would like to introduce two papers which deal with the historical and general issues concerning this project. With this purpose in mind, Gerhard Lehmbruch aims to identify the basic parameters of the German polity. Similar to the most recent interpretation of the Japanese state as a network state, the German polity also reveals a distinct network structure through its various interactions with the private sector on the one hand and the highly segmented and decentralized

Comparative Research on the State and Administration in Germany and Japan

5

German institutional framework on the other hand. This institutional ensemble in Germany is traced back by Lehmbruch to a quite different historical development than that in Japan, however, one that is characterized by a distinctive path dependency going back to the 17th century and by major social cleavages, conflicts and realignments. The fragmentation and decentralization of current German policy is shown to be a historical sedimentation of these developments. H. Otake, on the other hand, treats the contextual issues for the various policy areas and analyzes the framework of comparison in which many other policy issues have been placed in some way or other. In particular, his paper focuses on the political controversy on how to interpret the relationship between Japan's state and economy. Whereas, during the post-war era, convergence theory concepts dominated the perspective on the Japanese political economy, a revisionist school emerged, since the mid-1980s and in the context of growing trade tensions between the USA and Japan, that emphasized "Japanese exceptionalism" and shifted the uniqueness of the political economy of Japan to the center of analysis. Otake demonstrates that in Japan (concerning state protection of small and medium-size enterprises) regulations relatively similar to those in France, Italy or even in Germany exist in the state and society. A redefinition of the relation between liberalism and social democracy is seen as necessary and postulated as the key factor in a comparison involving Japan. Thus, comparing the various specific public policies of Germany and Japan is one of the most important endeavors in this project. With respect to industrial policy, Naschold has said that Germany's economy, which realized high levels of growth and welfare after the Second World War, had been gradually losing its competitiveness, and that the reason for such economic sluggishness was a failed industrial policy or structural policy in his words. He argued that its industrial policy was an inconsistent, halfway policy. In the first place, Germany's economic policies centered around its macroeconomic policies, and its industrial policy was carried out piecemeal, independently of other economic policies. Such weaknesses of German industrial policy threaten to become greater following the integration of Europe. Although it is said that the European Union's industrial policy calls for intervention at the policy level to be concentrated in the earliest stages of the development of new technologies, it can also be seen when such new technologies are being put to practical use. The resulting industrial policy is a compromise, consisting of a mix of the views of its member nations regarding industrial policy. On the other hand, Mabuchi has pointed out that Japan's industrial policy was not a unified policy under the control of the Ministry of International Trade and Industry, as Johnson's strong state theory made it out to be. Japan' s industrial policy in actuality was a product of the mutual coordination

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Michio Muramatsu, Frieder Naschold

and compromise between an industrial network, consisting of MITI and the various industries, and a financial network, consisting of the Ministry of Finance, the Bank of Japan and financial institutions such as banks, and was also the product of the tensions within each network. Japan's industrial policy therefore was also not consistent. The difference with Germany, however, was that the financial market's interests and reasoning was embedded in the fragmentary industrial policies, due to the participation of the financial network in the formulation of such industrial policies. It may be argued that the fact that the financial network was able to participate in, and to react to, the individual industrial growth policies formulated by the industrial network made such industrial policies more suitable for the market and also improve their quality. In both articles, the crucial variable for explaining the difference between Japanese and German industrial policy is the variation in the administrative systems which lay behind those policies. In other words, while Japan's administrative system guaranteed the coordination of the industrial and financial networks, Germany's did not. In Germany, industrial policy was formulated and implemented on an ad hoc basis, without great involvement by the financial authorities. This is because priority was placed on macroeconomic policies and because of the presence of an independent central bank which supported such macroeconomic policies. The inconsistency of German industrial policy may thus be attributed to its institutions. We also focused on the impact of political party systems as a factor explaining such differences in industrial policy. Policies have been more easily affected by politics in Germany, because the Social Democratic party also has been strong and has been more experienced in exerting political influence. German political parties have thus been more successful at intervention in the making and implementing of a broad range of policies. In comparison, the ruling party in Japan, which had a stable, dominant one-party system without as much direct influence by opposition parties, was able to divide the making and implementing of policy into political and non-political areas. Whereas small business, especially distribution networks, and agriculture, among others, were politicized, industrial policy was able to be preserved as a non-politicized area. Defense policy, on the other hand, was not a divisive issue for the political parties in Germany. After Bad-Gothesburg, the Social Democrats accepted the necessity of military rearmament and alliance with the West against the threat from the Soviet Union in Europe. This contrasts with the case in Japan, where central to the ideology of the socialist party were the issues of defense and alliance with the U.S. and which directly opposed the national security policy of the ruling party. It may be said that the different strategies of the social democratic parties and the difference in international

Comparative Research on the State and Administration in Germany and Japan

7

environments, which either promoted or constrained the adoption of such strategies, made the difference regarding the politicization or non-politicization of such issues. In the case of labor politics, the similarity between Germany and Japan must first be emphasized. Following the war, labor secured a legitimate and stable position within the capitalist systems of both countries. Mechanisms for absorbing the interests of laborers were embedded in the capitalist societies of both countries. In Japan, labor's participation in firm activities was secured by informal labor-management cooperation at the corporate level, attained through enterprise unions, while in Germany's case, this was realized through the legal institutionalization of shared decisionmaking by labor and management. This sort of labor-management cooperation enabled corporations to concentrate on their economic activities, and became a cause of economic growth. It is also clear that labor-management cooperation formed one of the bases of the post-war political stability enjoyed by both Germany and Japan, both of which had formerly gone down the road to catastrophe. In Germany, a cooperative system based upon a national-level corporatism among the government, labor and management resulted in political stability, while in Japan, the creation of a micro-level system of labor-management cooperation within private sector companies produced the same results. Aside from these similarities in outcome, however, we would also like to point out that the form in which labor was incorporated into the system differed between Germany and Japan. The articles by Oppen and Kume make clear that the different ways in which the systems were built up resulted in variations in the labor politics of Germany and Japan. In other words, the path-dependency of historical development processes can be seen in the development of the labor political systems of both countries. For example, in Germany, labor-management relations in the market (specifically, the issue of the employment of older laborers) were adjusted through public welfare policies (the combining of preferential treatment of early retirees and public pension systems). Such adjustment policies were created in Germany because its welfare had policies developed early. In Japan, without a long history of social welfare policy, a system was created in which the adjustment of labor-management relations was done chiefly within the market. The development of Japanese employment policies was carried out with this nongovernmental system as a premise. As a result, the burden upon public welfare systems was never very great, and it is also allegedly one of the reasons why Japan's labor (especially in the private sector) was not only able to prevent its influence from diminishing, but was able to strengthen such influence, during the neo-conservative reforms of the 1980s. While the two articles focus directly on the changes in the labor politics of the two countries in the 1980s, both articles indicate that such contrasting changes were predi-

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Michio Muramatsu, Frieder Naschold

cated on the differing post-war labor politics which developed independently in the two countries. Héritier and Tanabe respectively show that Japanese and German social security policies also were heavily path-dependent. In this policy area too, the legacies of past policies from their historical development process carried great weight. While both Germany and Japan reconstructed their social security policies immediately after the Second World War, they differed in their orientation. Specifically, Germany aimed for the resurrection of a system which had foundations in the long history of its social security system, and which in turn was based upon its tradition of crafts unions. In comparison, since Japan had no such tradition to resurrect, it created a system which centered on the issuing of public aid for immediate needs, especially in the case of income maintenance policy. Second, the impact of the institutional rules of participation in terms of what groups, and what range of groups, influence decision making, is important. The German system, for example, because it is a federal system, has different rules of participation than the Japanese. The difference in the Japanese and German response to the crisis of the welfare state, and the methods by which various systems were reorganized in both countries, both of which occurred after the oil crisis of the 1970s, can be explained by this factor. For example, in Germany, the principles of federalism and group autonomy served to delay the rapid leveling of the social welfare policies of the former East German regions when they were united with West Germany. In comparison, Japan moved towards the leveling of its social groups, as can be seen by the adjustment of the finances of its insurance groups which were separated during the social insurance reforms of the 1980s, and in the introduction of a basic pension system, also introduced during the 1980 reforms. The comparative research of administrative reforms, which was one of the major interests of the German team, makes clear that neo-liberalism seeped into the two countries at different times. Germany was late in undertaking neo-liberal administrative reforms, perhaps ten years behind Japan. It may therefore be said that Japan was, in this case, a pioneer. In addition, the substance of the two countries' administrative reforms also differed. Germany's belated reforms continued to be reforms for maintaining the welfare state, while Japan's reforms were clearly concerned with the welfare systems and policy with the purpose of constraining them within budget framework as Wollmann's and Itoh's chapters show. One of the causes of such differences was the strength of the social democratic parties. Japan's admininstrative reforms had always been carried out under conservative administrations, and had as their direct goal, privatization and personnel reductions. On the other hand, since the Social Demo-

Comparative Research on the State and Administration in Germany and Japan

9

crats held a portion of power in Germany from the end of the 1960s through the 1970s, its administrative reforms necessarily were aimed at the realization of welfare policies (for example, through planning and rationalization). From the 1970s to the 1980s, the welfare state came under question in Germany, as in Japan, and the call was for budget restrictions, privatization and deregulation. The agreements on the welfare state which were established under Social Democratic rule were, however, not easily broken, and even under a conservative administration, reforms were limited to piecemeal changes. The impact of the federal system can also be seen as a cause of the difference between Japanese and German administrative reforms. It is important to note that although administrative reforms were not carried out to any great degree at the German federal government level, reforms at the state level (the de-bureaucratization and customer-orientation of administrative activities) and the municipal level (cost reductions through evaluations of administrative activities) were carried out quite energetically. While administrative reforms were also carried out at the regional level in Japan, they were always in conjunction with national reform efforts. According to Hellmut Wollmann's paper, administrative reform in Germany illustrates that, similar to industry policy and labor policy, is not dominated by a central "master plan" or a institutional "re-design," as in Great Britain. Administrative reform policy in Germany is rather sequential, continuous and horizontally and vertically highly fragmented. This institutional arrangement is essentially responsible for the peculiar mixture of institutional innovation and conservatism. In Germany, the national and regional reforms were also mutually independent. The German federal system did not permit the aims of the central government to permeate into the regions, or perhaps it might better be said that the German system required time for the aims of the central government to permeate into the regions. When Germany's belated administrative reforms are seen in totality, they undoubtedly show the characteristics of a response to the particular international issues faced by the German state in the latter half of the 1980s: the decline in Germany's international competitiveness, the integration of Europe (and the standardization of administrative activities), and the impact of East-West German unification — all of these had great impact. In Japan's case, the relation between changes in its international environment and its administrative reforms appears primarily in the context of its relations with the United States. For example, Japan's deregulation efforts emerged from the context of U.S.-Japan negotiations over trade. Different international settings evidently influenced the timing of the administrative reform in these two countries.

10

Michio Muramatsu, Frieder Naschold

The basic similarities between Germany and Japan have been built upon the basis of different institutional and political configurations and through distinctive political and administrative processes. It is this oddity that drove us to conduct investigations into the two countries' state and administration.

I

Macrostructure and Macropolitics

Post-war Politics in Japan: Bureaucracy versus the Party/Parties in Power Michio Muramatsu

1

Introduction

Tetsuo Najita has observed that Japanese society has a tradition of leaving policy up to the bureaucracy. He calls this a tradition of "bureaucratism" (Najita, 1974). Bureaucratism is the ethos of an elite which places emphasis on practical efficiency, functional specialization and dependence on fixed laws. While society generally displays a tolerant attitude towards this, there also exists a counter ideology which is severely critical. Although this latter ideology sometimes succeeds in generating idealistic excitement and in mobilizing public opinion, generally speaking, it remains a minority view, and, therefore, in actual practice, it is bureaucratism that prevails. Like many other persons, I believe that Japan is a country which gives a large role to its bureaucracy. I argue that entrusting the bureaucracy with a large role, however, is different from actually locating the power to decide and the structure of influence in the policy making process. When a political scientist analyzes bureaucracy vis-à-vis policy, what actually exists in Japan is not a single bureaucracy but bureaucracies. The various ministries and agencies (hereinafter collectively referred to simply as ministries) which together make up the national bureaucracy compete vigorously with each other for power and resources. An important objective in such competition is jurisdiction. If a ministry has legal jurisdiction, it can propose new policies, and then in pursuit of these policies it can expand its organizational size and its budget allocation. It can also expand its access to second jobs for its retiring bureaucrats which is regarded as extremely important both in maintaining the morale of the current high-flyers in the ministries and in luring young promising new graduates to work for the ministries. Such inter-ministry conflicts can be treated as issues of efficiency and economy. Some argue that interministerial conflicts, which were once a source of dynamic proactive bureaucracies, have gradually caused inefficiency throughout the system. My argument is slightly different. A political,

14

Michio Muramatsu

rather than an administrative, question should be posed with respect to the conflicts and negotiations between the ministries. Each ministry of the central government has a tendency to represent certain related interests of society, and any competition or opposition among ministries has a broad effect on the entire political system. As such, it is more than just a matter of a conflict between organizations. I would like to positively evaluate the large role played by the prewar bureaucracies, and call them "proactive bureaucracies" (Pempel and Muramatsu, 1994). These proactive bureaucracies not only proposed new policies, prepared the systems necessary for their implementation and energized the policy market, but they also restrained each other from corruption. Such mutual competition among proactive bureaucracies also functioned effectively in the post-war policy making process. Bureaucratism was functional in this context. The group of professionals functioned properly, and bureaucratism was accepted as compatible with the interests of the whole. After a certain point in time, probably in the mid-60s, however, the government's policy became divided and fragmented among its ministries due to a great extent to excessive inter-ministerial conflicts, which are sometimes called "wars" (Johnson, 1982). Confidence in the bureaucracy declined, and expectations for greater the leadership by political parties and the prime minister grew. The evils of bureaucratism started to come under observation. This became particularly conspicuous in the 1980s. At that time, the Liberal Democratic Party (LDP) began acting on behalf of the state, adjusting the differences among individual ministries. But that party has left the seat of power in 1993. The LDP's relinquishment of its near monopoly of political power, after a stable rule of nearly 40 years, opened up a new age of party realignment. This paper is being written when new a LDP-JSDP coalition government was formed after the two short-lived post-LDP cabinets starting in 1993. This paper addresses the analysis of the bureaucrats' political role in the dominant party system that Japan experienced, but it also tries to indicate the probable future role of the bureaucracy or bureaucracies in the post-LDP era. In that period, the Japanese bureaucracy may be more active and even aggressive vis-à-vis the political parties whether in or out of government. But at the same time the ministries seem to be frustrated with the new political environment, because they can find no partner in the political arena which would provide the political energy for the public policies they seek to develop. In this paper, on the whole, I argue that the bureaucratic institutional arrangements created in prewar Japan for catch-up modernization have been kept intact. However, the constitutional arrangements and norms which put the Parliament at the center of the policy making process have also worked to change the basic policy process.

Post-war Politics in Japan: Bureaucracy versus the Party/Parties in Power

2

15

Pluralism and the Bureaucracy

Japanese bureaucracy has been preoccupied with the notion of maximum mobilization and has made special efforts to use its resources as effectively as possible by adopting ministry-centered policies and making the ministries compete fiercely with one another. This competition has produced efficiency and effectiveness in public policy making. As the nature of Japanese politics has become more pluralistic, however, bureaucratic rationality seems to have been eroded and inter-ministerial competition has become less functional. This ministry-centered policy has started to produce results different from what was originally intended, that is, sectionalism or fragmentation of the policy process. Maximum mobilization system and sectionalism are therefore parts of the political process. Of special interest in this context is the relationship between the bureaucracy and the political party system. Japan's politics is a type of pluralistic politics, and the bureaucracy is a part of this system. It should be noted that Japanese pluralism differs from the American type of pluralism, because of the large role assigned in Japan to the bureaucracy. Along with Ellis Krauss, this author has previously called this "patterned pluralism" (Muramatsu and Krauss, 1985). In this paper, I will first present my observations about the relationship between the ministry bureaucracies and the party or parties in power. I will then proceed to explain the prewar Japanese civil service and governmental system. Then in Sections 3 and 4, I will analyze the personnel administration system and identify the factors which facilitate the creation of proactive bureaucracies in the Japanese government. In Section 5, I will analyze the budgetary process to show how the Japanese governmental process works. Bureaucratic Influence. Regarding the relationship between the ruling party and top level bureaucrats, many scholars in the past have stated that bureaucrats were superior, because on the one hand political parties were undeveloped while on the other hand much of the prewar bureaucratic structure was kept intact despite the post-war reforms (Tsuji, 1969). Alternatively they argued that political parties depend upon bureaucrats during the policy making process. However, power is linked to two factors — autonomy and levels of activities — and from this perspective I would say that bureaucrats are subordinate to politics and political party in power. The political party in government is paramount when it clearly states its will and its interests. I will elaborate this view as follows. When autonomy and levels of activity are used as the two indices of determining the power of a bureaucracy, the following three cases are possible:

16 (A) (B) (C)

Michio Muramatsu

High levels of activity and high degree of autonomy. High levels of activity, but low degree of autonomy. Low levels of activity, but high degree of autonomy.

Another possible combination, that of low autonomy and low activity does not appear in 20th century advanced economies. In the case of (A) above, it can be said that the bureaucratic group in question clearly has independent power. By bureaucratic autonomy I mean the degree to which the bureaucrats can produce specific policy outputs without receiving instructions from the party in power. The more they can do so, the more autonomous they are. Usually, however, the degree of autonomy actually depends on the resources they have, or more precisely on the extent to which they use these resources, e.g. legal discretionary powers, personnel administration powers, the possession of professional knowledge and information, etc. The second dimension, level of activity, here means the output bureaucrats produce by using the resources at hand. This can be observed in the making of policy through the drafting of bills and the issuing of government and ministry orders. After the war, and especially following the high growth of Japan's economy, the level of activity by bureaucrats in the making of various policies continued to increase. This can be seen by looking at the growth of Japan's GNP and the related growth in government spending and the number of laws accumulated. The vast majority of bills requiring government expenditures, while they take the form of cabinet-sponsored bills, are actually the work of bureaucrats themselves. The level of bureaucratic activity has been high. In this sense, the bureaucrats have exerted great influence over public policy making. It would be wrong, however, to leap directly to the conclusion that the power of bureaucrats has expanded, because the autonomy of bureaucrats must also be considered. Regarding autonomy, it can be noted that political parties have also been influential in producing public policies. During the rule of the LDP, they put their ideas into public policies by using their influence with respect to two critical areas: personnel administration and budget formulation. The selection of administrative vice ministers, bureau chiefs and other top positions were made on the basis of merit by the bureaucrats themselves. It is almost a cooptative type of selection. Many political scientists recognize autonomy of ministry bureaucracies in this selection procedure. In fact, the basics of the bureaucracy's own promotion system have remained intact since before the war. This does not mean, however, that the judgments of politicians regarding bureaucratic assignments have been ignored. Regarding the question of who will be promoted to the next higher position, however,

Post-war Politics in Japan: Bureaucracy versus the Party/Parties in Power

17

the higher the position, the more compromise with politics becomes necessary. Such compromise becomes all the more necessary because the ministers (who are politicians) hold the right to appoint the civil servants. Moreover, the cabinet has the right to approve or disapprove the placement of higher civil servants' careers in second public corporations. Bureaucrats typically contact LDP politicians in order to show their friendly attitudes toward them. For example, there are many breakfast or dinner meetings where the bureaucrats are expected to appear to discuss the policies in which their ministries are involved. Conspicuous and individual intervention into personnel matters by politicians are not frequent. However, intervention in "a few cases" is enough to ensure discipline in the bureaucratic promotion system. As to the involvement of the politicians and bureaucrats in the policy formulation process, it seems that the greater the political implications of a decision, such as those involving new projects or budgetary negotiations regarding politically sensitive items, the greater the voice of political parties. The pattern of give-and-take, which occurred during the process in which bureaucrats and political parties came into contact with each other, has gradually restricted the autonomy of such bureaucrats. Survey research has shown that political parties have been consulted to a substantial degree regarding the approval of even relatively minor new projects (Muramatsu, 1981). This was an area in which influence was wielded by the LDP's Policy Affairs Research Council and zoku parliamentarians. In sum bureaucrats have to rely on the politicians when they promote certain public policies. The more they try to promote, the more they depend on the politicians. Therefore, when bureaucrats try to avoid politicians in order to be autonomous, they cannot produce as much output as they want. Hence, to view Japan's politics as bureaucratic politics, in the sense that it is controlled by the bureaucracy, is wrong. The cause of the decline in the bureaucracy's autonomy seems to lie in the politicization of bureaucrats, which is inevitable if they are to produce policies under the LDP. I have explained so far that the influence of politicians and the parties has increased in the post-war period. Still, however, readers of this paper would ask how can the fact that the bureaucracy prepares most of the bills which are passed by the Diet, and the fact that most such bills pass in their original form, without being revised, be evaluated as anything other than bureaucratic influence? The following are two answers to this question. First, the bureaucracy has listened to the demands of the political party by maintaining communication with the LDP's Policy Affairs Research Council. That is, Karl Friedrich's rule of "Anticipated Reaction" is being practiced (Friedrich, 1937 and Simon, 1948). According to Friedrich, political authority does not depend solely upon cases in which somebody follows explicit

18

Michio Muramatsu

orders. Following Friedrich, we can liken the Diet to the principal, and the bureaucracy to the agent, and suggest the following: A situation in which the agent proposes policy, and where the Diet normally does not disapprove of the proposal and accepts it, need not be a situation where the bureaucracy is dominant, but could rather be viewed as a situation in which the Diet's authority has already been recognized by the bureaucracy. In other words, Friedrich says that the Diet does not reverse the bureaucracy's proposal primarily because the bureaucracy has already anticipated the true wishes of the Diet. In such cases, the party is actually in power. Such authority is not recognized, however, on the part of all participants. If the principal is weak, the agent may often pursue his own interests. If there are several agents, several interests may be pursued. In this way, the only combination among the three possible combinations of autonomy and level of activity, as measures of degrees of power, which apply to Japan's bureaucracy is the second combination. The first combination has already been ruled out, because, as outlined above, the autonomy of bureaucrats has been declining as they have increased their level of activity. The third combination is also not realistically possible since that involves a case where the bureaucracy dislikes political interference and stops proposing policy in order to maintain its autonomy. This is impossible in Japan. In the actual social process, the members of an organization normally aim to increase their ministry's activity and the resources and values they can control, while at the same time hoping for the continued existence and expansion of their organization. This is a natural action if one wishes to secure a certain position in the bureaucratic hierarchy or to guarantee a certain amakudari destination upon retirement. It is difficult to restrain the desire to expand one's levels of activity for the simple purpose of securing autonomy. In addition, the people of Japan continue to hold high expectations of the bureaucracy (Center for Administrative Management Studies, 1990). The bureaucracy will probably choose to pursue greater levels of activity, even at the expense of their own autonomy. Furthermore, as long as the bureaucracy continues its current active role in the policy making process, political parties will be satisfied, whereas if the bureaucracy should show a passive attitude regarding policy making, it is possible that the political parties would start making one explicit demand after another, in order to gain advantage over the other parties. The basic logic between the party or parties in power and the individual bureaucracies is the one that is explained above. Still, the degree to which bureaucracies are allowed to exert their influence varies depending on the strength of the party or parties in power and the strength of the specific bureaucracy agency. Next I shall proceed with an analysis of the characteristics of the bureaucratic personnel administration to prove that the Japanese bureaucracy has had a strong tendency to be proactive.

Post-war Politics in Japan: Bureaucracy versus the Party/Parties in Power

3

19

Characteristics of the Japanese Bureaucracy

The first factor which shapes the characteristics of the Japanese bureaucracy is its relative lack of resources. Resources as used here are defined as those inputs which the bureaucracy may use to attain its objectives, or which affect its efforts to attain its objectives, such as the number of its employees, the size of its budget and its legal authority. As can be seen in Tables 1 and 2, among OECD nations, Japan has relatively few public servants, and the size of its government spending is relatively small. The formal authority of Japan's bureaucracy has also been evaluated as "weak" by one American law professor, who has pointed out that while the laws themselves exist and define jurisdictions, many such Japanese laws do not contain provisions for penalties or punishment (Haley, 1993). I also have pointed out that there is a tendency, such as in cases of eminent domain and tax collection, for Japanese public administration to refrain from executing the law (Allinson, 1993). The lack of human resources usually narrows the range of activities which can be carried out. Japan's bureaucracy, ambitious to carry out a broad range of activities, therefore makes special improvisations, in order to compensate for its lack of manpower. The first example of such a special improvisation is its tradition of using local governments for policy implementation. Because it does this, the central government could remain small. Instead of creating its own field agencies in the regions, the central government entrusts local governments with its work. Because of this, the number of employees of local governments has increased, but this has cost less for the government as a whole. The Japanese central government thus delegates many activities to local governments, but at the same time it supervises them, in order to monitor whether or not they have achieved the objectives of the center. Although the central government must make many concessions to local governments, because local governments must act under their own political constraints, it can also involve itself in the actions taken by such local governments and communicate its wishes by utilizing its supervisory procedures. This can help guarantee the realization of the central government's objectives. Intervention into local affairs by central ministries through the use of such procedures has created a trend in which turf battles among central ministries have spread down to local levels involving local issues. This method of delegation has been interpreted as one of centralizing features of the governmental system (Muramatsu, 1989). The second special improvisation involves efforts by the central government to make the private sector do more. In Japan, the government makes relatively little use of government owned corporations. Compared to the fact that many countries have nationalized key industries or increased the

20

Michio Muramatsu

number of public corporations after World War Two, Japan has stayed within the parameters of economic liberalism. In addition, as part of the reform efforts of the Second Provisional Administrative Reform Commission and its successors in the 1980s, Japan has privatized its three largest public corporations. The result has been the selective reduction in required bureaucratic tasks. The third improvisation is the use by the ministry bureaucracies of various organizations as partners. During World War Two, the bureaucracy created industrial organizations for each industry, and sought to realize government policies through such organizations. The bureaucracy utilized the same system after the war. Its involvement in the economy was through intensive communication with these industrial organizations. Due to this practice and network, the bureaucracy was able to send its message to the various industries without having to use direct legal tools. On the whole, these three kinds of improvisations worked well. These are parts of a practice I call "maximum mobilization of scarce resources." Broad jurisdiction is another important factor that explains the nature of the Japanese bureaucracy. It is important because the characteristics of bureaucratic activity which are created by "scarce resources" are multiplied by the broad jurisdiction accorded to agencies. In fact, jurisdictions are so broad that it is felt that every aspect of the lives of Japanese citizens are subject to official regulation. Prewar Japan, too, gave its bureaucracy extensive jurisdiction, to enable the state to promote modernization from above. With large discretion, the prewar bureaucracy determined policy priorities in order to acquire the efficiency it needed to catch up with the West. During the war, the order of priorities was even clearer. Even if its jurisdiction was broad, there were action rules which called for the concentration of bureaucratic effort on critical policies. In the case of the post-war bureaucracy, however, the tendency for it to widen its jurisdiction has accelerated. The growth in the influence of the Diet also increased the work of the bureaucracy. Each time the government was severely criticized by the opposition parties in the Diet, the government expanded the bureaucracy's jurisdiction in response, i.e. it seems that the bureaucracy got fatter each time the Diet scorched the government. For example from recent experience, in response to the securities scandal of the early 1990s, the Ministry of Finance established a securities surveillance committee attached to the MOF itself. When criticism emerged that something should be done about expensive land prices, the National Land Agency was created in 1972. Politicians, also welcome the politicization of many issues, because that increases their work as well. These two characteristics have led to various results including the socalled sectionalism. Sectionalism, which is a Japan-born term based on the

Post-war Politics in Japan: Bureaucracy versus the Party/Parties in Power

21

English word, refers to turf battles among central ministries. It has its historical origins in the conflicts among the Southwestern clans of the early Meiji Period regarding personnel issues and jurisdiction caused by clan nepotism. The Army consisted of persons from the Choshu clan, the Navy of persons from the Satsuma clan, and high positions in the other ministries tended to be also determined by a person's geographical origins. Although this sort of clan-based territorialism gradually died away, territorialism based on ministries emerged in its place. Table 1:

Trends in Government Employment, 1980-1990 (% of total employment) 1980

1985

1988

1989

1990

15.6 21.1

15.6 20.8

Australia Austria Belgium Canada Denmark

16.0 17.6 18.7

17.5 19.4 20.2

16.5 20.9 -

-

-

19.4 28.3

20.8 29.7

20.3 29.4

20.3 29.8

20.6

Finland

17.2

19.2

20.6

France Germany

20.0

22.7

20.6 22.9

22.8

20.9 22.6

14.6

15.6

15.5

Greece

9.9 16.5

10.1 16.9

15.4 10.4

15.2 10.2

Iceland

8.9 15.7

16.8

17.3

Ireland Italy Japan Netherlands New Zealand

16.4 15.7 8.8 14.8 17.2

18.8

18.4

17.2

16.8 8.7 16.0

17.3 8.3 15.4

17.9 17.4

Norway Portugal

25.3 10.7

14.9 29.2 13.2

Spain

10.5

13.4

Sweden Switzerland

30.7 10.1 10.5

32.9 10.3 9.1 21.7 15.3

Turkey United Kingdom United States Source:

21.3 16.4

8.1 15.1

29.9

17.2 7.9 14.9

-

-

-

29.3 14.1 14.1

30.8 14.1

32.0 14.3

14.3 31.5 10.6

14.5 31.8

31.8 10.5 9.1 20.7 15.1

9.1 19.5 15.1

10.6 9.3 19.1 15.5

O E C D Report, Public Management Development, Annex II (Paris: O E C D , 1991: 74).

The evils of sectionalism in prewar Japan, however, were fewer compared to the present case, since the Home Ministry had jurisdiction over all the matters which are now divided among the ministries of Construction, Health and Welfare, Home Affairs and Labor, as well as the National Police Agency. Under the supervision of the Home Ministry, governors at the prefectural level could also coordinate and adjust opinions and policy. In postwar politics, individual administrative agencies act as proxies of certain in-

22

Michio Muramatsu

terest groups when they participate in the policy making process (Aoki, 1990). In the public sector "policy making market," competition among such bureaucracies, as representatives of socio-economic interests, to increase their business has long been a source of new governmental activities. Table 2:

Trends in Government Current Disbursements, 1976-1989 (% of GDP) 1976

Australia Austria Belgium Canada Denmark Finland France Germany Greece Iceland Ireland Italy Japan Luxembourg Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom United States Source:

29.8 42.4 40.1 35.8 46.9 41.0 41.8 44.0 29.5 33.0 37.9 -

23.6 50.2 49.5 49.8 -

33.9 39.7 29.5

1980 30.7 46.4 42.7 36.2 52.2 35.8 44.5 44.7 30.5 33.3 38.8 33.0 27.6 53.3 52.8 53.2 31.4 29.7 56.3 32.8 39.9 30.8

1985 34.1 48.5 45.9 38.7 56.5 40.5 47.6 45.6 34.6 32.5 43.6 38.0 31.2 55.9 54.3 55.1 35.9 34.5 59.5 34.4 42.2 31.3

1986 35.2 48.2 45.1 39.5 58.3 41.8 46\9 44.9 35.6 32.1 43.5 39.9 31.5 52.9 53.0 54.7 37.6 35.0 60.4 35.0 41.2 31.4

1987

1988

35.0 47.9 45.4 40.0 58.8 39.7 47.4 44.4 36.5 32.1 43.7 39.2 33.4

34.2 47.0 44.4 40.1 58.6 40.0 46.8 43.8 34.0 35.4

-

53.6 55.2

-

39.6 34.3 -

52.4 55.1

1989 -

39.6 57.4 39.9 46.5 44.6 31.8 36.6 -

41.1 -

50.1 -

-

-

-

-

-

-

62.2 34.5 40.6 -

61.9 35.0 40.2 31.6

-

34.1 39.7 -

OECD Report, Public Management Development, Annex II (Paris: OECD, 1991: 74).

The incentive offered by such competition can be explained as part prestige and part interest (for example, access to second jobs). Prestige amounts to an interest in power. A ministry-centered policy is adopted in Japan, because Japan tried to realize, with few resources, the ambitious national objective of catching up to the West. Ministry-centered competition was the key to the system. Such competition enabled the maximum mobilization of limited resources by way of severe competition among ministries in the political market for policy innovation. The practice of drafting bills from ministry to ministry which is the practice in the cabinet system, has helped the bureaucracies to follow a strategy of maximum mobilization. The somewhat excessive activity by bureaucracies directed to the work of each ministry is caused by their sense of loyalty, which is often described as

Post-war Politics in Japan: Bureaucracy versus the Party/Parties in Power

23

"unlimited." Admittedly, the work habits of Japanese officials can be a cause for admiration. Japan during the Meiji Period had to undertake various activities aimed at modernization, before it had sufficient time to establish a stable system of authority such as was found in other modern states, and before it could secure sufficient fiscal resources. Despite the fact that it lacked fiscal and other resources, or because of that, the bureaucracy engaged in extensive activities, in order to make up for such shortcomings. In return, bureaucrats were given high social standing, and, at least until before the war, their pay and pensions were good. This system produced results which are rated highly. Furthermore, Japan's bureaucracy, including its lowest elements, shows various signs that the public administration is well managed and the system works efficiently. Observers of Japan's bureaucracy have all said that these are sources of strength for Japan's bureaucracy. In particular, the "unlimited" activities of the bureaucracy and industrial policies were tied together in the politics of the 1960s, creating the image for many people of Japan as a "Strong State" (Johnson, 1982).

4

History of Japan's Bureaucracy

Many of the characteristics of the Japanese bureaucracy described above emerged before the war, and their central cause was catch-up modernization that was carried over from the Meiji Period to post-war. However, adopting G. Lehmbruch's historical analysis which addressed principles applied to German policy processes such as the parity principle and the corporatism developed in German society, we may need to trace the practices and organization of contemporary bureaucracies in the Japanese government to the history of the 16th through 19th century. It is true that many practices of the central bureaucracies can already be found in the Tokugawa bureaucracy of the 17th and 18th centuries. But here I only mention that the peace which lasted for 250 years in pre-Meiji period, was created as a reaction to the long civil war among the fiefs or Daimyos in the 16th century. In this peaceful period many practices of Japan's bureaucracies developed and were carried over to the Meiji and post-war periods. The flexible governmental system under the Shogunate nurtured an official attitude of listening to the voices of the people. The basic rule of decision making such as "eliminating conflicts first," which led to the practice of nemawashi or pre-decision negotiation, was also developed during the Tokugawa period. The Ringisei decision making system, which serves as efficient communication system in Japanese bureaucracy, can also be traced back to this period.

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When the Meiji leaders decided to modernize Japan on the Western model, they endeavored to use Western practices as much as possible. Social scientists have paid attention to the functions and dysfunctions of such methods adopted from the West forgetting that another source of Japanese bureaucratic practices was to be found in the earlier historical legacies. But it is natural for the Japanese political scientists to pay less attention to such historical legacies and more to the Western impact on the Japanese politics since the impact of the latter has been so huge (Westney, 1987). The development of prewar Japan centered around its bureaucracy as is often the case in developing nations. Its civil service system was carefully created, in order to enable Japan to achieve top-down modernization. Bernard Silberman of the University of Chicago has analyzed the creation of the Japanese bureaucracy, emphasizing that it was a bureaucracy of organizational orientation as opposed to the bureaucracy of professional orientation in the United States and England (Silberman, 1994). The cause of this difference was Japanese political uncertainty. Japan needed a bureaucracy which would not be just the holders of professional knowledge, but which would feel loyalty towards the state and its objectives, since the political environment in Japan was extremely uncertain and unpredictable. Uncertainty creates an extreme demand for power. On the other hand, in comparison, a bureaucracy composed of a group of professionals was sufficient in England's case, where the political environment and conditions were not so uncertain and where the bureaucracy developed as a tool of politics. Many elements in Silberman's theory, the period referred to in both countries for example, remains to be explained, but it is certain as was pointed out by him that the bureaucracy of Meiji Japan was the product of various political forces and the demands of an age of uncertainty. Open Selection Examinations. Open competitive selection examinations are the kingpin of a modern bureaucracy. The aim of such examinations was to eliminate all forms of favoritism, be it traditional or of more recent origin. The Prussian civil service system was the model for Japan during the Meiji period. Japan adopted open selection examinations at a relatively early time, using them first in 1888. This adoption was later than Germany and France, but about the same time as England and the United States. A characteristic of the prewar civil service system is the Entrance Sorting System in which high flyers were selected and recruited at the very beginning of their careers in the civil service, when most if not all were only 22 years old or so (Watanabe, 1976). This is very much similar to the ascriptive civil service model in European countries (Putnam, 1976). Capable persons are recruited at a relatively early age, and their paths to the top are guaranteed. The aim of this method was to secure the devotion and loyalty of such civil servants towards the state. Persons who had been recruited at a young age would be forced to compete, and as they reached higher positions, their

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numbers would be narrowed down. Fierce competition was intended to take place. The bureaucracy established during the Meiji period responded to changes in the environment and demands of the time. For example, the organizational orientation of the bureaucracy was shaken up when the political parties became more active. Political parties began to interfere in personnel matters. It was for that reason that the genro (elder statesman) Yamagata, in order to protect the bureaucracy as it existed, tried to limit the number of those who could be freely appointed as civil servants by politicians. This was the point of the 1898 revision of the Civilian Official Appointment Code. One more wave of democratization came during the "Taisho Democracy" period (1912-25). Under the Gonbei Yamamoto Cabinet, another proposal was made to expand the free appointment system. For a short period, party control over bureaucratic appointments increased. Even though democracy gradually gained the upper hand, it was forced to retreat due to the poor economic conditions caused by the Great Depression of 1929. Japan then faced a period of military rule from the 1930s to the end of the war in 1945. This period saw the emergence of the new type of bureaucrats within the bureaucracy (called Kakushin Kanryo). In this political current Japan saw the rise to dominance of new bureaucrats who were ambitious. These bureaucrats often advocated national socialism and tried to mobilize Japan's meager resources for the state. In finance, which was the centerpiece of the controlled economy, the bureaucracy was given many new methods of control, through the Emergency Funds Adjustment Law and the Emergency Law Regarding Exports and Imports and Other Items. The industries under such control were organized according to industrial sector. After Japan's plunge into war, labor was also incorporated into the Industrial Patriotism Association, and became an integral part of the regime. The bureaucracy assisted military rule, and participated in the management and government of Japan's colonies, including Manchuria, as well as of Japan itself, and tried to assume wide responsibility for Japan's internal affairs. The Cabinet Planning Board (Kikakuin) was established during the war in order to develop plans at the macro level which combined internal affairs and economic policy, and to coordinate the policies of the ministries concerned. Post-war Bureaucracy. It seems that Japan's bureaucracy, which emerged as a proactive type, flowered after rather than before the war. Before the war, the age of the genro lasted for a long time, and the rule by political parties during the Taisho Period was a fleeting moment before the period of military rule arrived. During this time, although economic bureaucrats built a strong system, both as central figures of a controlled economy, and by

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allying themselves with the military, they only constituted one part of the complicated prewar establishment. After the war, however, bureaucrats were given a chance to pursue their own idea of rationality. The continuation of the prewar methods of economic control was advantageous. Political stability, a pre-requisite for utilizing such methods, existed in the post-war period. The stability and unity of politics was first secured by the U.S. Occupation and GHQ. Soon after that came the long-term, stable rule by the Liberal Democratic Party (LDP). Above all, the prime minister's position and influence became strong through the constitutional guarantee of the appointive power of cabinet members. As I argued, the power struggle between the bureaucracy and the political party is not a zero-sum, but rather a 'positive sum' game. Under a system of strong centralized political power, the bureaucracy was very effective. It was particularly so during the period when Japan rebuilt itself from the aftermath of war and headed towards economic growth. This was a period of weak policy initiative on the part of political parties. On the other hand, when the parties regained power vis-à-vis the bureaucracies, they needed strong bureaucratic agencies to promote their own policy ideas. The problem has been that sectionalism among the ministries has increased, as I pointed out in the introduction. Bureaucracies compete among themselves for jurisdiction. As the process of politicization proceeded and various interests began to apply pressure on the policy making process, the ministries became the spokesmen for powerful interest groups. Conflicts of interest became more than just conflicts among ministries, and became conflicts involving society as a whole. How then should sectionalism among ministries be reduced? There are several possible answers, including the self-coordination by the bureaucracy, coordination by the ruling party, and coordination through negotiation among powerful interest groups. I believe coordination by the ruling party or the coalition has been the most important coordinating factor and should continue to play a key role.

5

Maximum Mobilization and Personnel Administration

Maximum Mobilization System. By maximum mobilization here I refere to the system in which collective efficiency, not the efficiency of individual members of an organizations is respected. In the Japanese executive and administrative system, maximum mobilization means, first of all, that the time and loyalty of civil servants can be efficiently mobilized through the stimulation of interministry competition. This in turn is created partly by

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giving each ministry authority over administration of its own personnel. Personnel administration was organized in such a way to encourage competition among ministries for resources and power. This competition in turn would facilitate the maximum mobilization of civil servants, who were always few in number compared to the workload imposed upon them. Within the ministry, the vagueness of jurisdiction and of the outlines of official duties, coupled with the fact that the top bureaucrats were generalists, meant a setup which would permit as many persons as possible to handle as many duties as possible. The idea of maximum mobilization has also been applied to the relationship between the central government and the regions. Instead of establishing branch offices, the central ministries entrust the prefectures and municipalities with an enormous amount of work. This method costs far less than the establishment of their own field agencies. Maximum mobilization means not simply the concentration of power. When power is concentrated, only information from the center is conveyed to the regions, while in the case of maximum mobilization, an effort is made toward full use of regional information as well as resources. Both the center and the regions exchange information in depth so as to create common objectives and policies. Maximum mobilization is also considered in Herbert Simon's organization theory, which says that the jobs in administration should be as programmed as possible (decentralized). Information should be decentralized in the form of manuals (routines), and subordinates should be used as much as possible, while the top persons should concentrate only on important decisions (unprogrammed decisions). He goes on to say that the complex, real world should be organized by programming (i.e. routinizing) as much as possible (March and Simon, 1958). Maximum mobilization as practiced by Japan's administrative system, however, is not the same as Simon's. While Japan's top officials do entrust work to subordinates, they do not lose their interest in the details. All-out routinizing is not performed. Rather, by giving subordinates discretionary powers, an effort is made to encourage their initiative, and then to monitor the results. If bureaucratic organizations are viewed with this standard in mind, top officials certainly do decentralize and entrust much to their subordinates, in order to bring out their initiative. This was also done because it was safe to entrust discretionary decision making career high-flyers assigned to various positions because they already share the interests of the ministry. J Theory. In this context I would like to introduce J Theory, an organizational theory developed by economist Masahiko Aoki (Aoki, 1990). The theory attempts to explain Japan's organizations. According to Aoki, A Theory, which explains American organizations, involves the centralization of information and the decentralization of personnel administration, while

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the principle underlying Japan's corporate organizations is the decentralization of information and the centralization of personnel administration. The centralization of information means that the top level of the organization possesses the information necessary to make decisions, and after they select a policy, they relay it to subordinate organizations in the form of orders. Compared to this, the decentralization of information involves a system in which subordinates participate in decision making, which are finally determined by top management. As to personnel administration, in the United States, one's immediate boss holds such personnel powers to employ the individuals with necessary skills (or, conversely, he can fire such persons at his discretion). In Japan, such powers are held by top management, the secretariat in the case of the ministry bureaucracy. The organization of the Ministry of International Trade and Industry (MITI) is sometimes described as the organization of gekokujo (insubordination), since even junior MITI officials who are at the forefront of policy inplementation are involved in the decision making process of the ministry. Subordinates also have discretion to decide by themselves if matters such as the implementation of policies are necessary. Authority related to personnel administration, however, is assigned to the secretariat, and it is through the centralization of such personnel powers that a balance is maintained preventing subordinates from acting too far beyond expections. This theory is superb in that it comparatively singles out both "gekokujo" and "a strong secretariat" at the same time, both of which have been pointed out as characteristic of Japanese organizations. Personnel Competition. In the J model, the central consideration in personnel administration is to make maximum use of the bureaucrats employed in the ministry by sharing information between top, middle, and bottom levels. In this context, the top will give information to the bottom, and will use the initiatives taken by the bottom. What is important is to make career officials use their abilities and ensure their loyalty to the fullest. In order to do so, they must be forced to compete. Maximum use of officials will be based on severe competition among them. Naohiro Yatsushiro analyzed Japan's elitist high-flyer system in terms of competition (Yashiro, 1992). Yatsushiro states that, generally speaking, it is difficult for a wage competition mechanism such as is found in the private labor and wage market to function well in the public sector, because there is little risk of bankruptcy, and because the difference between wage extremes is relatively small. Instead, however, competition does exist regarding what Lester Thurrow calls "competition for good positions" within the organization. A good position is one which permits its occupant to gain valuable job training and which enables him or her, when carrying out the duties of that position, to display his abilities. Unlike in the private sector, which has

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objective measurable indices such as profits or corporate earnings, in the public sector, only a small number of positions permit an objective rating of an individual's abilities, because few indices are available which permit such abilities to be expressed in measurable way. Competition for good positions is therefore fierce, and as a result, competition within the bureaucracy is such that small differences can be quickly magnified. Yatsuhiro sees the emergence of one type of competition from this framework. In addition, according to Yatsushiro, the closed personnel system which selects capable persons at the entry level (usually at the age of 22 or 23) and does not hire persons in the middle of their careers is another factor which increases competition. This is due to two reasons. One is that persons who have been assigned to good positions at the beginning of their career are, as a result, able to receive high-quality training and are able to strengthen their abilities, while simultaneously having many opportunities to impress their superiors. As a result, they stand a good chance of being rotated to another good position, and are thus placed in a favorable circle. In comparison, persons who start out in bad positions are liable to find themselves in the opposite situation and become entrapped in a vicious and negative circle. It is in this sense that, Yatsushiro says, fierce competition takes place at the lower levels of the bureaucracy, where the achievements of personnel have not yet been fixed. The second reason is that despite the high competition described above one does not find himself promoted in the form of titles much faster than others for the first ten years after one has entered the bureaucracy. Some people call this delayed selection. This sense of stability, which hides already emerging differences softens human emotions with respect to the battles for positions in mid-career. One more reason is that highflyer bureaucrats, while they are candidates to become high ranking officials, have no guarantee of employment until the mandatory retirement age. After attaining the rank of section chief or so at the age of about 40, selections are made in the form of secondments outside the organization or early retirement. Many high flyers thus leave before reaching the top bureaucratic positions. It can be said that sectionalism, which is the battle of ministries over policy jurisdictions, also involves actually competing for jurisdictions concerning second jobs to make their ministry bureaucrats' retirement earlier and smoother. We need to explain here placement in "the second job" or Amakudari practices accompanying the retirement of officials. Amakudari is common in the Japanese civil service (Inoki, 1993). It almost looks like a part of the retirement system. In order to prevent public officials from being corrupted by doing special favors for particular businesses where eventually they find second jobs, screening rules for such

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placement exist. Still, however, every year, hundreds of officials find second jobs in the above-mentioned manner. These second jobs in private business or public corporations accompanying retirement are important incentives to attract young able new-graduates to public service in general and to specific ministries in particular. This practice has, however, come under public criticism, as can be seen by its treatment in the press (Asahi Shinbun, July 3 1994).

6

Budget Formulation: The Case for Integration

Policy fragmentation has been reinforced by ministry competition and amplified through the bureaucrats' competition for promotion and second jobs. Now we come back to the question: what factors lead to integration that enable one to speak of a 'whole' government? I have pointed out three possibilities of coordination: first, by the bureaucracy itself, second, by the pluralistic process of compromising among the interest groups, and third, by the party and the parties in power. The distribution of budgetary resources is the most important tool within the category of bureaucratic procedure. Actually, it is a case of coordination by the MOF. Generally speaking, the following three items have been pointed out as important functions of the budget: (1) control of the bureaucracy by the Diet and people, (2) management of ministry organization, and (3) the backing up of plans with hard figures and the strengthening of the relationship between projects. In Japan, the formulation of budgets is legally a task of the Cabinet. However, the Ministry of Finance prepares the budget, and the MOF acquires power by way of distributing budgetary funds. The Budget Bureau of the MOF is responsible for assessing the budget requests of each ministry. The presence of top government officials is slight, because they have handed over to the MOF the task of preparing a budget. The MOF therefore joins forces with the ruling party, gains the support of the various ministries and carries out the budgeting procedures. The wide-ranging and complex bureaucratic activities in budget-making are conducted in a microlevel process involving the MOF and the other ministries. The MOF bases its first estimates on the previous year's budget, and informs the other ministries in a cabinet meeting in July that a budget of so-and-so size is acceptable. It is after this that the other ministries become active, and the microlevel process begins. By this time, each ministry has finished its budgetary appropriations demand for the next year. Each ministry thus looks at the overall figure presented by the cabinet, and only then makes adjustments in its priorities and budget amounts.

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The ministries play key roles in the microlevel budget process. Within each ministry, the general affairs section chief of each bureau reviews the detailed demands from the units his bureau, after which the accounting section chief of the ministry works all of the budgets of individual bureaus into a budget for the entire ministry. The accounting section chief in each ministry's secretariat plays the central role during the drafting of each ministry's budget. This is then presented to the MOF on the last day of August. The accounting section chief works closely with the responsible chief examiner of the MOF's Budget Bureau as he moves ahead with the procedures. Each ministry's accounting section chief reports that his entire ministry supports the budget, but over and above all, he reports that the majority party (for a long time, the LDP) and related interest groups have also agreed with the budget demands. Under the rule of the LDP, interest groups gradually expanded their roles. Primarily through the influence they had with the LDP, such groups not only acted in a way which would benefit their related ministry, but also came to apply pressure on ministries. In the LDP, the power of the Policy Affairs Research Council and its related councils grew. Politicians took the tactic of first getting research funds approved for the projects they supported. The amount of such funds might initially be only one million yen, or maybe ten million yen, but once such seed monies were approved, everything was in the bag. And all that was needed to be done was to pry more funds loose in subsequent budgets. Campbell called this the camel's nose. The large body follows after the camel's nose has entered the tent (Campbell, 1978). Incrementalism. Within the MOF, which has to respond to such demands from individual ministries, the Budget Bureau is the nucleus of the budget preparation process. Assessments by the MOF are characterized by a policy of gradual change. The previous year's budget is always the base, and a certain amount is added to or subtracted from that amount. All that needs to be considered, therefore, are any changes in circumstances. The underlying philosophy of budgetary procedures is "simplification" (Wildavsky, 1966). The wisdom which emerged from the theory of simplification is incrementalism, and this is the reality in most countries. In the case of Japan's incrementalism, Campbell has said that it is a type of incrementalism that is oriented toward balance (Campbell, 1976). Next, the MOF's principle is budget reduction. Their basic stance is: "Cut spending — cut, cut, cut." This principle leads to a passivism concerning policy. The MOF has little interest in actively promoting policy and believes that policy is the responsibility of other ministries. The MOF holds down the total amount of the budget by clarifying the accuracy and responsibility of individual budgets. Although the presentation and defense of budget proposals before the Diet holds a significant political meaning for the

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MOF, what is interesting is the "offense-defense interchange system" of the responsible persons who are all strung together in the process. In this offense-defense interchange system, the following takes place. The accounting section chief of each ministry conducts an examination in response to the demands made by the general affairs chiefs of all the bureaus in his ministry. After completing this examination, the accounting section chiefs present their demands to the various MOF examiners for each ministry. The examiner scrutinizes the demands from his ministry. Then within the MOF, these examiners try, within the Budget Bureau of the MOF, to push through "his" ministry's demands. As the process moves upward, the demands of lower organizational units must be coordinated and combined. Ultimately, the process ends with coordination by the Finance Minister. After the process is completed, so-called resurrection negotiations are held among the ministers. If the formulation of budgets is nominally considered to be a central function of politics, then the system outlined above means that the MOF has assumed a role which politicians are supposed to play. It could be said that the process is conducted with the MOF as the key player. This enables the influence of politicians to be held at a minimum and allows a greater amount of bureaucratic rationalism to be attained. In my interpretation, the offense-defense interchange system was designed to represent an alliance between the MOF and other ministries aimed at the exclusion of politics. Has the effort to exclude politics then succeeded? During the period when the LDP was in power, although some of the efforts to exclude politics succeeded, but most failed. In reality, politics came to intervene quite extensively. Even with the alliance between the MOF and other ministries, the latter needed zoku parliamentarians, while the former had to continue making concessions in order to win the support of the ruling party. A zoku parliamentarian is a politician who has become an expert in a certain policy area and who has come to accept requests from a certain ministry through his long-term dealings with it. The effort to coordinate policy through the budget process did not necessarily succeed either. Rather, since the demands of the ministries were generally accepted during the formulation of budgets, it was as if authority was gradually transferred to the ministries. The MOF does not have enough influence to determine the order of priority of policies. This observation does not deny that the MOF's budget making principle, passivity in this case, causes political effects and that their impact is often extremely large. Hideo Otake points out that the relatively small amount of military expenditure of the Japanese government up until the 1970s was due to the MOF's passivity toward new expenditure items. He even points out that the MOF might have intentionally used their habitualized principle of passivity in this case (Otake, 1985).

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Macrolevel Process. The macrolevel process involves the broad scale determination of the following year's budget. Generally speaking, MITI presents estimates, inflated on the positive side, of the real and nominal economic growth rates for the following year based upon the previous year's GNP and international balance of payments. After such a presentation, the MOF proposes a more conservative view. The Economic Planning Agency takes a middle-of-the-road stand. This sort of conventional process applies only to the case of budgets during the period of Japan's economic growth. More recently, both economic forecasts and government revenue estimates have become highly politicized. The most extreme example of such politicizing appeared in the form of international economic relations influencing the domestic budget. In the 1977 London Summit and 1978 Bonn Summit, Prime Minister Fukuda, a former finance minister and a fiscal conservative, was told that Japan, along with the United States and West Germany, must be the locomotives of the global economy. Fukuda returned home, and forced through policies which were aimed at seven percent growth and which were, at the time, thought to be completely impossible. Recently, in G-7 meetings, or in negotiations with the United States, Japan is being forced to make optimistic forecasts of economic growth. This generates further pressure to adopt a spending policy. Japan's leadership, however, has traditionally supported a balanced budget policy, with the MOF in the lead. Recently therefore in the formation of budgets, international pressure and domestic politics have been in conflict with one another. The coordinating which takes place as part of Japan's balanced budget policy is a product of post-war Japan's experience with severe inflation. The rebuilding of the country from the aftermath of war had to start by overcoming the lack of raw materials and the exhaustion of the economy. In 1949, when Japan was caught in the grips of severe inflation, the American banker Joseph Dodge came to Japan and presented his so-called Nine Principles. These recommendations suggested the adoption of a policy of fiscal restraint as a means of lowering the high rates of inflation and of combating the economic recession which was then taking place. After the adoption of the so-called Dodge Line in 1951, Japan's government followed a balanced budget policy. Even during the period of high economic growth, the government did not adopt plans for economic stimulation, which would have involved the issuing of government bonds. Japan relied upon broad financial policy, instead of a simple budgetary policy, to control demand. Until the 1960s, the macroeconomic policies of the Japanese government could be said to have relied upon bank loans as well as a balanced budget, instead of government spending, since the latter is more subject to influence by political pressure. The MOF entered into a cooperative relationship with the

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Bank of Japan, in which ambitious entrepreneurs were allowed to use loans often beyond the stipulated level of reserve for safety capital. Has the formulation of the budget made it possible to overcome ministerial sectionalism? Admittedly, the MOF is a superpower. It can make changes in the individual projects of the various ministries. From the standpoint of these other ministries, the MOF is feared because its ability to make such changes is a constant threat. Even the MOF, however, cannot evaluate all demands made by each ministry, nor does it try to do so. As was explained, the MOF maintains the principle of passivity based on the balanced budget. The demands of the ministries compete with each other in the political market called the budget process. The budget process establishes a politically competitive arena. This competition does not result in quick changes in the budget, because, under pluralism, the influence of society's political forces must be reflected. Hence, the practice of incrementalism is followed. Each ministry fights fiercely for or against minute increases or decreases. First of all, vested interests must be protected to the death. After that is done, the MOF must be made to approve new projects. This competition works together with the ministry-centered personnel administration outlined earlier to reproduce sectionalism on an enlarged scale. Politics adds impetus to this process. There was a limit to the alliance of administrative institutions which tried to exclude politics in relations between the MOF and other ministries. In addition, the MOF has suffered a loss of prestige. The Japanese budget is now normally the object of political decisions. Politics speaks out through political parties, interested parliamentarians, or top officials. In all countries, political influence will be felt, although with different characteristics, depending on the time period and the country. It is certain, however, that in general including Japan the influence of politics has gradually expanded after World War Two. In concluding, it is useful to explain the strategies the MOF takes in order to go through the budget process smoothly. The most important goal for the MOF officials is to pass the budget through the Diet. To this end, the MOF concentrated on teamwork with the conservative party after the Second World War. However, this interpretation does not cover the post-LDP era. From the summer of 1993 to June 1994, Japan had two multi-party coalition governments. In July 1994, Japan formed another coalition government consisting of the LDP and JSDP. Everything remains to be seen, but the MOF is well known to have contacted key figures such as Ichiro Ozawa and Masayoshi Takemura in each coalition government. Second, the MOF compromises with respect to the needs of other ministries but the MOF is extremely watchful towards sections of other ministries which have a large budgetary appetite. Specifically, it seconds persons to

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the National Defense Agency, a large budget spender, to the National Personnel Authority, which handles the salaries of civil servants, to the Ministry of Health and Welfare, which handles welfare issues, and to the General Affairs Agency, which monitors the workforce sizes of the other ministries. Such seconding is a preventive measure aimed at holding down costs before they are reflected in budgetary demands. Third, the MOF has jurisdiction over finance as well as government spending. The MOF has an enormously large role in Japan's economic policy. It handles treasury investments and loans, which are called the Second Budget. It manages national assets, and exercises taxation powers. It reviews the business and funding plans of every public corporation, and approves (or disapproves) the issuing of bonds by all types of governmental and semi-governmental organizations. This is only the beginning of the list of its responsibilities. It also has extensive power to procure funds from the private sector, due to its power to control city banks. Under the gradually growing influence of political parties, the MOF compromised with the ruling party and inflated government spending. Once Japan had an accumulated deficit of 200 trillion yen. Masaru Mabuchi says that this was possible because the MOF had the power to regulate and control private finance. He says that the Bank of Japan used its regulatory power over the city banks to sell the government bonds even as the MOF was making concessions to the demands of the LDP by way of spending. This was especially true in the 1970s (Mabuchi, 1994).

7

Concluding Remarks

The year 1993 proved to be the start of new turmoil in Japanese politics. The LDP administration was dissolved, and an eight-party coalition government led by Hosokawa emerged. However it soon collapsed in June 1994, for the same reason that the LDP government had collapsed. The subsequent Hata administration lasted only two months and we now have the LDP-JSDP coalition government. When the eight-party alliance was formed, it was centered around the Shinseito (Renewal) Party and the Socialist Party, which have completely opposing policies regarding defense and the economy. Regardless of what kind of administration Japan has from now on, this period of turmoil will continue. This will be an excellent chance to make great changes in policy. Japan's positive response to the Uruguay Round could be made relatively smoothly because the LDP administration, which had deep ties with agricultural groups, was out of power. It is certain, however, that the age is over in which the bureaucracy had the power to

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make proposals regarding critical policy, and it seems that the perception is spreading that bureaucratism in Japanese society has retreated as a result of a loss of confidence caused by the fragmentation of Japan's bureaucracy, and that the age has arrived in which high expectations are held of the leadership of political parties and the prime minister. Undoubtedly, Japan's bureaucracy is very active. I can understand why this has generated the "Strong State" theory. On the other hand, however, the amount of activity of political parties and politicians cannot be disregarded. This aspect has been getting attention recently, under the name of interest-guided politics. Compared to the daily activities of British Members of Parliament and their weak bonds with their electoral districts (Ashford, 1988), the level of activities of Japan's politicians to plough back benefits to their districts, and the level of their involvement in adjusting interests in the business world, are eye-opening. The bribery cases involving Shin Kanemaru, former Vice-President of the LDP, or the mayor of Sendai were caused by this. To sum up my arguments, in Japan, politicians are also very active in the sphere of policy making. In the turmoil of coalitional politics at hand, however, what will be the future shape of the relationship between bureaucrats and politicians remains to be seen.

References Allinson, Gary (ed.) (1993), The Political Dynamics in Contemporary Japan, Ithaca: Cornell University Press. Aoki, Masahiko (1990), Information, Incentives and Bargaining in Japanese Economy, Cambridge: Cambridge University Press. Asahi Shinbun (July 3 1994), Special article on Amakudari. Ashford, Douglas (1988), British Idealism and French Pragmatism, London and Boston: Allen and Unwin. Campbell, John (1978), Contemporary Japanese Budget Politics, Berkeley: University of California Press. Center for Administrative Management Studies (1990), Gyousei Kaikaku wa Nihon wo Kaetaka (Has the Reform Commission Changed Japan?), Tokyo: Research Report of the Center for Administrative Management Studies. Friedrich, Carl (1937), Constitutional Government and Politics, New York: Harper. Haley, John (1994), The Japan's Post-war Civil Service: The Legal Framework, EDI Working Papers, Washington, D.C.: World Bank, Number 93-27. Inoki, Takenori (1993), Japanese Bureaucrats at Retirement: The Mobility of Human Resources from Central Government to Public Corporations, EDI Working Papers, Washington, D.C.: World Bank, Number 93-32. Johnson, Chalmers (1982), A/777 and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975, Stanford: Stanford University Press.

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Johnson, Chalmers (1986), MITI, MPT and the Telecom Wars: How the Japan Makes Public Policy for High Technology?, BRIE Working Papers, Berkeley: University of California, Number 1. Katzenstein, Peter (ed.) (1978), Between Power and Plenty, Madison, University of Wisconsin Press. Mabuchi, Masara (1994), Okurashou Tosei no Seiji Keizaigaku (Political Economy of the Ministry of Finance Control), Tokyo: Cho Koron Sha. March, James and Herbert Simon (1958), Organizations, New York: Wiley. Muramatsu, Michio (1981), Sengo Nihon no Kanryosei (Post-war Bureaucracy in Japan), Tokyo: Toyo Keizai Shinpo Sha. Muramatsu, Michio and Ellis Krauss (1985), The Conservative Policy Line and the Development of Patterned Pluralism in Post-war Japan, in Yasuba, Y. and Kozo Yamamura (eds.), The Political Economy of Japan, Vol. 1, Stanford: Stanford University Press. Muramatsu, Michio (1989), A Lateral Political Competition Model for Japanese CentralLocal Relations, The Journal of Japanese Studies, Vol.12, No. 2. Najita, Tetsuo (1974), Japan, Chicago: University of Chicago Press. Otake, Hideo (1985), Kokunai Seiji to Bouei Seisaku (Domestic Politics and Defence Policy), Tokyo: Asahi Shinbunsha. Pempel, T.J. (ed.) (1992), Uncommon Democracies, Ithaca: Cornell University Press. Pempel, T.J. and Michio Muramatsu (1994), The Japanese Bureaucracies and Economic Development, EDI Working Paper, Washington, D.C.: World Bank, Number 93-26. Putnam, Robert (1976), The Comparative Study of Political Elites, Prentice-Hall: New York. Silberman, Bernard (1994), The Structure of Bureaucratic Rationality and Economic Development in Japan, EDI Working Paper, Washington, D.C.: World Bank, Number 93-29. Simon, Herbert (1948), Administrative Behavior, New York: Free Press, p. 129. Tsuji, Kiyoaki (1969), Shinpan Nihon Kanryosei no Kenkyu (A Study of Japanese Bureaucracy), Tokyo: University of Tokyo Press. Watanabe, Yasuo (1976), The Civil Service System, in Kiyoaki Tsuji (ed.), History of Public Administration, Tokyo: University of Tokyo Press. Westney, Elenor (1987), Imitation and Innovation: The Transfer of Western Organizational Patterns to Meiji Japan, Cambridge: Harvard University Press. Wildavsky, Aaron (1966), The Politics of Budgetary Process, Berkeley: University of California Press. Yashiro, Naohiro (1992), The Japanese Bureaucratic System and Administrative Reform (Nihon no kanryo to gyosei kaikaku), Tokyo: The Center for Japanese Economy, JCER Paper Number 18 (December).

From State of Authority to Network State: The German State in Developmental Perspective Gerhard Lehmbruch

In a monograph on Japanese industrial policy Japan was characterized as a "network state," in the sense that it is "able to exercise power only in terms of its network of ties with the private sector" (Okimoto 1989, 226). It is tempting to take up this metaphor in the comparative perspective of this volume. As I intend to demonstrate, the modern German state can be called a network state in a double sense: Not only is it linked to the private sector — or, as Hegel would have put it, to "civil society" — in a network-like fashion. Moreover, a constant feature of its internal institutional make-up is its network-like character. Policy formation in the Federal Republic of Germany is very often the product of complex processes of mutual accomodation between corporate actors none of which has the power to unilaterally impose his objectives.

1

The German State as a Model for Meiji Japan

This hypothesis is certainly at odds with a traditional image of the German state as Obrigkeitsstaat, or "state of authority." It is this image to which the Japanese elites were early exposed. Students of the Meiji period of Japanese history are familiar with the importance of the German state as a constitutional model. Ito and Yamagata had direct or indirect contacts to Bismarck. Lorenz von Stein, whose theories — strongly indebted to Hegel — became so important for the ideology of the German bureaucracy and the German welfare state, was intensely consulted by many Japanese statesmen and administrators travelling to Europe. Stein's former student, Hermann Roesler, accepted a chair at the university of Tokyo and had an important part in the making of the Meiji constitution. Another of his students, Albert Mosse, transferred German ideas of Selbstverwaltung ("self-administration") to Japan, and through him, Rudolf Gneist became another important intellectual

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influence. As late as in 1935, when a conservative majority of the Japanese diet censured the liberal constitutional theories of Minobe Tatsukichi, thus taking sides for the authoritarian doctrines of Uesugi Shinkichi and his teacher Hozumi Yatsuka, this conflict of constitutional ideas was still represented as an echo, in Japanese legal thought, of the doctrinal differences in German public law between the schools of Georg Jellinek and of Paul Laband (Minear 1970). The attraction of the German model of state-building for the Meiji elites was certainly not the least due to Bismarck's apparently successful attempt to reconcile traditional political and social authority relations with political modernization. Germany in the Imperial (or "Wilhelminian") age was the model of a modernizing bureaucratic regime with limited parliamentarism that — under conditions of rapid social change and accelerated industrialization — seemed capable to contain democratization within narrow confines without stifling all social autonomy. Therefore enlightened Japanese bureaucrats considered their German counterparts as congenial, and vice versa. More recently however, scholars studying the influence of German concepts of the state on Meiji Japan have pointed out that those German concepts were not closely copied but became "japanized" or even "confucianized" (Minear 1970). Such changes were sometimes deliberately made, for example when Ito strengthened the constitutional position of the emperor in a way that deviated characteristically from the draft constitution proposed by Roesler. But more often they were the outcome of a cultural symbiosis, comparable to processes such as the fusion of Greek and oriental-Christian thought in the intellectual history of Europe. Anyway, it appears that the Japanese "stereotype" of the modern German state may have been the result of a selective perception of the German reality that was guided by the political goals of Japan's modernizing elites.

2

Institutional Continuity and Change in the German Policy

I mentioned the traditional image of the German state as a powerful Obrigkeitsstaat ("state of authority") led by a bureaucratic hierarchy. In the perception of conservative German elites this was a legalist and benevolent order while for social democrats and for many foreign observers it was a rather oppressive system. Yet in both versions, top-down authority relations were an important feature of this system. And critics of Max Weber sometimes argue that his "ideal type" of the modern bureaucratic, "legal-rational" state was not really an idealized construct but reflected rather closely the reality of the contemporary German state.

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The view of Germany as an Obrigkeitsstaat is of course due to the predominance of top-down authority structures in Imperial Germany (18711918). Its foremost architect, of course, was Bismarck. And since the Imperial period was not only contemporaneous to the Meiji period of Japanese history, but also a characterized by institutional borrowing as mentioned above, their respective places in the history of state-building can be fruitfully compared: Just as the institutional foundations of the modern Japanese state were built in the Meiji period, so much of the institutional foundations of the modern German state date essentially from Imperial Germany. So the parallels drawn in much of the literature are not arbitrary. However, this perspective emphasizing the affinities of the German Obrigkeitsstaat and Meiji Japan is a limited one. One century later, a comparison of Japanese and German statehood should go beyond the stereotypes that dominated those origins of the modernizing bureaucratic national state and reconstruct the complexities of the modern polity in both countries. This will of course not neglect the lasting impact of the state structures engineered in the late 19th century. Notwithstanding the breakdown of the German Reich in 1945, the Federal Republic of Germany always considered itself the institutional successor of the Reich. And this was not mere rhetoric. Indeed, in particular, the structure of the German administration is today still largely based on the fundaments laid in the Wilhelminian period. This important continuity is often strangely neglected in contemporary German political science. Most currently available textbooks on the government of the Federal Republic start with constitution-making after the second world war, treating it as essentially a deliberate process of institutional engineering to avoid the alleged weaknesses of the Republic of Weimar. 1 But this distorts the institutional origins of the modern German state. After all, the constitution-makers of 1948/49 had received their political socialization in the Weimar Republic, and this was their essential frame of reference. Hence their objective was to amend rather than to replace the constitution of 1919. 2 Clearly, important basic elements of the institutional framework of Weimar were maintained, such as the organization of the federal executive or the structures of "executive federalism." Even where deliberate changes were made, as in the relationship of parliament and government, this occurred on a strong background of institutional continuity. Moreover, the larger institutional networks in which the Weimar constitution was embed1

2

Representative examples are: Beyme (1991, 33), Rudzio (1991, 33), and Sontheimer (1991, 36-39). Only Hesse and Ellwein (1992, I, 21) briefly point out that the postwar constitution-makers were shaped by German history and the related traditions. This was properly stressed by Fromme (1960), the pioneering monograph on the subject.

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ded remained more or less intact, as for example the informal system of state-economy relationships based on the existence of strong economic organizations. But not only can the Basic Law be interpreted as an amended version of the Weimar constitution. Also, the latter was in turn strongly indebted to the institutional heritage of the Bismarckian constitution. It is on the background of this fundamental institutional continuity that one can best understand how the German state has changed after the Second World War. The promulgation of the Basic Law in 1949 was only part of this process, and in my view the two essential changes even predate it. One, I submit, was the dissolution of Prussia by the Allied Powers in 1946 because in the long run it produced a new federal equilibrium. The other was the strong bi-polarization of the party system that emerged since the first state elections in 1946/1947 and transformed the way in which parliamentary government worked. Taken together, these two institutional developments contributed to change the political power structure of post-war Germany in two directions. On the one hand, the democratic responsibility of government was strengthened at the expense of authoritarian traditions. On the other hand, the weakening of these authoritarian traditions enhanced an older institutional heritage that in the system created by Bismarck, although much of it was preserved, remained eclipsed by the Obrigkeitsstaat. This older heritage must be added to the elements of institutional continuity. A developmental interpretation of the German state should look even beyond the institutional foundations laid in the time of Bismarck. It should also consider the processes of institution-building in the two centuries predating the transformation of the German polity, in 1871, into the modern German national state. This longtime neglected legacy is important to fully understand the development of Germany's political system after the Second World War. With its federalist and corporatist heritage the German state is rooted in the "old Empire," founded with the Westphalian peace treaty of 1648 and dissolved in the Napoleonic era (1806). The Westphalian peace finally put an end to the Thirty Year's war, the most traumatic and exhausting domestic conflict in modern German history. Its institutional significance for the emergence of the modem German state can quite aptly be compared to the significance, for Japan, of the victory of Tokugawa Ieyasu, in the first decades of the 17th century. Both events stabilized the respective polity after times of deep turmoil. Thomas Hobbes, of course, assigned the function of establishing civil peace to the absolutist sovereign, and similarly monarchical absolutism in France appeared as the prototype of the modern state achieving domestic stability after a long period of religious conflicts. But the functionally equivalent German order of civil peace was based on strikingly

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different institutional foundations: Its secret was the hybridization of federalist and corporatist elements on the national level with the emerging bureaucratic state on the sub-national level. To be sure, with Prussia's rise to hegemonic power — completed in 1871 -the latter element apparently had won the upper hand. But when Prussia disappeared, older elements of the German institutional heritage that had somehow been eclipsed were ressuscitated.3

3

Institutional Options and "Bounded Rationality" in State-building Processes

It is a theoretical premise of this analysis that state structures are the outcome of development paths under contingent historical conditions. Such development is of course by no means strictly deterministic. Particularly in situations of major structural crisis, several options of restructuring are often open to collective actors. Modern Germany has known some important instances of crisis that led to deliberate restructuration, and constitutionmaking in 1871 or 1919 was among the outstanding examples. Similarly, the Meiji "restoration" was a case of structural choice in face of different options. On the other hand, however, institution-building, as all collective decisions, is subject to "bounded rationality." 4 Constitutional engineering is constrained by "limited knowledge and ability" (Herbert Simon) and hence governed by the principle of "satisficing." The first important consequence of such bounded rationality is strong path-dependency because institutional change remains limited to those variables that are clearly not satisfactory, and options at each stage of development are more or less restricted by the "lock-in" effects of earlier choices. And the second important device simplifying structural choice in state-building processes (particularly in the making of new constitutions) is the use of historically given "models" that supposedly are tried and tested. We are all familiar with the powerful role of Athenian democracy and English parliamentarism as such models in the history of political institution-building. But even where constitution-makers 3

4

However, I do not equate Prussia with the German Obrigkeitsstaat: During the Weimar Republic, Prussia's institutions were the strongest bulwark of German democracy, destroyed only in 1932 by chancellor Papen's coup against the Prussian government. But the disappearance of Prussia as a hegemonic state resulted in a strikingly different power structure in post-war Germany. I employ this term of course in the sense of Herbert Simon (1957).

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are borrowing from foreign "models," these models are adjusted such as to fit a historically given institutional framework. On the face of it, the contemporary German state is to a large degree the product of constitutional choice emulating successful foreign models. This is true, in particular, of parliamentary government, but also of important elements of the administrative organization. Adopting Western European (and, to a limited degree, American) patterns of political organization was an important ingredient of political modernization. For some time, however, such selective Westernization was highly controversial among German elites. The concept of a German Sonderweg ("special way"), different from the liberal democracy of Western Europe, emphasized the hierarchical and authoritarian elements in the structure of Imperial Germany, and it fed the reactions against Weimar. But it gave a distorted picture of German institutional development. And the proponents of such a Sonderweg appear to have definitely lost in 1945 with the catastrophe of the Nazi regime. At the difference from other European states, in particular France, the German "state" does not conform very well to the model of an administrative hierarchy as in Max Weber's ideal type. To be sure, German legal scholars of the Wilhelminian period borrowed this model largely from France (from where they imported the concepts of administrative law). And when Carl Schmitt discovered — at his dismay — that the real German state was different he put the blame not at the stylized legal conceptualizations of his profession but rather at the political reality of the Weimar Republic. In truth, however, the "pluralist" stalemate blamed by Schmitt was already characteristic of Imperial Germany and was reinforced by its institutional framework. In a retrospective analysis published in 1930 this was brilliantly demonstrated by Schmitt's liberal antipode, Richard Thoma (1930). As he pointed out, the leadership role of the Reichskanzler was subject to five, partly contradictory constraints: He depended on a confidential relationship with the monarch, he had to accomodate the Federal Council (.Reichsrat) and the larger member states, he had to build ad hoc coalitions in the Diet (.Reichstag) to win approval for bills and for the budget, and since at the same time he was also prime minister of Prussia he had also to come to terms with the Prussian diet (Landtag) with its much more conservative majorities.5 The art of accomodation and of log-rolling was thus an essential ingredient of governing, and bureaucratic hierarchical authority was sometimes merely a façade. So, if there was a German Sonderweg, it was very different from what the authoritarian proponents of such a concept had in mind. Indeed, there 5

To this analysis one should add the considerable importance which economic peak associations played already in late Imperial Germany.

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exists a distinct historical institutional legacy peculiar to Germany, and because of this "path-dependent" heritage, the Western institutions adopted by Germany underwent significant modifications. Moreover, even sequences of institutional borrowing sometimes differed remarkably from development sequences in the "model" countries, and the sequential interaction effects in institution building — e.g. between institutionalization of parliamentary representation and the institutionalization of responsible government — therefore produced rather singular outcomes, again with characteristic "lock-in" effects. During long periods of German institutional history there were almost no instances where a hegemonic corporate actor was in a position to impose his own view of the world. Rather, some of the most important critical options in the development of institution-building in Germany emerged from "historical compromises. " One example to which I will turn below is the sharing of power between the nation-state and its sub-national territories, another the specific organization of the relationship of the state with a society marked by profound religious cleavages, still another the development of bourgeois "self-administration" as a partial surrogate for democracy in the 19th century. From these historical compromises resulted some specific German institutional inventions — in particular the German type of "executive federalism" and a "corporatist" system of balancing groups with representational monopolies. These, however, were blended with institutions borrowed from the experience of our Western European neighbours, and thus, some of the basic elements are more or less common to most states of Western Europe. But it is important to understand how they are modified by factors resulting from national paths of institutional development that shaped the German pattern of state-society relations.

4

Institutional Layers of the German Polity: Federalism and the Legacy of the Old Reich

As I indicated above, two phases of state-building are to be distinguished: The "Old Reich," the so-called "Holy Roman Empire" (that left its own institutional legacy even after collapsing in 1806 under the impact of revolutionary and napoleonic France), and the modern national state erected by Bismarck under the leadership of Prussia (1867-1871). At a closer look, therefore, the German state consists of several institutional layers, and most of them result from important historical compromises between competing interests.

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The institutional profile of the German state developed over several centuries, in response to external as well as internal challenges. Very different from the Japanese experience, Germany was never able to develop in relative geographical isolation. Its Western neighbor, France, began very early to form a unified and centralized pattern of statehood. This was something which the German kings and emperors had never been able to do: They had always to rely on political accomodation with powerful regional rulers, first the medieval dukes, and from the early modern ages the princes (Fürsten) of the major Territorien. Whereas in France (and in England) the centralizing national kingdom succeeded in the early modern age to subject the territorial powers (les barons du royaume) to its sovereign domination, the German emperors remained at the (largely formal) top of a fragmented power structure. Although the idea of a German "nation" emerged around the 16th century, the modern bureaucratic state, with a professional administration and a standing army, did not develop on the national level (as in France and elsewhere), but on the sub-national level of the territories — in Prussia, Austria, Bavaria, Saxony or Württemberg. The religious wars in the 16th and 17th centuries demonstrated that this emerging federal pattern, with a strong autonomy of the Territorialstaaten, also fitted the strategic interests of the dominant powers of Germany's European neighborhood, the centralizing national monarchies of France and Sweden. And at the end of the Thirty Years War, the Westphalian peace treaties (1648) ratified a proto-federal constitution under which Germany developed some of its enduring and original institutional patterns that survived all the upheavals and regime changes up to the present. The strongest institutional continuity in the German state can be found in the domain of the federal organization: The "permanent diet" (Immerwährende Reichstag) established at Regensburg since 1666 became the model for the representation of the member states up to the present-day Federal Council (Bundesrat), its indirect successor. 6 As a consequence of this heritage, and somewhat similar to Italy, the formation of a German nation state in the modern sense succeeded only in the 19th century. The French centralized nation-state became a powerful formula when, after the French revolution, Napoleon I defeated the German

6

This filiation was already pointed out by the historian Heinrich von Treitschke (1886, 557). The supreme legislature of the "German Confederation" established in 1815 at the Congress of Vienna, the Bundestag, was a permanent congress of ambassadors of the member states, modeled after the Immerwährende Reichstag. Bismarck, in turn, who had been Prussia's ambassador to the Bundestag, took this institution as model for the Bundesrat of his constitution. The contemporary Bundesrat has preserved largely the characteristic institutional features of these predecessors.

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territorial rulers, including Austria and Prussia, and attained supremacy over all Western and Central Europe. 7 Hence also the emerging German bourgeois elites increasingly wanted to emulate this model of the national state. At that time, however, and different from Tokugawa Japan, important sequences of the process of institutional modernization had already been successfully covered by the larger sub-national territories of Germany. This was true, in particular, of the formation of the bureaucratic state. The territorial bureaucracies became important agents of economic modernization and industrialization and, around the mid-19th century, also began to develop linkages with rising territorial bourgeois elites. It was therefore no longer possible to simply supersede this decentralized bureaucratic power structure by a centralizing nation-state. 8 So, whereas in France, the development of the modern "legal-rational" and bureaucratic state (in Max Weber's sense) went hand in hand with the process of nation-building, in Germany the bureaucratic state emerged before the nation-state. The parallel with Meiji Japan finds its limits in this complex pre-history. I submit that the genius of Bismarck as the architect of the modern German state consisted to a large degree in his understanding of this complex relationship. It led him to develop the specific German variety of federalism as the basic institutionalized historical compromise between center and periphery — or, more exactly, between an emerging national center, and older territorial sub-centers. In the following decades, and in particular after the first World War, the balance shifted increasingly in favor of the central government and parliament. However, after the downfall of Hitler's dictatorship and the dissolution of Prussia in 1946 the pendulum swung back and gave the Länder — i.e. the sub-national states — again a very strong position conform with the original historical compromise. The core of this historical compromise was that the sub-national states accepted the centralization of legislative powers (and the increasing spatial uniformity of policies) but retained the executive power and, hence, their administrative domain. As a further consequence, state governments participate in the process of legislative rule-making through the Bundesrat (Federal Council). Both aspects are covered by the concept of Exekutivföderalismus. This system is a unique blend of "interlocking" policy formation, decentralization of policy implementation, and "unitarization" of policy content. Thus on the one hand, policy making in Germany has a strong "unitarist" bias. There exists a broad consensus among political and social elites that 7

8

This experience may be fruitfully compared to the impact of commodore Perry's expedition to Edo in 1854: It humiliated national self-esteem but at the same time contributed strongly to the modernization of Germany. This was what happened in Italy under the leadership of Cavour and the Piemontese bureaucracy.

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formal legal equality of citizèns has to be guaranteed by the political and administrative process throughout Germany, regardless of institutional subdivisions. Hence the regulatory state should exhibit a high degree of uniformity across the German Länder, and fiscal redistribution is explicitly subjected to the constitutional postulate of Einheitlichkeit der Lebensverhältnisse ("uniformity of living conditions," Art. 106 al.Ill 2 GG). On the other hand, regional (state) governments and bureaucracies are keen to defend their jurisdictional autonomy and jealously preserve control of their administrative domain. Legislative rule-making in Germany therefore involves elaborate bargaining mechanisms between the federal and state governments and bureaucracies. Thus the German executive is by institutional necessity impregnated by a culture of compromise and bargaining.

5

The Administrative State and the Varieties of State Interventionism

Whereas German federalism was a historically unique feature of the process of state-building, Germany's administrative system puts it in close neighborhood to France. Similar to France, Germany represents the continental European model of the bureaucratic administrative state. This form of political organization originated in the early modern age not only in France but also — as I mentioned already — in the larger German territories such as Prussia and Austria. Its distinguishing characteristic is the hierarchical organization of offices manned by a professional civil service. In the early 19th century, Germany adopted the "monocratic" and functionally differentiated organization of the executive, following in many respects the pattern introduced in France by Napoleon I. There are, however, some important peculiarities. First, in the system of executive federalism, the implementation of federal legislation has to a large degree remained the domain of the Länder. As a rule, the federal government has no hierarchical administrative authority over the Länder executives. 9 Administrative coordination has to be obtained by negotiating between autonomous bureaucracies. In these relationships, in spite of the leading role of federal ministries in the drafting of rules, the Länder bureaucracies have a strong position because of their experience in field administration due to their role in implementation. 9 Exceptions are, in particular, customs and military administration; they are run by federal field offices.

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This interlocking of federal and state bureaucracies has a close parallel in public finance. The contrast between the normative concepts of the neoclassical theory of public finance and the German tradition of fiscal federalism could not be greater: The former's principle of "fiscal equivalence" according to which each level of government should be financially responsible for the costs of its activities was never adopted in Germany. To the contrary, from its very beginning under Bismarck, the German system of public finance involved redistribution of resources between the central government, the Länder and local governments. This mutual dependence was something to which neither the central government nor the member states were ever ready to renounce because it permitted them to exert mutual control and thus political leverage. More recently, this mutual fiscal dependence has been further developed into a system of mixed financing of interventionist policies (in particular, infrastructure and promotion of industries). These Gemeinschaftsaufgaben ("joint tasks") introduced in the late sixties have still increased the "interlocking" of autonomous political and administrative actors {Politikverflechtung) within the German polity and hence accentuated the centrality of bargaining in the German political and administrative processes. The much-discussed reluctance of German federal policy makers to engage in interventionist structural economic policies (e.g. industrial policy) can to a large degree be explained by these institutional conditions: At the difference from neighboring countries such as France, the federal government never had the instruments nor the field experience needed for autonomous selective intervention. Promotion of industries was traditionally a domain of the Länder, and if the central government wanted to intervene it had to do this in close concertation with state administrations. On the other hand, the Länder are often active in industrial policy, and they have increasingly tended to assert their autonomy in this domain. Some of them (and not the least the conservative South German states) have by no means shunned the label of "neo-mercantilists" or "etatists" adressed to them by free-market critics from Bonn and elsewhere. Still more complex institutional constraints of policy-formation may be found in agricultural policy: The federal ministry of agriculture is increasingly subject to contradictory pressures that arise, on the one hand, from the Europeanization of agricultural policy and, on the other, from the increasing regional divergence of demands. Again this gives the Länder additional motives to develop their own strategies for the rural sector. Rather different from economic structural policies, interventionism in social policy has a strong unitarist tradition. This can be traced back to the origins of the German welfare state under Bismarck. The founder of the Reich was concerned about the original opposition of the early socialist

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movement to the national integration of Germany, and he wanted to demonstrate to the working class that is was the central government, the Reich, that took care of their social problems. This strong centralizing trend of social policy (by which Germany is very clearly distinguished from the United States) is reinforced by the conviction that formal equality of citizens is a fundamental value of the democratic state who has to guarantee the "equality of living conditions." Our overview of the administrative state would be incomplete without mentioning the organization of government at the level of ministries. According to the German constitutional tradition, the chief of government is entitled to fix the "guiding principles of policy" (Richtlinien der Politik). In practice, this prerogative is closely circumscribed by the necessities of parliamentary coalition-building. But it finds also formal limits in the Ressortprinzip ("departmental principle") according to which ministers — although bound to those "guiding principles" — are the autonomous hierarchical heads of their departments. Since this generates strong tendencies toward administrative segmentation along functional lines, exerting powerful political leadership is much more difficult for the federal chancellor than for a British prime minister. Whereas in the early 1980s, Thatcher and Reagan were the leaders in the turn toward deregulation and privatization, during that time chancellor Kohl never took any visible initiative in this domain, although his coalition government had taken office with a similar agenda. Traditionally, economic Ordnungspolitik belongs to the jurisdiction of the minister of economics, and his (sectoral) bureaucracy tries to defend the principles of competition and of the free market against reluctant etatist or corporatist sectoral bureaucracies in other departments. In the domains of social and health policy, for example, market-oriented reforms have never found much administrative support: Here, the bureaucracy traditionally counted on a system of "sectoral corporatism" based on negotiations between powerful associations with public status. The segmentation due to the Ressortprinzip resembles in some regards the pattern of "sectionalism" or "vertical administration" (tatewari gyosei) found in Japan (Lehmbruch 1995). But one should add that in the German bureaucracy such centrifugal trends are to some degree counterbalanced by horizontal functional linkages and routines of consultation across ministerial boundaries. To be sure, quite often only "negative coordination" is obtained, which means that ministries can have their viewpoints and interests taken into consideration. But this is conform with the precedence of accomodation and bargaining over strong leadership which is so characteristic of contemporary German politics.

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51

Parliamentarism and Party Government

England was the historical model for the adoption of parliamentarism and party government in Germany. Its adoption was not a unilinear development but happened in leaps and bounds over more than a century (until 19461949). Here one may find remarkable parallels between the development of the German and the Japanese state: The subordinate position of parliament, common to the Bismarck and the Meiji constitutions, was finally overcome in favor of parliamentary government. It is conform to the institutional logic of this regime that deputies are not law-makers in the sense that American congressmen are. Rather, legislation largely continues to be initiated and prepared by the administration subject to the leadership of a responsible government. 10 To be sure, among the political elites of the early modern German state many harbored strong doubts about the suitability of the English model for their country. Not only conservatives but also liberal intellectuals up to Max Weber perceived German society as torn by profound social and ideological cleavages, beginning with the religious cleavage. For Bismarck and the conservatives this perception served to justify the authoritarian power structure that they sought to establish and that, according to a widely held view, distinguished Germany from its Western neighbors up to 1918 and again from 1930 to 1945. As I mentioned earlier, these reservations of the German conservative elite against the supremacy of an elected parliament were at the basis of the sympathy of the Meiji leaders for the constitutional model of Imperial Germany. Yet the stereotype of that period as characterized by an authoritarian power structure is probably one-sided: It overlooks the early democratization of parliamentary elections and the consolidation of parliamentarism during the imperial era. 11 But it is of course true that, similar to Japan, the adoption of the British model of responsible party government succeeded

10

11

In the American literature on the Japanese political system the limited influence of parliament in the legislative process of contemporary Japan is sometimes described as a peculiarity of Japanese institutions due to the legacy of the Meiji constitution (see, in particular, Chalmers Johnson 1982, 35). But with the introduction of full-fledged parliamentary government this division of roles is, in both countries, a consequence. From 1871 on the Reichstag was elected on the basis of the universal and equal suffrage, and its assent was necessary for legislation and approval of the budget. To be sure, parliamentary responsibility of the government was not formally introduced before 1918 — but that is not terribly different from cases such as Sweden (where parliamentarization of the executive had to wait until 1912).

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only rather late. 12 As a consequence of this sequential development, the political culture of German parliamentarism is strongly impregnated by practices developed before the advent of responsible government (i.e. 1918). The most salient aspect of this culture was the insistence in the institutional autonomy of parliament, organizing its own business with the proportional participation of all parties (Loewenberg 1967). Finally, after the crises of the first half of the 20th century (the collapse of the Weimar Republic and Hitler's dictatorship) these basic elements were no longer contested. So it was the final victory of parliamentary government that made Germany a Western European state. What distinguishes the parliamentary system of the Federal Republic from Imperial and Weimar Germany is essentially the strong concentration and bipolarization of the party system that took place after World War Two. Somewhat comparable to the Japanese LDP, the Christian Democratic Union succeeded in rallying large parts of the conservative electorate that formerly had been split up between several competing parties. The early hegemonial position of the CDU produced a bi-polarization of the party system (with the Social Democrats as the main alternative) that contributed considerably to the governmental stability which Germany has known in the past decades. The German party system differed, however, from Japan since Christian Democratic hegemony was much less secure: In the late sixties, the CDU lost leadership to the SPD. It regained it in 1982, but turnover is now again a realistic perspective. This combination of stability and the existence of a potential alternative gave the control of political parties over government and administration considerable legitimacy. A major drawback of this system is, however, that party strategies are very often dominated by the short-term electoral calculus, at the expense of long-term considerations. Germany remains different from Great Britain, however, insofar as party competition has not become the dominant mechanism of political leadership. Because of the institutional fragmentation of the German state, a government supported by a Bundestag majority finds itself tied into a complex network of institutions and organizations where thresholds of consensus-formation are high and decision-making by bargaining is often the norm. Te be sure, the considerable importance of the party system in the political power structure cannot be denied. But it is less a vehicle of political leadership than the central coordination mechanism in this fragmented institutional structure. This coordination function is particularly apparent in the strong permeation of the federal system by the party system. In particular when the opposition 12

On 28 October 1918, two weeks before the downfall of the monarchy, the government was made responsible to parliament by an amendment to the imperial constitution.

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holds a majority in the Federal Council (Bundesrat) — as was the case from 1969 to 1982 when it was controlled by the CDU, and again since 1990 with a social democratic Bundesrat majority — it became obvious that political parties are central mediating agents in the relationship of federal and Länder governments and between the Länder.13 One mechanism by which this coordinating function of the party system is reinforced is the politicization of the bureaucracy. Party patronage plays an important role in the recruitment of top civil servants, in the federal as well as in the state governments. This is, however, not a "spoils system" to reward loyal party workers for their services (although exceptionally that may happen). Rather, the "political bureaucrats" are career civil servants who adhere to high professional standards. They thus constitute a counterweight to the professional party politicians who are much more guided by the electoral calculus (Mayntz 1984).

7

The Corporatist Legacies of the "Old Reich" and of the 19th Century

A final important feature of the German state is the importance of its corporatist legacy. This can again be traced back to the Old Reich and is closely linked to its federalist heritage which I discussed above. Two key elements of German corporatism have their roots in that period: First, the traditional strength of corporate representation and, second, the traditional formula of corporate "parity" of established representational monopolies. And these two elements are complemented by the 19th century concept of Selbstverwaltung (self-administration). The traditional strength of corporate representation in Germany had its roots in the processes of social differentiation beginning with the emergence of the city in the social structure of late medieval Europe. The guilds and corporations of merchants and artisans that sprung up in much of Western Europe remained important in Germany up to the 19th century. Whereas in England their influence declined rather early this was not the case in Germany. They survived even the period of the French revolution. While the French Loi Le Chapelier (1791) and, shortly afterwards, the British "Combination Acts" did away with the corporations as remnants of the Old Regime, in Germany corporations survived long into the 19th century, and — after a rather short liberal interlude — re-emerged in a modernized form 13

The development of this relationship is analyzed in Lehmbruch (1976).

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as "chambers" with public status. And they occupied a highly legitimate place in political thought. Hegel — the first German political theorist who understood the revolutionary importance of the market economy as analyzed by the British classical economists — assigned a central role to the corporations, representing the "particular common interests" of economic "estates" and mediating between the particular interests of individuals in the market place and the common interest of the polity. This strong tradition of corporate representation probably explains that the economic peak associations emerging in the last decades of the 19th century had such a formidable success and became powerful corporate actors. To be sure, in Imperial Germany "pluralist" representation (in Schmitter's sense) was still an important feature since several economic peak associations might compete which each other (such as the rival associations of protectionist and of free-trade oriented industrialists since the late 19th century). But with the First World War a process of organizational concentration set in that was completed in the Nazi era and resulted in an generalized system of strong representational monopolies. The modernization of these traditions of corporate representation was furthered by the adoption of the concept of " self-administration " as another important institutionalized historical compromise, namely, of the monarchical bureaucratic state with the rising bourgeoisie, after the demise of Napoleon I. Disillusioned by the radicalization of the French revolution, the German bourgeoisie for another century accepted the survival of the monarchy and its rather authoritarian hierarchical power structure. As a counterpart, for the organization of city government it was granted the institution of self-administration (Selbstverwaltung), under the supervision of government but with considerable autonomy. 14 State-supervised self-administration was later extended to other institutions that were equally dominated by the bourgeois class, in particular the rising organization of interests. 15 This tradition became of particular importance when, in the two world wars and in the after-war years, the government enrolled the economic associations for the purpose of managing the war (and post-war) economy. The political importance of economic (as well as social) interest peak associations, the trend toward representational monopoly and their mediating role in sectoral policy formation were thus considerably strengthened. 16

14

15

16

When Yamagata referred to the Prussian model for the organization of local government this was probably somewhat misleading since in Japan the autonomy of local communities was much more narrowly circumscribed. The chambers of commerce (and, later, of arts and crafts, of agriculture, and of the professions), as institutions of "economic self-administration," constituted a modernized version of the guilds and corporations of the pre-revolutionary age. These recent developments are remarkably similar to the rise of monopolistic peak associations in Japan since the second world war.

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But neither the tradition of corporate representation of interests nor the idea of self-administration are sufficient to understand the strength of modern German corporatism. Corporatism as a mode of social regulation or, more precisely, as an overall pattern of conflict management through accomodation among powerful corporate actors cannot be explained simply by the resilience of organizational traditions. I submit that its origins have to be sought in an earlier historical compromise. This was the institutional settlement of the deep religious conflicts which, from the 16th to the mid-17th centuries, had torn German society apart. It became a powerful model of conflict resolution that distinguishes Germany from many of its neighbors. In most of the other European states affected by the ideas of Luther, Zwingli and Calvin and by the resulting religious schism, this conflict was finally decided by the victory of one or the other denomination and by the establishment of a religiously homogeneous nation state. Catholicism triumphed in France, whereas protestantism remained victorious in England and in the Scandinavian countries. However, in Germany powerful territorial rulers adhering to different denominations found themselves locked in a stalemate that could not be overcome despite several long and devastating wars and could only be resolved in an institutionalized historical compromise. To be sure, religious conflict remained the fundamental societal cleavage of early modern Germany, but it was contained and made manageable by the institution of inter-denominational Parität. The religious peace treaties — from Augsburg, 1525, to the final Westphalian peace, 1648 — stipulated the legal equality (Parität) of the catholic and protestant established religious communities within the federal institutional framework. Originally this concept meant that, whereas in each territory one of these denominations had a monopoly, 17 on the federal level (in particular in the Diet of the Reich) their conflicts had to be accomodated by the rule of amicabilis compositio (amicable settlement), following the itio in partes (separate deliberation) of the religious parties (the corpus catholicorum and the corpus evatigelicorum).18 Parität thus suspended the majority principle in all disputes that were deemed as important for religious coexistence. The basis of the religious peace treaties was thus the recognition of a plurality of churches privileged by the state. This German variety of religious co-existence can be quite aptly described by paraphrasing Schmitter's defi17

18

According to the formula cuius regio eius religio, that is, the sub-national territories were religiously homogeneous. On the constitutional development of this institution see Heckel (1963; 1978). The later history of the concept of Parität has, to my knowledge, not been satisfactorily examined.

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nition of corporatism: The established religions constituted a system in which the constituent units were organized into a fixed number of single, compulsory, noncompetitive, hierarchically ordered ... categories, recognized or licensed (if not created) by the state and granted a deliberate representational monopoly ... in exchange for observing certain controls on their selection of leaders and articulation of demands and supports (Schmitter 1979, 13).

Whereas the English dissenters emigrating to the American colonies developed a form of religious co-existence with unlimited pluralism (again very much in Schmitter's sense) of denominations, based on individual religious liberty, 19 Germany managed the problem of religious diversity with the " corporatist" formula of (corporate) Parität. Besides the traditional catholic church, only the Lutheran and Calvinist territorial state churches were "recognized or licensed," while other sects were only tolerated or (like the Anabaptists) excluded. In the long run this proved to be an extremely successful institutional device to cope with this first fundamental social cleavage of modern Germany. 20 After the napoleonic wars, when the territorial reorganization of Germany led to the emergence of many religiously mixed territories, 21 the legal equality (Parität) of established denominations became also a fundamental institutional rule for the relationship of religions within the Länder.22 It was no longer a formula reserved to the accomodation of religious conflicts between territories but also for the management of religious cleavages on the sub-national level. And finally this regime spilt over into the institutional management of the social cleavages brought about by the industrial revolution: In a series of new historical compromises, Parität was both secularized and generalized as the basic institutional formula for the management of societal conflict, namely, the managed co-existence of representational monopolies for social groups under the umbrella of the state. Church organization was formally separated from the state at the end of the monarchy (1918), and churches gained a considerable degree of institutional autonomy. Thus, their modern status is more akin to the pattern of

19 20

21

22

This applies particularly to the case of Pennsylvania. A closely parallel development took place in Switzerland, where the rule of corporate Parität also served to settle the religious conflicts. Protestant Prussia and Württemberg integrated large territories with a catholic population whereas catholic Bavaria and Baden found themselves with strong protestant minorities. Since the mid-19th century this privileged status was also formally granted to the Jewish religion.

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"self-administration." 23 But since the last decades of the nineteenth century, Parität became an institutional key formula for intermediation of interests in the emerging German welfare state: At first, Parität was established for the participation of workers and employers in the self-administration of Bismarck's social insurance system. 24 This prepared the emergence of parity as a key concept in the system of industrial relations (see, among others, Rabenschlag-Kräußlich 1983). This system is based on a series of fundamental "social peace treaties" (functionally analogous to the former religious peace treaties) concluded between the peak associations of employers and organized labor after the first and second world wars (from the Stinnes-Legien agreement of 1918 to the Hattenheim agreement of 1949). As in the case of religions, again we have the combination of representational monopolies with limited autonomy, and the principle of "Parität" governing their relationship, resulting in a structure recognized or licensed by the state in order to guarantee social peace and stability. This is most explicitly the case with the system of industrial co-determination where the relationship of employers and employees is governed by the rule of Parität in representation on the supervisory boards. Another example is the relationship between medical associations and public health insurance funds as it was initiated in a fundamental social peace treaty in 1913: Here too we find a similar corporatist organization on the basis of corporate self-administration with limited autonomy under the supervision of the state. A related subsystem is that of social assistance where a limited number of "welfare associations" (including those of the big established churches) play an important role, more or less under the umbrella of the state but again with considerable autonomy. In all these cases Parität means an institutionalized system of conflict accomodation among corporate actors with (corporate) equality, as different from a liberal system based on individual autonomy. A final illustration of the strength of this institutional model is the reorganization of university governance in West Germany introduced after 1968 in response to the student unrest. The reform acknowledged the fact that the modern bureaucratized university could no longer be governed by the traditional concept of an autonomous "republic of scholars." However, the tra23

24

However, the formerly privileged churches retain the status of "corporations of public law," in which one becomes a member by birth (if one does not decide to formally resign from them), with the legal consequence that one has to pay a "church tax." And their priests retain a status similar to that of civil servants. Originally, this formula gave workers two thirds and employers one third of corporate representation on the boards of the health insurance funds because workers payed two thirds of the contributions. Today, Parität is rather understood as strict numerical equality of both sides.

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ditional self-administration of universities was maintained and transformed so as to permit the institutional accomodation of conflicts of interests of the functional groups, or "estates." And this was again achieved by the introduction of Parität: The university as self-governing corporation was no longer represented exclusively by the professors but by paritary bodies in which each of the other groups — assistants, non-scientific personnel, and students — had their corporate representation. 25 The controversies surrounding this institutional innovation concerned not the principle but the numerical ratio to which groups should be represented. Finally the Constitutional Court imposed the requirement of a majority of professors, and this is the last remnant of the older form of university governance. All in all, the peculiar institutional arrangements developed since the 16th century to settle the conflicts of religious groups have a surprising affinity to arrangements found today in the domains of labor relations, of social policy, and education. These arrangements, I submit, combine the concept of (limited) corporate self-administration with the historical model of the organization of state-church-relations, that is, "parity" of organizations with (legal or de facto) representational monopoly, guaranteed by the state who oversees the functioning of these systems of conflict management, notwithstanding their (more or less limited) organizational autonomy. Obviously these social-institutional subsystems thus have their historical roots in a practice of institutional arrangements predating the emergence of the modern market economy, and therefore they have remained pretty resistant to fashionable concepts of "deregulation." After all, they are based on the rule of autonomous inter-organizational conflict management that is only to some (larger or limited degree) supervised by the state, instead of direct state intervention. Hence in Germany the assault on the interventionist state (as it was attempted by Ronald Reagan and Margaret Thatcher) did not find an appropriate object. All in all, the corporatist elements of the German institutional heritage exhibit a considerable degree of structural congruence with the federalist tradition: Both of them encourage conflict management by bargaining between powerful, and partially autonomous, corporate social actors. This distinguishes the German state tradition from that of both France and Britain. Bargained policy coordination as it is practiced here counterbalances the tendencies toward institutional fragmentation that result from federalist decentralization and from the autonomy of sub-national actors in the "semisovereign state" (in Peter Katzenstein's apt characterization of the structures just described in Katzenstein 1987). 25

And as in the Permanent Diet of the Old Empire, separate deliberations (itio in partes) are a familiar feature of this type of governance.

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59

Ambiguities of Citizenship in the German Nation-state

The unification of Germany by Bismarck (1867-1871) meant the adoption of the model of the national state (initiated in the late middle ages by the centralizing monarchies of France and England) in its modern version. This version, where the national state is legitimated by the democratic idea of the sovereignty of the nation, is of course due to the French revolution. One might define this concept of the nation as based on a common history within a common institutional framework that permits its members to reaffirm the experience of a collective identity (the plébiscite de tous les jours, as Ernest Renan put it). But in 19th century Germany it was not easy to define the concept of nation in terms of a political community held together by the institutionalized political process, for the conflict of Prussia and Austria over leadership meant that the institutional contours of a coming German state were longtime rather uncertain. So the concept of a German nation was interpreted in ethnic or linguistic rather than in institutional terms. But ethnic nationalism, which Germany had in common with the new East European nations, resulted in considerable political ambiguities. On the one hand, the German-speaking Swiss were certainly not a part of the German nation. Austria, on the other hand, was at the same time a German territory, with a strong pretention to leadership in Germany (until 1806 its kings had been German emperors), but had also become the core of the multi-ethnic AustroHungarian empire. When in 1866 its rival for leadership in Germany, Prussia under Bismarck, succeeded to defeat Austria's pretentions this set the course for the formation of the "small German" nation-state under Prussian leadership with Austria excluded. But this outcome was at odds with the ethnic definition of the nation prevailing in Germany, and still more so since the disintegration of the multi-ethnic Habsburg empire in 1918. Hitler himself, one of those Austrians who adhered to the concept of a "Great Germany," profited from this ambiguity on his way to power. The final outcome of his regime was the wreckage of this political tradition. When German defeat in World War II led to the division of the "small German" state founded by Bismarck the question arose whether this did not finally signify the very end of the idea of a German nation-state. After recognition of the GDR by West Germany as a separate state, West Germans increasingly developed a political identity based on a successful institutional framework that comprised only part of former Germany and therefore was difficult to reconcile with the traditional German concept of the nation in ethnic terms. But a similar process did not take place in East Germany: The pretentions of the GDR leadership at an autonomous national identity were always shaky because they lacked the basis of a successful institutional experience, and therefore the disintegration of the Soviet empire left a vacuum

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that was immediately filled by the re-emergence, in East Germany, of a strong identification with the ("small German") nation-state as it had existed from 1871 to 1945. In West Germany this identification may still be weaker, in particular among the age-cohorts that grew up since the fifties. But it is certainly realistic to assume that this is a transitory phenomenon. Therefore in the future German identity will most likely bear more resemblance to the traditional West European concept of the nation-state based on a common history within a common institutional framework, rather than grounded in ethnic terms. 26 The present controversies about the eventual integration of immigrants (eventually even within the framework of a "multi-cultural society") are in my view not so much linked to the older traditions of German nationalism but rather a common West European phenomenon. 27 To be sure, a cultural cleavage between West Germany and the former GDR may subsist for some time. Unification by "shock therapy" has led to the collapse of East Germany's industrial structures, and considerable differences in economic prosperity will certainly subsist for decades. The former East German elites play a marginal role within the political institutions and organizations of the united Germany and will probably continue to do so for an undefinite future. However, there is one mechanism of institutional integration that is growing in political importance, namely federalism. The East German Länder reconstituted in 1990 are rather weak in financial resources, but in the federal framework they nevertheless have an important institutional position. It seems to me obvious that this crucial importance of federalism for the integration process will still increase the network-like character of the German state.

26

The ambiguities of national identification that subsist are to a large degree the paradoxical result of "ethnic cleansing" after World War Two: On the basis of the Potsdam agreement, millions of German-speakers were expelled from Eastern Europe and resettled in Germany although many among them had never had any historical links to the German nation-state. Stated in other terms, the reorganization of citizenship by the anti-Hitler coalition after its victory was itself based upon an ethnic concept of nation. To come to terms with this problem, article 116 of the federal constitution of 1949 extended German citizenship to those ethnic Germans who did not descend from German nationals (in the sense of citizens of the former Reich) but had been expelled to Germany because of their ethnic identity. That no time limit was set to this claim to German citizenship was of course due to the intention to keep the door open for those who for some reason had been able to stay in their countries of origin but later wanted to join their family or community expelled to Germany.

27

It is significant that even in France the traditional definition of citizenship is now contested by strong forces who want to keep immigrants out.

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The German State and European Integration

With the progress of European unification, particularly after Maastricht, major changes in the structure of the German state and in its relation with its social environment will probably occur. It is still too early to describe them in detail. But some trends are already visible: First, the equilibrium between the federal and Länder government will be put into question as the European Union is intruding in fields that were hitherto the domain of the Länder. Second, German-style corporatism will probably not disappear; but representational monopolies that are an important basis of German corporatism will increasingly be challenged. However, the network-like character of the German polity will probably remain. Still more, the institutional framework of decision-making in the European Union is still more complex and fragmented. For such a structure of decision-making, Germany appears relatively well prepared by its past institutional experience. Whereas French top bureaucrats have "great difficulties to adapt to the veritable culture of consensus prevailing at Brussels" (Muller 1992, 287), the domestic experience of German representatives leaves them much better prepared for such a task. Hence it is reasonable to speculate that European integration will signify the integration of the German network-state in an overarching network of European policy formation. 28

References Beyme, Klaus von (1991), Das politische System der Bundesrepublik Deutschland nach der Vereinigung. Munich: Piper. Fromme, Friedrich Karl (1960), Von der Weimarer Verfassung zum Bonner Grundgesetz. Tübingen: Mohr/Siebeck. Grande, Edgar (1994), Vom Nationalstaat zur europäischen Politikverflechtung. Konstanz: University of Konstanz, Faculty of Administrative Sciences (unpubl. ms.). Heckel, Martin (1963), "Parität," in: Zeitschrift der Savigny-Stiftung ßr Rechtsgeschichte, Vol. 80, No. 49, 108-420. Heckel, Martin (1978), "Itio in partes. Zur Religionsverfassung des Heiligen Römischen Reiches Deutscher Nation," in: Zeitschrift der Savigny-Stiftung für Rechtsgeschichte, Vol. 95, No. 65, 180-308. Hesse, Jens Joachim, and Thomas Ellwein (1992), Das Regierungssystem der Bundesrepublik Deutschland. Opladen: Westdeutscher Verlag. Johnson, Chalmers (1982), MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975. Stanford: Stanford University Press. 28

As a sectoral case study on this subject, see Grande (1994).

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Katzenstein, Peter (1987), Policy and Politics in West Germany: the Growth of a Semisovereign State. Philadelphia: Temple University Press. Lehmbruch, Gerhard (1976), Parteienwettbewerb im Bundesstaat. Stuttgart: Kohlhammer. Lehmbruch, Gerhard (1995), "Ressortautonomie und die Konstitution sektoraler Politiknetzwerke: Administrative Interessenvermittlung in Japan," in: Karlheinz Bentele and Fritz Wilhelm Scharpf (eds.), Die Reformfähigkeit von Industriegesellschaften: Fritz W. Scharpf: Festschrift zu seinem 60. Geburtstag. Frankfurt/M., New York: Campus, 64-100. Loewenberg, Gerhard (1967), Parliament in the German Political System. Ithaca: Cornell University Press. Mayntz, Renate (1984), "German Federal Bureaucrats: A Functional Elite between Politics and Administration," in: Ezra N. Suleiman (ed.), Bureaucrats and Policy-making: A Comparative Overview. New York: Holmes and Meier, 174-205. Minear, Richard (1970), Japanese Tradition and Western Law: Emperor, State, and Law in the Thought ofHozumi Yatsuka. Cambridge, Mass.: Harvard University Press. Muller, Pierre (1992), "Entre le local et l'Europe: la crise du modèle français de politiques publiques," in: Revue Française de Science Politique, Vol. 42, No. 2, 275-297. Okimoto, Daniel (1989), Between MITI and the Market: Japanese Industrial Policy for High Technology. Stanford: Stanford University Press. Rabenschlag-Kräußlich, Jutta (1983), Parität statt Klassenkampf? Zur Organisation des Arbeitsmarktes und Domestizierung des Arbeitskampfes in Deutschland und England 1900-1918. Frankfurt/M., Bern: Lang. Rudzio, Wolfgang (1991), Das politische System der Bundesrepublik Deutschland. Opladen: Leske + Budrich. Schmitter, Philippe (1979), "Still the Century of Corporatism?," in: Philippe Schmitter and Gerhard Lehmbruch (eds.), Trends Toward Corporatist Intermediation. London: Sage, 13. Simon, Herbert (1957), Models of Man. New York: Wiley. Sontheimer, Kurt (1991), Grundzüge des politischen Systems der Bundesrepublik Deutschland. Munich: Piper. Thoma, Richard (1930), "Grundzüge des Staatsrechts des Deutschen Kaiserreichs und seiner Einzelstaaten," § 7: "Das Staatsrecht des Reiches," in: Gerhard Anschütz and Richard Thoma (eds.), Handbuch des Deutschen Staatsrechts, vol. I. Tübingen: Mohr/Siebeck, 69-80. Treitschke, Heinrich von (1886), "Unser Reich," in: Historische und politische Aufsätze, vol. 2, 5th ed. Leipzig: Hirzel.

Administrative Reform in Japan: Semi-autonomous Bureaucracy under the Pressure toward a Small Government Mitsutoshi Ito

1

Introduction

Highly industrialized democracies varied widely in their reaction to the after-effect of the world-wide recession of the 1970s. Some nations, including West Germany, continued to uphold the model of the welfare state; others, such as the United States, the United Kingdom, and Japan embarked on neoliberalist reforms. This chapter attempts to clarify the characteristics of administrative reform carried out in Japan in the 1980s. Since the end of the Second World War, Japan has been more strongly oriented toward the model of a "smaller state" rather than a "bigger state." This is due to, among other things, the historical experience of rampant inflation, continued conservative administrations, and public antipathy toward heavy taxes. It is true that Japan's conservative administrations have enlarged social welfare programs to a certain degree, compromising with the progressive opposition parties. But, on the whole, post-war Japanese governments have supported administrative reforms that checked the growth of welfare programs. Government agencies, for their part, have tended consistently to avoid reform or at least to maintain the status quo. Like most modern state bureaucracies, they have resisted any reduction of their political resources such as personnel, finances, and power. Furthermore, the individual government agencies of Japan have formed coalitions of vested interests together with Diet members and interest groups, which might be called "iron-triangles." Yet, since government agencies are not sufficiently autonomous to reject reform outright in Japan, they accept policy change, instead of organizational change. I refer to this dualistic feature of Japanese bureaucracy as "semiautonomy." To consolidate the coalition to propel administrative reform, strong leadership from prime ministers is necessary. In the 1980s, a largescale administrative reform occurred that extended down to the local level.

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We will begin by considering the socio-economic and international contexts that compelled the Japanese government to embark on such administrative reform in the 1980s. Then, we will survey the agenda of the reform and trace its ideological roots, examining the neoliberalism that provided the basis for the key term, "small government" in the Japanese reform process. Next, we will look at the outcome of administrative reform, which was policy change rather than organizational reform in administrative agencies. We will then survey the reform process, scrutinizing the politics of confrontation between the coalitions that promoted and resisted reform. Finally, we will look at the local level reform which were interlocked with the national level reform.

2

The Genesis

In the early 1980s, the Second Provisional Administrative Reform Committee (SPARC) was established to carry out a large-scale administrative reform, under the ministerial leadership of Yasuhiro Nakasone, director general of the Administrative Management Agency. It was made up of nine committee members under whom 71 advisers and 70 staffers performed various duties. The committee members included three representatives from business, two from labor unions, one from the media, one from academia, one representative of local government, and one representative of the central bureaucracy. The expert advisers were also selected from different sectors. It was extremely significant that Prime Minister Zenko Suzuki appointed Toshio Doko, former chief executive officer of Toshiba and chairman of the Japan Federation of Economic Organizations, as chairman of SPARC. Doko had demonstrated his ability to rationalize business, and many people were attracted by his austere lifestyle and exemplary character. Under Doko's leadership SPARC gained strong support not only from business but also from the general public, making it risky for government agencies to resist its proposals and recommendations. Let us examine the socio-economic and international contexts that compelled the Japanese government to embark on administrative reform in the first place. As is well known, Japan developed into an economically affluent nation after the Second World War. However, around 1970, economic growth began to slow down, and after the two oil crises of the 1970s, the growth rate declined sharply. To make matters worse, the budgetary deficit increased, due mainly to the growth of public works expenditures and the expansion of social security programs (Noguchi, 1980). In the initial budget for fiscal 1979, the figure went up to 39.6 percent. Prime Minister

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Masayoshi Ohira attempted to reduce the budgetary deficit by introducing of a broad-based consumption tax. However, the ruling Liberal Democratic Party (LDP), which had proposed the tax, suffered a serious setback in the 1979 general election, making it politically impossible to introduce any new tax of this kind in the immediate future. Under these circumstances, the government was forced to completely change its budgetary deficit-reducing strategy. Rather than seeking an increase in tax revenues, it strove to curtail public expenditures. Many people, but specially business leaders and salaried workers, called loudly for "fiscal reconstruction without tax increase," demanding that this reduction be accomplished through thoroughgoing administrative reform. In the same period, the aged population in Japan began to grow at an unparalleled pace. The establishment of pension programs to cope with this change was also widely recognized as an urgent issue by the government and general public. In the international sphere, the influence of the United States was lessening in the 1970s, while Japan's economic strength was growing. At this time, Japan faced trade friction with the advanced industrialized nations and it also faced many requests for economic and technological assistance from developing nations. Many believed that without administrative reform, Japan would not be able to cope with these socio-economic and international developments.

3

The Reform Agenda

In its proposal SPARC set an important goal, the "construction of a vigorous welfare society." According to an adviser of SPARC, the term "vigorous" meant free of "the advanced country disease" that tended to sap people of diligence due chiefly to their increasing reliance on welfare services (Kumon, 1984). He urged that Japan avoid the path toward a Europeanstyle "big government" characterized by an elaborate welfare system requiring heavy taxation. Based on this philosophy of "small government," SPARC made proposals in five areas: revision of government policy, reorganization of administrative agencies, reduction of public service personnel, rationalization of the relationship between central and local government, and privatization of public corporations. SPARC proposed that government intervention in the private sector should be minimized; that public works should be privatized; and that excessive provision of subsidies and unnecessary permits and licenses should be abolished or minimized. It should be clear that SPARC'S proposals were based on a "neoliberal" philosophy hostile to the ideals of the welfare state (Otake, 1994).

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The Japanese concept of administrative reform resembled in some respects the notion of "new public management" promoted in Western European countries. The argument ran both in Japan and Western Europe that the ideal administrative reform would increase the efficiency of government. Moreover, the transfer of legal and financial resources from the central government to local governments promised to improve the "client-orientation" of administration.

4

Why Small Government?

Japan has tended to base her administrative reform on the non-interventionist philosophy that a "bigger market" is more important than a "bigger state." West Germany, on the other hand, assigned priority to the development of a welfare state. Therefore, as H. Wollmann argues in his chapter, administrative changes were likely to be incremental in West Germany. This difference between Japan and West Germany seems to derive mainly from their contrasting views on the welfare state. Restriction of government size has been the primary object of administrative reform in Japan since the 1948 when Prime Minister Shigeru Yoshida introduced his conservative, market-oriented policies. For nearly three decades afterward, under successive conservative administrations, such conservative policies were basically maintained. Under the Yoshida administration, an attempt was made to restrict the size of the government. This could be regarded as the prototype of post-war Japanese administrative reform. During the early years of occupation by the Allied Forces, Japan rapidly increased the money supply (i.e. printed currency) to grant subsidies to such key industries as coal, iron and steel, and electric power. The result was rampant inflation in the period 1945-49. To counter this trend, the "Dodge Line" was adopted in 1949. Named after Joseph M. Dodge, the U.S. banker dispatched to Japan by the Truman administration, the Dodge Line's major objective was to control inflation by maintaining a balanced budget. The Dodge Line altered the character of post-war economic rehabilitation, converting Japan from a controlled economy to a free market economy. It identified big government with high inflation. Under the 1949 Dodge Line administrative reform, many employees in the public sector were dismissed in an effort to reduce government expenditures. Furthermore, the number of bureaus within each ministry was reduced by 30 percent on average. The number of personnel was reduced again in 1951 and 1954 under Prime Minister Yoshida. The drastic person-

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nel reduction undertaken by the Yoshida administration was only made possible by the all-powerful support of the Occupation Forces (Oyama, 1992). According to Hideo Otake, two other important factors that brought about small government in Japan were the public antipathy toward heavy taxes and public distrust in government (Otake, 1992). In the 1950s, the general public freely expressed its antagonism toward the "strong" Japanese governments that prevailed before and during the war, as well as the heavy taxes imposed upon them immediately after the war. They were also dissatisfied with the inefficiency, injustice and corruption of bureaucrats. Gradually, the people's mistrust of government created a political environment favorable to their demand for tax reduction. In 1956, the Tax Commission of the government concluded that the Japanese suffered under an excessive tax burden compared with other nations, and that the tax burden of salaried employees was unreasonably heavier than that of small businessmen and farmers. The conservative party adopted a tax reduction policy because such a policy was popular among the Japanese people. Since the 1950s, Japanese political elites and the people alike have placed priority on tax reduction rather than expansion of social security. While it is true that the LDP-led government of the 1970s adopted welfare-state-oriented social policies, compromising with opposition parties, this new consensus was not strong enough to be maintained in 1980s.

5

The Performance of SPARC

The concrete, practical objectives of SPARC were: fiscal reconstruction, reduction of administrative permits and licenses, promotion of deregulation, establishment of the Management and Coordination Agency and the Comprehensive Development Agency, and privatization of Japan's three public corporations. Let us first examine fiscal reconstruction. Beginning in 1982, the Ministry of Finance adopted the SPARC-supported "zero-ceiling" principle, under which the growth of a budget request over the previous year's budget had to be zero. As a result, the growth rate of expenditures in the General Account budget was reduced to 1.8 percent in fiscal 1982, to 0 percent in fiscal 1983, and even to -0.1 percent in fiscal 1984. Along with this development, the dependence on public debt gradually dropped after the peak year of 1979, at last reaching 0 in 1990. It is clear that many measures taken for curtailing government expenditures under the name of administrative reform contributed greatly to Japan's fiscal reconstruction. Various subsidies were abolished or reduced; expendi-

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tures were curtailed in a variety of policy areas (medical services, public pension, education, public works, agriculture, small business, the Japanese National Railway, and local finance); and many special arrangements for tax exemption and tax cuts were abolished. Particularly noteworthy among these are the revision of the medical insurance program and the public pension program. In addition, salaries paid to national service personnel were restricted, and a plan was implemented to reduce national service personnel by 5 percent. All these policies helped reduce state expenditures. The proceeds from the sale of shares of the Nippon Telegraph and Telephone Public Corporation at the time of its privatization in 1985 also contributed to fiscal reconstruction. The most remarkable achievement of SPARC, however, was the privatization of Japan's three public corporations. Before privatization, the Japanese National Railways (JNR) had suffered massive deficits every year, which were made up with General Account funds. For this reason, the management of JNR imposed a heavy burden on the national treasury. Reaching the conclusion that the efficiency of JNR would not be improved so long as it remained a public corporation, SPARC recommended dividing JNR into smaller units and privatizing them. In other words, SPARC demanded that JNR make a fresh start, restructuring itself into efficiently-managed private companies that no longer depended on the national government (Kusano, 1989). Eight bills relating to the privatization of JNR passed the Diet in 1986. In 1987, JNR was divided into six private railway companies. Ever since, these private companies have been managed far more efficiently than JNR was managed in the past. The privatization of the Nippon Telegraph and Telephone Public Corporation and the Japan Tobacco & Salt Public Corporation was carried out even more smoothly in 1985. Let us look next at the government plan to reduce the number of permits and licenses and see if the objective of deregulation was achieved. Despite the recommendation of the First Provisional Administrative Reform Committee (FPARC), which was established in the early 1960s, the number of matters subject to permits and licenses by administrative agencies increased from about 7,000 at the time of FPARC to 10,045 in 1981. The figure farther increased to 10,169 in 1988 (Gyosei Kanri Kenkyukai, 1984), despite the SPARC proposal. Studies have shown that ministries and agencies introduced new permits and licenses to replace those that were abolished, in an effort to maintain their authority. Thus, deregulation and re-regulation were carried out in parallel, eventually increasing the number of permits and licenses required by ministries and agencies (Muramatsu, 1988). Finally, let us examine the result of realigning administrative agencies to reinforce the cabinet function coordinating the divergent policies of minis-

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tries. In 1984, the Administrative Management Agency and several of the powerful bureaus within the Prime Minister's Office were consolidated to give birth to the Management and Coordination Agency. This reorganization involved two administrative organs, and consequently was no small achievement. However, due to strong resistance from the Ministry of Finance and other ministries and agencies concerned, two critical proposals were omitted: the establishment of a new Cabinet's Aide post to strengthen the budget-making function of the Cabinet and the creation of a "Comprehensive Planning Agency." One other proposal for the consolidation of three separate development agencies — National Land Agency, the Hokkaido Development Agency and the Okinawa Development Agency — was resisted by Diet members representing Hokkaido. Thus, the most significant achievements of SPARC were the reform of the medical insurance program and public pension program and the privatization of Japan's three public corporations. Also significant was the progress made toward fiscal reconstruction, which was realized as a result of these policy changes and other efforts to curtail government expenditures. However, little progress was made with respect to the reduction of permits and licenses and the rationalization of administration. Proposals made to give the Cabinet the right of budget making and to establish a "Comprehensive Planning Agency" were excluded from the SPARC program in anticipation of the resistance from bureaucrats (Yomiuri Shinbun Seijibu, 1983). Generally speaking, then, the outcome of administrative reform was policy change rather than organizational reform in administrative agencies (Wright and Sakurai, 1987). Why this was the case is our next concern. In the following section we shall examine the reasons for this.

6

Semi-autonomous Bureaucracy

Generally speaking, modern state bureaucracies the world over tend to resist any reduction of their political resources such as personnel, finances, and power (Peters, 1988). The Japanese bureaucracy is no exception (Aoki, 1988). Indeed, I would argue that this tendency is stronger in Japan than in most western countries. Every Japanese administrative agency justifies maintaining itself and seeks to secure political resources. There is a certain mechanism that drives Japanese bureaucrats to maintain and even expand the financial resources and authority of their respective administrative agencies. The organizational unit to which Japanese bureaucrats feel loyalty is the ministry or agency, because bureaucrats are employed by, and promoted

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within these administrative units. Individual bureaucrats are promoted in accordance with the extent of their contribution to the maintenance and expansion of the administrative agency to which they belong. Japan also follows a practice known as amakudari (literally "descent from heaven") whereby career bureaucrats take high positions in public corporations and private industry after retirement from public office. These positions are secured by the ministry or agency that the bureaucrat has served. Because individual bureaucrats depend on ministries and agencies for their well-being in the present and future alike, they naturally devote themselves to the maintenance and expansion of the administrative unit they serve. In Japan's highly decentralized and pluralistic bureaucratic environment, as M. Muramatsu argues in his chapter, ministries, agencies and bureaucrats tend to strongly resist administrative reform. They recognize, after all, that the major objective of administrative reform is to reduce the authority, financial resources, and personnel of administrative organizations. All Japanese administrative agencies seek to maintain the status quo. However, they can hardly survive without adequately responding to new expectations and demands from society. When the gap widens impermissibly between the expectations of the public and the policy and actions of national administrative agencies, the prime minister may demand organizational reform or may directly intervene in bureaucratic management. The establishment of the Management and Coordination Agency in the early 1980s demonstrated that consolidation of two or more ministries or agencies was possible. However, the main outcome was still policy change rather than organizational reform. This implies that administrative reform in Japan is a result of compromise between politically-restricted prime ministers and "semi-autonomous" ministries. In Japan, ministries and agencies, which were not powerful enough to reject the prime minister's proposal outright, strove to maintain their status by adapting themselves to changes in administrative demand. But they resisted the prime minister's order that they change their organizational and personnel management, since traditionally they had been allowed considerable autonomy in these areas. It is this dualism of Japanese bureaucracy that leads me to characterize the system as "semi-autonomous," although this bureaucratic "semi-autonomy" has been eroded little by little since the mid-1970s. Administrative reform can be regarded as the catalyst of recent bureaucratic changes — changes that have significantly narrowed the gap between the expectations of the public and the prime minister and the policies of administrative agencies. One typical method of persuading ministries and agencies to restrict their size and to change their policy can be seen in the measures implemented under FPARC in the 1960s. To limit the size of the government, two important devices were introduced (Pempel, 1982). The first was the enactment of

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a law sponsored by Prime Minister Eisaku Sato in 1968 to abolish one bureau in each ministry. Pursuant to this law, 18 of the total 120 bureaus were abolished. Subsequently, the so-called "scrap and build" system was established. This system prevented ministries and agencies from setting up new bureaus in response to socio-economic changes, unless comparable bureaus of diminished need or relevance were abolished. Under this system, the number of bureaus in the central government remained more or less unchanged, except for increases caused by the establishment of the Environment Agency (1971) and the National Land Agency (1974). Another device used to limit the size of the government was the Law Concerning the Number of Personnel in Administrative Agencies (May 1969). Before the enactment of this law, the number of personnel in each administrative agency had been determined by the specific laws governing it. Under the new law, however, the total number of national service personnel employed in all ministries and agencies was fixed, and the number of personnel employed in each ministry or agency was determined by government ordinance. This allowed the government to reallocate personnel quickly and flexibly in response to changes in administrative needs. Coupled with this law, a personnel reduction plan was implemented to check the expansion of the number of government personnel. This plan was first introduced in 1967, and was implemented step by step through the 1970s and the 1980s. One important reason why these reform measures were successfully implemented is that they proposed to reduce the number of bureaus and personnel by the same percentage in all ministries. In other words, because no ministry was exempted from the reform and none was disadvantaged with respect to the others, the proposal met little bureaucratic resistance. A second reason for the reform's success is that each ministry and agency was equally entitled to choose which specific bureau it would abolish and to choose the organs whose personnel would be reduced. This system effectively mitigated resistance from bureaucrats by guarding the autonomy of each ministry in its reorganization effort. Reduction of the financial resources and personnel available to each ministry drove each to re-examine its policy priorities. Generally speaking, ministries placed priority on policies that justified their existence and met the expectations of the prime minister and Japanese society. This pattern was repeated on several occasions during the period of SPARC in the 1980s.

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Administrative Reform and Coalition Politics

The arena of administrative reform in Japan is not confined to administrative organs where bureaucrats are the only actors. The process of administrative reform becomes a clamorous political process joined by the prime minister, party leaders, Diet members, opposition parties, interest groups, mass media and the general public. This is because changes in the organization, personnel or expenditures of any one ministry or agency do not only affect the interest of bureaucrats, but also those of many others. Furthermore, the efficiency of administrative management and the size of government have a great impact on the benefit enjoyed by and the burden imposed upon business and taxpayers. In this sense, administrative reform tends to be interwoven with political reform in Japan. With this dynamic in mind, let us examine the general attitudes toward administrative reform of the above-mentioned participants and the coalitions they formed. Most of those who resisted administrative reform did so to protect their vested interests. Others, like leftist parties and public-sector labor unions, justified their opposition on both material and ideological grounds. Those who supported reform, — most notably, the prime minister, the Ministry of Finance and other coordinating agencies, managers and labor unions of big business in the private sector, the general public, and the mass media — did so to weaken vested interests (Muramatsu, 1987). Responding to pressure from the prime minister, the line ministries (e.g. the Ministry of Transport and the Ministry of Construction) appealed to sympathetic ruling-party Diet members and interest groups in an effort to defend their agencies. The union of these three groups resembles the "iron triangles" seen in the United states — what might be considered small, semiindependent "sub-governments." These sub-governments became prominent in the 1970s when Japanese politics became pluralistic. The Japan Socialist Party (JSP) and other leftists generally opposed administrative reform. The JSP opposed reform for two main reasons. First, the party feared that restriction of the size of government through curtailment of personnel and financial resources might result in the firing of civil service employees and the degradation of working conditions (e.g. wage cut) — a fear articulated by the party's largest supporter, the General Council of Trade Unions of Japan ("Sohyo"). Secondly, the JSP opposed the government's philosophy of administrative reform. Its socio-democratic ideology was incompatible with the government's small-government ideology and antipathy toward the welfare state. Labor unions in the public sector opposed administrative reform on the same grounds as the JSP. But such principled resistance remained the minority opinion.

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By contrast, prime ministers and other political executives were usually enthusiastic promoters of administrative reform. Their political motives were accession to power and expansion of political influence. By incorporating administrative reform into their political platforms, they made it an important political issue, and through its realization they increased their control over government and their ability to remain in power. While the bureaucracy had a narrow range of clients, the constituencies of leading political executives, such as the prime minister, represented a broad range of the general public. Administrative reform to reduce the people's tax burden and to increase the efficiency of administration received widespread support from the general public and business. Thus, the prime minister had both legal authority and popular support to reform the bureaucratic system. Since prime ministers cannot manage the government without cooperation from bureaucrats it is hardly surprising that some have been reluctant to carry out administrative reform. Successful administrative reform requires strong leadership from prime ministers, especially, the ability to resist pluralistic sub-governments and to eliminate their vested interests. The Ministry of Finance and the Administrative Management Agency (the precursor of today's Management and Coordination Agency), which are often referred to as "state-maintaining ministries" or "coordinating agencies," usually extend cooperation to administrative reform efforts sponsored by the prime minister and other political executives. "Line ministries" and "social service ministries," on the other hand, tend to offer resistance. Although the Ministry of Finance strongly resisted the idea of giving budget-making power to the Cabinet, it was nonetheless strongly supportive of all other objectives of administrative reform, including curtailment of government spending (Kanbara, 1986). Being relatively free of clientelism, the Ministry of Finance maintained stable financial management. In addition, the Administrative Management Agency endeavored to achieve efficient, well-coordinated administration. These coordinating agencies constituted an important part of the policy network, and the information they gathered became a valuable political resource that weakened the line ministries' monopoly of information. Big business called strongly for administrative reform, partly to avoid the emergence of a big government that promised to impose heavy tax burden, and partly to simplify and speed up the administrative procedures that secure them necessary permits and licenses. The general public also wanted to minimize the size of government, largely out of distrust of politics. They called for democratization of administration and improved efficiency of administrative procedures. But, most importantly, they wished to avoid heavy taxes. Salaried city-dwellers, who had become the majority of the total population, suffered under a relentlessly rising tax burden. Unlike farm-

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ers, the proprietors of small businesses, physicians, and the beneficiaries of "pork-barrel" politics, they did not enjoy government subsidies, tax cuts or tax exemptions. Newspapers and other mass media, whose clientele was the general public, promoted administrative reform by exposing the "perpetrators" of inefficient, undemocratic administration. Labor unions of big business became strong supporters of administrative reform on the same ground as corporate managers. Being organized within individual companies that maintained the system of life-long employment and provided various types of social benefits, they tended to assume the same stance as corporate managers with respect to public policy. I have referred to this cooperative labor-management relationship in the private sector, as the "labor-business coalition in big business" (Ito, 1988). To consolidate the coalition propelling administrative reform, strong leadership from the prime minister was necessary. Following the establishment of SPARC, Prime Minister Zenko Suzuki made administrative reform his cabinet's top priority and expressed his utmost determination to promote it. "I shall carry out administrative reform even at the risk of my political life," he proclaimed. Nevertheless, the most important political executive to actively promote administrative reform was Yasuhiro Nakasone, who became prime minister in late November 1982. He stressed the necessity of administrative reform throughout his term in office. The most important reason why SPARC had far-reaching influence on governmental agencies and also on the ruling LDP was that Nakasone unequivocally expressed his determination to carry out administrative reform.

8

The Local Level Reform

Japan is a unitary state in which the local government system is created and controlled by the central government. Today, local autonomy in Japan is protected by the Constitution of 1947. Local governments are organized into a two-tier system. The first tier is made up of municipalities. Both mayors and assembly members of the municipalities are directly elected by the inhabitants. As of 1990, there were 3,245 municipalities in Japan. The second tier is made up of prefectures. The number of prefectures has remained unchanged at 47, since the pre-war period, although Okinawa Prefecture was governed by the United States for a quarter century following the end of the Second Wold War. Governors and assembly members are also directly elected. According to K. Akizuki (1994), the legal and financial relations between the central government and local governments have been strikingly stable in

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Japan, while some OECD countries, such as the United Kingdom, France, and the United States have experienced drastic changes in their local systems. Although changes have occurred in Japan, they have been incremental. Local governments have changed their policy and administrative style on several occasions responding to changes in the social and political environment of Japan since the Second World War. In the 1980s, a largescale administrative reform was undertaken on the local level. The national government demanded that local governments limit their size in order to cut subsidies. SPARC simultaneously made a recommendation that local governments promote administrative reform in the same vein as the national program: restraint of the expansion of budgets, numbers of personnel, simplification of organization, increase of administrative efficiency and so on. Many local governments implemented these measures, since most were faced with serious budgetary deficits due to expanding welfare service expenditures. Moreover, the SPARC proposal stressed that appropriate function and jurisdictions be transferred to local governments. However, only a few marginal functions and jurisdictions were transferred in the 1980s, due to resistance from central government ministries. In October 1993, the Special Advisory Council on Administrative Reform submitted a proposal to Prime Minister Hosokawa, head of the coalition administration that replaced the LDP government whose rule had lasted for 38 years. The proposal contained a package of recommendations to minimize the authority of central administrative agencies, assigning local governments the authority to issue. This jurisdictional transfer has become a major political agenda of the 1990s.

9

Concluding Remarks

Faced with a serious fiscal crisis from the late 1970s through early 1980s, the Japanese government carried out a "neoliberal" administrative reform characterized by a "market" and "small government" orientation. Its most significant achievements were drastic policy changes, such as the reform of the medical insurance program and the privatization of public corporations. Local level administrative reforms paralleled those on the national level. The experience of the terrible inflation brought about by government intervention in the market after the Second World War — and the persistent conservatism of Japanese national administrations — created a favorable climate for neoliberalist policy making. However, little progress was made with respect to the reduction of governmental permits and licenses and the realignment of administrative agen-

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cies, primarily due to persistent resistance from the bureaucracy. Indeed, since Japan's occupation by the Allied Fores in 1952, not a single ministry or agency has been abolished, and no consolidation of two or more agencies (or portions thereof) has taken place, with only one exception. The Japanese bureaucracy has resisted administrative reform vigorously. The bureaucratic incentive structure leading individual civil servants to devote themselves to a single agency has caused what Muramatsu refers to as "sectionalism," or fragmentation of the national government. Furthermore, the sub-governments consisting of agencies, ruling-party diet members, and interests groups have become stubborn obstacles to administrative reform. Accordingly, administrative reform has come to mean not only reform within the administrative system but also reform in the system of shared political interests. Government agencies, however, have not gained sufficient autonomy to ignore the strong desire of the prime minister and the public for policy change. Compromises have had to be struck between prime ministers and government agencies. Prime ministers have employed the method of persuading ministries to change their policies, without causing any abolition or consolidation of agencies. They have encouraged voluntary action by each ministries, rather than issuing orders. The most common measure taken in the area of administrative reform in Japan has been the same percentage reduction of financial and human resources in all the agencies. This measure has encountered little resistance. Moreover, from time to time, prime ministers have established ad hoc committees to enforce administrative reform, since procurement of wide-ranging popular support has been necessary to their overall reform agenda. In the post-war period, Japan has adapted itself to some extent to the new political and economic environment. However, since the end of the Cold War, the international community, particularly the United States, has gradually placed greater political pressure on Japan. Japan has been requested to open its markets more widely to foreign firms and to increase foreign aid. In order to respond adequately to these new demands and to become a legitimate member of the international community, Japan will have to re-examine its national identity and undertake thoroughgoing reforms in its political and economic systems. Naturally, administrative reform will continue to grow in importance. The coming reform will forcibly reduce the number of permits and licenses issued by government agencies and compel these agencies to undergo administrative realignment. Japanese bureaucracy might be helpless to resist these initiatives, and administrative reform will bring about drastic changes in the Japanese polity before too long. How government agencies respond to this challenge is yet to be seen.

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References Akizuki, Kengo (1993), Institutionalizing the Local System: The Ministry of Home Affairs and Intergovernmental Relations in Japan, EDI Working Papers, No. 93-37. Aoki, Masahiko (1988), Information, Incentives and Bargaining in the Japanese Economy, Cambridge: Cambridge University Press. Gyosei Kanri Kenkyukai (1984), Gendai gyosei zenshu 3: Gyosei kanri (The Complete Works of Contemporary Administration, Vol.3: Administrative Management), Tokyo: Gyosei. Ito, Mitsutoshi (1988), Daikigyo roshi rengo no keisei (The Formation of the BusinessLabor Coalition in the Private Sector), Leviathan, No.2. Ito, Mitsutoshi (1993), Administrative Reform, EDI working papers, Number 93-33. Kanbara, Masaru (1986), Tenkanki no seiji katei: Rincho no kiseki to sono kino (The Political Process of a Turning Point: SPARC and its Functions), Tokyo: Sogo Rodo Kenkyusho. Kume, Ikuo (1988), Sengo nihonn niokeru gyosei no hatten (The Development of Administration in the Post-War Period), Tokyo: Gyosei Kanri Kenkyu, Vol.42. Kumon, Shumpei (1984), Japan Faces its Futures: The Political Economics of Administrative Reform, The Journal of Japanese Studies, Vol.10. Kusano, Atsushi (1989), Kokutetsu kaikaku: Seisaku kettei geimu no shuyaku tachi (JNR Reform: Actors in a Policy Decision Game), Tokyo: Chuo Koron-sha. Masujima, Toshiyuki (1986), Gyosei kaikaku no tetsuzuki (Procedures of Administrative Reform), Tokyo: Nenpo seijigaku. Muramatsu, Michio (1987), In Search of National Identity: The Politics and Policies of the Nakasone Administration, The Journal of Japanese Studies, Vol.13, No.2. Muramatsu, Michio (1988), Min'eika, kisei kanwa to saikisei no kozo; Denki tushin seisaku no henka (Privatization, Deregulation, and Re-regulation: The Change in Telecommunication Policy), Revaiasan, No.2. Noguchi, Yukio (1980), Zaisei kiki no kozo (The Structure of Fiscal Crisis), Tokyo: Toyo Keizai Shinposha. Otake, Hideo (1992), Hatoyama-Kisi niokeru "Chi-isai seihuron" (The Discussion on "Small Government" under the Hatoyama and Kishi Administration), Tokyo: Nenpo seijigaku. Otake, Hideo (1994), Jiyushugi-teki kaikaku no jidai (The Era of Liberal Reform), Tokyo: Chuo koron-sha. Oyama, Kosuke (1992), Gyosei kiko niokeru senryo kaikaku (The Reform of Administrational Organization under the Occupation Period), Tokyo: Nenpo seijigaku. Pempel, T.J. (1982), Policy and Politics in Japan; Creative Conservatism, Philadelphia: Temple University Press. Peters, Guy B. (1988), Comparing Public Bureaucracies: Problems of Theory and Method, Tuscaloosa: University of Alabama Press. Wright, Deil S. and Yasuhiro, Sakurai (1987), Administrative Reform in Japan: Politics, Policy, and Public Administration in a Deliberative Society, Public Administrative Review, March/April. Yomiuri Shinbun Seijibu (1983), Documento: Gyosei kaikaku (Administrative Reform Report), Tokyo: Yomiuri shinbun-sha.

Modernization of the Public Sector and Public Administration in the Federal Republic of Germany — (Mostly) A Story of Fragmented Incrementalism Hellmut Wollmann

In giving an account of the development of public sector reforms in the Federal Republic of Germany over the past 25 years, the paper will distinguish three periods relating to different political contexts:1 - First, the period of the 1960s and early 1970s was marked by a drive towards public sector modernization that, departing from the assumption of continuing economic growth and full employment, was guided, in the Federal Republic as well as in most other OECD countries, by the concept of a further expansion of the welfare state, sometimes labelled the "Social Democrat model," combining Neo-Keynesian economic policies with an enlargement of social policy functions. Comprehensively modernizing the governmental and administrative machinery was seen a key measure for bringing it abreast of the socio-economic tasks ahead. In the FRG this period politically climaxed in 1969 when the Social Democrat led coalition government under Chancellor Willy Brandt took office, ending a 20 year long dominance of the Christian Democrats and embarking upon an ambitious "policy of domestic reforms" which programmatically encompassed the modernization of the governmental and administrative machinery. - Second, the period between the mid-1970s and the late 1980s which, visà-vis the world-wide economic and budgetary crisis triggered by the first oil price shock of 1973, saw the ascendancy of "neo-liberal" and "neoconservative" tenets and political majorities directed at budgetary retrenchment, cost-reduction and more cost-efficiency. Politically and ideologically the advent of the neo-conservative ground swell surfaced in the U.K. with the Tory electoral triumph under Margaret Thatcher in 1979, in the USA with Ronald Reagan's landslide in 1980 and in the Fed1

For a similar periodization see Wagner/Wollmann (1986), Derlien (1993), Naschold (1993).

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eral Republic of Germany, in a more moderate version, with Christian Democrats under Chancellor Helmut Kohl returning to power in 1982. - Third, since the late 1980s, prompted by the intensification of the international economic competition, the European integration and the fiscal burden resulting from German Unification, the debate about public sector modernization has been taking an upsurge, mainly under the rubric of "New Public Management," that is politically marked by a "de-ideologization" of the reform discourse and by a growing consensus, among the relevant political forces and governmental levels, on the urgency of stepping up and pushing a broad and deep-cutting public sector reform. As to the factors which have been influenced the point in time, the contents, the direction and the pace of administrative reforms in the Federal Republic of Germany, the following points shall be tentatively submitted: First, reference should be made of the international interdependence in which the Federal Republic of Germany has been embedded since its establishment in 1949, because of its increasing political, economic and military integration into supranational and international contexts and its reliance, as a highly export-oriented country, on international markets and competitiveness. Hence, the discourse on public sector modernization and its agenda have been, in different stages to a varying extent, intertwined with, and influenced by, the reform debates, movements and fad originating and pursued in other leading OECD countries. Second, as the FRG is a federal system with the federal and the Länder government as its two tiers and with the local government level possessing considerable responsibilities in its own right, the stage was institutionally set for a discourse on administrative reform that tended to be fragmented and conceptually and institutionally restricted to the respective government level instead of being inspired by a comprehensive reform philosophy and of being pushed or even enforced by one level. Third, notice should be taken of the specific political decision-making processes and patterns characteristic of the Federal Republic's political system prescribing a "middle of the road" and "incrementalist" path of political decision averse to ruptures and sharp turnarounds2. This "incrementalism," at times bordering "immobilism," can be mainly explained by the existence of two major parties both electorally crucially depending on the "swinging" voter "in the middle," by the retarding and moderating effects built into the federal system and by the impact of a "neo-corporatist" decision-making system involving the major interest groups in decision-making on all levels and in all sectors. 2

See Blanke/Wollmann (1991), references.

Schmidt (1991),

Wollmann (1991) for further

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As the paper, while following the afore-mentioned periodization, is meant to touch upon the relevant developments on the federal, the Länder as well as the local government levels and to include both organizational and personnel reforms, the caveat should be made that the paper will have to proceed in a broad brush manner.

1

Reconstruction of Public Administration in Post-war (West-)Germany in Neglection of Reforms

When, after Nazi Germany's unconditional surrender in May 1945, it was only the German municipal and county (Kreis) authorities that continued to operate under the direction of the Occupational Forces exercising supreme governmental functions, while the German authorities on the central government and Länder government levels were eliminated. In readmitting German governmental and administrative authorities in the Western Occupational Zones, step by step new Länder administrations and in 1949 the Federal Republic were established. In their organizational set-up and procedures the newly established administrative structures almost entirely followed the organizational blue-prints of the internar period (1919-1933), if not of Bismarckian origin. Except for some early attempts at "de-Nazifying" the civil service, the administrative personnel that had served under the Nazi regime was almost completely carried over. Furthermore, the Federal Constitution (Grundgesetz) of 1949 explicitly guaranteed that the "traditional civil service principles" (hergebrachte Grundsätze des Berufsbeamtentums) should be maintained. Thus, notwithstanding the fundamental political rupture underlying (West) Germany's transition from the Nazi regime to postwar democracy, the administrative system underwent remarkably little reform, both in terms of organization and personnel (see Buse 1975: 35-37). In the FRG's "post-war period" which, reaching well into the early 1960s, was ideologically stamped by Ludwig Erhard's " (social) market economy" ("soziale Marktwirtschaft"), the doctrine of minimal state intervention ("non-planning") loomed large. Indicatively enough, well into the 1960s, the FRG ranked among the countries with a low government employment as compared to the total employment with the FRG's general government employment amounting to 11.1 percent in 1970, as compared to 18.1 percent in the U.K., 16.0 percent in the USA and 7.7 percent in Japan (see OECD 1990: 49; see also Hauschild 1991: 86-87, Naschold 1993: 15).

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2

Public Sector Reforms in the 1960s and Early 1970s Within an Expanded Welfare State

2.1

Federal Level

In the course of the 1960s, policy makers in the FRG increasingly embarked upon redefining the government's role in intervening in the socio-economic processes and upon reappraising its pertinent governmental institutions and policy instruments. This conceptual change was prompted by the growing apprehension that the FRG, being a highly export-dependent country, ran the risk of falling economically dangerly behind unless substantive reforms were introduced, including a remaking of the governmental and administrative machinery. This mounting awareness and the emergent concepts fell in line with, and were influenced by, similar shifts in other OECD countries. This was particularly true for the USA where a series of dramatic events ("sputnik shock" in 1958, rioting of the disprivileged black population in big cities) had lead to reappraising the role of government and to administrative reorganizations (such as the introduction of new governmental structures and programs, the insertion of Planning, Programming, Budgeting Systems, PPBS, at first in the military and then in the civilian sectors). Both in the international and national contexts the outline of an "advanced welfare state" gained ascendancy which, stipulating an enhanced role of government both in Neo-Keynesian economic management and in social policy responsibilities, was sometimes labelled the "Social Democrat model." While this change was harpingered already in the early 1960s under Christian Democrat led federal governments, the shift gained momentum in 1966 with the formation of the Grand Coalition consisting of the Christian Democrats as the senior partner and the Social Democrats as the junior partner. Backed by two third majorities both in the Federal Parliament (Bundestag) and in the Federal Council {Bundesrat), the Grand Coalition managed to enact major amendments to the Federal Constitution by which, among others, the system of revenue sharing (between the Federation, the Länder as well as the municipalities) was significantly changed and a new intergovernmental structure ("Joint Tasks," Gemeinschaftsaufgaben) in the field of infrastructural policies was introduced. In 1969 the reform tide climaxed when, following federal elections, a Social Democrat led coalition government under Chancellor Willy Brandt was forged, while the Christian Democrats, for the first time since 1949, were to resume the role of the parliamentary opposition. In setting the sails for a comprehensive "policy of domestic reforms" ("Politik der inneren Reformen") of the "advanced welfare state" sort ("Social Democrat model"), the new coalition government proclaimed to push for governmental

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and administrative reform as a prime objective3. The (interdepartmental) Task Force on Governmental and Administrative Reform {Projektgruppe Regierungs- und Verwaltungsreform) set up in 1968 still under the Grand Coalition was designated to mastermind the revamping of the governmental and administrative machinery4. In this context, it should suffice to highlight the following points: - First, the modernization drive conceptually and ideologically premised basically on a "rational policy making" model departing from the assumption that, in order to enable an "active policy making" (aktive Politik) apt to influence, if not "guide" (steuern) socio-economic processes, the planning and analytical capacities of government and administration need to be improved. - In order to bolster the planning and guidance capacity (Planung, Steuerung) of the federal government, the pertinent organizational and personnel resources of the Chancellor's Office were to be strengthened, particularly by setting up a planning division. - In a scale unprecedented in German governmental and administrative history, new linkages between government and (social) science emerged (through reform commissions that were established in great numbers as well as through contractual research the commissioning and utilization of which became almost a standard operational procedure of ministries), reflecting the idea of "scientification" as a key component of the modernization concept and drive. The period of reformist zeal and reformist activities proved to be short-lived however. It was not later than 1973 that, in the wake of the (first) oil-price shock and the ensuing worldwide economic and budgetary crisis, governmental and administrative reform lost its momentum. Assessing its course and fate is somewhat ambivalent. On the one hand, it needs to be stated that a good deal of the reform concepts and measures petered out by 1974 when reformist Chancellor Willy Brandt was replaced by the economic pragmatist Helmut Schmidt. - The ambitious idea of giving the political system a handle, through the build up of planning capacities and through comprehensive pro-active policy making, on influencing, if not "guiding" and "steering" socio-eco3

4

In his first programmatic statement (Regierungserklärung) before the Federal Parliament, the newly elected Chancellor Willy Brandt said: "The federal government, when it speaks of reforms, has to start by reforming itself" (see Bebermeyer 1974). See Wollmann (1989: 242) for further references.

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nomic developments rapidly eclipsed, as again shortterm and reactive crisis management seemed to be called for. - The installation of a planning and coordination unit in Chancellor's Office was thwarted by the resistance of the individual ministries (see Levine 1981: 47) as was the establishment of units, within the individual ministries, meant to improve their internal coordination counteracted by the sections as the bottom-line "work horses" of the ministries. On the other hand, it should be pointed out that the planning and information units once established continued to exist and operate in their analytical functions, constituting a significant and lasting shift in the systematic gathering and utilization of analysis and social-science generated information. With regard to the personnel reform, a similarly ambivalent development can be stated. As part of the comprehensive administrative reform drive, a high-caliber reform commission on public service reform (Studienkommission zur Reform des öffentlichen Dienstrechts) was installed in 1971, consisting of administrative practitioners, economists as well as social scientists. When in 1974 the Commission put forward its many-volumed report in part containing farreaching recommendations (including, inter alia, the abolition of the traditional separation of status groups in the public administration (workers, employees and civil servants, Beamte, proper) and the introduction of vertical mobility and performance incentives), the reform tide already abated dooming the Commission's ambitious study reports and recommendations to be widely ignored (see Siedentopf 1979). Yet, notwithstanding the failure of a legal reform of the public service, the federal bureaucracy, in the course of the 1960s and early 1970s, underwent significant changes in the composition, orientation and qualification of its personnel, particularly in the higher civil service bracket {höherer Dienst). This is especially due to an exceptionally broad generation change that has taken place in this period mainly because of a massive expansion in federal administrative personnel. From 1960 to 1969 the higher civil service in the federal bureaucracy expanded by 45 percent and from 1969 to 1974 by another 25 percent (see Wollmann 1989: 256). Adding to these new positions to be filled with young recruitees came the number of vacancies because of old age retirement. In view of the fact that most of those entering federal service were politically and cognitively socialized in 1950s and 1960s, the massive generation change was bound to have a profound effect on the profile of federal administration. It is true, the higher civil service (ihöherer Dienst) in the federal bureaucracy still consists, up to 60 percent, of law-trainees {Juristen) in what is traditionally called the "lawyer's mo-

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nopoly" (Juristenmonopol!). As empirical evidence suggests, however, the bulk of the ministerial higher civil servants, including the "lawyers" among them, can be classified (following Joel Aberbach et al. 1981) as "political bureaucrats," that is, as civil servants who, different from the "classical bureaucrat's" fixation on rule application and belief in bureaucratic self-reliance, accept the problem-solving role of administration in a democratic pluralist society5. The advent of new generations of administrators who by now have made it to top-level positions may be seen as one of the most important long-term results and legacies of the 1960s and 1970s.

2.2

Länder Level

In the late 1960s and early 1970s the Länder governments, too, were seized by the planning and information zeal. Above all, the Lander Prime Ministers' Offices (Staatskanzleien) were singled out for reform efforts meant to improve the planning, information and, first of all, coordination capacity of the Länder governments (see König 1976, Siedentopf 1976). In a similar vein, great emphasis was placed on the build-up of computer-based information systems.

2.3

Local Level

In a similar vein, partly even earlier than the upper levels of government, many municipalities sought to improve their problem-solving capacity, visà-vis an ever more demanding socio-economic environment, by building up planning and information potentials. By a growing number of local authorities urban development planning units {Ämter für Stadtentwicklungsplanung) were established (Hesse 1972). Oriented on the concept of expanded welfare state and social policy functions, in many counties and municipalities administrative reform efforts got under way that were meant to improve the "citizen orientation" {"Bürgernähe") of social administration and social service provision. Under these reformist auspices, social administration and social service provision was to be organizationally decentralized (onto to the city-district and neighborhood level). Another key component was seen in a new professional profile and qualification of the personnel involved. 5

See Wollmann (1989: 252) for further references.

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Yet, the most conspicuous rupture and change in local government organization in this period was brought about by the measures of territorial reform in which the Länder proceeded, between the mid-1960s and the mid1970s, to redraw the boundaries of the counties (Kreise) as well as of the muncipalities and smaller localities (Kommunen) (see Thieme/Prillwitz 1981), the Länder governments' political and administrative rationale being that the small size of county and municipal authorities had become an impediment to providing adequate administrative specialization and competence (Verwaltungskraft). In most Länder, the territorial reform measures were prepared by expert commissions and detailed reform recommendations. While the Social Democrat — led Länder Nordrhein-Westfalen and Hessen pursued radical reform strategies by creating large unitary municipalities (Einheitsgemeinden) through amalgamation, other Länder, particularly in Southern Germany, such as Bavaria, preferred compromise strategies in instigating or luring the multitude of existing small places to form voluntary communal associations (Verbandsgemeinden) (see Wollmann 1989). By the mid-1970s (in some Länder the territorial reform took more than 10 years to be completed), the number of municipalities in the FRG had been reduced from around 24,000 to 8,500, the number of "operative" local authorities being still considerably smaller. In the same vein, the boundaries of the counties (Kreise) as the bottom-line level of public administration were redrawn, cutting the number of counties also significantly down. Furthermore, functional reforms followed suit aiming at transferring state functions to local level administrations, in many cases falling considerably short of the original reform projection, however.

3

Period between Mid-1970s and Late 1980s: Years of Economic Recession, Budgetary Squeeze and Neo-liberal Beliefs Gaining Ascendancy

When in 1973 the (first) oil-price shock hit the Western economies, the economic, budgetary and ideological setting for the debate about public sector and public administration reform changed rapidly and dramatically, internationally as well as nationally. In the FRG, cost-producing reform policies came to a grinding halt. The optimistic belief in steady economic growth and in the government's ability to influence, if not "guide" (steuern) the relevant socio-economic parameters by adequate institutions, instruments and policies swiftly waned. Budgetary retrenchment, budgetary consolidation, but also privatization, deregulation and debureaucratization became

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key words in the pertinent political debate. Attaining mounting electoral appeal the neo-liberal and neo-conservative groundswell politically surfaced in the Tory electoral victory under Margaret Thatcher in the U.K. in 1979 and in Ronald Reagan's landslide in the presidential election in the USA in 1980. In the FRG, in a similar vein, the Christian Democrats returned to power in 1982 by toppling the Social Democrat led coalition government under Chancellor Helmut Schmidt, forming a conservative-liberal coalition government under Chancellor Helmut Kohl.

3.1

Federal Level

With regard to the reorganization of the governmental and administrative machinery that was initiated in the short-lived reform period geared to a build-up of planning and information capacities and structures, the disenchantment with the "planning euphoria" struck, as was pointed out, already in the mid-1970s under Social Democrat Chancellor Helmut Schmidt, yet leaving the newly established administrative units unimpaired. When the conservative-liberal Coalition under Chancellor Helmut Kohl took office in 1982, the "planning" terminology reminding of the "social-liberal" period was, it is true, finally eliminated from the ministerial labels, but the incoming government continued to maintain and rely on the analytical staffs and capacities (see Derlien 1985, Wollmann 1989), thus giving continuity and duration to the build-up of analytical capacity and of a "scientification" of the governmental and administrative machinery in what constitutes a remarkable long-term impact of the "reformist" period and a noteworthy continuity in administrative development. Measured by the Christian Democrats' earlier political rhetoric, borrowing from Thatcherist concepts and shibboleths, about all-out "deregulation" and "debureaucratization," the measures initiated when the Christian Democrats in 1982 finally regained governmental power turned out quite modest, at least as compared to Thatcherist England. In 1983, the new coalition government set up an "Independent Commission on the Simplification of Regulation and Administration" ("Unabhängige Kommission für Rechts- und Verwaltungsvereinfachung"). Chaired by a high-ranking civil servant from the Federal Ministry of the Interior and backed by the explicit mandate of the federal government, the Commission was meant to programmatically spearhead the new government's declared commitment to deregulation, above all, by screening and scrutinizing existing legal and other normative provisions for overregulations, redundancies and the like. But, by and large, the Commission's achievements remained unspectacular. When the complete revision of the Federal Building Law

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(Bundesbaugesetz) was singled out by the Commission, at the beginning of its work, as the litmus test for and model of a "leaner" and "for the citizen easier to read" piece of legislation, the new bill (Baugesetzbuch) that was enacted in 1987 as the result of a lengthy legislative process was hardly less complicated nor hardly more readible than its predecessor. The field of privatization offers another example for the incoming conservative-liberal government strikingly falling remarkably behind earlier rhetoric (see Derlien 1993: 13 with references). It was only in the late 1980s and in the early 1990s that really substantive steps were taken into this direction. We shall return to this later.

3.2

Länder Level

On the Länder level in the late 1970s, that is, earlier than on the federal level, an administrative reform discussion got under way which pivoted on the idea of a "simplification of legal provisions and administration" ("Gesetzes- und Verwaltungsvereinfachung"). By doing away with unduly complicated regulation and red-tape it was expected to achieve a "de-bureaucratization" ("Entbilrokratisierung") which would be conducive to give public administration more "citizen-orientation" ("Bürgernähe") (see Seibel 1986 for details and references). From 1978 onward, almost all Länder governments proceeded to set up Commissions with the mandate to "simplify" the pertinent legal provisions (by identifying unduly complex, outdated, redundant etc. regulations) and to look into "citizen-orientation" ("Bürgernähe") of public administration6. Furthermore most of the Commissions were encharged with providing a "critical review of public tasks" ("Aufgabenkritik") and of the privatization potential of such public sector activities. Yet, judging, for instance, by the political fate of the pertinent Commission in Berlin, set up between 1982 and 1984 as a Parliamentary Inquiry Commission (see Enquetekommission zur Verwaltungsreform (1984) (in contrast to the other Länder Commission appointed by the Länder governments), the impact of the Commission reports and recommendations have been quite small. The reform debate pursued in the Land Baden-Württemberg significantly markedly stood out against the other Länder in that, linking up with the discourse of the early 1970s, a "Commission on a New Management Struc6

As the probably most important case, the Land of Nordrhein-Westfalen established a commission chaired by the reputed political scientist Thomas Ellwein to deal with the "simplification" of regulation and administration (see Kommission Gesetzes- und Verwaltungsvereinfachung in Nordrhein-Westfalen 1983).

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ture" ("Kommission Neue Führungsstruktur Baden-Württemberg" was set up in 1986 which in its report (see: Neue Führungsstruktur Baden-Württemberg, Bericht 1987) directed the reform focus at the modernization of the management structures and strategies of public administration and at the ensuing qualification needs (for details, see Derlien 1988). In a way BadenWuerttemberg's Commission harpingered and broke the ground for the "New Public Management" debate that picked up momentum in the late 1980s.

3.3

Local Level

As the municipalities were most hardly hit by the budgetary squeeze in the aftermath of the 1973 oil price shock and municipal authorities had to resort to severe budgetary retrenchment measures in order to cut down rampant expenditures, a debate was triggered by KGSt, a municipally related and funded consultancy agency, to provide a more rational and analytical underpinning to such cost-reducing strategies by a procedure called "critical task review" ("Aufgabenkritik") (see Mäding 1974, KGSt-Bericht 25/1976, Hellstern/Wollmann 1984: 41 with further references). Aufgabenkritik was meant to become an administrative standard operational procedure critically assessing the substance of the respective "task" (as to whether this task should be continued at all) as well the implementation of that "task" (as to whether the implementation process needs correction). Although it proved difficult to make Aufgabenkritik really work in the municipalities' political and administrative practice,7 its underlaying conceptual components, including cost-benefit analysis and evaluation, as well as its instrumental approach did have a lasting effect on the municipal practice particularly in terms of breaking the ground for institutionalizing evaluative and controlling procedures. The dramatic deterioration of the economic and financial contexts of local politics and also the swift eclipse of the "planning euphoria" significantly impacted upon the administrative reforms under way on the local level. A good deal of the newly created or expanded municipal agencies, such as the urban development planning units and sophisticated information systems being largely premised on economic and budgetary growth turned out to be out of it with the changed socio-economic environment. Yet, akin to the development on the federal and Länder levels, the introduction of new 7

For a criticial account of putting Aufgabenkritik Dieckmann (1984).

into practice in Hamburg see

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analytical and informational structures as well as the recruitment of related personnel proved left a lasting imprint on municipal administration. In a similar vein, the unexpected financial squeeze made it hard for many municipalities to further pursue the reformist experiments which they had embarked upon in the late 1960s and early 1970s in order to improve the accessibility and the "client-orientation" ("citizen-orientation," "Bürgernähe") particularly of social policy related administration and social service provision. Yet, in a number of major cities (such as Bremen, Wiesbaden) the earlier reform concepts relating especially to organizational and personnel reform were carried on and combined with the introduction of information technology into administrative operation and social service provision. While, due to the budgetary context, the cost-efficiency criterium was writ large, the earlier reform guidelines of "empowering" the client/citizen as well as of improving the work situation of the public employee continued to be compelling.8

4

Development Since the Late 1980s: Upsurge of a "Modernization of the Public Sector" Debate in Germany vis-à-vis Changed International and Domestic Contexts

While strategies and measures directed at the modernization of the public sector and public administration in the FRG between the mid-1970s and the mid-1980s had a comparatively low profile, particularly if contrasted with the development in other OECD countries, first of all in the U.K., that debate has increasingly gained momentum since the late 1980s in a discussion which, under the heading of "New Public Management," heavily draws on the related international discourse. The conspicuous change has been prompted mainly by a growing awareness and by rising fears that Germany, being a highly export-dependent country, is about to lose her economic competitiveness ("Standort Deutschland") in the international markets and that an overall revitalization of Germany's performance is called for which essentially entails a modernization of the public sector and public administration bringing it in line again with her international competitors. In a similar vein, the advancing European integration keeps putting pressure on the FRG's governmental and administrative system to get abreast of the other EU member countries in public sector reforms whereby particularly the U.K. was seen by many as 8

For a detailed account see Bönker/Wollmann (1994).

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pace-setter. Finally, the mammoth budgetary burden which the Germany's unification has resulted in has augmented the necessity to improve the efficacy and efficiency of the governmental and administrative structures altogether. While, hence, until recently politicians as well as administrators were used to view and assess the state of governance and administration in the FRG in rather positive, if not complacent terms, this attitude has quite dramatically changed giving way to some "soul-searching" and a reappraisal which, like a pendulum suddenly swinging into the opposite direction, is sometimes exhibiting almost hysterical overtones. Looked upon in a long-term perspective, one of the most striking features of the ongoing debate should be seen in its "de-ideologization. " Whereas the reformist wave of the late 1960s and early 1970s was ideologically geared to the "Social Democratic model" and while the retrenchment and cost-reduction drive since the mid-1970s was ideologically guided by neo-conservative beliefs, the current reform debate presents the astonishing case that the ideologically and politically drawn battlelines have become blurred (see Naschold 1993), as the Christian Democrats and the Social Democrats have been striking common ground in defining the necessity and the concepts of public sector modernization, with even the trade unions falling in line and assuming an active role, as evidenced particularly by the Public Service Union (ÖTV)ß Linking up with and drawing on the international discussion (see Reichard 1994a) and its focus on "new public management" (see Naschold 1993: 75-78), the notions of -

decentral resource responsibility and management {dezentrale Ressourcen- und Ergebnisverantwortung), controlling, - competitive tendering have been receiving wide currency.

4.1

Federal Level

Privatization. The all but dramatic shift in the public sector debate since the late 1980s is perhaps most conspicuously evidenced by the organizational reforms of the federal postal and the federal railroad systems which, since the FRG's establishment in 1949 and, in principle, dating back to the 1920s, were operated under direct federal administration (in the legally somewhat 9

See Wulf-Mathies (1991). Monika Wulf-Mathies was Chairperson of the ÖTV, until recently (September 1994), before she was appointed to be one of the EU Commissioners.

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mystifying conception of "Sondervermögen." As this organizational form was explicitly prescribed in article 87 of the Federal Constitution (Grundgesetz) the amendment of which requires a two thirds majority both in the Federal Parliament (Bundestag) and in the Federal Council (Bundesrat), it has been constitutionally well entrenched, any essential change thus hinging on the two major political parties (Christian Democrats and Social Democrats) being willing to agree. While the Christian Democrat led coalition government under Chancellor Helmut Kohl taking office in 1982 at first displayed little initiative in going about postal and railroad reform, the urgency to take action kept building up in the late 1980s. As far as the postal system is concerned, it was particularly the rapid changes in the international telecommunication markets and liberalization and privatiziation moves in European countries (especially British Telecom) that reset the stage (see S. Schmidt 1993). At the same time, the pressure from the EC Commission increased demanding liberalization in the member countries' communication and transport markets. After Unification in October 1990, the enormous financial burdens necessitated by entirely redoing and modernizing the run-down East Germany's telecommunication and railroad systems came adding to exacting action. As a result of intense political and legislative struggles in which the battle lines ran, to name only a few, between the federal government, the Länder governments, the major political parties, the Railroad Workers Union respectively the Postal Workers Union (the latter resorting to strikes in June 1994), the constitutional barrier to a far-reaching organizational reform was removed in political settlements between the two major political parties. In the case of the federal railroad reform which legally enacted in December 1993,10 the new German Railroad (Stock) Company (Deutsche Bahn Aktiengesellschaft), established on January 1, 1994, is designed to split up, at the latest in five years, into a number of self-standing branch companies dealing, respectively, with operating the rail system proper, with handling the long-distance passenger service, the cargo service etc. 11 Reflecting the legislative compromise, the passenger and cargo handling companies may be privatized (and joined by newly founded private companies), while the majority of stocks of the company operating the rail system (Fahrweg AG), m the case of privatization, will have remain in federal ownership. As to the federal postal system which, 1989 in a first step, had been organizationally separated into a telecommunication, a post service and a bank branch, its final organizational transformation was accompanied by signifi-

10 11

See article 87e of the Basic Law (enacted on December 20, 1993). For details see Fromm (1994).

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cantly more controversy and strife, 12 culminating in strikes in summer 1994 by which the Postal Workers Union tried to back up its demands. As a result of a complicated political compromise the pertinent constitutional amendment and legislation were finally enacted in July 1994.13 As of January 1, 1995, three selfstanding stock companies will exist (.Deutsche Post AG), Deutsche Postbank AG and Deutsche Telekom AG). While all of them remain, in the initial phase, in federal ownership, they are designated for privatization the extent and the pace of which constituted one of the hottest issues in the political controversy. While Deutsche Telekom A G is earmarked to be privatized 100 percent (the first tranche of stocks is to be sold over the stock market in 1996), in the case of Deutsche Postbank AG the legislative provision was made that, within the next five years, 51 percent shall remain in federal ownership. Advancing further on the privatization trail, the federal government has stepped up the sale of companies hitherto in federal ownership. Among these enterprises Lufthansa AG looms large of which the Federation (Bund) was until recently majority owner. Through selling stocks to private investors and the general public, the federal government brought its share down to 35 percent, thus turning Lufthansa into a predominantly privately owned air company. The federal government claims to have reduced the number of federally owned or co-owned enterprises, in the last ten years, from 969 to less than 400 (see Der Tagesspiegel, 9/2/1994: 19). It should be added though that, in view of the large number of the former GDR's state-run enterprises which Treuhandanstalt was unable to privatize, the volume of the federally owned business sector has been significantly enlarged again. Deregulation. The all but revolutionary reappraisal, mirrored by these large-scale privatization measures, of the traditional scope of the public sector has been complemented by deregulation initiatives which no doubt have been prompted, to considerable extent, by pressure "from outside," particularly from the European Commission to speed up the deregulation of national markets especially in the production and service sectors. First, the "Independent Commission on the Simplication of Regulation and Administration" set up, as was already mentioned by the newly formed conservative-liberal coalition government in 1983 and meant to "tidy up" legal provisions and other norms regulating the functions of public administration proper has continued its work. It has been reported that, as a result of the Commission's work, about 15 legislative acts and 30 ordinances (Verordnungen) were abrogated in what was termed "tyding up legislation" 12

13

For an analysis of the controversy and development until early 1993 see S. Schmidt (1993). See article 87f of the Basic Law (enacted on July 10, 1994).

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(,Rechtsbereinigungsgesetze) (see Unabhängige Kommission 1994: 13) — a balance sheet which does not look very impressive. Yet more recently the Commission has apparently stepped up its activities. In spring 1994 it issued a "public call for proposals" explicitly eliciting the private enterprises to identify such fields and cases in which they see themselves overburdened by public administration related regulations and responsibilities (such as the provision of statistical data) (see Unabhängige Kommission 1994). A Commission report is scheduled for the end of 1994. Second, in a similar vein, but with a much wider deregulation mandate, the conservative-liberal coalition government, after having been reelected in 1986, set up, in 1987, another "Independent Commission of Experts to examine prevailing regulations of economic activities and to make recommendations for the reduction of regulations which are inimical to market forces" ("Deregulation Commission") (see Deregulation Commission 1991: 3). With its nine members made up of three professors of economics, four representatives of the business sector and one representative of the trade-unions, the Commission in March 1991 delivered a 500 pages report with almost one hundred proposals on deregulating in wide gamut of sectors, including insurance, transport, electricity industry, the markets for legal advice, tax auditing and chartered accountancy, the crafts, and the labor market (see Deregulation Commission 1991). As about half of the Commission's proposals have in the meantime been effected legislatively or otherwise, the Commission can be judged remarkably successful with the qualification that a good deal of its recommendations fell in line with, and preempted deregulation demands from Brussels. Reorganizing federal administration. While there has been conspicuous, if not unprecedented dynamism on the federal level with regard to redefining the range of public sector activities and the scope of governmental regulation, little movement has become visible in internally reorganizing the federal governmental and administrative structures. Thus, the formation of the cabinet by the incumbent conservative-liberal coalition re-elected on October 16, 1994 with a slim parliamentary majority has not produced any impetus for a review of the federal governmental and administrative structures. There is some prospect though that the transfer of the governmental functions from Bonn to Berlin scheduled for the late 1990s will necessarily act as lever to induce long postponed organizational reforms, one of the reasons being that, as a result of the compromise meant to soothe Bonn as the outgoing federal capital and comfort Berlin as well, only the "core" functions (and personnel) of federal ministries will be moved to Berlin while "operative" functions (and personnel) will remain in Bonn. In this connexion it is worth mentioning that in December 1993 Friedrich-Ebert-Stifiung, a political foundation closely linked to the Social Democratic Party, published

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a report, authored by two well-known administrative reform experts, on the "future structure of the federal government and federal administration" (see Eichhorn/Hegelau 1993). Inter alia, the report proposes to limit the responsibilities of the federal ministries proper to their political, conceptual etc. "core" function, while delegating operative functions to administrative agencies subordinated to the ministries; furthermore it was suggested to "flatten" the ministries' hierarchy altogether by abolishing the "sub-division" level as one of the three traditional intra-ministerial administrative levels (division, sub-division, and section) and by widening the scope of responsibilities, and ensuingly reducing the number, of the sections (Referate) as the bottomline units. As the Social Democrats under Rudolf Scharping are bracing themselves for an offensive parliamentary opposition role, this issue will very likely be on the political agenda.

4.2

Länder Level

Whereas on the federal level the debate about public sector modernization has thus focused on "privatization" and, to some extent, also on "deregulation," the issues of public sector reform have been taken up by a number of Länder governments on a broader scale, probably also reflecting the fact that, within the FRG's constitutional division of functions, it is the Länder that carry the lion's share of administrative functions. Thus, a number of Länder have been setting up reform commissions and special task forces meant to give new momentum to public sector modernization.14 As a case in point may serve Land Schleswig-Holstein where a "think tank unit" (Denkfabrik) was set up in the Prime Minister's Office (Staatskanzlei) in 1988 (see Jann 1993: 82) with the mandate to take a conceptual lead in the administrative reform process (see Jann 1993: 82). At the same time, the Land government appointed an inquiry commission on administrative reform, comprising practitioners as well as specialists from academia, which completed its report in October 1994. In a similar vein, linking up with its earlier reform activities primarily directed at deregulation, the Land of Nordrhein-Westfalen recently focused on revamping the vertical organizational scheme of the Land's administrative levels, obviously responding also to the challenge from the European Union integration process that calls for redefining the function of the "regions" (see Hill 1993: 30). 14

See Derlien (1993: 5) with references; for a (selective) commissions etc. see Hill (1993: 32-33).

overview

of

recent

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Whereas Berlin public administration, as already mentioned, had hardly responded to the in part far-reaching recommendations with the Inquiry Commission on Public Administration appointed by Berlin's Parliament in 1982 hade made in 1984, Berlin's government has most recently lauched an ambitious modernization drive geared to introducing an economicly oriented management system both in central level and in city district level administration in what Berlin's government has called "the perhaps biggest project to renew public administration ever undertaken in Germany" (quoted from [Berlin] Landespressedienst, September 23, 1994). The reunification of the two Berlins in the wake of German Unification and the foreboding of a possible merger of Berlin with Land Brandenburg have, it seems, given a new urgency and kick to fundamentally revamping Berlin's bureaucratic apparatus that had become overstaffed and sluggish during Berlin's post-war history as a walled in, federally pampered city.

4.3

Local Level

Most of all, however the recent upsurge in the organizational reform debate has focused on the county (Kreis) and municipal authorities which operate as the front-line and bottom-line of public administration either performing administrative functions and providing public services in their realm of "local self-administration" (kommunale Selbstverwaltung) or implementing federal and Länder legislation and programs in a delegated function. A number of factors and actors have converged in giving the administrative reform issue such a high profile on the local level agenda. It is again KGSt and its director Gerhard Banner that have been instrumental in calling, under the programmatic heading of a "new guidance model" (neues Steuerungsmodell), for an all-out modernization drive in local administration. Drawing on the international "New Public Management" debate and picking the Dutch city of Tilburg as its guiding star and shibboleth ("Tilburg Modell"), KGSt has been diffusing and propagating its modernization message hinging on performance-oriented budgeting, decentral resource management, controlling, organizational development and personnel development (see Banner 1993). Remarkably enough, another reform push came from the Trade Union of Public Employees (07V) which, with its Chairwoman Monika Wulf-Mathies playing crucial role in launching a campaign "Future through Public Services" in 1988, chose and funded local projects in order to test and demonstrate the feasibility of pro-active reform measures (" Gestaltungsprojekte" ) (see Wulf-Mathies 1991, Simon 1993).

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In this context, mentioning should be made of the reputed Academy of Public Administration (Hochschule fìir Verwaltungswissenschafìerì) in Speyer that in early 1992 set upon organizing a so called "quality competition" meant to single out, and give a prize to, public authorities with an outstanding administrative performance (see Hill/Klages 1993). This competition certainly contributed significantly to give to the modernization of public administration more salience in the ongoing debate. A second round of competition is presently under way. Furthermore, reference should be made to Bertelsmann Foundation which, downright demonstratatively joining ranks with ÖTV, made public administrative reform one of its focal programs. In a widely publicized activity, Bertelsmann Stiftung in late 1992 and early 1993 organized an international competition bidding a prize for the administrative most innovative municipalities (see Bertelsmann Stiftung 1993). As a US city (Phoenix, Arizona) and a New Zealand town (Christ Church) were the front prize winners, while German cities fell behind, this was seen by many as a menetekel with regard to international competitiveness of Germany's public administration. In the meantime, some 70 municipal authorities and a number of county authorities have embarked upon reform concepts related to New Public Management ideas. Yet, in most cases, such reform initiatives, for instance in introducing elements of decentral resource management, have so far been tackled in marginal (such as municipal zoos, or municipal cultural facilities) rather than in key areas of municipal administration (such as social administration, youth administration etc.). In a number of municipalities and counties, however, ambitious and comprehensive reform strategies, including such key areas of local politics and administration, have been developed and pursued. 15

5

German Unification and Administrative Reform

As this article is to deal with the different concepts and waves of administrative reform during the FRG's administrative history, the wholesale reconstruction of public administration which has been under way in East Germany following Unification will not be dwelt upon her, because it was basically geared to an "institution transfer (see Lehmbruch 1993) from West to East," that is, to an application, if not imitation of the administrative

15

For a number of examples and cases, see Reichard (1994b: 67).

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blue-prints as transferred from the "old" FRG. 1 6 Insofar as these West German organizational blue-prints and administrative procedures need to be seen as outmoded and requiring modernization, it is fair to argue that thus already outdated organizational schemes have been transferred from West Germany to East Germany instead of using the reconstruction of public administration in East Germany as an opportunity and ground for administrative innovation and experimentation (see Hill 1991). It remains to be seen whether this development can be rectified in the foreseeable future. Yet there is evidence that, while "new public management" concepts are in the meantime being taken up and pursued by many West German municipal and county authorities, they remain largely ignored by their East German counterparts. Confronted with an unprecedented problem-load and with the more elementary task of putting a viable administration into place, it may seem to them to be too risky, if not extravagant to embark upon administrative innovation and experimentation.

6

Concluding Remarks

When trying to summarize the admistrative reform development in (West) Germany over the last 25 years, three features may be highlighted as grosso modo characterizing the development: - continuous/sequentially cumulative - incremental - vertically and horizontally fragmented. Continuous, sequentially cumulative: While it is true that the (short-lived "social liberal") reform period of the late 1960s and the early 1970s, on the one side, and the current period (since the late 1980s) stand out as "waves of change" (measured by the high profile of the reform discourse as well as by the level of activities), the institutional changes once effected were, to a large extent, carried over into the next phase. (The build-up of planning units and personnel that, after planning elapsed, continued to ensure the analytical, evaluative etc. function in public administration serves as an example). The same applies to certain "messages" which, once introduced, remained in the administrative minds and discourse (such as Aufgabenkritik, 16

See Reichard/Röber (1992). For the most comprehensive treatment yet of the administrative transformation in East Germany see Seibel et al. (1993). For an overview see Seibel (1993); with a focus on the local level Wollmann (1994a).

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"citizen-orientation"). Looked upon under "developmental" auspices, the development can be seen as a long-term learning process, of institutions and persons, in which, often hidden and veiled behind new terminology, earlier conceptual and institutional innovations are being carried on, transformed and adapted. (The current "new public management" debate serves as a case in point) (see Wollmann 1994). Incremental: Notwithstanding the "leaps" in which administrative reform moved forward over the last 25 years (with one "leap" in the late 1960s, the other currently), the reform movements have been, by and large, "incremental," particularly as compared to other countries, first of all the U.K. Two reasons may essentially account for this: - First, particularly in the "leap" periods, the reform drives were inspired by the widespread conviction that the public sector and the public administration showed difficiencies which called for immediate repair and reform. Yet, a number of indicators apparently suggested that "radical" reforms were not needed. One indicator, addressing the "leanness" of public administration in a given country, may be seen in the percentage which the general government employment makes up in a given country as compared to the total employment. If one leaves out Japan as a country with an exceptionally small percentage of government employees, (West) Germany has one of the smallest percentage among other major industrial countries, most clearly at the end of the 1960s (Germany 11.1 percent, France 17.6 percent, U.K. 18.1 percent, Italy 12.3 percent, USA 16 percent, Japan 7.7 percent) and still, albeit with closer margins, in 1989 (Germany 15.4, France 22.7, U.K. 19.5, Italy 17.3, USA 15.1, Japan 8.2 percent) (see OECD 1990: 49). On the same token, many observers, including international experts, found themselves, at least until recently, in broad agreement on the, by international standards, high quality of (West) Germany's public administration and civil service/public personnel (see Naschold 1993: 15). - Second, despite all differences in their political and ideological rhetoric, the two major political parties have demonstrated considerable common ground particularly when it came, in real terms, to decide about public sector and public administration issues. The government shift in 1982 serves as a case in point. While the incoming Christian Demo-crat led conservative-liberal government under Chancellor Helmut Kohl in fact did bring about the proclaimed "turnaround" ("Wende") in its policies (incidentally linking up with policy changes already embarked upon by his predecessor, Social Democrat Chancellor Helmut Schmidt, in a "turnaround preceding the turnaround"), the new government refrained from undoing organizational reforms as well as from, say, a noticeable

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privatization drive. There are good reasons to assume that, with regard to question what are the tasks and responsibilities of the "modern welfare state" and how it should be run, in other words, with regard to major "polity" issues, 17 there is significant commonality between the Christian Democrats and the Social Democrats at least in real terms, that is, beyond political rhetoric, both probably drawing on and rooted in the German state and administration tradition (see Wagner/Wollmann 1986: 216-217). - Thirdly mentioning should be made of the FRG's decision-making mechanism which, shaped by the party system with mainly two major parties both vying for the "voter in the middle," by federalism and neocorporatism, has carped out, over its 40 years history, a "middle of the road" decision making pattern which is conducive to "incremental" rather than politically "radical" and aberrant decisions.18 Vertically and horizontally fragmented: Finally the development of administrative reforms in the FRG's politico-administrative system is characterized by the fact that, because of its constitutional set-up as a two tiers federal system with a strong local government level, it does not have one level, locus or agency by which a comprehensive reform or modernization masterplan might be formulated, issued and even imposed upon the given political system altogether. Instead, reflecting the vertical and horizontal fragmentation of the FRG's political system, the administrative reform initiatives have been seized and pursued on each level — federal, Länder, and local — quite separately, albeit influenced, of course, by the same socioeconomic or international contexts or also mutually influencing each other. As the developmental sketch has shown, this has led, not only vertically, but also horizontally, that is, between Länder and between counties and municipalities, to a considerable conceptual and institutional differentiation of reform drives and measures in substantive, time, pace and implementation. At the same time, the multitude of levels, sectors and actors, pursuing reform initiatives and strategies within a significant scope of autonomy, has not only provided for a remarkable scale and variety of reform projects, but has also for some continuity in that, different from a situation in which decentral reform activities can be turned on and off by a central fiat, decentral reform projects, decided upon and implemented in a central context and within the specific decentral reform "logic," have a chance to survive and to mature, sometimes for a decade and more, as municipal administrative reform projects in the social administration field evidence (see Bönker/Wollmann 1996). 17 18

For the distinction between "policy" and "polity" issues see also Derlien (1993). For that debate see BlankeAVollmann (1991), M. Schmidt (1991), Wollmann (1991).

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References Aberbach, Joel D./Putnam, Robert D./Rockman, Bert A. 1981, Bureaucrats and Politicians in Western Démocraties, Cambridge (Harvard University Press). Banner, Gerhard 1993, Steuerung kommunalen Handelns, in: Roth, Roland/Wollmann, Hellmut (eds.), Kommunalpolitik, Opladen (Leske & Budrich), pp. 350-361. Bebermeyer, Hartmut 1974, Regieren ohne Management?, Stuttgart (Bonn aktuell). Bertelsmann-Stiftung 1993, Dokumentationsband zur internationalen Recherche, Gütersloh. Blanke, Bernhard/Wollmann, Hellmut (eds.) 1991, Die alte Bundesrepublik, Opladen (Westdeutscher Verlag). Bönker, Frank/Wollmann, Hellmut 1996 (forthcoming), Social Service Reform in Germany in Perspective: in: Journal of European Public Policy. Buse, Michael J. 1975, Einführung in die Politische Verwaltung, Stuttgart (Kohlhammer). Deregulation Commission 1991, Opening of Markets and Competition, A Report presented to the German Federal Government in March 1991 (Translation of the original German version), Bonn (Bundesministerium für Wirtschaft). Derlien, Hans-Ulrich (ed.) 1985, Programmforschung unter den Bedingungen einer Konsolidierungspolitik, Munich (Gesellschaft für Programmforschung). Derlien, Hans-Ulrich 1988, Innere Struktur der Landesministerien in Baden-Württemberg, Baden-Baden (Nomos). Derlien, Hans-Ulrich 1993, German Administrative Reforms in Perspective, unpublished paper. Dieckmann, Rudolf 1984, Bilanz der Aufgabenkritik und Sparmaßnahmen in der Hamburger Verwaltung, in: Hellstern/Wollmann (1984), pp. 179-214. Eichhorn, Peter/Hegelau, Hans Joachim 1993, Zur künftigen Struktur von Bundesregierung und Bundesverwaltung, Bonn (Friedrich-Ebert-Stiftung). Enquete-Kommission zur Verwaltungsreform 1984, Schlußbericht vom 30.5. 1984. Drucksache 9/1829 des Abgeordnetenhauses von Berlin vom 21.6.1984, Berlin, Abgeordnetenhaus von Berlin. Fromm, Günter 1994, Die Reorganisation der Deutschen Bahnen, in: Deutsches Verwaltungsblatt, vol. 190, no. 3, pp. 187-195. Hauschild, Christoph 1991, Die Modernisierung der Öffentlichen Verwaltung im internationalen Vergleich, in: Verwaltungsarchiv, 82, pp. 81-105. Hellstern, G.-M./Wollmann, H. 1984, Evaluierung und Erfolgskontrolle auf der kommunalen Ebene. Ein Überblick, in: Hellstern, G.-M./Wollmann, H. (ed.) 1984, Evaluierung und Erfolgskontrolle in Kommunalpolitik und -Verwaltung, Basel (Birkhäuser), pp. 10-59. Hesse, Jens Joachim 1972, Stadtentwicklungsplanung, Stuttgart (Kohlhammer Verlag). Hill, Hermann 1991, Effektive Verwaltung in den neuen Bundesländern, in: Neue Zeitschrift für Verwaltungsrecht, vol. 10, pp. 1048-1059. Hill, Hermann 1993, Verwaltungsqualifikation, in: Die Neue Verwaltung, vol. 3, no. 1, pp. 32-33. Hill, Hermann/Klages, Helmut (eds.) 1993, Spitzenverwaltungen im Wettbewerb, BadenBaden (Nomos). Jann, Werner 1993, Neue Wege in der öffentlichen Verwaltung, in: Hill, Hermann/Klages, Helmut (eds.) 1993, Qualitäts- und erfolgsorientiertes Verwaltungsmanagement, Berlin (Duncker & Humblot), pp. 77-95. König, Klaus (eds.) 1976, Koordination und integrierte Planung in den Staatskanzleien, Berlin (Duncker & Humblot).

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Kommission Neue Führungsstruktur Baden-Württemberg 1985, Bericht, Vol. II: Leitbilder, Vorschläge und Erläuterungen, Stuttgart (Staatsministerium des Landes BadenWürttemberg). Kommission zur Gesetzes- und Verwaltungsvereinfachung 1983, Gesetzes- und Verwaltungsvereinfachung in Nordrhein-Westfalen. Bericht und Vorschläge (edited by Thomas Ellwein), Düsseldorf (Innenministerium des Landes Nordrhein-Westfalen). Lehmbruch, Gerhard 1993, Institutionentransfer. Zur politischen Logik der Verwaltungsintegration in Deutschland, in: Seibel et al. (1993), pp. 41-66. Levine, Robert 1981, Program Evaluation and Policy Analysis in Western Nations. An Overview, in: Levine, Robert et al. (eds.), Evaluation Research and Practice, Berverly Hills/London (Sage), pp. 27-50. Levine, Robert A./Solomon, Marian A./Hellstern, Gerd-Michael/Wollmann, Hellmut (eds.) 1981, Evaluation Research and Practice, Beverly Hills, London (Sage). Mäding, Erhard 1974, Aufgabenkritik, in: Bauer, H./Knöpfle/Mäding, E. (eds.), Aufgabenplanung und Finanzplanung, Vienna, pp. 27-54. Mayntz, Renate/Scharpf, Fritz W. 1975, Policymaking in the German Federal Executive, Amsterdam (Elsevier). Naschold, Frieder 1993, Modernisierung des Staates, Berlin (Sigma). OECD 1990, Public management developments. Survey 1990, Paris. Pröhl, Marga 1993, Zielsetzung und Methodik der Preisvergabe, in: Bertelsmann Stiftung (1993), pp. 9-22. Reinermann, Heinrich 1992, Marktwirtschaftliches Verhalten in der öffentlichen Verwaltung, in: Die öffentliche Verwaltung, vol. 45, no. 4, pp. 133-142. Reichard, Christoph 1994a, Internationale Ansätze eines "New Public Management," in: Hofmann, M. (ed.), Neue Entwicklungen im Management, Heidelberg (Physica), pp. 165-194. Reichard, Christoph 1994b, Umdenken im Rathaus. Neue Steuerungsmodelle in der deutschen Kommunalverwaltung, Berlin (Sigma). Reichard, Christoph/Röber, Manfred 1993, Was kommt nach der Einheit? Die Öffentliche Verwaltung in der ehemaligen DDR zwischen Blaupause und Reform, in: Glaeßner, Gert-Joachim (ed.), Der lange Weg zur Einheit, Berlin (Dietz), pp. 215-246. Scharpf, Fritz W./Reissert, Bernd/Schnabel, Fritz 1976, Politikverflechtung, Königstein. Schmidt, Manfred G. 1991, Machtwechsel in der Bundesrepublik (1949-1990). Ein Kommentar aus der Perspektive der vergleichenden Politikforschung, in: Blanke, Bernhard/Wollmann, Hellmut (eds.), Die alte Bundesrepublik, Opladen (Westdeutscher Verlag), pp. 179-203. Schmidt, Susanne K. 1993, Reforming the Federal Postal and Telecommunications Services: The Second Wave, unpublished manuscript. Seibel, Wolfgang 1986, Entbürokratisierung in der Bundesrepublik, in: Die Verwaltung, vol. 19, pp. 17-41. Seibel, Wolfgang 1993, Zur Situation der öffentlichen Verwaltung in den neuen Bundesländern. Ein vorläufiges Resümee, in: Seibel et al.(1993), pp. 477-498. Seibel, Wolfgang/Benz, Arthur/Mäding, Heinrich (eds.) 1993, Verwaltungsreform und Verwaltungspolitik im Prozeß der deutschen Einigung, Baden-Baden (Nomos). Siedentopf, Heinrich (ed.) 1976, Regierungspolitik und Koordination, Berlin (Duncker & Humblot). Siedentopf, Heinrich 1979, Abschied von der Dienstrechtsreform?, in: Die Verwaltung, vol. 12, no. 24, pp. 457-478.

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Simon, Nikolaus 1993, Reform der Kommunalverwaltung als gewerkschaftliche Gestaltungsaufgabe: die Initiative "Zukunft durch öffentliche Dienste" (ZöD) der Gewerkschaft Ö T V , in: Kißler, Leo (ed.), Anders verwalten, Marburg (Schüren), pp. 4 1 4 6 . Thieme, Werner/Prillwitz, Günther 1981, Durchführung und Ergebnisse der kommunalen Gebietsreform, Baden-Baden (Nomos). Unabhängige Kommission für Rechts- und Verwaltungsvereinfachung 1994, Überprüfung von administrativen Pflichten für Unternehmen, Bonn (Bundesministerium des Innern). Willke, Christoph 1989, Institutionalisierung der Entbürokratisierung. Zur Fortsetzung der Rechts- und Verwaltungsvereinfachung in Bund und Ländern, in: Die Verwaltung, vol. 2 2 , pp. 3 3 3 - 3 5 1 . Wagner, Peter/Wollmann, Hellmut 1984, Fluctuations in the Development Evaluation Research: Do "Regime Shifts" Matter?, in: International Social Science Journal, no. 100, pp. 2 0 5 - 2 2 6 . Wittkämpfer, Gerhard W. 1991, Die Region als Verwaltungsreform in Deutschland und Europa, Eildienst L K T NW 1991, p. 212. Wollmann, Hellmut 1989, Policy Analysis in West Germany's Federal Government: A Case of Unfinished Governmental and Administrative Modernization?, in: Governance, vol. 2 , no. 3, pp. 233-256. Wollmann, Hellmut 1991, Vierzig Jahre alte Bundesrepublik zwischen gesellschaftlichpolitischem Status quo und Veränderung, in: Blanke/Wollmann (1991), pp. 5 4 7 - 5 7 4 . Wollmann, Hellmut 1994a, Kommunalpolitik und -Verwaltung in Ostdeutschland im Umbruch und Übergang, in: Roth, Roland/Wollmann, Hellmut (eds.), Kommunalpolitik, Opladen (Leske & Budrich), pp. 20-33. Wollmann, Hellmut 1994b, Evaluierungsansätze und -Institutionen in Kommunalpolitik und -Verwaltung. Stationen der Planungs- und Steuerungsdiskussion, in: SchulzeBöing, Matthias/Johrendt, Norbert (eds.), Wirkungen kommunaler Beschäftigungsprogramme, Basel (Birkhäuser), pp. 79-110. Wulf-Mathies, Monika 1991, Zukunft durch öffentliche Dienste, in: Wulf-Mathies, Monika (ed.), Im Wettstreit der Ideen: Reform des Sozialstaats, Bonn (Bund-Verlag), pp. 11-27.

II

Policy Arenas and Networks — A Comparative Policy Approach

Social Policy in Japan: Building a Welfare State in a Conservative One Dominant Party System Kuniaki Tanabe

1

Introduction

Inquiring into various types of development of welfare states is one of the main topics in recent comparative politics. Former studies that analyzed the development of welfare states from a socio-economic point of view emphasized a common pattern of welfare state building among industrial societies (Wilensky and Lebeaux, 1965). As the focus of analysis shifts to the functions of politics in formation of the welfare states, these studies emphasize the path dependency and the variety of developments (e.g. Esping-Andersen, 1990). In making social policy, imitation plays a more important part than innovation does. As a new policy in one country stimulates another country's imitation of the same policy, sets of social policy assimilate among industrial societies. The salient difference between various countries lies not in the content of their policies, but in the timing of their adaptation and the priority ranking among them. We can classify the developments of welfare states into two types; one is the English type where the welfare system has been formed centering around a policy of public assistance, and another is the German type where the social insurance system has played a central role. The first, English type is one in which a public assistance system was built at the beginning and other policies followed it. Therefore the primary purpose of social policy rests on eliminating poverty and establishing a national minimum living standard. As the main purpose of social insurance is to maintain the national minimum, the level of benefit is a flat rate that affords people a life of the minimum standard. These social policies resluts in a dual social stratification that is composed of two social strata; one that is located below the poverty line and is the target of national social policies, and another that is above the national minimum with people earning their living in the market economy. In this type of social state, social stratification

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is structured according to people's income level, and the market economy and the social economy created by the governmental transfer system are segmented. The second, German type is a welfare state that is based on the principle of social insurance. The social insurance system introduced by Bismarck to cut laborers off from the influence of the Social Democrat Party, has determined the orientation of development of the German welfare state. The feature of this social insurance is compulsory contribution according to wage, and its main purpose is to stabilize the social status of laborers organized along the line of their craft unions. As this principle has been applied to the insurance system in which contributions and benefits have been related to income, the inequality of wages among these craft unions reappears after retirement. German social policy, developed centering around social insurance, has reproduced social strata organized according to craft unions. One main problem of building a Japanese welfare state was how to mix and integrate these two different systems. To catch up with the standard of an advanced welfare state was imperative for Japanese welfare state building. The first theme of this article is to analyze the structure of this integration. The second theme is to study the relationship between social policies and social stratification in Japan; what social stratification it presupposed as policy basis, and how the structure has changed. In analyzing the Japanese welfare state, the following two aspects are important. The first aspect is the relationships among various social policies. The Japanese social security system mainly consists of three types of programs, these are, public assistance programs, social welfare programs, and social insurance programs. Around these core programs, medical and public health programs are located as shell programs. The structure of the welfare system is prescribed by the priority among these programs and by the timing of these programs' introduction. Not only "policy legacy" that marks hysteresis effects upon the development of a particular policy, but also "inter-policies legacy" whose effects go beyond the confinements of one policy area and prescribe developments of several policy areas, is a subject of analysis. In Japan, the social security system has been build centering around the public assistance program. Formation and reformation of the social security system in which the income maintenance program is at the core is the central theme of development of the Japanese welfare state. The second perspective emphasized in this article is cognition of the social stratification on which the social security system is built. Although each social program in this system was legislated as a measure for a specific social problem, it is integrated into the whole system by a shared cognition of social structure. This social cognition, especially that of causes of poverty,

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has provided a principle to integrate specific policy programs. The structure of social stratification prescribes the formulation of the welfare state. At the same time, social policy determines mobility between social strata and it either fixes or decomposes the social structure. In that sense, social policy and social stratification are linked by dual causalities. The Liberal Democrat Party, which was in power for a long time, was an intermediary in this linkage between social policy and social structure. One of the hypotheses verified in this article is that welfare state building in Japan has been dependent on the political ideology and the tactics of the conservative party. In this article, I analyze the formation of the Japanese welfare state from the view point of the relationship between several policy programs and of the cognition of social stratification. In the next section I present a conceptual frame to analyze the Japanese welfare state. Then, conditions that have effected social policy legislation are examined with Poisson regression models. I describe how each social security program was integrated into the whole system, and I evaluate the effects of social policy on income distribution using the Family Income and Expenditure Survey in Japan. After that, changes of social policy in the 1980s, when neoliberalism was the dominant spirit of the time, are analyzed. Conclusions are offered in the final section.

2

Analytical Framework

Welfare states can be analyzed from many points of view. Thus, it may be helpful to provide an overall framework to show how I will examine the formation of the Japanese welfare state. Figure 1 represents a framework formulating relationships between state and society. This formulation is similar to Easton's political system model (Easton, 1965), but the content and context are somewhat different. I focus on the making of social policies and their impact on society, rather the process by which policies are generated. This framework consists of three phases. The first is a production phase that transforms social needs into social programs. Social, economic and political environments condition the production of social programs. In this phase, a main theme is to examine what factors have facilitated social legislation and characterize the formation of a welfare state in the Japanese one dominant party system. The second is an integration phase in which each social policy is positioned in a comprehensive social security system. This system ranks the priority of each policy and allocates financial resources accordingly. One issue

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in the integration phase is to analyze principles of its formation and perspectives of social stratification that the Japanese social security system is founded on. The third is an outcome phase in which social policies have an impact on the welfare of individuals and society. It is said that social policy has three objectives, that is, (1) maintaining a minimum standard of living, (2) securing people from various social risks such as illness, aging, and unemployment, (3) eliminating social inequality by means of income redistribution. In this article, I focus on the third purpose of eliminating inequality and evaluate the impact of social policy on income redistribution. An advantage of using this model is that it shows the double relationship between social security system and society. Social policies are responses to social problems and are based on its cognition, but they have ian mpact on society and are used to restructure society. The focus of this article is on these two-way causalities.

System of Social Security (2) Policy Integration (1)

Policy Input

Policy Program

(3) Policy Outcome

Society

Figure 1 : Framework of the Development of Welfare State

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111

Analysis of Social Security Legislation

The political system in post-war Japan is characterized basically as a one dominant party system. This political structure survived almost 40 years from 1955 to 1993, and the Japanese welfare state has developed in this conservative political environment. During these years, various social policies were legislated for, and the repertory of social programs was widened. I examine factors that caused welfare expansion in Japan, and explain the formation of the welfare state in the dominant party system. A basic plan for the social security system was prepared by the Committee on the Social Security System in 1955, when the Liberal Democrat Party was formed. In 1962, this committee set out the basic guideline to rank priorities of several social programs and to integrate them. Therefore, the primary issue of formation of the welfare state was when and how this basic aim was to be accomplished. Political conflicts were not concerned with the basic contents of social policies, but with the timing of introducing these policies. The political process of introducing social security was not one of innovation, where new ideas were formulated and competed with each other and policy programs were selected from among several options, but was one of imitation, where basic policy ideas were already set and political parties were in competition with one another for their introduction. Figure 2 shows annual number of new laws for social programs, and Figure 3 displays the change in number including revisions. Figure 4 exhibits cumulative numbers of new laws in the three policy areas of public assistance, social welfare, and social insurance. Figure 5 shows the annual numbers including revisions in the three policy areas. Several possible causes of welfare expansion are suggested by researchers of comparative public policy. I use the factors presented by Harold Wilensky in his comparative analysis of social security expenditures (Wilensky, 1975). Although his analysis is concerned with cross-national difference of social expenditure, the determinants he listed can be adopted for a long-term welfare expansion in Japan. The first factor that causes welfare expansion is needs. It is the most straightforward explanation that new legislation for social security is a response to increased needs. According to this explanation, a drastic change of needs will bring about new legislation to handle the situation. The second factor is resources. In his study, Wilensky found a statistical relationship between the size of Gross National Product and the proportion of GNP devoted to social security programs. If we translate this result into time series analysis, it may be that social programs will expand rapidly in periods of high economic growth because of larger slacks of resources that are available for new policies.

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15

10

-

1946

1951

1956

1961

1966

1971

1976

Year Figure 2:

Number of New Social Laws

Figure 3:

Number of New Social Laws (Including Revisions)

1981

1986

1991

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Social Policy in Japan

Year Pulic Assistance H Social Welfare

•

Social Insurance

Figure 4: Cumultive Numbers of Social Laws

Figure 5: Numbers of Social Laws in the Three Policy Areas (Including Revisions)

We can add several potential factors of policy change within the political system, which facilitate or hinder intermediation of social demands into political decisions.

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The third factor is political competitiveness. It is assumed that the political structure in a party system affects social program policy making in two ways. First, political parties have distinctive ideologies that affect policy programs. When parties of the democratic socialist denomination are in a dominant position, it is expected that social policies are expanding. By contrast, the development of the welfare state is deferred, when conservative parties are in power. Second, although welfare expansion depends on the party in power, social programs are thought to be an effective means of attracting political support for the party. Social policies tend to be legislated for to increase public support for the party in power, when competition among parties is intense. But if political logic of another policy area such as the economic one is applied to the arena of social policy, welfare expansion is salient when the relative power of the Liberal Democratic Party is dominant. The fourth factor is the election schedule. It is argued that political parties adopt policies in order to win elections (Downs, 1957). As Tufte shows in his study of political control of the economy (Tufte, 1979), expanding social security is one of the easiest ways to achieve this goal. The political party in power legislates for social security programs in accordance with the electoral schedule. Thus, it is assumed that social policy legislation fluctuates with elections. In the following analysis, I will examine what factors have conditioned the formation of the welfare state with regression analysis using the annual number of social security laws as a dependent variable. We can assume that the generating structure of the annual number of laws is the Poisson process as the range of numbers is limited to non-negative integers. Thus, we cannot use an ordinary least square regression model. It is necessary to estimate coefficients with the Poisson regression model (King, 1988). The model to be estimated is specified as follows.

y¡ is subject to the Poisson process as follows.

expj-Si) 9? y,!

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The functional form o f f (x) is assumed as follows.

/

ßo+Σ

ßjxi

=θ-= /

ex

P Α + Σ xj \ j=0

The following indices are included in the model as independent variables. Firstly, needs of social security are represented as three variables, which are, (1) unemployment rate, (2) Gini index that measures social inequality of income distribution, (3) annual change of Gini index. These indices are included in the Poisson regression. Secondly, I use the economic growth rate as an indicator of surplus resources. It is assumed that high economic growth increases public finance to be allocated to social security programs. Thirdly, I include the percentage of seats of the Liberal Democratic Party in the House of Representatives as an indicator of political competitiveness. Fourthly, I add a dummy variable that takes 1 in a year when a general election is held and takes 0 when it is not held. The maximum likelihood method is used to estimate the coefficients. The results are presented in Table 1 and Table 2. Table 1 :

Estimation of Poisson Regression Model (numbers of new social laws)

Independent variables

Dependent variables (numbers of new social laws) Total

Intercept (Needs) unemployment Gini index Change of Gini index (Resource) growth rate (Political) % of LDP Election Log Likelihood Ratio Note:

-11.15** (2.74) 0.23 (0.46) 10.46 (4.96) 1.36 (17.62) 0.17** (0.07) 0.17** (0.04) -0.45 (0.39) -60.23

Medical -2.51 (3.00) 0.50 (0.48) -3.30 (0.48) 22.95 (16.98) 0.12 (0.06) 0.03 (0.50) 0.71 (0.40) -44.01

Standard errors appear in parentheses. Significant at 0.05 level, two-tail test. Significant at 0.01 level, two-tail test.

Social welfare -6.07 (3.03) 0.46 (0.48) ^.48 (6.42) 6.20 (17.51) 0.08 (0.07) 0.11* (0.05) -0.44 (0.44) -39.37

Social insurance -3.49 (3.16) 0.02 (0.52) 5.49 (6.61) 15.99 (19.11) 0.05 (0.07) 0.04 (0.05) 0.13 (0.40) -38.67

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We can point out some general patterns from this analysis. Firstly, increase of power of the Liberal Democratic party in the parliament accelerated legislation of social security programs. This implies that the formation of the welfare state in Japan is not the result of political competition between the conservative party and social democratic parties, and that democratic socialism has played little part in establishing social security programs. It is the Liberal Democratic Party, whose political position has been located on the most conservative side of the ideological arena, that has spurred the legislation of social programs. Table 2:

Estimation of Poisson Regression Model (numbers of social laws including revision)

Independent variables

Dependent variables (numbers of new social laws) Total

Intercept (Needs) unemployment Gini index Change of Gini index (Resource) growth rate (Political) % of LDP Election Log Likelihood Ratio Note: * **

-9.49 (4.67) -0.94 (0.70) 22.07** (9.45) 56.46** (17.61) 0.21** (0.08) 0.31** (0.07) -1.54** (0.60) -123.97

Medical -6.92** (2.95) 1.12** (0.42) -16.75 (5.84) -26.67 (25.72) 0.15** (0.06) 0.15** (0.05) 0.44 (0.46) -57.20

Social welfare

Social insurance

-8.46** (3.40) 0.46 (0.49) 7.19 (7.26) 41.14** (16.03) 0.17** (0.05) 0.12** (0.06) 0.42 (0.42) -52.82

3.44 (3.67) -0.99 (0.51) 29.99 (8.14) 39.90 (15.33) 0.10 (0.07) -0.09 (0.06) -0.41 (0.49) -61.32

Standard errors appear in parentheses. Significant at 0.05 level, two-tail test. Significant at 0.01 level, two-tail test.

The results of the regression analysis show that the timing of introducing social security programs has depended on political tactics of the Liberal Democratic Party rather than competitiveness within the party system. Its political process resembles an obstacle race, where the goal and the policy blueprint are predetermined, but the pace of introducing the policy is dominated by political circumstances. In the one dominant party system, no political forces except the Liberal Democratic Party could be found that functioned as intermediary of social needs in the political arena.

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Secondly, expansion of social policy depends on availability of resources. Social security programs were legislated for and revised when the economic growth rate was high and there was no shortage of public funding. Compared with another policy area, political priority of social programs was not high, as the opportunity of legislating them was limited by availability of resources. Thirdly, as presented in the regression analysis, social security legislation was urged when inequality of income distribution was enlarged. This implies that there was a political mechanism to maintain social equality of income distribution through expansion of social policies. It can be said that one of the political tactics of the Liberal Democratic Party was to avoid the expansion of income inequality while committing itself to the ideology of economic liberalism. Fourthly, comparing the results of new legislation and revision, it can be said that the political process of revision of social programs was much more restricted by changes in needs and resources than that of new legislation. In that sense, the timing of new legislation depended on more opportunistic factors, but once a program was set, it expanded in response to increasing needs and resources. In the formation of the welfare state in Japan, the content of the policy agenda was set by bureaucrats and specialist belonging to a governmental committee, referring to experiences of other industrial societies. A kind of "industrialism model," which assumed that industrialization would bring along the evolution of the welfare state according to its stage of economic and social development, was widely shared by political elites. Although bureaucrats and politicians had a common perspective of the direction in which the welfare state was to develop, deciding the timing of social legislation was monopolized by the Liberal Democratic Party and was determined by its political tactics. The Liberal Democratic Party has held the ideological orientation of economic liberalism, which contradicts the principle of a welfare state, and has not given high priority to social policy over other policy areas. The Liberal Democratic Party, however, tried to involve farmers and laborers working in small firms in the social security system, and managed social inequality of income distribution within certain limits. The party utilized social security as a tool of income policy to avoid abrupt changes of the social structure, and legislated social programs in tune with that purpose.

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Integration of Social Programs into a Coherent System

Social policy in post-war Japan started with an occupation policy of GHQ (General Head Quarter). In 1945, in its "On Relief and Welfare Plan" the GHQ demanded that the Japanese government implement a policy to alleviate social disorder and unrest. In this document, the GHQ mentioned three ideals that had to be satisfied when making social programs; that is, (1) implementation of social policy under governmental responsibility, (2) setting standard of benefits to maintain a minimum level of living, (3) equal treatment. It asked for the designing of a social welfare program and its implemention in accordance with these principles. Consequently, "An Outline of Emergency Assistance for the Poor" in 1945 and a "Public Assistance Law" were enacted, and the first substantial measure of social policy was established. However, as people right of claim and the level of public assistance was very low under this act, it was totally revised and a new act was implemented in 1955. This new act of public assistance established the foundation of the income maintenance system that has survived until today. The way this first social program was rebuilt after the war has prescribed the development of the Japanese welfare system. Firstly, in contrast to Germany, no strong tradition of social insurance existed in Japan. Thus, we could find no common tradition to be restored, when facing the task of reformulating the social security system. There was for more leeway regarding the choice of method for rebuilding the welfare system. Secondly, the occupation policy towards social security in Japan was different from that in Germany. Whereas in Germany the occupation forces demanded to rebuild the social security system centering around a social insurance system with a long tradition, in Japan they planned to form a system following that of the U.S. Thirdly, although the Japanese social security system was molded under the strong influence of the American system, the former was not to be a exact imitation of the latter. In the U.S., public assistance was directed to those who belonged to such specific categories, as old age, families with dependent children, and so on. In Japan, no specific categories were set, and all those whose incomes were below the poverty line were the target of public assistance policy. Adding to this difference, responsibility for public assistance policy rested with the central government in Japan, whilst in the U.S. local government, especially the state, was responsible for this policy. This first experience of building public assistance policy affected the developments of other social programs, such as social welfare, medical insurance, and public pension. Because the standards and principles of public assistance and the organizational channels to implement this program were

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projected upon other social programs, we can understand the development of the welfare state in Japan as the formation and dissolution of a policy system centering around the public assistance program. In the area of social welfare, the Child Welfare Act of 1947 and the Welfare Act for Physically Handicapped Persons of 1949 were enacted, and these acts set the foundation of this policy area. But these two welfare programs were considered to be special acts in their substances, whose contents were to provide public assistance to the two social categories of children and the physically handicapped in public welfare facilities. They were in fact a kind of extension of benefit under the public assistance program from cash benefit to allowance benefit. Following these acts, the Welfare Act for Mentally Handicapped Persons in 1960, the Welfare Act for Elderly Persons in 1963, and the Welfare Act for Widows with Dependent Children in 1964 came into force, and a social welfare system composed of six acts was established. However, it took a long time before these social welfare programs came to constitute an autonomous policy domain from the income maintenance policy. Firstly, these social welfare policies shared the organizational network of the district public welfare office, whose main task was to implement the public assistance program. Secondly, eligibility for social welfare was determined following the criteria of public assistance. Thirdly, the level of benefits was decided in accordance with that of public assistance. Consequently, it was relatively low compared with that in other industrial societies. Separating these policies from the public assistance program and establishing an autonomous domain for them proceeded in the latter half of the 1960s, when local governments initiated their own welfare programs such as free medical service for elderly people. An aspect of community was introduced into the area of social welfare, and the main purpose of social welfare programs was shifted from maintaining the minimum level of income to delivering social services corresponding to people's needs. The reformation of the social welfare system as a delivering system of social services centering around the elderly proceeded. In the area of social insurance, as the National Health Insurance Law in 1958 and the National Pension Law in 1959 were enacted, social insurance extended its coverage to those people who had not participated in the public system of medical insurance and pension. Since then, the social insurance system has been covering all people in Japan. The government decided to extend medical insurance coverage, because there were two kinds of inequality, i.e. widening income differentials between employees in large industries and those in small ones, caused by the development of a dual structure in the Japanese economy, and inequality of opportunity to receive medical care for employees of small firms in urban areas.

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Part of the background of enacting the National Pension Law was the existence of social classes, such as farmers and employees in small firms, who were loyal to the Liberal Democratic Party but did not enjoy the fruits of rapid economic growth in Japan. The extension of public pension to these social classes was a means of alleviating their discontent with rapid social change. The national pension thus established was composed of two systems. One was a noncontributory welfare pension system whose main targets were fatherless families, physically disabled persons etc. The other was a contributory pension system for those not covered by Employee's Pension Insurance such as farmers and the self-employed. The benefit level was not enough for them to maintain the same standard of living they enjoyed before retirement. It was limited to the level of minimum standard of living used by the public assistance program when both partners participated in the pension system and received the maximum amount. Therefore, this newly established pension system was not based on the purpose of stabilizing these people's income after retirement, but on maintaining the minimum standard of living. The principle and standard of public assistance policy were applied to pension policy, which failed to establish its autonomous policy domain. Thus, the development of the welfare state in Japan before the 1970s was the formation of a social security system centering around the public assistance program, and its main theme after the era of high economic growth was the restructuring of that system. The first comprehensive plan for the Japanese social security system was presented by the National Advisory Council on the Social Security System, which was an advisory council to the Cabinet mandated to carry on continuing independent study and review of all social security legislation before enactment. The title of this plan was "Recommendation Concerning the Social Security System," and the council urged the formation of a unified social security system that would provide financial security in areas of old age, unemployment, disaster and health as a basis for the public health and welfare of the nation. Establishing contributory public pensions was to be located at the core of the social security system in this plan, which they thought would be the best means of securing people's living against various social risks without destroying the sense of self responsibility. Public assistance policy would fulfill a supplementary role to public pension in this system. It was also supposed in this recommendation that "the social security system would have accomplished its ultimate purpose of when social insurance, public assistance, and public health were properly related to each other and managed in an unified way" (National Advisory Council on the Social Security System, 1955). This orientation of the plan was altered by the actual development of social policy centering around the public assistance program. We can see the

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change of orientation in "Recommendation on the Total Coordination and Improvement of the Social Security System," presented by the National Advisory Council on the Social Security System in 1962. In this recommendation, the council classified three social classes which were the objects of social programs, and it allocated social insurance, social welfare, and public assistance to these three classes. The first class consisted of ordinary people living above the poverty line. To maintain the income level of this class, it was thought to be necessary to develop social insurance and pension systems and to reduce social risks they faced. Old age pension and health insurance were to be the two main programs in this regard. The second class were people whose income level was close to the poverty line, such as elderly people, fatherless families with dependent children, and physically handicapped people. It was thought that these groups were vulnerable to economic recession and should be maintained by governmental aids. For these groups, extension of social welfare programs were necessary to prevent them from falling down into the poverty class. The third class consisted of poor people whose income level was below the poverty line. Income maintenance policy was regarded as the most effective measure for this class. These policy programs could not be expanded at the time because of financial limitations. Therefore, the public assistance program was given precedence over other programs. Improving the guaranteed minimum standard of living and eliminating poverty were the most urgent tasks at that time. After the expansion of the public assistance program, social welfare policy, which was directed at the lower income class with a high risk of falling into the poverty class, was to be developed. Even though social insurance was planned to be at the core of the social security system, it was to be extended only after accomplishing economic growth. In fact, the social security system in Japan has been developed in conformity with this recommendation. Though public assistance was given priority among these three policies, the Ministry of Health and Welfare managed the policy so as to avoid rapid expansion of people supported. Whenever it appeared that the number of public assistance recipients was growing rapidly, the judgement of eligibility requirement tended to be rigorous and an explosion of welfare recipients was averted. The development of public assistance policy in Japan was different from that in the U.K., where recipients had expanded as public assistance functioned as a supplement to insufficient public pensions for the elderly.

122 Table 3:

Kuniaki Tanabe Three Tier Model of Social Security

Class category

Main programs

Ordinary class Lower income class Poverty class

National health insurance, Public pension Social welfare Public assistance

The first characteristic of this three tier system of social security is that it was constructed on classes that divide people according to their income level. It was considered that the crucial problem which the social security system had to deal with was poverty. Consequently, the Japanese social security system consisted of several policies whose main purpose was maintaining the income level. Medical insurance and pension systems were developed for ordinary people to cover social risks caused by diseases and aging. In this system physically handicapped persons, mentally handicapped persons, elderly people, and fatherless families with dependent children, constituted a lower income class that was prone to fall down into the poverty class. For these classes pecuniary and non-pecuniary benefits, and an interest-free loan fund were provided to maintain people's income level. For the poverty class, the public assistance system was to be developed to provide them with pecuniary and medical assistance to guarantee the minimum level of living. But welfare policies whose main purposes were not connected with maintaining income levels were not well developed. In Japan, policies dealing with the poverty class were the first to be installed, then policies whose main target was the lower income class followed, and lastly the national pension system and the medical insurance system were developed. In contrast to this creation stage, a reform of the social security system began in the areas of national health insurance and public pension in the 1980s. Then reforms of policies dealing with the lower income class or the poverty class followed. The course of institutional reform was the reverse of that of establishing the system. Welfare reforms in the 1980s were not based on the three tier model that the National Advisory Council on the Social Security System had presented in its recommendation. They abandoned this model, in which each program was connected to each class categorized by income levels. Firstly, the social security system of the 1980s no longer uses income classes as its main categories. For example, elderly people are not categorized as lower income class, but as people with various needs. The primary rationale behind social policy now is not that elderly people are vulnerable to poverty because of their lower income, but that they are a group with

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various needs different from other age cohort group. Dimensions of policies have become pluralistic corresponding to the variety of their needs. Secondly, the main purpose of the social security system shifts from solving the poverty problem to satisfying the social needs that every one has to face during various stages of his or her life. As the objective of social security spreads from poverty class to middle class, measures of policies shift from maintaining income level by cash payment to delivering social services that are needed. Thirdly, in contrast to the former social security system connecting each class to a particular social program, a main theme of the new system is to integrate medical, pension, and social welfare programs. It is necessary to apply a blend of policy measures to people with diversesocial needs. Fourthly, the relative weight of the social welfare program has declined in the overall social security system. Especially, the public assistance program that had been located at the core of the governmental social security system has diminished in weight. The three tier model of the social security system, which connected social stratifications classified by income with social insurance, social welfare, and public assistance policy, was broken down, as social insurance and social welfare formed an autonomous domain and was freed from the principle and standard of public assistance policy. However, complementarity among these three policies has increased at the street level where bureaucrats face the public and apply these policies.

5

Impacts of Social Policy on Social Stratification in Japan

Governmental policy is a response to social demands. But the relationship between state and society is not a unilateral one. Policy implemented by a state changes the structure of its society. If we examine social policy in Japan, we have to assess its impacts on Japanese society. One of the aim that the social security system pursues is equalization of life chance, and the life chance is influenced by availability of income. The social security system tries to equalize people's life chance by redistributing their income and changing the social structure. The equalizing effects of social security on society can be evaluated through changes of the Gini index. Time series data of the Gini index in Japan using the Family Income and Expenditure Survey is presented in Figure 6. As indicated in this figure, inequality of income in Japan expanded until 1961. It was then reduced during the era of rapid economic growth, but this trend of income equalization was again reversed from 1974, when the oil

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shock shook the Japanese economy and forced its restructuring. The figures show that the Gini index has been rising and the income differentials among social classes have been widening since then. As the fluctuation of the Gini index shows, equalization of income distribution proceeds when the rate of economic growth is high. In this economic situation, demand of labor exceeds its supply and the wage differential between large industries and small ones is reduced. Economic growth has constituted the mechanism of redistribution in Japan. This relationship between equalization of income and economic growth is verified by a regression analysis. It is demonstrated by the following equation. (Numbers in the parentheses are standard errs.)

Year — Pre-Transfer

Post-Transfer

Figure 6: Gini Index of Pre and Post Transfer

AGini = 0.000335 - 0.00078 GROWTH Rate (0.01037) (0.00047)

R 2 = 0.076

This equation indicates that a 1 percent increase of economic growth reduces the Gini index by 0.00078 points, and that the equalization of income distribution proceeds if the rate of economic growth is above 4.3 percent. Because this relationship existed in the Japanese economy, no ideological conflict in the Liberal Democratic Party between economic liberalism and prevention of expanding income inequality was revealed. Equalizing effects of the tax system and the social security system are indicated in Figure 7. The values in this figure are calculated as follows.

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(Gini index in Pre - Transfer - Gini index in Post - Transfer) ° 100 Gini index in Pre - Transfer The changes in this improvement index show that the redistributive effects of these tow systems decreased from 1954 to 1961 and then increased until 1967. In the latter half of the high economic growth period from 1968 to 1974, the effects grew weaker again. Since 1975, the redistributive impact on society has been consistently increasing. Although the inequality of income distribution in Japanese society has been expanding, the alleviating effect of the redistributive mechanism also has become stronger. We can break down the Gini index into components of income to evaluate the redistributive effects of the tax system and the social security system.

Year

Figure 7: Improvement of Inequality

The break-down of the Gini index into its components is formulated as follows. G = ΣΘ; G; = 0,G, + 6 2 G 2 + 0 3 G 3 + 0 4 G 4 G t : Quasi-Gini Index of Income Distribution in Post-Transfer G 2 : Quasi-Gini Index of Tax G 3 : Quasi-Gini Index of Social Security Contribution G 4 : Quasi-Gini Index of Social Security Benefits θ-1, θ-2, θ-3, Θ-4: Relative Weight of Each Component

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As indicated by the above formula, the Gini index is broken down into products of quasi-Gini indices that measure the degree of inequality of each income component and its relative weight. Changes of quasi-Gini indices and relative weights are presented in Figure 8 and 9.

Figure 8: Changes of the Quasi-Gini Indices

Figure 9: Changes of Weights

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Secondly, the relative weight of social security contribution has been consistently increasing. But the level of its quasi-Gini index shows that distribution of social security costs has had little effect on the equalization of income distribution. Its change in figure 8 indicates that the redistributive function of social security has been declining and it has been contributing to the widening of the inequality of income distribution since the oil crisis. Thirdly, the relative weight of social security benefits gradually declined until 1974, which marked the end of rapid economic growth and was also called "the first year of welfare." Since then it has been increasing. The quasi-Gini index of social security benefits decreased until 1964, and has been fluctuating since then. Equalization of social security benefits among social classes have been proceeding, as universal coverage of social security pension and medical insurance has been introduced and the level of benefits has been improved. To sum up, the expansion of redistributive effects on income distribution has been contributed to by tax and social security benefits. The distribution of social security cost has been in proportion to that of initial income, and has had little effect as a mechanism of income redistribution. The expansion of the redistributive effect of tax and social security benefits has not been due to changes in the progressive structure, but to the increasing weight of these categories in total income. The increased effect of equalization in the income transfer is not the result of improvement of quality within the system, but the result of quantitative enlargement of the system itself within the national economy. So far, I have analyzed the static character of income transfer system in Japan. Next, I will probe the dynamics of these systems through regression analyses. The results are presented in Table 4. Three dynamic traits of these systems can be indicated. Firstly, the equalizing effect of the income transfer system becomes more pronounced as income distribution in the Japanese society becomes more unequal. This expansion of redistribution is due to the change of distributive structure of income components, and not due to that of relative weight in total income. These results are indicated, because the coefficient is 1.8 and is above 1 when we regress the Gini index of income transfer to that of total income in pre-transfer. Secondly, if we compare the tax system with the social security system, the tax system stabilizes income equality more than social security does. This result is based on the regression analysis, in which the coefficient is 1.5 in the equation of tax and 1.1 in the equation of social security cost. Thirdly, as indicated by the results of regression analysis in which the coefficient is 2.3, the distribution mechanism of social security benefits accelerates the inequality when inequality in the Japanese society is growing.

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Table 4:

Inequality of Income and the Change of Income Factors

Dependent variables

Gini index of transfer Gini index of tax Gini index of social security contribution Gini index of social security benefit Weight of transfer Weight of tax Weight of social security contribution Weight of social security benefit Note: *

Independent variables Intercept

Gini before redistribution

R2

-0.021 (0.024) 0.056 (0.039) -0.041 (0.011) -0.354 (0.055) 0.174 (0.035) 0.051 (0.019) 0.097 (0.012) 0.014 (0.005)

1.843* (0.096) 1.538* (0.155) 1.144* (0.049) 2.353* (0.215) -0.258 (0.138) 0.065 (0.076) -0.250* (0.055) -0.018 (0.023)

0.902 0.715 0.934 0.753 0.082 0.018 0.352 0.016

Standard errors appear in parentheses. Significant at 0.05 level, two-tail test.

The long term expansion of the equalizing effect of income transfer is due to the increasing relative weight of tax in the total income, as mentioned before. But in regard to short term fluctuation of inequality in Japanese society, the changing progressive structure of tax functions as an alleviating mechanism. In contrast to this, social security has been subject to the same fluctuation of total income distribution, and its impact on social structure has not been on a large scale. As indicated by these analyses, the income transfer system in Japan has been established centering around tax rather than social security. The redistributive effect of social security is small in comparison with the tax system. While the tax system has functioned as a mechanism of income equalization statically and dynamically, the social security system has not improved equality in Japanese society. Only when inequality was expanding rapidly, it functioned to alleviate social inequality. We can conclude that the social security system in Japan has not driven the equalization of social structure, but it has helped to maintain the level of equality in Japanese society and has prevented dualistic division of the society caused by a rapidly changing economy.

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Conclusion

This article has explored the reciprocal relationship between state and society in the area of social policy in Japan. We have analyzed the development of the welfare state from three perspectives, i.e. (1) the making of social policy, (2) the integration of social programs into a coherent system, and (3) the impact of social policy on society. In this concluding section, I summarize the propositions derived from the analyses. - The welfare state in Japan has been developed under a one dominant party system. The dominant party, the Liberal Democratic Party, has not given high priority to social policy. But as a kind of "Industrialism Model" of welfare development was shared by political elites, the style of consensus politics dominated the making process of social policy. - Although a comprehensive plan for a social security system was established at an early stage, the timing of introducing particular social programs was determined by political tactics of the Liberal Democratic Party. Whenever there were financial resources to spare, and the Liberal Democratic Party dominated the parliament, new legislation for social policy tended to be introduced. - Social policy was introduced and extended, when social inequality of income distribution was increasing. The Liberal Democratic Party used social policy as a kind of income policy to avoid rapid differentiation of social stratification. - The Japanese social security system was established centering around the public assistance program, which preceded social insurance and social welfare programs. This system divided people into three income classes, and connected each class to one program, i.e. of social insurance, social welfare, and public assistance respectively. The formation of the three tier model of a social security system and its subsequent dismantling has been the central issue of building a welfare state in Japan. - As the public assistance program was located at the core of social security in Japan, maintaining and improving the national minimum of living standard was a primary objective of social security. Consequently, it took a long time before the social insurance program and the social welfare established autonomous policy domains, and the expansion of social security was restricted until the oil shock in Japan. - In Japan, economic growth has had a substitutive function regarding social redistribution. Because of this subsidiary effect of economic growth, the ideological conflict between economic liberalism on one hand and maintaining the equality level of income distribution on the other, which

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was inherent in the Liberal Democratic Party's policy, was not revealed for a long time. - Social policy in Japan has had little redistributive effect, compared with tax policy. Although it has not functioned to improve equality among social classes, it helped to maintain the long term level of equality. This is because its equalization effect has been increasing whenever social inequality of income distribution was growing. This function of maintaining the long term equality level in society has been guaranteed, as a feedback mechanism was built into the political process, where social legislation has been activated in response to expanding income inequality in society. As indicated by these propositions, my conclusion is that social policy in Japan has neither influenced the functioning of the market economy, nor has it been influenced by it, compared with other industrial states. This separation of the social security system from the market system has been in conformity with the ideological orientation of the Liberal Democratic Party. Firstly, the share of social security expenditure in the national economy has been relatively small, because of the underdeveloped public pension system. Professor M. Feldstein has pointed out that in the United States the development of the public pension system has reduced the level of investment and has been an obstacle to economic growth. No such mechanism has been operating in Japan. Secondly, distribution of income in the market economy has not been much influenced by redistribution under the social security system, as is indicated by the fact that the Gini indexes of these two distributions have been at the same level. The structure of distribution in social security has not been so progressive to change total income distribution in Japanese society. Thus, no potential conflict between these two distributive mechanisms has been revealed. Thirdly, as the rate of unemployment in Japan has been low, social policy in Japan has not been influenced by the economic business cycle. Rather, as indicated above, the redistributive role of social security has been substituted for by the rapid economic growth. Thus, the economic market and the "social market" of the governmental income transfer system have been relatively autonomous and separate from each other. This separation of two markets has guaranteed a precondition in which the political tactics of the Liberal Democratic Party with its inherent ideological conflict between economic liberalism and equalization of income among social classes, have worked effectively. However, now the separation of these two markets has been eliminated. The reform of the social security system in the 1980s has been an adaptation to the change of relationship between economic market and "social market."

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Firstly, social security expenditure is expanding rapidly, and it has a share of about 20 percent of the total national economy. As a result, these two markets are no longer separate, and influence each other. For example, operation of the economy, such as the labor market and continuing of investment, is dependent on the institutional arrangement of public pension and health insurance. Administrative reform in the 1980s was based on a shared understanding of a trade off between maintaining a viable economy and expanding the welfare state. A functional interdependence between the social security system and the market economy system has now been established. Secondly, the government's monopoly of welfare supply has also been dissolved. In the aging society we have to face in the 21st century, the government will not be able to supply all social services by itself. Private firms and nonprofit organizations will enter the "social market" once monopolized by the government. The role of government in social welfare is shifting from supplying social service to coordinating several social service sectors. Thus, the separation of social security from the market economy is going to disappear on the macro-level of the national economy and on the microlevel of social service supply. The hidden theme of welfare reform in the 1980s was to establish a framework of interdependence between market economy and "social economy."

References Campbell, John C. (1992), How Policy Changes. New Jersey: Princeton University Press. Downs, Anthony (1957), An Economic Theory of Democracy. New York: Harper. Easton, David (1965), A Framework for Political Analysis, Englewood Cliffs: Prentice Hall. Esping-Andersen, Gosta (1990), The Three Worlds of Welfare Capitalism. Oxford: Polity Press. King, Gary (1988), Statistical Models for Political Science Event Counts: Bias in Conventional Procedures and Evidence for the Exponential Poisson Regression Model. American Journal of Political Science, Vol. 32, pp. 838-63. National Advisory Council on the Social Security System (1955), Recommendation Concering the Social Security System, Tokyo: Prime Minister's Office. National Advisory Council on the Social Security System (1962), Recommendation on the Total Coordination and Improvement of the Social Security System. Tokyo: Prime Minister's Office. Tufte, Edward R. (1979), Political Control of the Economy. New Jersey: Princeton University Press. Wilensky, Harold L. (1975), The Welfare State and Equality: Structural and Ideological Roots of Public Expenditure. Berkley : University of California Press. Wilensky, Harold L. and Charles N. Lebeaux (1965), Industrial Society and Social Welfare. New York: The Free Press.

State and Society in German Social Policy: "Path-dependent" Responses to New Challenges Adrienne Héritier

1

Introduction

In the recent past German social policy has been confronted with a threefold challenge. Structural changes in the economy accompanied by a shrinking labour force endanger the employment/contribution-based financial scheme of the social security system. Simultaneously, the changing demographic structure imposes new burdens on the social security system; thus the increasing average age of the population raised the need of a financial scheme for the long-term care mostly for the elderly. In addition to these two "endogenous" problems confronting the social security system, German unification presented the challenge of integrating Eastern Germany into the West German welfare state. The three parallel developments give rise to the question: In which mode has the German welfare state with its established principles responded to these new circumstances? Has the basic structure of the welfare state and its landmark, the institutional mix of activities of public and private organizations in producing benefits and services on an insurance basis, been affected by these simultaneous developments? Obviously, possible changes may only be assessed against the background of the "old" established system. Therefore, the argument will be presented in the following steps: First the typical features and principles of the German welfare state are briefly outlined along dimensions which have been developed in comparative welfare state analysis; in a second step the historical emergence of the social security system will be described in broad features. In a third step the attention focuses on the typical state-society relationships or public-private mixes under the various German social security regimes. In the last three steps eminent challenges with which the German welfare state has to cope are analyzed, each referring to a basic principle of the social security system and revealing a specific, "path-dependent" mode of response to new tasks. First, the shifting to the local level of the burdens of poverty caused by un-

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employment and migration processes to the local level are discussed; then the mode in which health care funds were established in the east is analyzed; lastly the introduction of a new type of insurance, long-term care, is discussed, a response to the needs of an aging population under conditions of shrinking revenues in social security systems.

2

Basic Features of the German Welfare State

With respect to the question dealt with in this volume, that is the role of the state in various policy fields in Germany and Japan, a classification of welfare states along six dimensions is of prior interest: Firstly, to what extent does the state itself provide and finance social benefits and services or to which extent do voluntary (church-based and other) associations, Quangos (quasi-non governmental organizations), the market, and families/households supply social services and benefits? If all of the aforementioned actors do, which is the specific nature of the relationship between state organizations and private actors? Secondly, to which degree do benefits depend on the occupational or professional status of the recipient? Or are they rather a matter of right in the sense of social (citizens') rights which are independent of occupational status, universalistic (as opposed to particularistic) in character? Thirdly, are benefits and services — and this is closely linked to the two preceding questions — financed on the basis of an insurance scheme and do they imply contributions and benefits/services which are earnings-related? If so, to what extent is redistribution sought by interrupting the link between contributions made and benefits paid? Or are benefits and services entirely tax-financed and granted regardless of income (in which case they reduce the commodity character of the labour force and the market dependency of individuals — Esping-Andersen 1990:21-23).1 If this is the case, to what extent does the tax-financed system contain redistributional elements? Relating to the questions raised above, the German welfare state may be qualified as a comprehensive benefit system which is stratified and mainly consists of compulsory social insurance schemes, due to the mandatory character of a rather extensive coverage (Döring 1987). As such it has been distinguished from the liberal-democratic/residual welfare states (Great 1

This classification modifies the typology of welfare states used by Esping-Andersen. Esping-Andersen does not take into account the aspect of particular interest here, that is the role of associations and church based organizations in shaping welfare services and benefits.

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Britain until Beveridge and the United States), from universalistic welfare states (Sweden) (Flora, Alber, Kohl 1977; Esping-Andersen 1990; Schmidt 1988) and from Japan with its focus on public assistance programmes (Tanabe in this volume). The stratified nature refers to the fact that the insurance regimes are closely linked to the labour market positions and earnings of their members. Insurance premiums as well as benefits are basically derived from income level. Put differently, social benefits must be "earned" in the labour market. Due to this dominating principle of equivalence ("you get what you pay for") combined with an insurance-based risk compensation mechanism (Schmähl 1994:171), Germany has been said to be primarily a welfare state for the employed ("Erwerbspersonen-Sozialstaat" — Schmidt 1988:159). As a result, the inequality of earnings in the labour market is largely reflected in the social benefit schemes (Esping-Andersen 1990:60), albeit weakened to some extent by redistributional elements. Thus one is entitled to equal treatment in case of sickness regardless of the premium levels paid. Or, a minimum pension is available which is independent of contributions paid. 2 The types of benefits provided under the various social insurance schemes are accident insurance, health insurance, old-age/disability insurance, unemployment insurance and, starting in 1995, long-term care insurance. The extent to which the German social security system covers risks such as old age/disability and sickness is quite far-reaching. Thus, in May 1994, 39,430,390 persons (in the old Federal Republic) and 11,058,603 (in the five new Länder) were insured in statutory health insurance funds ("Gesetzliche Krankenversicherung") (Federal Ministry of Health, Bundesarbeitsblatt 8/9/1994:156, 158). In 1992, the different health insurance funds had 80,438,000 members.3 I do not consider here the aspect of fiscal welfare which includes all tax measures with a social purpose such as allowing for tax credits depending on family size, etc. It was Richard Titmuss who distinguished between social welfare, fiscal welfare and occupational welfare (Titmuss 1963: 42) The percentages are based on the "Statistical Yearbook 1994" by the Federal Office for Statistics in Wiesbaden: Primary health insurance funds 32,889,000 = 40.9% Company-based health insurance funds 8,569,000 = 10.7% Artisans health insurance funds 3,511,000 = 4.4% Agrarian workers health insurance funds 1,386,000 = 1.7% Federal mining workers health insurance funds 1,796,000 = 2.2% Alternative health insurance funds 23,329,000 = 29.0% Private health insurances 7 , 1 3 9 , 0 0 0 = 8.9% Other health insurance 1,588,000 = 2.0% Not insured 232,000 = 0.3% In Total 80,438,000 = 100%

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Under the unemployment insurance scheme 25.133 million persons (in the west) and 7.282 million in the east (April 1993) or 89 percent of the employed population (and 81 percent of the employable population) were members of the statutory old-age and disability insurance fund ("Gesetzliche Rentenversicherung") (Federal Ministry for Work and Social Affairs, Microcensus, April 1993). Further, 22,177,500 persons or 61 percent of the employed (and 55 percent of the employable population) were covered by unemployment insurance (Federal Labour Office, May 1994). While the insurance regime constitutes the dominating feature in the German welfare state, there is also a "welfare regime" which originates from a public — relief tradition. These welfare programmes comprise means-tested cash payments which are tax-financed and administered by municipalities, and social welfare services for low-income persons which are provided by municipalities and (mainly church-based) welfare associations. In 1993 4,945,000 persons were recipients of cash assistance payments (Report of the Federal Office of Statistics 1993) under the Federal Social Assistance Act ("Bundessozialhilfegesetz"). However, only four out of seven poor persons make use of their right to apply for aid. About 1.35 million people are eligible, but do not apply for any kind of public assistance. The motives underlying this behaviour are the mistaken assumption that they are not eligible, a general hesitation to turn to the welfare administration, and apprehensions that assistance payments will have to be refunded by close relatives (subsidiarity principle in welfare assistance) (Caritasverband Poverty Report 1994, Freiburg, July 1994). Further it must be added in order to cover all facets of the German welfare state that benefits are offered under the so-called provision scheme. They are tax-financed state allowances which are granted as compensation for specific burdens such as military service, higher education (within income limits) or child rearing, etc. As to the institutional structure of the German welfare state, its outstanding feature is the specific mixture of public and private activities. The state has never had — in contrast to Japan — a direct and universal responsibility for the welfare of its citizens, instead it has always relied on the cooperation with subsidiary institutions such as employers' and workers'associations, occupational groups, companies, churches and non-governmental non-profit organizations as well as communities in order to provide benefits and services. The underlying idea is that the individual is a member of a corporatist body (company, professional group, religious community, local community) with which rests the primary responsibility for the individual (subsidiarity principle). Such organizational features lead to the highly structured, albeit institutionally fragmented system of providing benefits and services. However, the state always has played a strong promoting role in creating and

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institutionalizing private initiatives and sponsoring public-private mixes in social policy. "The state guarantees social solidarity in the nation state" (Flora 1994). Thus the state actively supported the introduction of state-wide compulsory insurance schemes at the end of the 19th and first decades of the 20th century which are administered by employers' associations and unions. On account of this reliance on private institutions the German state — has rightly been characterized as a "semi-sovereign state" (Katzenstein 1987) with corporatist features (Esping-Andersen 1990; Schmidt 1988; Flora et al. 1977; Lehmbruch in this volume). All in all, the institutional structures in German social policy with its manifold patterns of cooperation between societal groups and state actors in defining and delivering services and benefits present a stark contrast to the often cited "typically German, unified state tradition" in the Weberian sense. Quite to the contrary the diversified institutional structure linked with the federalist structures of state organization produced a rather fragmented institutional system of benefit and service delivery (see Lehmbruch in this volume).

2.1

Historical Origins

The social insurance regime which constitutes — quite in contrast to the Japanese welfare system — the dominant feature of German social policy has its roots in the misery and hardship of factory workers in the industrialization process of the 19th century. The measures of protection addressed to factory workers went hand in hand with the introduction of the first branch of social insurance. Workers' insurance, today called accident or industrial injuries insurance, also reflected the desire of the corporatist-authoritarian state to strengthen the ties between the working class and the state by providing social security benefits. Thus Bismarck explicitly stated that the new insurance was meant "to solve the social question," to alleviate social disorder and unrest and thereby to stem the "dangers" of the rising social democracy. Since the institutionalizing of the German welfare state under state initiative dates back to the constitutional monarchy, it has been classified as a corporatist welfare state of authoritarian origin (Esping-Andersen 1990) which also served the political aim to prevent democratization (Schmidt 1988). The strongly supportive role of the state in institutionalizing social insurance schemes at the end of the 19th century also corresponded to the prevailing philosophy according to which the state as the promoter of public welfare played an important role. Hegel, for example, suggested social reforms in order to overcome the internal contradictions of the emerging in-

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dustrial society and as a means to forestall revolution. Hegel's ideas were adopted by Lorenz von Stein, who as early as 1842 called for social reform initiated by the state, what he termed a "kingdom of reform." Encouragement was also given by Robert von Mohl, whose administrative theory combined the older "policey staat" welfare ideas with the notions of early German liberalism. Similarly, the concepts and theories of the "Verein für Sozialpolitik" (Association for Social Policy) and some of its members such as Werner Sombart, as well as Adolph Wagners concept of "state socialism" were influential in shaping social insurance legislation at the end of the 19th century. However, this much cited image of the "strong" and "caring" state remained in a strange contrast to the above described plural, albeit fragmented, nature of the institutions of the emerging welfare state with its public-private mixes. Thus, Bismarck himself would have liked to go much farther in defining the responsibility of the state in the worker-insurance scheme by introducing a large proportion of state funding. Yet he had to compromise with liberal political forces which preferred to vest the central responsibility for the insurance with the "Berufsgenossenschaften" (sectoral professional dissociations founded by employers), initially a self-regulatory body of industry, later a bipartite body of employers and employees for the funding of accident insurance compensations. Beyond the administration of the insurance funds flowing from employers'contributions, the self-regulatory bodies of the "Berufsgenossenschaften" early on along with the factory inspectorates gained regulatory and controlling powers on industrial premises. Together they constitute the so-called dual structure in health and safety regulation. Parliament restricts itself to framework legislation which is then filled by government ordinances and the regulatory activity of the bipartite bodies of the "Berufsgenossenschaften." Thus, in the rather extensive defining of the workers' (accident) insurance and safety regulations, interest associations (employers' associatons, unions, the Federation of German Engineers, the Federation of German Electrical Engineers) perform quasi-governmental activities.4 4

Another early interesting institution combining the administration of insurance funds and important regulatory activities may also be found in general health policy: The Commission of Medical Doctors and Health Insurance Funds ("Reichsausschuß für Ärzte und Krankenkassen," today the "Bundesausschuß für Ärzte und Krankenkassen," Federal Committee of Doctors and Health Insurance Fundings) founded in 1913 by the Department of Interior served first as a tribunal for mediating conflicts between doctors and health insurance funds, then developed into a bipartite body that was decisive in forming the system of admitting doctors to health insurance funds, and fundamentally shaped contractual relationships between doctors and health insurance funds (Döhler and Manow-Borgwardt 1992:578).

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The workers' insurance system was not only the first insurance scheme to be established with state support, it also served as a model for all following insurance schemes to be introduced. Old age and disability insurance was established on a separate basis for white-collar and blue-collar workers and statutory health insurance was instituted as a pluralist system of a multitude of health care funds following similar criteria. Since the health insurance funds and the pension schemes were "stratification-oriented" (Esping-Andersen 1990) and provide separate funds for white-collar and blue-collar workers, public officials, as well as specific occupational groups, they tended to consolidate and perpetuate the differences of stratification. The last insurance to be introduced was the unemployment insurance.5 All insurance funds are administered by bi-partite or tri partite bodies. In the case of sickness insurance this is a natural consequence of the fact that — before the state had stepped in — insurance institutions had already been founded by workers and employers as "self-help organizations" (Alber 1982:43-44); they subsequently were integrated into the state-sponsored insurance schemes (Windhoff-Héritier 1989:108-110). Premiums are split between employees and employers (except in the case of the former worker insurance — today accident insurance — where employers pay a 100 percent of the premiums). In the political arena the social insurance/self-administration model was prone to generate wide political support because it offered multiple possibilities of political identification: the administration of funds on the basis of corporatist solidarity by the insured appealed to liberals, the active role of employers and the active promoting role of the state equally appealed to conservatives and social democrats (Alber 1982:41). A distinctive pattern of public-private cooperation developed in the field of welfare assistance. Poor relief traditionally had been provided by church charities, later also by municipalities. Over time and to the extent that the state offered subsidies to the voluntary (church-affiliated) charitable organizations (Deutscher Caritas Verband, Deutsches Diakonisches Werk, Arbeiterwohlfahrt)6 they developed into large bureaucratic organizations in order to obtain these state funds more efficaciously. To this very day they are the primary providers of social services and, under the subsidiarity principle, enjoy prior access to the provision of such services before municipalities and the state are entitled to do so. The cash assistance programmes, by contrast, are entirely under state authority, more precisely, run by municipalities.

5 6

Unemployment insurance followed in the 1920s. In the 1920s the church organizations were joined by the Arbeiterwohlfahrt, an association affiliated with the Social Democratic Party, and the Deutsche Paritätische Wohlfahrtsverband, a roof organization for many smaller social service associations.

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Patterns of State-Society Relations

The landmark of German social insurance policy is the administration of social benefits by bipartite or tripartite bodies which has led to highly integrated horizontal networks of state and society. Similarly, as pointed out, means-tested welfare services are delivered by large voluntary associations as well as the Länder (while the cash assistance programmes are exclusively implemented by municipal authorities). This self-administration by associations (trade associations and unions) operates under "the shadow of hierarchy" (Scharpf 1993), that is, there is always the looming possibility of state intervention (Ersatzvornahmerecht) in case of complete decisional deadlock and inaction, a fact which renders bargaining processes between the corporatist actors more performance-oriented. While the mixture of public and private activities under almost all social policy programmes constitutes a typical feature of the German welfare state, the specific patterns of public-private cooperation vary to quite large extent. Bipartite administration by trade associations and trade unions has typically been the case in accident insurance and prevention (since 1951 before that solely by trade associations), in health insurance (since 1951) as well as old age/disability insurance. The reason why societal groups were integrated into the administration of the different branches of social insurance is — as mentioned — that today's mandatory insurances were founded by employers, workers and artisans, an element which was preserved in the self governing bodies; another reason is that employers contribute to the financing of the benefits of their employees and therefore want to have a voice in determining the level and the use of benefits; also, the state has to rely on the technical knowledge of the regulated, such as in the case of accident prevention/insurance, since it cannot provide enough expertise itself. Although it has never been fundamentally questioned, in the course of its long history the self-administration and self-regulation of corporatist bodies has been subject to much criticism. The aspects which are particularly debated today are the following: It is pointed out that the structure and nature of the interests represented in the corporatist bodies, that is of workers and of employers are primarily those of the contributors and, therefore, especially in health insurance, do not adequately reflect the interests of the insured in their breadth and diversity, such as insured dependents (children, wives) or the handicapped, the mentally ill and others. In short, attention is brought to a deficit in participation. This criticism addresses specifically issues which to go beyond deciding the level of premiums or cash benefits but relate to the nature and quality of health services which are provided.

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Also the parity of capital and labour representatives in corporatist bodies and the possibility of stalling decisions linked to it gave rise to the criticism that controversial issues are avoided in the corporatist bodies. Consensual bargaining between employers' and workers' representatives being the rule, incremental changes are frequent, innovations more of an exception (von Ferber 1977:389). Not surprisingly, voter turn-out to the elections of the administrative bodies of social insurance organizations ("social elections") is very low. If only one candidate for one group is proposed, which happens quite frequently, elections are entirely omitted. As a consequence, the potential of interest intermediation of bipartite and tripartite bodies in social insurance is not exhausted; important and controversial topics tend to be handed over to party politics which, in turn, reduces the scope of problem solving of the corporatist bodies, rendering them less interesting.7 Hence, over the course of time, the discretion of the corporatist bodies in regulating and administering the various insurance funds has been limited by state legislation. However, the extent to which this is the case varies in different social insurance areas. While in the field of accident insurance and accident prevention the state relies on framework legislation and the bipartite bodies (Berufsgenossenschaften) to fill it out with precise regulations, the latitude of decision-making in the field of health insurance and old-age insurance is more restricted. Especially old-age and disability insurance — as a field of high political visibility — is largely determined by state legislation. Put differently, the higher the degree of politicization of the field and the higher the electoral salience — the more extensively regulated are the fields by statutory rules, while domains which are highly technical, complex and require a lot of expertise are left to self-regulation by non — governmental associations. Another line of criticism addresses the performance level of public-private strategies. A comparison of two different institutions of public-private policy strategies in the field of health care offers interesting insights into the prerequisites of a successful operation of such bodies: The politically prominent Concerted Action in the Health Sector, a macro-level multipartite steering body for cost containment, on the one hand, and the older selfregulatory Commission of Medical Doctors and Health Insurance Funds established in 1913, on the other, which since the 1970s has also played an important role in cost containment in the health sector, show very different levels of performance. These differences depend to a large extent on their 7

In view of these deficiencies, the latest reform of the organizational structure in health insurance professionalized the corporatist bodies and substituted the assembly of representatives with a board of management (Verwaltungsrat) in order to increase the efficiency of social self-administration (Zipperer 1993:9).

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way of operating. In the Concerted Action on Health Policy all interested parties of the health sector are represented: the Federal Department of Health, the Länder governments which have legal responsibilities in the surveillance of health insurance funds and the hospital system, municipalities, medical doctors' associations, hospital associations, health insurance funds' associations, the pharmaceutical industry, pharmacists, unions and employers' associations. This diversity of actors with their specific tasks, conflicting and converging interests meet in order to produce voluntary agreements to reduce cost increases in the health sector and prevent direct state intervention (Lehmbruch 1988). Its very political salience in the media, its multipartite structure, and the fact that it may only recommend action has the consequence that the Concerted Action tends to serve merely as a forum where interest positions are presented and "problem solving" by negotiation is rare. By contrast, the small Commission of Doctors and Health Insurance Funds is more successful in bargaining problem solutions to contain costs: they put together a list of drugs which are not reimbursed by health insurance funds, and are presently composing a list of fixed prices for specific drugs. It has been argued that its decisions are more problem-solving oriented due to some procedural rules guiding its work: secrecy is imposed on participants concerning the discussions led by the Commission and the voting behaviour of participants; also the participants are not subject to a specific mandate by their associations when they enter negotiations which facilitates the bargaining process in the sense of problem solutions (Döhler and Manow-Borgwardt 1992:585). In the field of welfare assistance the patterns of state-society cooperation are quite distinctive. Under these programmes — largely due to the weakness and vulnerability of its clientele — the target groups do not have a direct voice in determining benefits and services. The recipients of cash payments and social services belong to the "marginalized interest groups" in the social policy arena (von Winter 1992:400-401). Their interests are expressed by the large voluntary social service associations in which clients do not have member status, but which function as advocacy representatives of welfare recipients. There have been repeated attempts at reform and reorganization of social services in order to give clients more of a say in service delivery. Thus, some municipalities have, such as in the city-state of Bremen, under political pressure, introduced reform models — along the lines of U.S. model of "maximum feasible participation" — in which target groups were integrated into service definition and delivery. By contrast the institutionalized cooperation between state and municipal actors and the large and powerful welfare associatons which are service providers is very pronounced when it comes to initiating and implementing social services. With the consent of the state the large welfare associations have divided up

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among themselves the territory of clients according to criteria such as religious affiliation or nationality (in the case of services for foreign workers). The welfare associatiations receive significant public funds to provide services. The state and municipalities depend on them to provide these services since otherwise they would have to deliver them themselves. The cooperation between municipalities and welfare organizations has been described as a cartelized structure which — although quite effective in its services — over time (about a hundred years) has tended to become very bureaucratic and, occasionally unresponsive to the needs of target groups. As a result, particularly in the 1970s self-help groups mushroomed in the area of social services because the "welfare giants" were perceived not to deal adequately with familiar problems, let alone respond to new ones. However, it is not easy for newcomer organizations to gain access to the circle of those who are subsidized by the state and the municipalities. To some extent this problem has been solved by an umbrella organization (Deutscher Paritätischer Wohlfahrtsverband) (Windhoff-Héritier 1989) offering access to self-helf groups and promoting the interests of the latter. Given these long-established institutions how did the profound changes of recent years, that is a changing structure of the economy, demographic changes and, of course, the transformation process in the east affect German social policy making? How does the welfare state cope with these changes and to which extent have its basic features been transformed by these new challenges? In the following three central problems which touch upon the principles of German social policy are discussed in order to show the specific response patterns: rising unemployment due to structural changes in the economy and migration processes which led to a shifting of the burden of poverty to the local level; the unification process in the field of health care funds; and the introduction of a new insurance type, long-term care.

3

Impacts of Economic Structural Change and the Transformation in the East: Rising Unemployment

3.1

Welfare Assistance: Shifting the Burden of Poverty to the Local Level

A sustained level of high unemployment in West Germany of over two million since 1983 and the accelerating migration processes which have been triggered through the transformation in the former socialist states led to an increase in "basic aid" (laufende Hilfe zum Lebensunterhalt) by municipalities from 4,339,000,000 DM in 1980 to 14,246,000,000 in 1991 and overall

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assistance payments from 13,266,000,000 DM in 1980 to 37,337,000,000 DM in 1991 (Statistical Yearbook 1983: 402; Statistical Yearbook 1993: 513). Between 1992 and 1993 the payments by municipalities under the Federal Public Assistance Act of 1961 (Bundessozialhilfegesetz) increased by 14.9 percent (to 48.9 billion DM). In the old Länder alone they rose to 43 billion DM. 18.2 billion DM are basic aid to the poor (laufende Hilfe zum Lebensunterhalt); 30.7 billion DM were paid in special aid (Hilfe in besonderen Lebenslagen), thus, to individuals in need of care (16.3 billion DM) and for the integration of the handicapped (11.2 billion DM). While overall payments in the west went up by 12.9 percent (or 4.9 billion DM), in the eastern five Länder and East Berlin they rose by 31.7 percent or 5.9 billion DM (Federal Office for Statistics 1994). The main reasons explaining the increase are the rise in payments to refugees and asylum seekers as well as an increasing number of people of German descent who were resettled from the former Soviet Union. Moreover the amounts to be paid (on the national average 514 DM in 1994) were raised and more workshop places for the handicapped were created. Also rising unemployment has been an important factor responsible for the increasing assistance payments. Between 1980 and 1989 the number of unemployed rose from 888,900 to 2,037,781 in the west and between 1991 and 1994 from 1,689,365 (west) and 912,838 (east) to 2,598,108 (west) and 1,202,877 (east) (Federal Labour Office: personal communication; ANBA 1993, no. 1:8, 15). Since the long-term unemployed merely receive the means-tested unemployment assistance (as opposed to the insurance benefits of unemployment insurance) which often does not provide enough income to guarantee a subsistence level. Municipalities had to step in and pay additional welfare assistance for the long-term unemployed. Thus, it has been a trend since the 1980s that the sustained unemployment produced a more pronounced dependency on welfare assistance: In 1989 13 percent of the recipients of means-tested unemployment assistance (Arbeitslosenhilfe) received welfare assistance. Additionally, 38 percent of the unemployed who were not eligible for unemployment benefits under the Unemployment Insurance Act depended on welfare payments (Adamy 1993:165). This development will even become more pronounced if — as the government is presently planning — the duration of unemployment assistance for the long-term unemployed will be limited (as of April 1st 1995) to a maximum of two years. This would automatically result in higher welfare assistance payments by municipalities.8 8 It must be seen, however, that the communes to a certain extent will be compensated for this development by receiving more revenues by the privatized postal services enterprises (Süddeutsche Zeitung, July 15th, 1994).

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Since it has become more difficult for young people to find employment, the number of young welfare recipients has increased. At present 30 percent of the recipients of public assistance are 18 years old and less (Federal Office for Statistics 1994). Unemployment after unification and the ensuing deindustrialization process in the former GDR, however, would have even been higher in the east if there had not been a large-scale programme of public works and public funding of employment (Arbeitsbeschaffungsmaßnahmen) in the five new Länder which is being financed under the existing unemployment insurance legislation. Also, it is the communes who have to pay welfare assistance to the elderly if the costs of stationary care exceed the income of the elderly. This being frequently the case, the municipalities urged federal legislators to speed up the political decision process on the long-term care for the elderly (see below). Hence, one pattern of response of the German welfare state which emerges under the twofold impact of structural economic change linked with rising unemployment and the transformation in the east is the shifting of financial burdens for compensating poverty to the local level. Another pattern of coping with the challenge of transformation emerges when the German unification process is investigated in the health care sector: "path-dependency" or the transferrai of western institutions to the new Länder. In the case of health care funds the established patterns of cooperation between the state and associations in the west were extended to the five new Länder.

3.2

The Implantation of State-Society Relationships in the Five New Länder: Extending the Existing Networks of Health Care Funds

In the process of unification two developments emerged in the health insurance sector: the transferrai of the typical public-private mixes of the German "semi-sovereign state" (Katzenstein 1987) to the east under a strong executive leadership spurred by party competition (Lehmbruch 1991), and the instrumentalization of federalism to prevent redistribution from the west to east. In other words: With the support and under the guidance of the Federal government the large health insurance organizations took over the "territory" in the east and divided it up among themselves, essentially by transferring the existing patterns of state-society relations to the new Länder. In the course of this development at a specific point in time the federalist structure was used in order to fend off redistributional demands from the east.

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In the German Democratic Republic health services were provided in the context of a unified system of tax-financed social benefits covering all domains. After unification all health insurance funds in the west were eager to expand their territory into the east. This led to a controversy among the various health insurance organizations on how to divide up the new clients. For reasons of administrative simplicity — given the difficulties of transition from a tax-financed to a contribution-financed system — the last GDR government in 1989 opted for the maintenance of a unified system in which one "neutral" health insurance organization should be established for a fixed, transitory period. The view was supported by the primary, or largest health insurance association, the Allgemeine Ortskrankenkassen in the west, in which (until very recently) most workers have been insured on a compulsory basis, and the West German unions. The latter also preferred a transitory unified organization because of the on-going structural reform of the pluralist system in the west which had begun half a decade ago (Wasem 1990:272273). All other large health insurance funds (Ersatzkassen or alternative insurance funds) in the pluralist and competitive structure of the West German health insurance system (there are 1,200 health insurance funds) such as the employers' or company-based health insurance organizations (Betriebskrankenkassen), the employees' health funds (Angestellten-Ersatzkassen) and the artisans' health insurance (Innungskrankenkassen) by contrast opted for an immediate transferrai of the existing pluralist system of the west to the east, a position which was also taken by the doctors' association. The argument put forward was that a pluralist structure and competition among health insurance organizations would spur innovations in the east and that the pluralist model, in general, had been a rather successful one. The rationality behind both claims was quite obvious: The companybased, employees' and artisans' health insurance organizations had reason to fear that under the given legislation on health insurance organizations in the west the primary health insurance fund, the workers' health insurance (AOKs), would have been guaranteed a privileged access to insuring members in the new Länder, and that the AOKs would emerge as the winners of the "territorial battle." This view was rightly based on the existing legislation prohibiting that new health insurance organizations be established if they jeopardize the existence and viability of existing AOKs. The AOKs on their part, with regard to their comparatively difficult financial situation, of course, would only have been only too happy to gain a temporary edge over their competitors in recruiting new members after unification. In this situation the coalition government intervened and in negotiating the first and second "Staatsvertrag" (state contract) with the last GDR government took an active role in creating the network structures in the field of health insurance in the east. It changed existing legislation (§§ 147 Abs.l

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Nr.3, 157 Abs.l Nr.3 Sozialgesetzbuch V) and suspended the privilege of the primary health care funds for one year in order to guarantee that all existing health insurance associations had equal opportunity to take roots in the east. Therefore, in a period of transition until the end of 1991 the conditions to establish alternative insurance funds were facilitated (Baum 1990:603; Münzer 1990:71). However, although the pluralist system of health insurance was transferred with the support of the governing coalition, at the same time some of its central principles were suspended. Central mechanisms of the old selfgoverning system were not deemed to be able to cope with the critical situation in the east: the representatives of the corporatist bodies were not elected, the power of setting premiums by these bodies was suspended and a uniform health insurance premium was fixed. Beyond the normative preferences of the conservative-liberal government favouring as such the pluralist and competitive structure of the health insurance system, it also seems quite "rational" for state actors to increase their autonomy by shaping the administrative environment in such a sense that adminstrative clienteles are neither dominated by one large organization nor that the administrative environment is so open and diverse as to be incalculable (Czada 1992). Instead they prefer a structured, moderate and orderly plurality of self-governing bodies. Of course, path-dependency also explains this process of network extension into the east. Once the institutional consensus had been established — which was in the German case at the end of the 19th century — it, by and large, has tended to remain in place unless there are serious external shocks. As it turned out, unification was not such a shock; neither was it considered as an opportunity to an overall — change of the existing organizational structure of the West German health insurance system (Mayntz 1993). At the same time in the aftermath of unification the call for a new federalism in social policy was voiced which may be interpreted as an attempt to forestall redistributional demands from the east. The political controversy around this question has to be interpreted against the background of the reform debate about the reorganization of the pluralist structure of the health insurance sector which has been conducted for about one decade. The objectives of the reform are to increase solidarity among different health insurance funds in the existing system with its stratification-orientation and unequal risks (the aforementioned AOK having the "worst risk structure" among its members). After unification, however, the thrust of reform endeavours underwent a subtle modification: The discussion about increasing solidarity among the insured on a national level — including the former GDR — lost some of its impetus in favour of a discussion related to strengthening the decision powers of the old Länder, calling for a "new fed-

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eralism" or "regionalism" in social policy (Benkler 1994:155). This new debate claimed that solidarity and the redistribution of risks among health insurers — if at all — should be tackled within one region or within one health insurance organization (Oldiges 1994:162-163). At face-value this controversy about the new regionalism was conducted in terms of the waning powers of the Länder in supervising health insurance organizations; the "hidden agenda" of the discussion, though, was an attempt to stem back redistributional demands of the five new Länder. The plans to strengthen federalism extended to all branches of social insurance, but were particularly pronounced in the field of health insurance. Thus, the conference of ministers of social affairs of the Länder called for the suspension of all nationwide compensations in health insurance, but also to facilitate a reorganization of old-age insurance and employment insurance on a regional basis. It became quite obvious that the new anti-solidarity tendencies were linked to apprehensions that the "social union" between the new and the old Länder would entail many new incalculable financial risks (Forster 1991:4). The positions taken in this question by the health insurance associations and political actors are shown in Table 1 : Table 1

1 2

3 4

*

Redistributional Mode

Proponents

Within one health insurance organization within one region Within one health insurance organization; on a nation-wide basis Within one health insurance organization; on a nation-wide basis Across all types of health insurance organizations, within one region Across all types of health insurance organizations, on a nation-wide basis

Β (Christian Democratic and Christian Socialist governed)-Länder Health insurance association of employees Artisans' health insurance organizations Workers' health insurance (AOKs); A (Social Democratic governed)-Länder Parts of the Social Democratic party

The substitute health insurances (Ersatzkassen) originate from the old voluntary health insurance organizations which had been founded a long time before 1883 when mandatory health insurance was introduced in the German Empire. Whitecollar workers from the beginning were entitled to choose optional insurance plans in contrast to workers who, with some exceptions, were automatically insured with the primary health insurance funds of the Allgemeinen Ortskrankenkassen.

As it turned out, the reform measures enacted in 1992 did not follow the farreaching demands of regionalization. Much rather the organizational reform under the structural reform law of 1992 — as a response — struck a compromise. A model was introduced which offers a more extensive choice

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of health insurance funds to all insured persons with the aim to equalize risks. At the same time the reform guarantees the Länder additional authority in concluding contracts with doctors and dentists' associations which was extended beyond the primary health funds to substitute health insurance organizations. This prerogative will offer the Länder more possibilities to control the development of health costs (Knieps 1993:158-159). By widening the possibilities of choice the stratification-oriented system of insurance will be reduced to a significant extent. While previously a large part of the population was required to be insured with a specific health insurance fund (AOKs) depending on employment status or occupational group, white-collar workers (and blue-collar workers in some sectors or cities) are able to choose a health insurance fund. The 1992 reform significantly widens the varieties of a health insurance organizations from which to choose.9 Thus, the development towards nationwide health insurance funds is to be stemmed not by directing members to regional health care funds but by establishing a more competitive order which allows for the choice of regional health care schemes as well as nationwide health care schemes (Oldiges 1994:163). Since it is the aim to increase competition between the different organizations, a level playfield had to be established to equalize the opportunities of the different players. To this end since 1994 the differences in premiums due to unequal risk structures (as opposed to differences in efficiency, differences in regional structural offer, etc.), have been subject to a process of equalization (Zipperer 1993:7). This is being achieved by compensating risk factors in terms of the total sum of incomes of the insured, the number of insured dependents as well as the age and sex structure across all types of health organizations. The winners in the risk compensation process have been and were meant to be the primary health care funds (Korf 1994:246). However, to weaken the thrust of redistribution from west to east the compensation is typically being carried through separately in West and East Germany. Thus, the response of the German welfare state to unification first was the simple institutional transferrai of the existing system of health care funds from the west to the east, although the system in the west had been considered for a long time to be in high need of reform. After the transferrai of institutions, the western Länder demanded the regionalization of health care funds and the overall process of a structural reform, which had begun in the 9

However, artisans' and company-based health insurance organizations maintained their right to limit their members unless they wish to offer access to other members (Paquet 1994:338), which — except to dependents of the insured — they have not done so far (Oldiges 1994:164).

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early 1980s and was halted in 1989 and — subsequently became intertwined in a complicated way with the need to transform the health care system of the German Democratic Republic. The simultaneity of two reform strands, one in the west and one the east, gave rise to redistributional conflicts along various cleavages: 1) between different health insurance funds in their cooperation with state actors in the battle for new territory in the east, 2) between the old and new Länder, and 3) between the Federal government and the old Länder. In the course of this development, the basic structure of producing and regulating health services by a public-private mix within a regulated pluralist and diversified framework — the landmark of the German social welfare system — was not affected immediately. However it may be that the more extensive mechanisms of competition which have been set into motion by enlarging the possibilities of choice will change in the long term the existing diversified and pluralist institutional landscape of corporatist health care funds.

3.3

"Path-Dependency" in the German Welfare State: An Insurance Solution in Long-Term Care

In the last instance discussed here, inspite of dire economic conditions, a policy innovation was effected in German social policy: a new benefit system, the long-term care, was created responding mainly to the needs of the changing demographic structure, that is the increasing average age of the German population. Possible solutions were highly contested in a strongly politicized debate along party-lines in which numerous actors, with divergent motives, in uncertainty about the possible consequences of such a new benefit system had to come to terms (Gotting and Hinrichs 1993:43). The outcome was the institutionalization of an insurance scheme which almost jeopardized one of the basic principles of the German social insurance system: the parity of contributions of employers and employees, an important pre-condition of corporatist self-administration. The political debate about a new type of benefit system was triggered off by the Länder in the mid-80s, a typical innovative mechanism of the German federalist system. Various Länder governments (Rheinland-Pfalz, Bavaria, Baden-Wuerttemberg, Hessen) put forward distinctive proposals. In the first years a model of tax-financed benefits, a compulsory insurance model and a private insurance model were discussed. After the Social Democrats had withdrawn their proposal of a tax-financed benefit system, by 1990 there were basically two options in discussion: 1) a social insurance solution to which employers and employees should contribute on an equal basis, an option which was supported by parts of the Christian Democrats

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and Social Democrats, and 2) a private insurance model which was favoured by the Liberals, by parts of the Christian Democrats (Economic Council) and by employers' associations (Gotting and Hinrichs 1993:57). In June 1992 a legislative draft for a compulsory insurance for all citizens covered by health insurance was submitted to Parliament by the Christian-Liberal coalition government. The prospect of a sequence of elections in 1994 motivated the main political actors to speed the decision process up and to bring it to an end. It was the federal minister for labour affairs, Norbert Blüm, who functioned as a "policy entrepreneur," offering compromises and striking bargains, showing a persistence "...which sometimes came close to obsession" (Wolfgang Schäuble, Leader of the Union-factions in the Bundestag, SZ, March 11/12, 1994). After the Social Democrats (whose support was needed because the legislation had to be accepted by the Federal Council where the governing coalition does not have a majority), had acquiesced to the insurance model, a compromise had to be formed with the Liberals (Free Democrats) who favoured a private insurance scheme. The latter finally consented to a compulsory social insurance scheme under the condition that a financial compensation be guaranteed to employers for their 50 percent contribution to the premiums. At first, the Social Democrats entirely refused to compensate employers for their contributions, then supported a full compensation, attempting to influence the mode of compensation. They too were under pressure to bring about a policy solution since — in view of the saliency of the problem — they did not wish to be blamed for inaction in the super-election year of 1994. Thus, the Social Democratic Länder governments and cities brought pressure to bear on the party leadership because municipalities indirectly have to bear the fiscal burden of stationary care which is so expensive that the elderly under care often have to depend on welfare assistance. After the Social Democrats support for the proposal was certain, a renewed prolonged debate over the mode of employer — compensation ensued, which was politically polarizing because the proposed solutions made in-roads on sacred territory of the German welfare state and industrial relations traditions. To compensate employers the coalition proposed the reduction of paid holidays and the introduction of a so-called "Karenztag," that is the elimination of one day of continued payment in case of illness (Lohnfortzahlung). These proposals met with vehement resistance from Social Democrats as well as unions who considered this as an attempt to dismantle the welfare state (SZ, Sept. 11/12, 1994). Even worse, by proposing to cut salaries by legislation, the coalition was blamed for attempting to violate the autonomy of industrial actors in negotiating tariffs. The Social Democratic counter-proposal, though, to abolish official religious holidays provoked furious resistance from church representatives who were mainly supported

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by the Christian Socialists from Bavaria. Thus, while the Parliament accepted the coalition draft, the Federal Council turned it down. In this renewed stalemate Kurt Biedenkopf, the Prime Minister of Saxony, proposed a solution apt to resolve the party conflict in the conciliation procedure between Parliament and the Federal Council, by offering an ingenious way out through the doors of federalism. The problem was handed down to the Länder. If a Land does not succeed in eliminating a paid religious holiday, then — in this specific Land — the employees would have to pay the full premiums to the new insurance fund. In this case, indeed, the parity principle in this new branch of social security would be suspended (Forster, SZ, March 11, 1994). Which way the single Länder choose to go remains still to be seen since the new insurance scheme has not been implemented yet. Northrhine Westphalia was the first Land to announce that an agreement of both large parties in the Länder parliament has been reached according to which the religious holiday of "repentence and prayer" (Büß- und Bettag) is to be abolished. The provisions of the new insurance are basically the following. In a first phase the new legislation which comes into force in 1995 imposes a premium of 1 percent of the monthly salary before taxes for home care. From mid 1996 on the premium will increase to 1.7 percent and the care funds will include hospital care, too. At this point care services and allowances for those in charge of home care are to be financed. The new insurance scheme is based on the principle "care insurance follows health care insurance," that is those insured in the mandatory health insurance funds are also covered by the care funds. Whoever is insured with a private insurance fund will have to become a member of a private long-term care insurance fund. The same holds for public officials. Thus, the principle of competition between insurance funds — typical for health care funds in general, is guaranteed in this new programme, too. 10 By ordinance (Verordnung) the government with the consent of the Federal Council may decide to introduce the second phase of (hospital) care. A precondition is that the Experts Committee for Economic Development (Sachverständigenrat) clarify, whether further compensation, i.e. by eliminating a second holiday, is necessary. 10

The law provides home care dependent on the need of care: in kind-care services for those in considerable need of care up to 750 DM monthly; for those in high need of care 1,800 DM monthly; for those in highest need of care 2,800 DM monthly; in special cases up to 3,750 DM a month. To those in charge of home care an allowance is offered: for patients in considerable need of care 400 DM per month; in high need of care 800 DM per month; highest need of care 1,300 DM per month. In kind-services (Sachleistungen) and allowances may be combined.

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The committee assumed this role as a key decision maker only very hesitantly.

4

Conclusion

German social policy has always been dominated by insurance schemes covering a wide range of risks and implying a variety of benefits. However, there is also a welfare or public relief tradition comprising assistance payments and welfare services for those who are not entitled to insurance benefits and have to rely on a "last safety net." Insurance benefits and welfare services are typically provided by a network of state organizations and associations (such as employers' associations, unions, professional associations) cooperating in bipartite or tripartite bodies. They regulate the benefits and services to be provided and the premiums to be paid. Depending on the specific programme at hand, its political saliency and its technical complexity, the self-regulation is subject to looser or stricter state guidance. The basic features and organizational principles under which social benefits are provided have not been fundamentally questioned by recent developments as far-reaching as sustained high unemployment since the beginning of the 1980s, German unification in 1989 and the growing need of long-term care due to the changing demographic structure of German society, to name just a few of the most important changes affecting social policy. On the face of it, the policy responses to the new challenges show a pattern of path-dependency, that is they follow institutional paths which have evolved over the last hundred years. However, a second glance reveals that each of the recent policy developments mentioned contains an encapsulated element of change potentially questioning the basic principles of German social policy making. Thus, in the first instance the shifting of the growing fiscal burden of unemployment and migration to the local level leads to the communalization of poverty and reveals serious deficiencies of the unemployment insurance scheme. Under conditions of shrinking employment it is beyond the scope of an insurance programme to prevent poverty resulting from unemployment. This is due to the fact that a contribution-based unemployment insurance meant to compensate for the risk of unemployment — as opposed to a taxfinanced system — is not capable of actively fighting unemployment by offering training and educational measures, subsidizing employment, etc. Hence, in a path-dependent mode, German social policy making even with drastically rising unemployment sticks to its institutional tradition and seeks

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to cope with unemployment by means of an insurance scheme. Thereby the danger of falling into welfare dependence in times of structural economic change and shrinking employment has drastically increased. In the second case discussed, the unification process in health insurance funds first reveals the pattern of a rigid duplication of institutional patterns of the West in the East. Apprehensions on the part of the western Länder subsequently gave rise to the call for a regionalization of social policy in order to stem back redistributional demands of the former GDR-territory. The wish to regionalize social policy articulated by the western Länder was dealt with in the organizational reform of health care funds which on the one hand, purveyed the Länder more powers in negotiating contracts with health funds, on the other hand, widened the possibilities of choice among health funds and therewith competition among the latter. The seed of change — that is competition between health funds — which was implanted into the old structures in the longer run may have a considerable impact on the old pluralist landscape of health care funds. Finally, the establishing of a new insurance, finally, the long-term care insurance, for the first time since the beginnings of the German social security system a hundred years ago questioned the parity of contribution of employers and employees and leaves the individual decision to each of the Länder whether to break with this old principle or to sacrifice a religious holiday. The devolution of the problem will specifically put those Länder to a hard test where the church is strongly rooted in politics.

References Adamy, Wilhelm, 1993, "Sozialhilfeniveau und Arbeitnehmereinkommen," in Soziale Sicherheit 6: 161-168. Alber, Jens, 1982, Vom Armenhaus zum Wohlfahrtsstaat. Analysen zur Entwicklung der Sozialversicherung in Westeuropa. Frankfurt/New York: Campus. ANBA (Amtliche Nachrichten der Bundesanstalt für Arbeit), 1: 8, 15. Baum, Georg, 1990, "Wichtiges aus dem Einigungsvertrag für die Betriebliche Krankenversicherung," in Die Betriebskrankenkasse 10: 602-607. Baum, Georg, 1992, "Föderalismus und Sozialversicherung," in Die Betriebskrankenkasse 3-4: 170-176. Benkler, Manfred, 1994, "Regionalisierung oder Zentralisierung der Sozialversicherung," in Sozialer Fortschritt 7-8: 155-159. Czada, Roland M., 1992, "Der Staat als 'wirtschaftender' Faktor," in Heidrun Abromeit and Ulrich Jürgens (eds.), Die politische Logik wirtschaftlichen Handelns: 171-214. Berlin: Edition Sigma. Döhler, Marian and P. Manow-Borgwardt 1992, "Gesundheitspolitische Steuerung zwischen Hierarchie und Verhandlung," in Politische Vierteljahresschrift 4: 571-596. Döring, Diether, 1987, "Grundsicherungs-/Grundbetragselemente in der Gründungsgesetzgebung der Rentenversicherung," in Sozialer Fortschritt 36: 153-157.

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Esping-Andersen, Gösta, 1990, "The Three Worlds of Welfare Capitalism." Cambridge: Polity Press. Federal Office for Statistics (ed.), 1993, Statistisches Jahrbuch für die Bundesrepublik Deutschland. Stuttgart: Metzler und Poeschel. von Ferber, Christian, 1977, "Wird der sozialpolitische Handlungsspielraum der Sozialen Selbstverwaltung ausgeschöpft?," in Gewerkschaftliche Politik: Reform aus Solidarität: 373-392. Flora, Peter, 1994, "Introduction to the Panel 'The State, the Citizen and Social Welfare'." Paper presented to the Xlllth World Congress of Sociology, Bielefeld, July 18th-23rd. Flora, Peter, Jens Alber and Jürgen Kohl, 1977, "Zur Entwicklung der westeuropäischen Wohlfahrtsstaaten" in Politische Vierteljahresschrift 4: 707-772. Forster, Jürgen, 1991, "Nagelprobe für das Solidarsystem" in Süddeutsche Zeitung 239, October 10th: 4. Gotting, Ulrike and Karl Hinrichs, 1993, "Probleme der politischen Kompromißbildung bei der gesetzlichen Absicherung des Pflegefallrisikos. Eine vorläufige Bilanz," in Politische Vierteljahresschrift 1: 47-71. Katzenstein, Peter, 1987, "Politics and Policy in West Germany: The Growth of a SemiSovereign State." Philadelphia: Temple University Press. Knieps, Franz, 1993, "Die AOK im neuen Ordnungssystem der GKV," in DOK. Politik, Praxis, Recht 4-5: 152-162. Korf, Claudia, 1994, "Konzept und erste Ergebnisse des monatlichen Abschlagverfahrens," in Die Betriebskrankenkasse 5: 246-252. Lehmbruch, Gerhard, 1988, "Der Neokorporatismus der Bundesrepublik im internationalen Vergleich und die 'Konzertierte Aktion' im Gesundheitswesen," in G. Gäfgen (ed.), Neokorporatismus und Gesundheitswesen: 11-32. Baden-Baden: Nomos. Lehmbruch, Gerhard, 1991, "The Organization of Society, Administrative Strategies, and Policy Networks. Elements of a Development Theory of Interest Systems," in Roland M. Czada and Adrienne Windhoff-Héritier (eds.), Political Choice, Institutions, Rules and the Limits of Rationality: 151-158. Frankfurt/Boulder: Campus/Westview. Mayntz, Renate, 1993, "Policy-Netzwerke und die Logik von Verhandlungssystemen," in: Adrienne Héritier (ed.), Policy-Analyse. Kritik und Neuorientierung. Politische Vierteljahresschrift, special issue: 39-56. Münzer, Bettina, 1990, "Kassenpositionen zur Organisationsreform der Gesetzlichen Krankenversicherung — eine Bestandsaufnahme," in Arbeit und Sozialpolitik 2: 70-72. Oldiges, Franz-Josef, 1994, "Die Organisation der Sozialversicherung auf dem Prüfstand — ein Problemaufriß" in Sozialer Fortschritt 7-8: 152-155. Paquet, Robert, 1994, "Öffnung und Vereinigung von Betriebskrankenkassen," in Die Betriebskrankenkasse 6: 338-341. Scharpf, Fritz M., 1993, "Selbstkoordination und Verhandlung im Schatten der Hierarchie," in Adrienne Héritier (ed.), Policy Analyse. Kritik und Neuorientierung. Politische Vierteljahresschrift, special issue: 57-83. Schmähl, Winfried, 1994, "Finanzierung sozialer Sicherung unter veränderten gesellschaftlichen und ökonomischen Bedingungen," in Die Sozialversicherung 7: 169-175. Schmidt, Manfred G., 1988, Sozialpolitik: Historische Entwicklung und internationaler Vergleich. Opladen: Leske und Budrich. Statistisches Bundesamt (ed.), 1983, Statistisches Jahrbuch: 402. Stuttgart: Metzler und Poeschel. Statistisches Bundesamt (ed.), 1993, Statistisches Jahrbuch: 513. Stuttgart: Metzler und Poeschel.

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Titmuss, Richard M., 1963, Essays on "the Welfare State." London: Unwin University Books. Wasem, Jürgen, 1990, "Einrichtung von Krankenkassen in der DDR: Probleme und Perspektiven," in Arbeit und Sozialpolitik 8/9: 272-273. Windhoff-Héritier, Adrienne, 1982, "Selbsthilfe-Organisationen. Eine Lösung für die Sozialpolitik der mageren Jahre?," in Soziale Welt 33, 1: 49-65. Windhoff-Héritier, Adrienne, 1989," Institutionelle Interessenvermittlung im Sozialsektor," in Leviathan 17: 108-126. Windhoff-Héritier, Adrienne, 1992, "Verbandspolitische Konfliktlinien in der deutschen Sozialunion. Der Kampf um das neue Terrotorium und Probleme der Umverteilung in der Gesetzlichen Krankenversicherung," in V. Eichener, R. Kleinfeld, D. Pollack, J. Schmidt, K. Schubert and H. Voelzkow (eds.), Probleme der Einheit. Organisierte Interessen in Ostdeutschland, 2. Halbband: 303-317. Marburg: Metropolis. von Winter, Thomas, 1992, "Die Sozialpolitik als Interessensphäre," in Politische Vierteljahresschrift 3: 399-426. Zipperer, Manfred, 1993, "Das Gesundheitsstrukturgesetz — ein wichtiger Reformschritt," in Die Betriebskrankenkasse 1: 3-14.

Financing the Japanese Industries: Industrial Policies of The Financial Ministry and Financial Policies of The Industrial Ministry Masaru Mabuchi

1

Introduction

The impressive success of the Japanese economy has stimulated considerable discussion. One of the main issues discussed is how we understand the role of the Japanese government in the economic growth. We can identify three perspectives that explain Japanese development in terms of the government function. The first line of argument is the bureaucratic regulation thesis emphasizing the leading function of the government. We have several variants from E. Kaplan's (1972) "Japan, Inc." to P. Katzenstein's "statist country" which preempts the costs of change through policies that pursue the structural transformation of its economy (Katzenstein, 1985). Among them, the "developmental state" thesis which Chalmers Johnson presented in his book ΜΙΉ and the Japanese Miracle is most frequently referred to (Johnson, 1982). The second line of argument is the market regulation thesis which underscores the efficiency of the Japanese market (for this position, see e.g. Patrie, 1977). Japanese development is the result of market forces; government activity provides at most a favorable environment for industrial expansion by industrialists who are responding primarily to natural market cues. The third line of argument, located somewhere between the two arguments mentioned above, is the policy network thesis that stresses the working interaction between the government and industries. Richard Samuels (1986) states that the Japanese bureaucracy does not dominate, it negotiates with the private sector. Daniel Okimoto (1989) notes that the bureaucracy derives its power from its ability to operate collaboratively with the private sector. The market regulation thesis encounters its own problem when explaining the Japanese economic success. Although it describes how the Japanese

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market works efficiently, it does not explain why it does, as David Friedman states, "If Japanese producers did a better job of responding to market demands, we need to know why they were more capable than manufacturers elsewhere" (Friedman, 1988: 5). Friedman attempts to solve this puzzle by using a concept of flexible production developed by Michael Piore and Charles Sabel (1983, 1984). 1 I will not discuss this issue more, however, because other essays in this volume address the theoretical issues related to the new concept of production. The government regulation and policy network theses share a common shortcoming. Both of them are silent on the dynamic interaction among economic agencies, in specific between the Ministry of International Trade and Industry (MITI) and the Ministry of Finance (MOF) along with the Bank of Japan (BOJ). The government regulation thesis will be divided into two subtypes: one is the MITI regulation theory such as Johnson's, and the other is the MOFBOJ regulation theory such as John Zysman's. Although Johnson recognizes that economic agencies often confronted each other in deciding economic policies, he after all regards MITI as the most important and powerful ministry. According to his understanding, MOF is an obedient ministry which does as MITI tells it to do. Because MOF is more powerful and stubborn than or at least as much as MITI, however, an image of an obedient MOF is unrealistic. Zysman, who stresses the role of financial authorities, does not notice the rival and strained relationship among the MOF, the BOJ and MITI in the Japanese state at all. When he states that the BOJ lends money to private banks under the guidance of MITI, he treats financial authorities and MITI as a single actor as if they, sharing jurisdiction, administered both the industrial sector and the financial sector with the same perspective (Zysman 1983). This picture is an unappropriate simplification. The policy network thesis presented by Samuels and Okimoto is incomplete. They put a focus on the policy network between MITI and manufacturers, but don't discuss how the financial authorities and banks are related with this industrial policy network. They argue as if MITI, the MOF, the industrial sector and the financial sector formed a single network. But the MOF has few points of contact with non-financial companies and MITI has no communication circuit with banks. Having different jurisdictions, the two ministries in reality have developed different networks with each related industry as well as different perspectives over the economy. Both the government regulation and the policy network theses have ignored the following fact: MITI has to formulate and implement industrial policies with consulting with the MOF whose perspective to economic de1

As for the German context see also Kern and Schumann (1989).

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velopment is different from MITI, as long as industrial policies are carried out with financial measures. In this paper, I will examine how MITI and the MOF interact in allocating funds of banks to industries. It will be shown that the strained relationship between the two rival ministries served to improve the quality of industrial policies and to decrease the probability of policy errors. Industrial policies designed in MITI are not put into practice at least until the MOF is confident of them. In Section 1, by examining the relationship between the banking sector and the industrial sector, or what Peter Hall (1986: 232) called "the organization of capital," I will show that a prominent role of banks in industrial finance has a twofold implication with respect to the state's capacity. It helps the government to implement industrial policies through the banking sector on the one hand, but on the other hand, it enables banks to countervail government policies to some extent. The argument in this section will be further developed in Section 3. Section 2 will discuss the state structure related to industrial finance. After surveying the organization and business of the MOF, I will examine the role of the BOJ and MITI. I will argue that the MOF could pursue a low interest policy without being constrained by the central bank charged with the stabilization of currency because of the dependence of the BOJ to the MOF. I will also demonstrate how industrial policies formulated in MITI as "a staff agency" are inquired into and then exploited by the MOF. In Section 3, the structural feature of the interface between the state and society will be shown. I will examine the structure of the financial policy network linking the financial authorities and the banking sector, and the structure of the industrial policy network connecting MITI and the industrial sector, and then I will show that the two networks had a relatively independent relationship. In Section 4, I will speculate on the role of the Liberal Democratic Party (LDP). An absence of the LDP in financial policy making and financial administration, it will be argued, enabled both the MOF and MITI to pursue growth-oriented policies instead of redistribution-oriented policies within the financial policy. The time boundary which I examine in this paper is from the 1960s to the 1980s. Since the 1980s the regulated financial system has slowly been breaking up, as evidenced by deregulation of interest rates, easing of regulations on financial institutions, creation of new financial instruments, and increased use of the Yen in international markets. In addition to the financial deregulation, we can observe another change. Although the Ministry of Finance (MOF) has been relinquishing some regulatory authority, it has been giving a legal basis to what remains. This change can be viewed as part of a movement away from financial policy operated chiefly on "administrative guidance" to a policy run more according to laws (for details, see Mabuchi,

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1993). Recent development encompassing both deregulations and the legalization of financial policy have significantly changed the nature of industrial finance which I illuminate here.

2

The Structure of Society

Financial activities, in any country, form a field which tends to be more strictly and widely regulated by the government than other economic activities. By nature, the financial market which is independent of the state cannot be conceptualized. This is also true of the Japanese financial market. In Japan, the financial industry is divided into several sectors. Under the Securities and Exchange Law of 1947, banks are prohibited from engaging in securities transactions other than those involving national bonds. This creates a division between banks and securities firms. The banking sector is organized along the lines of specialized banking into 13 city banks, 63 regional banks 2 , 3 long-term credit banks, 7 trust banks, 71 mutual banks3 and 462 credit associations. While the long term credit banks raise their capital by issuing financial debentures and offer long-term credit for use in investment by private corporations, other institutions rely upon deposits made by their customers as a source of money which they can lend and offer short-term credit. While only the trust banks are permitted to deal in trust and custodial services, other institutions have to secure funds through deposits and other means. Loan practices are different among institutions. In the banking sector, city banks and other large banks constantly act as a conduit and feed a huge amount of money from the household sector to major leading industries. This characteristic is referred to as "indirect finance" or "overborrowing." It makes an especially striking contrast with Anglo-American financial practices, where most funds for industries are collected through the bond market or stock market. How could this Japanese characteristic come into being? It is mainly due to regulation by the government. 4 Although the Temporary Fund Adjust2

3

4

Both city banks and regional banks are categorized as "ordinary banks" (futsu ginko) in the Banking Law. There are no legal provisions distinguishing them. See Makimura and Tamara (1991: 17-20). The mutual banks have been converted into regional banks since 1989 because their business was virtually indistinguishable from that of the regional banks and because they want to get rid of the title "mutual bank" which connotes smaller-scale business. Murakami (1982: 14). A brief summary of historical background of the Japanese banking system is shown in Drucker (1975: 230-232).

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ment Law of 1937, which provided for legal control over bond financing, was abolished in 1948, the financial authorities have continued to guide bond financing. Their control lever is the Bond Issue Committee, which consists of representatives of the largest banks and major securities companies. At the low interest rates set for newly issued bonds, the committee has arranged bond financing for major non-financial businesses. As a result, even big businesses could not obtain sufficient funds at such low interest rates (Hamada and Horiuchi, 1987: 236). Since the bond market was strictly regulated by administrative guidance, the cost of raising funds through the bond market was artificially higher than the cost of raising funds through bank loans whose interest rates were set at low levels. In short, both the policy of artificially low interest rates and the strict regulation of bond issues have blocked the direct flow of funds via the bond market from the households to the industrial firms, who are the final borrowers. The "indirect finance" system would enable banks to exert a significant influence on business decisions of the borrowers. Since part of the banks' funds come from the Bank of Japan, this practice also gives a form of control to the central bank and the minister which controls it. I will discuss the effectiveness of this chain of influence in Section 3. Banks, main banks in particular, supplied a large quantity of funds to the firms, monitored their activities carefully, and could attempt to change their policies with all means, including the dispatching of their executives to firms whose policies they found inappropriate (Flaherty, 1994). Through the monitoring process, banks were able to obtain such information on their firms as otherwise would not be accessible to outsiders. Holding detailed information of non-financial companies, banks could gain an advantage over the financial authorities when exchanging their views on industrial policies, as will be discussed later.

3

The Structure of the State

3.1

The Ministry of Finance

The Ministry of Finance is made up of seven bureaus, three of which are responsible for private-sector finance. The Banking Bureau administers the banking sector, the Securities Bureau regulates the securities sector, and the International Finance Bureau oversees the foreign operations of Japanese financial institutions and the operations of foreign financial institutions in Japan.

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Because each bureau has its own jurisdiction and objective, conflicts sometimes take place among them. Among the three financial bureaus, the Banking Bureau and the Securities Bureau are opposed to each other in order to protect the interests of their respective client industries. Several factors, however, facilitate inter-bureau cooperation. The most important is the rotation of the personnel, generally every two years. A person who is a Banking Bureau official this year may be in the Securities Bureau in the next. "The MOF is willing to sacrifice some degree of technical specialization to the higher goal of intra-ministerial coordination" (Rosenbluth, 1989: 19). Regulatory powers over the banking sector are monopolized by the Banking Bureau of the MOF in the Japanese state structure. Countries adopting the federal system, such as the United States, Canada and Australia, have a dual banking system; responsibilities for bank regulation are divided between federal and state governments (Pauly, 1988: ch. 2). In countries with an unitary system, regulatory power is usually shared by several authorities including a central bank. In Japan, although the Bank of Japan has some influence on banks, it is exercised under the supervision of the MOF. Regulatory power over banks is centralized to the MOF. As mentioned before, many aspects of the post-war Japanese financial markets have been regulated by the MOF, to the point where it was often referred to as the "Convoy System." Just as transport ships are grouped together when crossing the high seas in wartime, to enable the fast escorts to protect the slower transports and cargo vessels, the Japanese financial system was characterized as one in which the large, efficient banks observed the slower pace set for the small and inefficient banks. The business of the MOF before the late 1970s consisted of three tasks; the regulation of business activities, interest rates, and foreign participation. First, the MOF was responsible for enforcing the boundaries of segmented markets. The business which each type of financial institution is permitted to engage in is limited by laws, orders and administrative guidance. This is also done through an organizational method (Home, 1988: 173). That is, the Banking Bureau is solely responsible for overseeing the activities of banks, while the Securities Bureau is solely responsible for administering the activities of securities firms. Each of these bureaus is further subdivided. For example, the Banking Bureau is divided into three sections, each responsible for a different sub-sector of banking. The MOF is responsible for maintaining order within each area of finance as defined by the boundary lines. In the field of banking, the Banking Bureau controls the expansion of banks (the opening of new branches) and the types of financial instruments the institutions can offer. The Securities Bureau likewise exercises strong control over the opening of new branches by securities firms,

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new entry into the bond market, characteristics of the bond market, and returns of securities. Second, the MOF regulates all kinds of interest rates along with the Bank of Japan. In the case of interest rates on bank deposits, the Temporary Interest Adjustment Law passed in 1947 gave the Policy Committee of the Bank of Japan the authority to set the upper limits on interest rates in many different areas. In addition, interest rates not covered by this 1947 law, such as long-term prime rates, are set by the MOF. All these results in a highly regulated system in which all interest rates are tied to the official discount rate. The role of the MOF in this field is to coordinate all other interest rats with the discount rate. Third, the MOF has control over foreign parties. Financial officials tightly controlled the flow of foreign and domestic capital to and from Japan by using the Foreign Exchange Law, in order to maintain Japan's international balance of payments at a given level. It was necessary to shut out any foreign influence in order for domestic regulations to function effectively. If the inflow and outflow of capital were not regulated, the domestic system of regulated interest rates could easily be circumvented, thereby undermining the system. The strength of the MOF over the banking sector might have been emphasized so far, as if the ministry had kept all the power vested in it during wartime even after the post-war reform efforts. The post-war regulations, however, did not constitute a full revival of the wartime controls. Among others, the Emergency Funds Adjustment Law, which was enacted in 1937 to require banks to obtain governmental approval for large investments in order to choke off funding for non-essential industries, was nullified by the American Occupation. Similar controls over the allocation of short-term credit established in 1940 were also relinquished as the Occupation's programs of financial demilitarization were proceeding (Cohen, 1949: 85). Because central regulation of credit allocation has not been re-established since the 1950s, the MOF had to resort to "administrative guidance" to direct the lending practices of private banks in the post-war period. In short, even the MOF has no power to direct the banks to lend funds to the specific firms and industries in the post-war era. There was another measure which the MOF could take. If it wanted to allocate credits selectively, it was able to rely upon the Bank of Japan, which controls the supply of money to the economy through "window guidance." The relationship between the BOJ and the MOF will be examined in the next part.

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The Bank of Japan

The bank of Japan has never been independent of the government since its foundation in 1882. From 1931 it was increasingly used as a tool of the militarist administrations to finance national interests and support the central coordination of credit allocation. In 1942 the Bank of Japan Law was revised to confirm the bank's subservience to the government. The MOF was given to issue direct orders to the bank's management and dismiss any noncooperative officers (Bank of Japan Law, Chapter IV). The law, modeled on the German 1939 Reichsbank Act decreed "the Bank of Japan shall be managed solely for the achievement of national aims" (Bank of Japan Law, Chapter I, Article 2). The framework of law was not revised during the American Occupation and remained effective. In terms of institutionalist perspective, the Bank of Japan is one of the least independent central banks in the developed countries (Mabuchi, 1994: 64-71). The official lengths of the terms of members of central banks' governing bodies vary from a high of fourteen years to a low of three years. Two of the three central banks widely regarded as having some significant degree of independence like those in the United States, Germany, and Switzerland, are at the upper end of the scale; fourteen years in the United States and eight years in Germany. In Japan, the official length of term in office of members of the central bank's governing body is four years, which is almost at the bottom end of the scale. Among central banks in developed countries, it is only at the Bank of Japan that the top officials shall be removed at the discretion of the appointing authority (the Cabinet). Also only the Bank of Japan is under the command of the government, specifically as well as generally. It is also audited by the government instead of an auditing authority, which is more ore less independent of the government. As for goals of a central bank, the Bank of Japan is expected to pursue "national aims" rather than to stabilize the value of the currency. The institutional dependence of the BOJ on the government, along with a traditional sentiment among the public regarding the relationship between the government and central bank, seems to decrease its behavioral independence. During the Occupation, the Japanese banking system, including the central banking system, became a target of American reform efforts. In 1948, the Finance Division called for the establishment of a Banking Board with Cabinet rank, which would be independent of partisan and bureaucratic influence and vested with broad powers. This proposal aimed to reorganize the BOJ, the MOF and their relationship. First, the BOJ was to have no policy making role, but was to be charged only with implementing the programs determined by the Banking Board. Second, the BOJ was to be freed

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from the domination of the MOF. The American Occupation proposed to establish a Banking Board much like the Board of Governors of the Federal Reserve in the United States. The proposal was to make the Japanese central bank independent of the government by reorganizing "the Banking Board as the architect and the Bank as the builder of Japanese monetary policy (Tsutsui, 1988: 79). The proposal was not, however, realized after all. From the standpoint of the policy makers in Washington, it was very doubtful if the establishment of the Banking Board would help to resolve the most urgent problem which the Japanese economy was facing, that is, inflation. The Bank of Japan opposed the proposal because it did not want to be downgraded to the policy tool of the Banking Board. Among others, Governor Ichimada was the most critical to the reorganization plan. The MOF was also opposed to the proposal because the Banking Board would deprive the MOF of regulatory powers over the banking sector and financial policy making function. Although the MOF's reaction to the proposal is understandable, the BOJ's might not be. If the Banking Board was established, the Japanese central bank could not acquire an independent status for the first time. Considering the existing dependence of the BOJ to the MOF, the BOJ's negative reaction to the proposal is still more incomprehensible. Even if the Banking Board were established and the BOJ were put under its control, the position of the BOJ in the state would not have been altered so much because the BOJ had already been under the control of the MOF. But we have to pay attention to the fact that the BOJ enjoyed de facto independence of the MOF during the Occupation. Because the MOF along with other central ministries was under attack by the GHQ and might be dismantled, it could not afford to control the BOJ. As a compromise, a Policy Committee was organized within the framework of the BOJ. The committee was to be concerned with policy making and the actual implementation of its decisions would be carried out through the existing bank mechanism. The legal organization of the BOJ was changed so that the committee could assume the position of what had previously been the role of the Governor. But the BOJ remained under the effective control of the Governor for several reasons. First of all, the Governor, who was the ex-officio member of the committee, succeeded in assuming the speakership of the committee. It was alleged that bank executives, including Governor Ichimada, worked upon other members to vote for the Governor in mutual election for the speakership. The result of the first election established a precedent and since then the Governor automatically has become speaker. Second, a secretariat was set up in the BOJ and the members of the committee did not have their own research staff. Third, Ichimada consciously broke communications between the committee and the working

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divisions of the BOJ so that the committee was not given information it needed to decide financial policies by itself. All other efforts were devoted to restricting the activities of the committee. Put shortly, the operational structure of the BOJ was left unaltered even after the committee was founded. As for the relationship with MOF, some substantial monetary powers such as the determination of the discount rate, establishment of rates of interest for the financial institutions, and regulation of market operations, were transferred from the MOF to the committee. But it was not granted legal independence from the government because the ministry maintained control over it. MOF's control over the Governor was only changed into control over the committee. Significantly, key supervisory responsibilities such as the authority to examine banks, grant licenses and regulate branching were not transferred to the committee, but remained under the control of the MOF. in short, "the war time 'chain of command' stretching from the bureaucracy to private-sector finance via the Bank of Japan was not broken" (Tsutsui, 1988: 86). Central banks, generally speaking, prefer economic stability, unlike governments, which prefer economic growth. If central banks are independent enough to behave as they wish, they would like to pursue a tight monetary policy rather than an easy monetary policy, even if governments commit themselves to a pro-growth, low-interest policy (see Alesina, 1989). The dependent status of the BOJ probably enabled the government to formulate a growth-oriented financial policy. First, the government could both set long-term loan rates and rates paid on deposits at a level below those that would have resulted had these rates not been administered. In reality, regulated interest rates were usually higher than the call rate (the short-term inter-bank interest rate). Second, because the M O F and the BOJ maintained low-interest policies, "indirect finance" took root in the Japanese financial practice. The number of lenders being very few in this system, prospects of industries offered by the government were easily circulated among them. Third, "the credit-based, administered-price system" encouraged excess demand for loans at the controlled rate, and helped the MOFBOJ to allocate credit selectively to large firms in industries adopting new technology, increasing productivity and expanding exports. Although it is not yet resolved among economists whether or not window guidance was effective in controlling the total amount of bank's lending,5 there seems to be a consensus that city banks mostly followed in the BOJ's guidance. It is sufficient, therefore, to note here that the BOJ "as a strong obligee" 5

As for the recent controversy over the effectiveness of window guidance, see Furukawa (1980); Horiuchi (1977); Kuroda (1979).

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(Chosakyoku, 1967: 80) would be able to influence the lending patterns of city banks through window guidance to the extent that they had committed to industrial strategies. Before we examine the degree of commitment of financial authorities to industrial policies, we should examine the third ingredient of the state responsible for industrial policies through financial markets, that is, the Ministry of International Trade and Industry.

3.3

The Ministry of International Trade and Industry

Until the mid 1960s, MITI had a variety of tools for industrial policies at its disposal. The most important one was the power to allocate foreign exchange (dollar) selectively, based on the Foreign Exchange Law which was in effect until 1964. Since most Japanese firms required imported raw materials and foreign technology, the ministry exercised this power to guide firms in their decisions on the rate of capacity increase and to affect the timing, composition, and allocations of the flow of new technology (Eads and Yamamura, 1987: 432). The liberalization of trade which has advanced gradually since 1961 deprived MITI of this power, however. Since 1967, MITI has also lost its power to permit firms to introduce foreign technology, start joint undertakings with foreign companies, and so forth, due to the process of liberalization of investment. Faced with an upcoming cutback in its legal powers, MITI tried in 1962 to enact a law which would enable it not only to preserve existing powers over the industrial sector, but also to obtain new powers over the banking sector. This was the Temporary Measure for the Promotion of Designated Industries. The basic plan of the Temporary Law was designed in the Organization Committee of the Industrial Structure Research Council (Sangyo Kozo Chosakai Taisei Bukai) set up in 1961 as an advisory body for the Minister of International Trade and Industry (the council was reorganized into the Industrial Structure Council in 1964). The Organization Committee consisted of seven members, but didn't include representatives of private banks nor firms.6 The organization of the committee illuminated that MITI had no intention to listen to the voices of the affected interests in framing the plan. After receiving a report of committee, MITI embarked upon the drafting of the law. In the drafting process, a clause regarding fund allocation was 6

Although the President of Federation of Economic Organizations (Keidanren) member of the Division, he retired from active business.

was a

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the most controversial. A draft provided that representatives of industries and bank, ministers and scholars should select industries which were strategically important in international competition and decide the measures which would promote them. In this framework, banks would be required to supply investment funds to the targeted industries. Because the banks did not want to be constrained in their lending practices by outsiders, however, they insisted that they would take part in shaping the measures but would not bear the responsibility for implementing them. The banks repeatedly worked upon the drafters to loosen the binding force of the measures. Their efforts brought about a significant result. In the original draft, the banks were supposed to fund the targeted industries based upon the provision "following the measures." The provision was altered to "respecting the measures" in the second draft and then was toned down to "considering the measures" in the third. The final draft said that the banks fund "taking the purport of the law into consideration." The binding force of the clause was weakened in comparison with what MITI initially expected. If the law had been enacted, however, MITI would still have been able to administer banks' business. The MOF was negative towards the law proposed by MITI. Not only were they speaking for their clients in opposing MITI's proposal, but also they didn't want MITI to break into their jurisdiction. Hie banking sector was the MOF's sanctuary where nobody else was permitted to enter. It was also an important supplier of post-retirement jobs to financial officials. Moreover, MITI asked for more power than the MOF had seized over banks. Even the MOF had no authority to direct the banks to fond the specified industries. It was reasonable that the MOF found even minor faults in the law and made complaints against it. The bill, which was submitted to the Diet in 1963 after negotiations among the parties whose interests would be affected, granted MITI less power than the original plan assumed. Nonetheless, MITI encountered opposition from almost every direction. The industrial sector, whose representatives had not been invited to the deliberation process in the committee, did not dare give the government the key with which it could decide their life or death. The banks and the MOF persistently managed to emasculate the law. The opposition parties harshly criticized the proposed law because it would violate the Antitrust Law. They also denounced the law as a relapse toward the pre-war era during which the government coordinated credit allocations for munitions industries. Although the governing party or the Liberal Democratic Party (LDP) did not oppose it overtly, it was not prepared to go so far as to steamroll opposition of banks, industries and the opposition parties. The Temporary Measure was rejected by the Diet after all. Thereafter MITI submitted the same law to the Diet twice, only to trace the same path.

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Thus an attempt of MITI to be "a line agency" for financial policies ended in a failure. There was no other way left for MITI to take a role of "a staff agency" which was attached to the financial authorities. MITI obtained a lesson from this miscarriage. That is, in order to lead industries successfully, it had to consult them in advance. As many observers have pointed out, MITI has since then developed extensive networks with industries through such methods as inviting their representatives to councils.

4

The Structure of Policy Networks

4.1

Financial Policy Network

Generally speaking, the MOF relies most heavily upon administrative guidance among all the ministries although it is an ubiquitous process for enforcing public policies in Japan. Certainly the Banking Law enacted in 1927 vested the MOF with regulatory authority over banks, but it was too simple to work by itself. It left much to interpretations because it consisted of only 37 articles.7 The Banking Law functioned as a broad framework, and the actual administrative actions were carried out through administrative guidance, mostly in written form but on occasion orally. Notifications and other administrative guidelines issued by the ministry covered everything from regulations over the Banking industry as a whole to regulations of day-today operations of individual banks. A collection of notifications issued annually is published as a book with more than 1,000 pages, which doesn't include all notifications. The effectiveness of administrative guidance as a means used by the government to encourage the private sector to take actions the government deems necessary has been emphasized. It has been argued, although administrative guidance is an injunction without coercive legal effect to encourage the regulated to behave in certain ways, they know that yielding a little can reap rewards now and later in another aspect of their relationships with the ministries. 1

This simplicity itself is a major reason why the old Banking Law was able to survive in the totally different political and economic environments of the pre-war, wartime, and post-war periods. The Banking Law functioned with the support of such related laws as the National Mobilization Law and the Special Law for Military Finances during the pre-war and wartime periods and was able to survive alongside such laws as the Anti-Monopoly Law mainly because the Banking Law was simple and left much to interpretation. The law was revised in 1982.

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As John Haley pointed out, however, "administrative guidance should be treated as a generally weak means of enforcing governmental policy, one which absent formal controls and sanctions leaves room for maneuver and manipulation by those being regulated (Haley, 1986: 122). The extensiveness of administrative guidance should not be considered as an indicator of state strength, as Richard Samuels (1987) suggested. The MOF, which was alleged to be the strongest ministry in Japan's bureaucracy, cannot be an exception. Even if the MOF issued a notification to regulate banks' lending practices, they would be able to ignore it. In the case of ceilings on compensating balances, for instance, banks repeatedly failed to meet the ministry's guideline without being subject to any sanctions. The effectiveness of bureaucratic discretion thus must not be exaggerated. Rather than rely on its limited array of sanctions, the bureaucracy has sought to maintain close working relations with the sector under its jurisdiction, building up the credibility necessary to secure voluntary compliance (Rosenbluth, 1989: 22-23). The MOF and the banking sector successively exchange their views in what Peter Katzenstein calls "nodes of the policy network" (Katzenstein, 1987: 35). In addition to the Federation of Bankers' Associations, the umbrella organization for the banking industry, each type of bank forms its association such as the City Bank Roundtable, the Federation of Regional Bankers' Associations and the Federation of Mutual Bankers' Associations. Credit associations and Credit cooperatives organize their own national federations as well. These voluntary organizations are forums where banks forged common positions vis-à-vis the MOF and where the ministry held consultations with them regarding financial policies. Representatives of banks are also given opportunities to express their opinions in advisory councils in the MOF such as the Committee on Financial System Research and Financial Problems Research Group. 8 In addition to these formal organizations, industrial policy network also includes informal relationships between government officials and financial leaders. Informal networks give the MOF and the BOJ leeway to discuss problems, work out differences, and build consensus with the banking sector. The MOF and the banking sector thus make up the financial policy network. They are entangled in such a densely woven fabric that they need mutual collaboration to walk their ways.

8

As for the difference between the two bodies, see Home (1985: 79-85, 95-96).

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Industrial Policy Network

A network between MITI and the industry sector is more extensive than that of the MOF mainly because MITI is given less legal authorities over related industries than the MOF. What Chalmers Johnson called "public policy companies" are examples of nodes of policy network, such as public corporations (kosya), public units (kodan), government enterprises (seihu kigyo), special companies (tokusyu kaisya), and auxiliary organs (gaikaku dantai) (Johnson, 1978). There are 33 deliberation councils in the ministry in 1981, including those of no legal standing. The Industrial Structure Council, which was the biggest and most famous, consists of several divisions, such as the Iron Division and the Chemical Industry Division. The practice of employing retired government officials as executives of private companies, that is, "descent from heaven" (amakudari), is extensive within the Japanese bureaucracy. The MITI officials go to the related companies such as steel and oil refining, the related trade associations such as Japan Shipbuilding Association, and "public policy companies" after retirement. The MOF officials find their second jobs in private banks, bankers' associations and so on. Career mobility from government to business is usually interpreted as the consequence of government efforts to penetrate business decisions (see e.g. Curtis 1975: 45). At the same time, however, it is the consequence of business efforts to influence government decisions. As Kent Calder (1989) pointed out, in key industries for the economy such as banks, constructions and communications, retired officials descended to relatively small-scale companies rather than leading companies which were strategically more important for MITI. Descent from heaven gives small companies with otherwise weak influence access to the economic policy making process in the government. MITI and the industrial sector thus make up the industrial policy network. Industrial policies are developed in this framework.

4.3

Between Industrial and Financial Policy Networks

After MITI lost its legal authority for the industrial sector in the process of liberalization, and failed in enacting the Temporary Measure for the Promotion of Designated Industries, it was left with some effective tools which it could utilize in order to lead industries toward the ministry's purpose. Subsidies, tax exemptions and governmental loans are examples. The ministry used these both as carrots and sticks in influencing firm's decisions. Most tools for industrial policies which MITI can mobilize are, however, not under an exclusive control of MITI. In order to ensure subsidies for a targeted

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industry, for instance, MITI has to present a budget request to the Budget Bureau of the MOF and get its approval. The amount of subsidies which MITI can allocate to industries depends to a great degree upon the MOF's decision. In the same way, in order to give tax exemptions to a certain sector, MITI must get the approval of the Tax Bureau of the MOF. The determination of industrial policies through the manipulation of budgets and taxes are not decided solely by MITI but are "settled in conjunction with the MOF" (Ojimi, 1975: 103). MITI's capacity to implement industrial policies through the control of financial markets is still more limited by the presence of the MOF and the BOJ. The banking sector, the main supplier of capital to the industries in Japan, is under their jurisdiction. MITI lacks authorized tools which it needs to influence the flow of funds from the banking sector to the industrial sector. It also has no effective interface with banks. In order to affect banks' decisions, MITI has to rely upon MOF's influence over them. The most important fact concerning the implementation of industrial policies through the control of financial markets is that on the one hand the MOF had neither regulatory powers over nor communication circuits with the industrial sector, while on the other hand MITI had neither regulatory powers over nor communication circuits with the banking sector. Put shortly, the two policy networks were "patterned" along the line of established bureaucratic jurisdictions, as Muramatsu and Krauss (1987) characterized the Japanese political system as a whole. The MOF had no interface with the industrial sector. In this respect, the MOF is critically different, although very similar to it in other features, from its French counterpart, which is closely involved in the supervision of industrial policy (Hall, 1986: 243). The Budget Bureau of the MOF, for instance, which is a target for all interest groups, including trade associations, to work upon, tends to avoid direct contact with them mainly because budget examiners are afraid of being "captured" by them. In the case an official of the bureau needs additional information to examine a MITI's request for industrial subsidy for the following fiscal year's budget, he therefore sends questions to MITI's officials rather than to representatives of the related industry. 9 The Financial Bureau handling "the second budget" or the Fiscal Investment and Loan Program (FILP) also stands at arm's length from industries for the same reason. According to Daniel Okimoto (1989: 88) the Tax Bureau decided on tax exemptions for industries, by first de9

Although interest groups occasionally provided useful information to the Budget Buerau because their perceptions of their own interests might differ from those of the requesteing ministry, as John C. Campbell (1977: 59) noted, such a meeting was held only in an ad hoc way.

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termining the total amount of exemptions which will be given to the industry as a whole after negotiations with MITI. Thereafter, the Tax Bureau delegates to MITI the allocation of exemptions among industries; MITI can grant freely special tax exemptions in whatever amounts it deems appropriate for industries of its choosing as long as it stays within the limits of the agreed-upon aggregate ceiling. This method is necessary also because the Tax Bureau lacks detailed information on the industrial sector. The same thing holds true for three financial bureaus. The Banking Bureau and the Securities Bureau are responsible for the banking sector and the securities sector, respectively. The International Finance Bureau shares responsibility with those two bureaus when international activities of financial institutions are involved. In order to grasp the circumstances surrounding financial institutions, these three bureaus have built formal and informal networks with them. But the three financial bureaus do not have such networks with non-financial companies. As a result, they have little opportunity to obtain information they need to form industrial policies, such as information on new industrial technologies, trends of markets, and promising industries in the future. The MOF, put starkly, is not equipped for developing industrial policies. Therefore, the MOF has to "buy" them from MITI so that it will be able to direct loans as long as the MOF commits itself to the high growth policy. MITI in turn has no interface with the banking sector, to say nothing of powers over them. They have been eager to develop close working relations with industry, but not with the banking sector. Since its failure in passing the legislation of Temporary Measure for the Promotion of Designated Industries, it has refrained from breaking into MOF's turf. An exception was the Industrial Finance Committee set up in the framework of the Industrial Structure Council. The committee, making one-year plans for the coordination of banking loans with investment needs in industry, was supposed to be an institution where industrialists, bankers and bureaucrats developed plans for coordinating investment. It was the sole body organized in MITI that elaborated policies for the allocation of financial resources through private banks. The committee, however, hardly functioned as an effective linchpin linking the financial policy network and the industrial policy network. First of all, banks sent very few representatives to it because they were cautious enough not to commit themselves to the regulatory funding plans, as shown in the case of TMPDI. As a result, financial coordination through the committee was not performed very well. In the one-year period of the 1961 plan, for instance, lenders missed allocation targets by an average of nearly 6 percent in most industries and by 11 percent (cement) and 21 percent (paper) in others. In 1962 industries for which planned investment targets were missed by over

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10 percent included petroleum, petrochemical, ammonium sulfate, electronics, and paper, and in 1963 the average variance from targets was again 6 percent (Friedman, 1988: 207). The discrepancies between planned and actual allocations suggests that banks made loans according to their own criteria to a considerable measure. A more important point is that banks did not suffer any retaliation from a disappointed MITI even though they did not follow plans sponsored by it. MITI lacks other opportunities to give retribution to uncooperative banks, immediately or at a later date. In short, MITI is not equipped with implementing industrial policies through action in financial markets. Therefore, MITI has to "sell" them to the MOF if it wants to realize such policies. Industrial policies developed in MITI would be transmitted to the MOF through several roots. Among them, special measures for targeted industries drafted by MITI were the most important, such as Temporary Measures for the Promotion of the Machinery Industries and Temporary Measures for the Advancement of Designated Electric and Machinery Industries. Although "the promulgation of a regulation or a law is not the same as proof of its effectiveness," as David Friedman (1988: 4) pointed out, enactment of such industry-specific measures tends to be regarded by the MOF as a sign of strategically important industries and is possibly used for guiding private banks' loans via the window guidance of the Bank of Japan. For the Japan Development Bank (JDB) as well, which has close ties with the MOF rather than with MITI in terms of personnel organization, those special measures seem to be useful to know which industries would be promising. The JDB, as a bank's official noted, furnished funds selectively to the industries which special measures were enacted to promote (Jyunen-shi, 1963: 137-138). JDB's loans, being looked upon as indicators of industries that the government was prepared to support in many other ways, helped them to extract loans from private banks. Linkage of enactment of special laws, through the Development Bank's loans, with private banks' loans are, however, not always straightforward. For industries to draw money from private banks, JDB's loans were not as critical as expected even at an earlier stage of the high growth economy. Let me examine briefly a chronological sequence of the enactment of the Temporary Measures for the Promotion of the Machinery Industries of 1956, JDB's loans, and private bank's loans in the 1950s. Among the big five companies in the machine tool industry, i.e. Hitachi Seiki, Ikegai Tekko, Toyota Koki, Toshiba Kikai and Ohsumi Tekkosyo, it was only Ohsumi Tekkosyo that began to borrow a large share of investment funds from private banks after the law was enacted and JDB started its loans. The other four companies borrowed a significant share of investment funds from pri-

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vate banks before the law was enacted (Sawai, 1990: 151-152). Among them, Toshiba Kikai borrowed from private banks even before JDB's loans started. This illuminated the fact that a time lag took place by banks' own research activities even if banks followed the government policies. It also suggested that banks would decide on their own criteria and make loans to industries before they were targeted. As the case of Toshiba Kikai showed, the main bank in an enterprise grouping (keiretsu) might supply funds to affiliated companies whether or not they belong to a strategically important industry designated by MITI. It will be relevant to remark here that one of MITI's objectives on the Temporary Measure for the Promotion of Designated Industries was to break the established financial practices in enterprise groupings which tended to feed money to industries which were insignificant from MITI's standpoint. Following the enactment of special measures, MITI submits to the MOF their budget requests which contain subsidies and tax exemptions for the targeted industries. Such budget requests tell the MOF MITI's priorities in more precise and concrete manner just because they are shown numerically. Documents such as councils' reports and MITI's white papers might be useful for the MOF to get an idea of MITI's "vision" in a longer perspective of time, in particular since the 1970s (Kitayama, 1990), as long as busy MOF officials spend time reading them seriously. We should pay attention to the fact that the MOF would not have complied with industrial policies developed by MITI without a critical evaluation of such policies. The MOF has elaborated its own way of examining other ministries' policies as a budget examiner. It will be helpful here to listen to an observation of Aaron Wildavsky and Hugh Heclo on the British Treasury. They portrayed an ideal type of a financial official as "an able amateur" and said the following: A great deal of his behavior can be deduced by assuming that he must make a large number of complex decisions in a short period of time without being able to investigate any of them fully. He relies on ability to argue, to find internal contradictions, to pick out flaws in argument whose substance he has not fully mastered and of whose subtleties he can only be dimly aware (Heclo and Wildavsky, 1974: 60).

This refers to, strictly speaking, the behavior of budget examiners in the financial ministry. It is also, however, applicable to MOF officials in charge of financial policies who attempt to examine industrial policies. They would analyze MITI's policies with "lay skepticism," that is mistrust of technical professions, self-serving private interests and sophisticated quantitative analyses (Heclo and Wildavsky, 1974: 44-45). Some MOF officials might compare MITI's comments with information they happened to obtain from banks dealing with industrial companies. Although banks' information is

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usually firm-oriented rather than sector-oriented, it will give financial officials a vivid, though fragmented image of industries, which they otherwise cannot obtain. Such fragmented information may not be sufficient for financial officials to develop policies by themselves, but will be useful when criticizing MITI's policies. After the MOF is convinced that MITI's policies are promising or at least will not damage banks' business, in turn it will send the signals to the banks to follow MITI's policies. Then the banks will examine the government's policies on their own criteria and may follow them when they are convinced such policies are acceptable. Even if the banks ultimately followed MITI's policies, there would be a time lag between MITI's policy decisions and the banks' implementation of such policies, as mentioned before. Because the financial policy network and the industrial network are coupled only loosely, industrial policies through financial markets are decided and implemented in a disjointed manner (Braybrook and Lindblom, 1963). MITI develops industrial policies after extensive and intensive consultation with the related industries. They are transmitted through several roots to the MOF, which in turn examines and evaluates them in perspectives different from MITI's. Then the policies which gained MOF's confidence would be passed to the BOJ or government affiliated banks such as JDB. They will also screen them on their own criteria, although the range of their discretion is not so wide. Finally, signals are sent to banks. Because banks are sensitive to both MOF's administrative guidance and BOJ's window guidance, they will refrain from ignoring them completely. When they think the following government policies would be unprofitable, and what is worse risky to them, however, they will manage to sabotage the policies. Industrial policies implemented by banks therefore have been already endorsed by many related actors. It would be fair to say that industrial policies which survived the long process are of proven quality. Thus, because the two policy networks have been loosely coupled, industrial policies through the financial market could avoid Type One error. The same system might have committed Type Two error as Kent Calder suggests in Strategic Capitalism. He describes the policy process of industrial finance in Japan as an enduring struggle between the strategists such as MITI officials and the regulators such as MOF officials. Japan is depicted as "a fragmented state" (Calder, 1993: 103). He says, "Rivalry ... has been a persistent theme of post-war Japanese bureaucratic history, undermining the struggle of state strategists for a coherent, unified approach to industrial development and rendering the Japanese state much more reactive in its policy making than the conventional wisdom generally suggests" (1993: 151). As a result of this rivalry, Calder argues, industrial policies through credit allocation are "rigid, cautious, and reactive, rather than entrepreneurial" (1993:

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103). Looking at the impressive performance the Japanese economy has achieved, however, damage caused by policy deadlock seems to be minimal. We should say, even the regulators have viewed a pursuit of the high growth policy as in the national interest.

5

Mode of the Linkage

So far I examined the nature of policy networks in terms of the relationship between the bureaucracy and the economy. The role of the governing party, the Liberal Democratic Party (LDP), has not been mentioned yet. In this section, I will focus on the LDP's relation with the financial network. As everyone admits, the most important role of the LDP is to have maintained stable circumstances for the economy as a whole and the second was consistently supporting low interest policies, put differently, maintaining growth-oriented economic circumstances. Without backing from the LDP, usually latent but sometimes openly, the MOF would not have been able to influence the BOJ's decisions of interest rates. The LDP's role, however, stops here. Thereafter, the LDP has delegated decisions regarding financial policies to the MOF, whether or not they were related to industrial policies. Banks, at least the big banks, have made large contributions to the LDP since its formation in 1955. The banking industry has been one of the "Big Three" private-sector funders of the annual contributions to the LDP, along with the electric power and the steel industries (Curtis, 1987: 173). The banks' total publicly reported political contributions consistently have amounted to about 20 percent of private industries combined contributions. Each of the city banks reported contributions to the LDP on an order of 6575 million Yen annually (Iwai, 1990: 115). It may be assumed from this fact that the making of financial policy is highly politicized. The LDP politicians seemed to intervene heavily in the policy process to pay their debt to the banks. The making of financial policy is, however, apolitical as a whole. The banking industry generally avoided becoming too close to individual politicians even if they had a great deal of influence. The banks distinguished the making of lump-sum contributions to the LDP from contributing to individual influential politicians. Put differently, they paid an insurance fee, as it were, for the generally favorable environment provided the LDP's conservative and stable rule. The LDP left policy formulation and implementation in financial matters to the bureaucracy much more than in other policy areas. It seems that the

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LDP has avoided being involved in disputes on financial policies. This attitude of the LDP is in a sharp contrast to that in the budgeting process. There are at least two reasons explaining why LDP politicians refrained from intervening in financial policy making, other than a seemingly plausible explanation that financial policy is too technical for them to comprehend. First, the LDP politicians could not take a rash step toward helping banks because they had to take care not only of banks but also of their rivals, securities firms. The securities industry is another important supplier of political funds to the LDP. Securities companies gave less than banks in publicly reported annual donations, but probably gave more through the "back door." It is widely alleged that securities companies gave politicians "insider's" information on good stock purchases, then effected a price increase through concentrated efforts and told the politicians when to sell for a handsome capital gain before the stock dropped back again (Rosenbluth, 1989: 38). The securities industries is, in short, another important constituency of the catchall LDP. The interests of banks and securities firms are, distressfully for the LDP, of zero-sum relation in many fields. If LDP's interventions favor the banks at the expense of securities firms, the LDP will lose securities firms' support in exchange for getting banks' support. As a result, the LDP had to keep its balance between the two sectors, or at least, show that it stood neutral in relation with the two industries, in order to avoid a decrease of net support after its efforts. The most efficient way of doing so is not to intervene in policy disputes affecting financial markets. Indeed, the LDP shows a strong preference for delegating to the MOF delicate balancing operations between Japanese banks and their rivals, the security houses for fear of alienating either groups. Delegation to the bureaucracy avoids or disguises political responsibility for the consequences of policy measures that may inflict some damage or supporters (Rosenbluth, 1989: 26-27).

When the MOF deals with competing claims of the banking and securities industries in issues such as retailing in government bonds, intra-ministry conflicts sometimes take place. Because the ministry dislikes outsiders of the game including politicians and journalists to be involved in disputes, it searches quietly for a compromise. Second, the LDP also had to take care of the interests of banks' second greatest rivals, the postal service. Because the influence of post offices in putting together a winning electoral coalition is believed to be immense, their interests cannot be ignored. Although regulatory powers over banks are concentrated in the MOF, as mentioned before, the Japanese saving system is divided into the two sec-

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tors, bank savings and postal savings. The Postal Savings Law enacted in 1947, which has formed the basis for the operations of the postal savings system, established a decision making framework quite independent of the decision making framework which covered saving deposits held by private banks. While regulations relating to bank deposits are managed by the MOF, postal savings matters are managed by the Ministry of Posts and Telecommunications (MPT). Additionally, the two systems are postulated to be managed on different principles. On the one side, interest rates on postal savings should be decided upon a consideration of the social objective explicitly assigned to postal savings. The Postal Savings Law provided that the MPT should not only take into account interest rates offered on deposits by other financial institutions, but should also give consideration to the role of postal savings as a simple and safe means for small savings aimed at securing the economic well-being of the saver. On the other side, interest rates on bank savings aimed are considered at the cost of loan funds. Separate decision making frameworks caused conflicts between the two sectors, which were aggravated by differences with principles regulating each industry. There are over 20,000 post offices in Japan, and a majority of these are categorized as a "special post office." These special post offices differ from normal post offices in that their management received commissions on sales. Because the position of a postmaster is held in respect by the local people, the role of the post office network in the electoral support system for politicians can be significant. On average there are about 400 post offices in each electorate. The support of postmasters in the electorate through the local postmaster association can be of considerable importance if it is used effectively (Home, 1985: 123). There are potential variances between the two sectors which conduct similar business. They have sometimes come into overt conflict regarding interest rate decisions and the broader field of regulatory policies. Conflicts between the two sectors on interest rate decision making repeatedly happened when the MOF planned to lower bank savings interest rates and requested the MPT to lower postal savings rates. On those occasions, the LDP has supported the position of the MPT and post offices against the MOF's intention. Among issues concerning the major changes of financial frameworks, two cases are well-known as illustrating how banks and post offices came into conflict and how the LDP was drawn into the decision making process. One is the MPT pension plan and the other is the green card system. In both cases the LDP took the side with the MPT and post offices and influenced policies to their advantage. An absence of the LDP in the financial policy making seems to have a significant impact on the nature of the financial policy network. First of all,

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it kept the opposition parties away from financial policies. Because the LDP rarely articulated its positions in particular issues, the opposition could not find chances to challenge the government's policies that affected people's well-being, such as low bank deposit yields or unfavorable terms of consumer credit. It was in the postal savings rate issue that the LDP took a stand on financial policies. When the MOF requested the MPT to lower postal savings rates, however, the opposition parties were covertly allied with the LDP in supporting the MPT. If the LDP intervened constantly in financial policy making the opposition would also be involved in it. This happened in the budget making process. As Yukio Noguchi (1982: 129) pointed out, the basic function of the national budget in the rapid-growth era was to adjust distortions caused by the imbalance of the rapid growth. This redistributional feature of the budget was brought in largely by competitions between the government and the opposition. One of the likely consequences resulting from the LDP's intervention in financial policy making would be higher bank deposits rates, which would raise the cost of capital for industries.

6

Conclusions

During the period of high growth, savings consisted primarily of deposits made by individuals, whereas massive investments made by private corporations used up these savings. Private corporations made up for their money shortage by borrowing from the banks for capital investment. This practice led to high rates of investment as a proportion of GNP, but it also led to the phenomenon of "overborrowing." Prohibition against borrowing abroad also fostered overborrowing at home. Overborrowing, in turn, prompted "overloans" by banks, which loaned more money than was prudent because they knew that the Bank of Japan would guarantee such loans. The twin phenomena of overborrowing and overloans, together with the policy of artificially low interest rates, formed the basis for the influence exercised by the MOF and the BOJ over private banks and the influence by banks over non-financial corporations. Since the first oil crisis in 1973, however, the flow of money within Japan has changed gradually. Private corporations freed themselves from chronic money shortage. The escape by the private firms from money shortage meant not only a change in the structure of society but a change in the structure of the financial policy network. First, dependence of corporations on banks has decreased because they can invest with internal financing. Second, the financial authorities have suffered a relative loss of influence over

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private banks because banks depend on the BOJ's credit to a lesser extent than before. When MOF endorses the industrial policies developed by MITI, therefore they may be overlooked by banks. Even if banks are prepared to follow MOF's signals, corporations may ignore them. This means that private sectors become more independent of the economic ministries. This tendency has got stronger since the mid-1980s when the internationalization of the Japanese financial market became a hot issue between the U.S. and Japan. For a long time, the trade friction was something that was happening to somebody else, as far as the MOF was concerned. Industrial areas which the U.S. required Japan to open were almost under the jurisdiction of MITI. From about the time of the Yen-Dollar Committee 1984, however, the target of foreign pressure switched from MITI to the MOF. The U.S. government demanded structural changes in Japan's financial system. This was the first problem involving "structural impedients." An increase in foreign pressure thus stimulated financial deregulation and internationalization. Private corporations are able to raise money freely by issuing private bonds in the European market, to which the authority of the Japanese government doesn't extend. The "bubble economy" at the end of the 1980s was the result of financial liberalization.10 The policy networks concerning industrial finance in Japan are woven more loosely than conventional wisdom generally suggests. Ongoing deregulation and internationalization in the financial market would probably loosen them more.

References Alesina, Alberto (1989): "Politics and Business Cycles in Industrial Democracies," in: Economic Policy, 8, April. Braybrook, David and Charles Lindblom (1963): A Strategy of Decision, New York: Free Press. Calder, Kent (1963): Strategic Capitalism: Private Business and Public Purpose in Japanese Industrial Finance, Princeton: Princeton University Press. Calder, Kent. E. (1989): "Elites in an Equalizing Role: Ex-Bureaucrats as Coordinators and Intermediaries in the Japanese Government-Business Relationship," in: Comparative Politics, 21, No. 4. Campbell, John C. (1977): Contemporary Japanese Budget Politics, Berkeley: University of California Press. Cohen, Jerome (1949): Japan's Economy in the War and Reconstruction, Minneapolis: University of Minnesota Press. 10

As for two competing evaluations to the effects of the bubble economy and its break, see Tobioka (1992); Noguchi (1992).

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Curtis, Gerald (1987): The Japanese Way of Politics, New York: Columbia University Press. Curtis, Gerald L. (1975): "Big Business and Political Influence," in: Ezra F. Vogel (ed.), Modern Japanese Organization and Decision-Making, Berkeley: University of California Press. Drucker, Peter F. (1975): "Economic Realities and Enterprise Strategy," in: Ezra F. Vogel (ed.), Modern Japanese Organization and Decision-Making, Berkeley: University of California Press. Eads, George and Kozo Yamamura (1987) in: Kozo Yamamura and Yasukichi Yasuba (eds.), The Political Economy of Japan, Vol. 1: The Domestic Transformation, Stanford: Stanford University Press. Flaherty, M. Therese (1984): "Shikin Chotatsu," in: Daniel I. Okimoto et al. (eds.), Competitive Edge: The Semiconductor Industry in the U.S. and Japan, Stanford: Stanford University Press. Friedman, David (1988): The Misunderstood Miracle: Industrial Development and Political Change in Japan, Ithaka and London: Cornell University Press. Furukawa, Akira (1980): "Jissho Bunseki: Madoguchi Shido no Yukosei to Ginkojunbi no Jyuokansu," in: Toyokeizai Rinji-Zokan Shirizu, 54. Haley, John O. (1986): "Administrative Guidance vs. Formal Regulation: Resolving the Paradox of Industrial Policy," in: Saxonhouse, Gary and Kozo Yamamura (eds.), Law and Politics of the Japanese Economy: American and Japanese Perspectives, Seattle: University of Washington Press. Hall, Peter (1986): Governing the Economy: The Politics of State Intervention in Britain and France, Oxford: Oxford University Press. Hamada, Koichi and Akiyoshi Horiuchi (1987): "The Political Economy of the Financial Market," in: Kozo Yamamura and Yasukichi Yasuba (eds.), The Political Economy of Japan, Vol. 1: The Domestic Transformation, Stanford: Stanford University Press. Heclo, Hugh and Aaron Wildavsky (1974): The Private Government of Public Money: Community and Politicy Inside British Political Administration, Berkeley: University of California Press. Horiuchi, Akiyoshi (1977): "Madoguchi Shido no Yukosei," in: Keizai Kenkyu, July. Horne, James (1985): Japan's Financial Markets: Conflict and Consensus in Policymaking, Sydney: George Allen and Unwin. Horne, James (1988): "Politics and the Japanese Financial System," in: J.A.A. Stockwin et al. (eds.), Dynamics and Immobilist Politics in Japan, London: Macmillan Press. Iwai, Tomoaki (1990): Seiji Shikin no Kenkyu, Tokyo: Nihon Keizai Shinbunsha. Johnson, Chalmers (1978): Japan's Public Policy Companies, Washington D.C.: American Enterprise Institute for Public Policy Research. Johnson, Chalmers (1982): MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975, Stanford: Stanford University Press. Kaplan, Eugene (1972): Japan: The Government-Business Relationship, Washington D.C.: Department of Commerce. Katzenstein, Peter (1985): Small States in World Markets: Industrial Policy in Europe, Ithaca and London: Cornell University Press. Katzenstein, Peter (1987): Policy and Politics in West Germany: The Growth of a Semisovereign State, Philadelphia: Temple University Press. Kern, Horst and Michael Schumann (1989): "New Production Concepts in West German Plants," in: Peter Katzenstein (ed.), Industry and Politics in West Germany: Toward the Third Republic, Ithaka and London: Cornell University Press.

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Kitayama, Toshiya (1990): "Tsusyousangyousyo ni-okeru Gyousei Sutairu no Henka," in: Syakaikeizai no Henka to Gyousei Sutairu no Hen 'yo ni-kansuru Chyosaken 'kyu Hokokusyo. Kuroda, Iwao (1979): "Madoguchi Shido wo meguru Bunseki no Saikento," in: Kikan Gendai Keizai, Winter 1979. Mabuchi, Masaru (1993): "Deregulation and Legalization of Financial Policy," in: Gary D. Allison and Yasunori Sone, Political Dynamics in Contemporary Japan, Ithaka and London: Cornell University Press. Mabuchi, Masaru (1994): Okurashyo Tousei no Seijikeizaigaku (The Political Economy of the Financial Ministry's Control), Toyko: Chuokoron-sya. Makimura, Shiro and Tsutomu Tamaru (1991): Chihou Ginko, Tokyo: Kyoikusya. Murakami, Yasusuke (1982): "Toward a Socioinstitutional Explanation of Japan's Economic Performance," in: Kozo Yamamura (ed.), Policy and Trade Issues of the Japanese Economy: American and Japanese Perspectives, Seattle: The University of Washington Press. Muramatsu, Michio and Ellis S. Krauss (1987): "The Conservative Policy Line and the Development of Patterned Pluralism," in: Kozo Yamamura and Yasukichi Yasuba (eds.), The Political Economy of Japan, Vol. 1, Stanford: Stanford University Press. Nihon Ginko Chosakyoku (1967): Nihon Ginko: Sono Kino to Soshiki, Tokyo: Nihonginko. Nihon Kaihatsu Ginko Jyunen-shi (1963), Tokyo: Nihon Kaihatsu Ginko Noguchi, Yukio (1982): "The Government-Business Relationship in Japan: The Changing Role of Fiscal Resources," in: Kozo Yamamura (ed.), Policy and Trade Issued of the Japanese Economy: American and Japanese Perspectives, Seattle: The University of Washington Press. Noguchi, Yukio (1992): Baburu no Keizagaku (Theory on Bubble Economy), Tokyo: Nihonkeizai Shinbun. Ojimi, Yoshihisa (1975): "A Government Ministry: The Case of the Ministry of International Trade and Industry," in: Ezra F. Vogel (ed.), Modern Japanese Organization and Decision-Making, Berkeley: University of California Press. Okimoto, Daniel I. (1989): Between MITI and the Market: Japanese Industrial Policy for High Technology, Stanford: Stanford University Press. Patrie, Huge (1977): "The Future of the Japanese Economy: Output and Labor Productivity," in: Journal of Japanese Studies, Summer. Pauly, Louis W. (1988): Opening Financial Markets: Banking Politics on the Pacific Rim, Ithaka and London: Cornell University Press. Piore, Michael and Charles Sabel (1983): "Italian Small Business Development: Lessons for the U.S. Industrial Policy," in: John Zysman and Laura Tyson (eds.), American Industry in International Competition, Ithaka and London: Cornell University Press. Piore, Michael and Charles Sabel (1984): The Second Industrial Divide: Possibilities for Prosperity, New York: Basic Book. Rosenbluth, Frances McCall (1989): Financial Politics in Contemporary Japan, Ithaka and London: Cornell University Press. Samuels, Richard (1987): The Business of the Japanese State: Energy Markets in Comparative and Historical Perspective, Ithaka and London: Cornell University Press. Samuels, Richard (1987): The Business of the Japanese State: Energy Markets in Comparative and Historical Perspective, Ithaka and London: Cornell University Press. Sawai, Minoru (1990): "Kosaku Kikai," in: Shin'ichi Yonekawa et al. (eds.), Sengo Nihon Keiei-shi dai 2 kan, Tokyo: Toyokeizaishinposya.

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Tobioka, Ken (1992): Baburo no Keizagaku (Theory on Bubble Economy), Tokyo: Jitugyo no Nihonkeizai. Tsutsui, William M. (1988): Banking Policy in Japan: American Efforts at Reform During the Occupation, London and New York: Routlegde. Zysman, John (1983): Governments, Markets, and Growth: Financial System and the Politics of Industrial Change, Ithaka and London: Cornell University Press.

Industrial Policy in Germany: Old Issues and New Challenges Frieder Naschold

1

Introduction

"It is becoming increasingly clear that progress is being made as a result not of discussions at the macroeconomic level, but of structural-policy measures on the ground. It is these which we should now be implementing" (L. Späth). This quote from the former prime minister of Baden-Wuerttemberg and current managing director of the Jen-Optik in Jena, East Germany, illustrates rather well the ambivalence of structural policy in Germany. Since the end of the second world war, a macroeconomic approach has been clearly predominant in German economic policy and its theorization, varying only, according to party-political hegemony, between more or less neo-classical or keynesian-oriented approaches. Nevertheless, for a wide range of sectoral and regional reasons, demands for structural policies have repeatedly been raised, as macroeconomic steering mechanisms have proved incapable of solving the economic and social problems at hand. This ambivalence in German attitudes to structural economic policy can also be seen at European Union level. The EU's line on structural economic policy, set out in the "Bangemann proposals" of 1991, is, formally at least, a compromise, calling for the "horizontalization" of industrial policy in strategic technologies. This formula in fact does little to mitigate the tensions, paralleling those described above for the German context, within Community structural policy. In order to operationalise the term structural economic policy we here distinguish between four policy goals of state intervention aimed at influencing the course of industrial change (cf. Sturm 1991:15): - Maintaining, adapting and extending industrial structures (structural economic policy) - Geographical redistribution of industrial structures (regional policy)

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- Support for small and medium-sized firms (enterprise policy) - Support for industrial innovation (research and technology policy) The following article opens with a presentation of the macroeconomic framework for industrial policy in Germany in the international context. It proceeds to sketch out the different industrial policy profiles in a number of comparable countries. Industrial policy in Germany is then illustrated with respect to four case studies: engineering, the public sector, economic structural change (sectoral change) and the new federal states. The article concludes by placing German industrial policy in the context of EU institutions and policies.

2

The Macroeconomic Framework for Industrial Policy in Germany: Productivity, Welfare and Work Organization

The prevailing variation between work-welfare constellations in different countries is the result of very different historical development dynamics in the organization of social labour at national level. At the same time, these constellations also reflect far-reaching structural changes within national employment systems. Based on a comparison of long-term productivity trends in four countries, research has revealed a number of underlying trends in work organization and has identified the impact of such trends on social welfare (examples include Madison 1989; Jürgens et al. 1989). Productivity serves as a useful indicator, as it enables technological-economic and social dimensions of national systems of labour to be combined. Comparative productivity analyses (both international and intersectoral) enable us to identify both the conditions and consequences of differences in regulatory regimes at both national and plant level and their impact on competitive position and living standards. Three conclusions relevant to the present context can be drawn from the data illustrated by Figure 1, a comparison of historical productivity trends between Germany, the USA, Great Britain and Japan.

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O.

Ω

O

1870 From craft production to factory system (GB)

Mass production (taylorismi/ fordism) (USA) Gross Domestic Product per Work Hour 1870 bis 1990 F. Naschold, WZB, 1994

Calculation on the basis of Madison (1989) and extrapolations by T. Sasaki, Japan Productivity Center (written comments). Figure 1 : Trends in Productivity and Production Regimes

2.1

Historical Productivity Trends and Changes in the International Productivity Hierarchy

The studies made of productivity trends in the period 1870 to 1989 all point to the early stagnation of the level of productivity in Great Britain and the decade-long "productivity slowdown" in the USA. Japan and the Federal Republic of Germany, on the other hand, have steadily and over a long period caught up with the USA. Ignoring short-term variations, there seems to be a relatively clear inverse correlation between the level of productivity achieved by a country in a given historical context and its rate of productivity growth. Productivity levels appear to be converging in an historical

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process. During the mid 1980s, for instance, Japan caught up with the USA in most branches of industrial production, whereas the US still has a productivity advantage over the Federal Republic of Germany in many areas. Using the level of productivity achieved by the USA in 1985 as an index ( = 100), German productivity (in a number of key sectors and according to calculations published by the EC) corresponded to 78.6; Japan, on the other hand, attained a figure of 97.3. The international productivity hierarchy has thus altered radically in little more than a century since 1870. Although the USA has just managed to maintain its ranking vis-à-vis Germany and Japan, in view of the considerable difference in productivity-growth rates, the position of the U.S., and that of Germany relative to Japan, is very much under threat, even if there are some contradictory developments since the last few years.

2.2

The International Productivity Hierarchy, Changing Hegemonic World Centres and Production Regimes

The data on productivity trends described above also point to interesting links with hegemonic world centres and production regimes. Historic productivity trends can be divided into three development phases: the period before 1890; from the end of the century until around 1970; and from 1970 until now. In each phase one country constitutes the dominant world economic power: initially Great Britain, followed by the USA, and now Japan. This change in hegemonic region has been matched by changes in the dominant production regime. Great Britain was the first country to establish the factory system; the Taylorist/Fordist production regimes was developed in the USA, and is now under threat from the Japanese "Toyotism" model. Taking an historical perspective of this type, we can also identify a close relationship between productivity and social and political institutions: productivity differentials maintained over the longer term undermine the stability of social and political production regimes; socio-political institutions, firms and the state constitute vital institutional prerequisites for productivity growth.

2.3

Productivity and Welfare

Bringing together the above trends with indicators of welfare-state and labour-market development (in this case labour-force participation rates), it is possible to identify specific national constellations, the product, in each case, of policies implemented in the various countries over the years and the

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historical point of departure for these policies. The national constellations are illustrated in Table 1, which depicts the relationships between labourforce participation rates, productivity trends and the level of welfare state provision in selected countries. Table 1 :

Early Exit/Entry Mix, Productivity Trends and Welfare Benefit Level

FRG GDR Japan Netherlands Sweden UK/USA

*

Labour Force Participation Rate

Productivity*

Welfare

low high high low high medium

high low high medium medium low

high low low high high medium

Productivity trends between 1950 and 1986 (cf. Maddison, 1989) are classified as low (5% or less), medium (5 to 7.9%) or high (8% and above). The level of welfare is defined in terms of the level of income replacement provided in the case of early exit; here we distinguish between low (up to 35%), medium (36% to 59%) and high (60% and above).

The first point to be noted from the figure is that there are no linear, causal relationships between the three groups of variables. Nevertheless, three national constellation types emerge relatively clearly, each with varying degree of homogeneity and differing relationships between the three variables. - The most homogeneous group is that consisting of the two continental European countries, Germany and the Netherlands, in which relatively low activity rates go hand in hand with rapid productivity growth and a high level of welfare benefit. These two countries can be seen as prototypical "non-working, high productivity, high welfare" societies. - A relatively high degree of homogeneity exists between the two Englishspeaking countries, Great Britain and the USA. Here an intermediate level of activity and welfare are associated with relatively slow long-term productivity growth. - Heterogeneity characterizes the group of countries with high rates of labour-force participation: Japan, the GDR and Sweden. In Japan very rapid productivity growth is associated with a relatively low level of public welfare provision; in Sweden an intermediate rate of productivity growth is linked to a high level of welfare-state benefit; in the GDR slow productivity growth went along with a low level of welfare benefit.

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Besides determining the nature of the statistical relationship between the three variable-complexes for the various countries, two more systematic statements can be derived from our empirical findings: on both the demand and the supply side, they stake out the possible "spread" of national development paths. As far as the supply side is concerned it is readily apparent that, without medium to high productivity growth over the longer term, no country can afford to generate high early exit rates and high levels of benefit. The converse is not true, however: relatively high rates of long-term productivity growth do not necessarily lead to high benefit levels and early-exit rates. On the demand side our empirical findings show that a high level of social consumption, such as exists in the Netherlands and Germany, i.e. relatively low activity rates and high levels of welfare provision, can clearly be beneficial to productivity; conversely though, a constellation involving high levels of social consumption with mediocre productivity growth can, despite high activity rates, lead to massive productivity problems in the longer term, as recent developments in Sweden have shown. In the case of the GDR two contra-intentional effects can be observed on the supply and demand sides: high and stable activity rates produce very limited levels of welfare-state benefits; a low level of social consumption does not necessarily lead to more rapid productivity growth.

3

National Profiles and the Effectiveness of Industrial Policy

The debate on industrial policy in both Europe and the USA exhibits two fundamental faults: its ideological tendencies in the political sphere, and its normatization in the economic sphere. The industrial-policy debate in Japan, by contrast, is refreshingly different in its empirical orientation to past experience and the tried and tested effectiveness of its policies. We wish to adopt the same approach with respect to the EU, and to bring together some of the lessons which have been learnt on the profile and effectiveness of national industrial policies. - Even the most ardent supporters of sectoral policies must accept the following finding: the considerable inter-industry variability in firm-level profits suggests that the basis of competitive advantage lies at the level of the individual firm, not the industry or sector; furthermore, at the level of the firm, organizational ad economic factors are paramount in explaining the performance of the business enterprise. To the extent that sector-spe-

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Industrial Policy in Germany

cific policies impact firms uniformly, studies exploring the determinants of firm-level performance suggest that other factors, and in particular matters of internal organization and management are more critical to competitiveness than other sector-specific policies (cf. Theece 1991). - The overwhelming body of evidence suggests that direct monetary transfers constitute an inefficient strategy for creating industrial-policy incentives (cf. Meyer-Krahmer/Kuntze 1992). O E C D studies also come to the same conclusion: "The countries with high subsidy levels do not appeal to Table 2:

Subsidies by Sector (National Accounts Definition) — Percentage of Sectoral GDP Year

Total United States Japan e ) Germany France Italy 6 ' United Kingdom Canada Austria Belgium Denmark Finland Greece Iceland Ireland" Luxembourg Netherlands Norway Portugal Spain" Sweden Switzerland Turkey Australia New Zealand a) b) c) d) e)

Agriculture"

Industry Transport 3 '

Other

1.2

0.4 0.7 1.2 2.8 0.7 0.6

5.5 5.1 12.7 7.1 6.7 27.2

0.7 1.2 2.1 3.1 2.6 1.7

2.2 1.6 1.8 1.0

10.1 13.7 5.5 17.7

2.5 3.2 4.0 3.1 3.0 5.8 2.7 6.8 4.4 3.2 5.7 5.4 3.3 4.8 1.4 0.8 1.7 0.8

0.5 1.0 1.9 3.6 2.6 1.6

0.7 4.5 6.5 8.3 29.7 6.6

1985 1986 1980 1986 1987 1987 1986 1975 1987 1985 1986 1981 1980 1986 1987 1987 1985 1985

2.6 3.1 4.4 2.6

7.3 19.3 23.6 9.1

-

-

-

-

_

-

-

-

-

2.9 4.6 6.5 3.8 7.4

2.7 19.1 -

13.3 5.1 8.1 16.8 12.6

-

2.7 -

1.6 -

-

5.4

-

15.2 3.8 11.5 -

18.4

2.6 2.8

-

13.9 32.5 3.5 2.8 2.1 -

-

-

-

-

-

-

9.7 5.1

O E C D (1989).

-

-

7.8 14.8

-

-

1.6 0.8

-

0.7 4.3 6.1 2.8 4.2

-

Including communications. Excluding mortgage interest deductibility. Including food processing. As a percentage of total GDP. Based on input-output data.

Source:

Housing b )

1986 1985 1986 1984 1980 1986

2.6 5.9

Total"'

0.8 0.2

-

4.7 1.6

192

Frieder Naschold

be star performers. Japan has one of the lower rates of industry subsidies, yet it is clearly the star performer" (OECD 1989). - Against the background of this double limitation on industrial policy in its classic form, we now turn to a empirical comparison of the profiles of national industrial policies, attempting to determine their effectiveness at the empirical level. Using the policies adopted vis-à-vis the machine-tool industry, the following national profiles of government industrial policy can be derived (on the following cf. Collis 1988). Table 3:

Profiles and Effectiveness of National Industrial Policies United State

R&D support Broad subsidy Cooperative R&D Purchase Loans Direct procurement Pick winners Capital Subsidy Tax breaks Insurance stockpiling Bailouts Trades Imports Tariff Nontariff Export Finance Sales promotion Prohibition Capital Flows Technology Licences Industry rationalization Direct Industry association/cartels Standard setting Nationalization Antitrust Training/education Planning agency Government purchases

United Kingdom

Japan V

V V

V V

V X V V X X

V

V V

V V X

V

V

V V

V X

V V X X

V

X

V

X

V

X Χ

V V

V Χ

V

X V X

X = ineffective V = effective Source:

West Germany

After Collins (1988, p. 103).

193

Industrial Policy in Germany

- The above four-country comparison generates a relatively clear overall result for the observation period 1955 to 1982. Japan exhibits a large number, and wide range of industrial-policy measures, whose effectiveness proved considerable; Great Britain pursued an equally large number, although largely unsuccessful industrial-policy activities. The USA and Germany, by contrast deployed relatively few measures of industrial policy, although Germany's policies were relatively successful, unlike those in the USA. Even at this preliminary level of analysis, this initial, general finding allows us to draw two conclusions: - There is not just one, homogeneous industrial policy, but a wide variety of nationally specific forms of industrial policy; - the success of industrial policy does not necessarily depend on the number of measures implemented. - These findings are confirmed by comparing the degree of "explicitness" of national industrial policies and their success.

Japan

West Germany Switzerland

Yes

lt< iy South Korea

Success In Industry

Taiwan

United Kingdom No United States

France Yes

No

Explicit Industrial Policy Source:

Collins (1988, p. 80).

Figure 2:

Industrial Policy and Machine-Tool Industry Success

- Successful industrial development is linked in countries such as Japan and South Korea with an explicit, in Germany, Switzerland and Taiwan, on the other hand, with a more implicit industrial-policy approach. The reverse case of relative lack of success applies to Great Britain and France, with their explicit, and the USA with its implicit industrial policy. Comparing the performance data for the national machine-tool industries with

Frieder Naschold

194 ι3 Ο on

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Ό Transition -> Industrial development (Supply-side pressure from the scientific community)

1959

1962

1965

1968

1971

(Demand-side pressure

1974

1977

1980

1983

1986

Year of invention Source:

Grupp/Schmoch (1992).

Figure 3:

Base and Application Wave of Science-dependent Technology

The findings of the impact-assessment research so far conducted on technology policy indicate that the effect of institutional support is primarily to generate new technology and influence the direction of subsequent developments. Broadly speaking, the same is true of network and R&D-project support. Instruments such as indirect-specific support largely serve to accelerate

198

Frieder Naschold

the diffusion of technologies already ready for application. The main aim of indirect support is to improve the climate for technology, whereby this type of support has been shown to have produced positive effects, at least in a certain historical phase in Germany, not least by compensating for size-specific disadvantages. Innovation-oriented infrastructure and technology transfer seek primarily to accelerate the application of technology. Public contracts, corporatist measures and competition policies can exert all kinds of effects. j

Institutional support

|

Network/Project support.

Source:

Meyer-Krahmer/Kuntze (1992).

Figure 4: The Use of Technology Policy Instruments and the Technology and Product Life Cycles

The experiences of other countries (Nelson 1984) have shown that the state, particularly where it makes intelligent use of its role as a demander of goods and services — such as in local-authority utilities or as an institution owning large numbers of road vehicles, has frequently provided the impulse for successful innovations. On the other hand, support offered for products where the public authorities had little knowledge or experience of their own, frequently led to failure. This is true, for instance, of a number of largescale projects in the Federal republic (fast breeder, Growian, Suprenum). Public demand carries with it a considerable, and so far unexploited potential for influencing technological developments. Until now legal frameworks have largely been seen merely from the point of view of deregulation: regulatory interference was though to hinder innovative development. This

Industrial Policy in Germany

199

instrument can, however, given close co-operation with other departments, such as the environment health, transport and telecommunications, and a sufficiently long-term orientation, can have substantial stimulatory impact on innovation, especially in view of the considerable financial resource involved. Of decisive importance in determining the efficiency and effectiveness of the technology-policy instruments deployed is a long-term policy orientation (cf. Meyer-Krahmer/Kuntze 1992). A stable external context enables those active in research, whether from within the scientific or corporate spheres, to adjust efficiently to other changes. Equally important is to achieve a sensible balance between supply and demand-oriented instruments. In concrete terms this means that institutional support and network and projects assistance, which take effect largely in the initial phase of the technology cycle, must be complemented by innovation-oriented services, measures to stimulate technology transfer, public demand and regulation, in order to ensure strong demand-pull effects. A similar conclusion has been drawn by studies which have analyzed the success of innovations, which emphasis the necessity of linking technology-push and demand-pull factors. The empirical findings on the profile, effectiveness and strategic importance of industrial policy in the triad regions described so far boil down to the following simple results: - Industrial policy must not be confused with far-reaching state intervention or consistent, goal-specific targeting. Nor can it be assumed that industrial-policy strategies always have a high goal-attainment rate. At the same time, it is evident that almost all countries and sectors which have been successful in industrial terms, at least during phases of critical importance for the development of individual technologies or sectors, have benefited from wide-ranging, both supportive and enabling industrial policies. Such policies, though, place heavy demands on the policy makers and actors involved, and are thus vulnerable to "government failure," the correlate of "market failure." - Against this empirical background, the logical inconsistencies and empirical "humbug" which characterizes the formal consensus with regard to industrial policy recently reached within the EU become all too clear. It is simply illogical to call, at one and the same time, for technology support to be restricted to the pre-competitive phase and for it to be highly application-oriented, or for the horizontalization of technology support for critical technologies and, at the same time, the clearly sectoral articulation of such a horizontalization strategy in almost all cases (to cite the criticisms raised by Davignon in an interview with Lehner/Naschold, June 1992).

200

Frieder Naschold

- One point remains to be made in this empirical overview. In countries whose social and economic structures face far-reaching transformation requirements, a broad-based industrial policy receives support from all sides, despite their many differences, support which applies at both the theoretical and practical levels, and which, moreover, is usually seen to be self-evident. This strategic argument for industrial policy is, however, often declared to be null and void given the trend towards globalization within the triad. The empirical findings derived from the praxis of the triad countries and, even more so, of the transformation countries, thus point to contradictions within the dominant and at the same time restrictive paradigm of current industrial policy. Yet it also points to the contours of new concepts and policy elements which could generate into a "new industrial policy," one appropriate to the new conditions of globalization and transformation.

4

Four Cases of Industrial Policy in Germany

This section illustrates the institutional framework, the market structures, and the mode of operation of German industrial policy by means of four exemplary areas which, while differing greatly, are all of strategic importance for economic developments in Germany.

4.1

The Performance of Germany's Core Industrial Sectors

Numerous analyses suitable for "external bench-marking" exist, covering a large number of Germany s most important industrial sectors. Among the many studies drawing similar conclusions, the famous analysis conducted by the MIT drew attention to the structural competitive problems of the German automobile industry compared with its Japanese competitors. This applies not only to the mass market, but also, increasingly, to market niches, and not only to cost structures, but also to the other central competitive factors, time economies and quality (in addition to Womack et al. 1990, cf. Stalk/Hout 1990). Recent analyses of patent applications and R&D expenditure — taken as indicators of innovative potential — have shown that the German information-technology sector is in many areas far less well-prepared for the future than its Japanese and American rivals (Patel/Pavitt 1992). The one significant exception in this area is telecommunications, although even here the

201

Industrial Policy in Germany

most recent developments have shown that Germany's traditional strength in this area is also under threat. In this context we wish to look rather more closely at another sector, the machine-tool industry, long considered one of the "stars" of German industry. Moreover, in view of its specialized product spectrum, it is usually considered to be highly resistant to Japanese volume production. For these reasons the German machine-tool industry can be seen as the "acid test" of industrial performance within global competition for innovation, costs and time economies. A strategy paper published by the German investment-good employers association (VDMA/UMB 1992) and a series of more recent studies are all broadly consistent in identifying a structural change on the position of the industry since the period from the 1970s to the mid 1980s. They diagnose a potential erosion of Germany's competitive strength, even in specialized machine-tool products. The central trends and problems of market and technological developments for the German machine-tool industry can be easily seen from just five diagrams.

JAP Growth*

18.9%

Relative market «haie**

1.5

Growth*

8.7%

Rdative madtetdiaie**

* **

Growth*

9.2%

Relative market Aarc**

0.5

CAGR of the last three years in domestic national curreny; figures in circles indicate output in DM billions. Own turnover divided by turnover of largest competitor.

Sources:

VDW, Jntba, NMTBA, UBM-Analysis.

Figure 5:

Structural Change in the Competitiveness of the Japanese, USA and German Machine-Tool Industry 1980-1990

202

Frieder Naschold

Comparing the three leading triad countries with regard to the changes which have occurred in their competitiveness, as expressed by growth rates and market shares, the main trends are immediately apparent. In 1980 the German machine-tool industry was neck and neck with the world leader, the USA; by 1990 it had fallen considerably behind the new market leader, Japan. The far slower rate of growth and the inadequate return of investment compared with Japan are particularly striking.

Market share in %

•

0

USA USA

Japanese producers

75% 71%

Japanese imports USA

60% 50

FRG

40% USA 32«

FRG 25%

25%

FRG 15%

FRG 10%

USA 5%

FRG

10%

7%

ML 1975

15%

14%

3% 1980

1985

1990

2000

Sources:

National institutions.

Figure 6:

Development of Japanese Market Shares. Example: NC Lathes USA/Germany

203

Industrial Policy in Germany

Electronics

Engineering '

Factors of Production

Components

JAP

- controllers, drivers

JAP

- assembly equipment

JAP

- measurem., metering tch.

FRG

- process know-how

JAP

- hydraulics

FRG

- bearings

FRG

- materials

Machine tools

Chips - memory

JAP

• volume markets

JAP

- logic

JAP

- specialised markets

FRG

- microprocessors

USA

- packaging

JAP

J

V

Final products

Final products - entertainment electronics

JAP

- automobile industry

JAP/FRG.

- data processing

USA

- engineering

FRG

- industrial electronics

patt

- aerospace ind.

USA 1)

- telecommunications

patt market dominance

Sources:

IBM, UBM-Analysis.

Figure 7:

Technological Chains in Electronics and Engineering

Based on surveys and projections by national collective organizations, Figure 6 shows that, following the conquest of the U.S. market, Japanese firms can be expected to expand their market presence in Europe massively.

204

Frieder Naschold

The competitive dynamic with respect to technological developments can be nicely illustrated using the "technological food-chain" developed by IBM. In recent years Japanese firms have established their clear predominance among the "factors of production," an extremely strong position in chip production, and a firm market position in a large number of final products. In the engineering sector Japanese firms are dominant in controllers and drives, and on volume markets, but not (yet) in all stages of the technology chain, where German, and in some cases U.S., firms are still holding on to their dominant position. The threat to the German machine-tool sector is also evident from a direct comparison of productivity. As can be seen from Figure 8, productivity coefficients are twice as high in Japan for the sector as a whole, and almost six times as high if volume producers alone are considered.

Value-added per employee 1990

465

192.3

82.9

79.5

Mftcfaine-tool teeter*

Reasons for the productivity differential: • differences in breadth of product ranges • different corporate structures/organisation • high capital intensity in Japan • flexible labour deployment within Japanese firms • cultural differences

\bhane-producer**

* Basis for calculation: value of production — average share of output bought (in Germany 40 percent; Japan 60 percent)/number of employees. ** Analysis of the accounts of 6 volume producers of machine tools. Sources:

MITI, American Machinist, WS Atkins, firm accounts, UBM-Analysis.

Figure 8:

Productivity in Germany and Japan

205

Industrial Policy in Germany

Marketvolume

100%-

Technological development Niches for specialised products narrow

Specialised products

Increasing Price competition • Range of application • Power

1

Increasing importance of economies of scale

• Precision Standardised products

I

—ι—

1990

2000

Market

Source:

V D M A (1992).

Figure 9:

The Relationship Between Volume and Specialized Production

Volume •

Due to the increasing sophistication of the standardized machines produced in Japan, in terms of their functionality, quality, cost and the time factor, German specialists in their niche markets are increasingly coming under tough competitive pressure. Thus the dominant position of the German machine-tool industry on export markets finds itself on the brink of a structural crisis which is affecting all of its fundamental economic indicators. The public conference held by the "Zukunftskommission Wirtschaft 2000" (roughly: commission on the future of the economy in the year 2000) in Baden-Wuerttemberg in June 1993 considered this development of such importance that it took centre stage in the discussions there (cf. "Ausbruch aus der Krise," the report of the Commission). This was not the case in the Japanese machine-tool industry. Research has increasingly been able to demonstrate the relevance of the interaction of industry, government and collective organizations, and the linkages between subsidization, protectionism and dirigisme, and between demand and supplyside elements, challenging and enabling policies for the Japanese machinetool industry. The measures listed in Figure 10 indicate the main areas of government support for the Japanese machine-tool industry. If the VDMA/UMB analysis (VDMA/UMB 1992) is right in claiming that two thirds of the costs differential between the Japanese and German machine-tool industries is due to the "socio-economic framework of conditions" and only one third to "finn-

206

Frieder Naschold

specific" differences — although this certainly understates the importance of firms in generating productivity differentials — then the "home environment" (M. Porter) of statutory and collectively agreed policies is clearly of immense importance. The underdevelopment of German economic policy — in the widest sense of the term — can thus be seen as a major element in Germany's relative loss of competitiveness during the "lost decade" of the 1980s (Jürgens/Naschold 1994; Naschold 1993a). 1960

Defined Targetmarket

Subsidisation

Protectionism

Dirigism

Sources:

1980

1970

Standard M-T

Standard NC-M-T

1990 ,

FMS

-Spec, deprec. allowances M T • Tax breaVs for MT-producers Soft loans

Intensive R&D Sufiport

ι Increased tarifs ι Increased tariffs on Standard MT on NC-MT ι Import bans ι Joint Ventures with ι Investment ban foreign firms only for foreign if technology firms transfer results

ι Control over licenced imports by MITI ι Forced concentration and specialis. among domestic firms (5 %/20 % rule)

ι Supp. f. FAMUC _ Voluntary export as central produ- restraint agreecer of controllers int with The sui ort for Ja^iane: producilo.. fconstmction^ • Construction of e an export cartoli íP o r t cart ? M fí¡n$um β Euròpe' 0

Harvard Business School, U B M - A n a l y s i s .

Figure 10: Government Support for the Japanese Machine-Tool Industry

4.2

Public Sector Politics in Germany

It is clearly of great interest for the discussion within Germany to establish the relative position of the German public sector vis a vis other countries with regard to the costs, quality and effectiveness of the services provided by the public sector for its citizens. The trend towards economic globaliza-

Industrial Policy in Germany

207

tion means that a country's "home environment" (Porter 1990) is becoming an increasingly important competitive factor. And the public sector clearly plays an important role — in addition to its constitutive importance for civil society — as a producer of inputs for the private sector, as a stabilising force in competitive markets and in its function of compensating for external effects, in determining the shape of this home environment. An international comparative positioning of the development trends within the public sector during the 1980s provides what appears at first sight to be a decidedly controversial picture (cf. Bohret 1993; Naschold 1993b).1 Qualitative evaluations by experts from the field are agreed in ascribing a relatively high standard of efficiency and quality to the German administrative system — central government administration, public-sector enterprises and corporations, and local-government administration — as a whole. A representative view is summed up in the following statement by T. Ellwein on the efficiency of administration at local level: "The city administration works, and therefore does not require fundamental renewal; some things need to be improved, however" (Ellwein 1992: 224). This evaluation of the effectiveness of Germany's public sector is based on the now widespread criterion of "lean government," referring to OECD statistics. In terms of government spending, the number of public sector employees, personnel costs as a proportion of government spending, and employment in public-sector enterprises, Germany occupies a "good" position in the lower third of the OECD countries (cf. OECD 1990b). However, this rather positive view of German public-sector performance is increasingly being called into question by the reform efforts which have been undertaken in such diverse countries as Sweden and Norway, Great Britain and New Zealand, the USA and Australia. These suggest that a major revision of this favourable view may be necessary. Surveys conducted by the OECD reveal clearly that, since the early 1970s and even more intensively since the end of the 1980s, all the above-mentioned countries have made numerous, and in some cases very far-reaching efforts to reform the public sector — in particular with regard to steering systems. Only isolated cases of such efforts were reported for Germany, though, and where such changes did occur their level of development was far lower (cf. OECD 1990a). 1

It should be noted in this context that international public-sector performance comparisons are as yet very underdeveloped. In contrast to the private sector, with its relatively high standards of valid performance comparisons, serviceable comparisons of the effectiveness and quality of national public sectors have so far not been made. Consequently, an international comparison of public-sector performance has to resort to rough estimations and extrapolations based on a diverse range of indicators and sources of information.

208

Frieder Naschold

P/lP"

Ue

ν

*s

PubV^ie

et

C

'^tioti

u

«ο

>n s Pet;iti, F. Naschold/WZB, 1993

Figure 11 : Structural Model of, and Development Trends within Public Administration: from Producer-oriented Steering of Conditions to Customer-oriented Quality Production

Figure 11 illustrates, in a very schematic and ideal-typical way, the central development trends of the product, production and regulation profiles of the public administration since the 1980s. The inner core consists of the principle of correct application of the law and the reliable production of standardized products, i.e. a producer-oriented administration based on a

Industrial Policy in Germany

209

system of political representation and administrative conditional programming. The structural principles of the German administrative system correspond to this inner core of the structural model (cf. the international performance comparison in Banner 1993). The current development trends in the reform strategies of all the countries under discussion here involve the extension of this classic structural model: extending the armoury of internal steering instruments, creating and complementing (internal) markets, mobilizing citizens and self-help groups and so extending the characteristics of direct democracy. 2 One of the central questions of the continuing modernization process within the German administration will concern the extent to which Germany's classical administrative structural model can be extended to encompass the new reform trends without friction, or whether this will be blocked by compatibility problems. Two clear conclusions can be drawn from these findings regarding performance standards at local government level at the end of the 1980s: - In all the countries mentioned a broad reformist movement has been active for some years now, and has provided a substantial and broad-based modernization impulse in the direction of New Public Management. In all these countries this modernization "push" has occurred irrespective of the party-political nature of government and independently of the centralized or decentralized introduction strategy adopted. In all cases the thrust of the innovative developments centred on an extension of the range of goods and services offered, the public sector regulatory and production form, and thus primarily on organizational and personnel-related innovations, accompanied by the widespread introduction of open informationtechnology support systems. - For Germany, the very worrying news is that the selected German cities are lagging well behind comparable cities abroad, a finding which, following brief control studies, would appear to hold for other local authorities in Germany too. The German public sector — judging by experiences at local government level — lost considerable ground in terms of the customer-oriented efficiency and quality of the services it produces 2

This finding can be illustrated and confirmed by means of a recent and scientifically well-founded international performance comparison between selected local authorities in the above-mentioned OECD countries from the perspective of Performance and Democracy in the Local Government (cf. Bertelsmann Stiftung 1993). The findings based on criteria such as steering and work organization, personnel deployment and customer satisfaction etc. were very clear. The best performance ratings on these criteria were obtained by Phoenix, Arizona in the USA and Christchurch, New Zealand. They were followed by the already well-known reform models from the Netherlands, and cities in Great Britan. Next came Denmark and Finland. The competing German cities all lagged considerably behind.

210

Frieder Naschold

compared with other countries during the 1980s, this despite a relatively favourable financial situation. If this view continues to receive support from comparative studies, then the need for a fundamental reappraisal of the performance potential of the German public sector — one not unlike the réévaluation taking place in the private sector — will be all too apparent. 3

4.3

Industrial Policy and Sectoral Change within German Industry

There is an additional, structural indicator of national economic performance and national industrial policy: a country's sectoral composition and sectoral development. This indicator is a guide to the future potential of an economy. A study conducted by the OECD, but as yet unpublished, produced the findings in a comparison between Japan and European countries such as Germany, France and Great Britain (see Figure 12). The changes in sectoral composition over time depicted in the three figures show clearly the modernization and development of the various national economies in terms of the number and quality of their employment opportunities. The growth industries of our time are the new industries. Japan has been most energetic in forcing along the development of such industries. With an enormous investment volume it pushed up the contribution made by high-tech industries to GNP by not less than 7.2 percentage points between 1972 and 1985. And since 1985 it has intensified its investment efforts still further: between 1986 and 1991 Japanese industry invested the enormous sum of 3,000 billion US$, the majority of which went into modernizing its productive plant and new product development (flat-screen monitors, optoelectronic components etc.). A further $600 billion went into research. In Germany, on the other hand, the new industries are not growth industries. Their contribution to GNP remained constant between 1978 and 1986, and is unlikely to have expanded since. The overall structure of the German economy has changed little in the last twenty years — unlike that of Japan and the USA. This must be seen as the main reason behind our unemployment rate which is far higher than in Japan, and substantially higher than that in the USA. The jobs lost in the old industries were not made good by 3

Clearly, such comparisons of performance must, in view of their methodological weaknesses, be treated with caution, and it is also true that German cities differ in a number of significant respects — unitary administrative structure, the wide responsibility of the various levels of government, and their constitutionally protected autonomy — from those in other countries, which may well be more directly suited to the New Public Management reform movement. Such objections are by no means sufficient to require a reinterpretation of the overall finding given earlier, however.

211

Industrial P o l i c y in Germany

new job creation in information-technology-oriented industry and, particularly, in information-related services.

Social and Personal Services

Finance, Insurance, Real Estate

Transportation, Communication Trade, Restaurants, Hotels

High-Tech, Manuiacturing Agriculture, Forestry, Fishing

Medium-Tech Manufacturing

Mining Low-Itch, Manufacturing Construction

Electricity Gas,Water

JAP 1970-1985

FRG: 1978-1986 Sources:

O E C D ( 1 9 8 9 , 1991).

Figure 12: Structural Change in Economic Sectors of Japan ( 1 9 7 0 - 1 9 8 6 ) and the FRG (1978-1986)

The inadequate development of new industries has also had effects on the quality of employment here. A growing proportion of our "older" industries is having to face competition from newly industrializing countries, i.e. with industrial producers in low-wage countries. Current German industrial structure will increasingly be unable to support the high wage level. High wages demand high-value-added production. The mass production of high-

212

Frieder Naschold

value-added goods (flat colour monitors, 36- and 64-bit microprocessors etc.) is concentrated in Japan and the USA. German industry is increasingly being forced, in order to maintain its high wage level, to enter market niches and specialized and customized production; but this is no answer to the employment needs of a population of 80 million. An additional question needs to be addressed: the future of our "old" industries themselves. Many of these industries produce using state of the art technology. German industry has the broadest product range in the world and is a world leader in system know-how, i.e. the design and production knowledge needed to build machinery and productive plant. Yet, in order to maintain the technological standard of these industries, and to design and build the most advanced production systems, Germany is increasingly reliant on imports of the necessary electronic and opto-electronic components and the new high-performance materials — semi-conductor chips and lasers, liquid crystal displays and flat-screen monitors, carbon-fibre materials for aeronautics etc. The question is: can an industry continue to produce competitive systems over the longer term if it has to purchase its components from Hitachi, Toshiba etc., firms with which it has to compete on the systems market. Moreover, "systems" are increasingly being integrated into a single chip. Will German firms, particularly the many thousand small and medium-sized enterprises, be able to remain competitive if they have to develop "system-chips" together with Japanese semi-conductor producers, and have them manufacture the finished product? If they, often years in advance, are forced to inform the Japanese of their plans for new systems? Or let us take the chemical industry — which is still under the illusion that global developments will not affect it. Will chemical companies be able to develop and produce in Germany, at a competitive price, when in the laboratories of their American competitors new chemical and pharmaceutical products are simulated on the monitors of individual workstations because they are networked with super-computer centres? The new information-technological industry is not merely one among many, take it or leave it: it is the dominant industry of the information age, one which pervades all other branches and helps to determine their competitiveness. A large industrialized country, whose production cannot be limited to niches and its economy to tourism, must have an internationally competitive information-technology industry at its disposal, in order to be in a position to enter into strategic alliances with Japanese and American firms. A country lacking an independent information-technology industry will sooner or later face declining competitiveness in its older industries. It will slump to the status of an economic colony, with falling — relative and, in the long run, absolute — living standards.

Industrial Policy in Germany

213

Germany 29 Engineering/ metal:

Japan 14

USA

30

-

16

. I

22 Automobiles ; ί β

Engineering/

2 4

Energy/ 16 raw materials.

Energy/ raw materials

Electrical engineering

14

Automobiles 3 3

EngineefFng/[ metal·:

Energy/ raw m a t e r i a l s m

Electrical engineering —

17 n

I4

12

Chemicals^ 11

13 -ood/drink / .tobacco D

13

Others

1966 Source:

Other«

19 1991

1966

12 1991

g 1966

Others

11 1991

BCG.

Figure 13: Structural Change in the Triad: Triple Chance at the Top — Changes in the Shares of total Turnover by the 100 Largest Industrial Companies in each Country Coming from the Various Branches (in %)

Comparative studies conducted by management consultancy firms come to similar conclusions (cf. Behrens/Canibol 1992 on the findings of the Boston Consulting Group). Germany has, in contrast to Japan, a wide variety of high-skill industries originating back in the first half of this century; output in the industries of the future, though, is stagnant. The USA, by contrast, is characterized by a structural polarization between a small number of high-tech sectors, in which it plays a leading role, and a resource-based structure reminiscent of a third-world country.

4.4

Industrial Policy in the New Federal States

The fundamental transformation process in the new federal states of Germany, the transition from the Communist command economy to the social market economy on the west German model, and the dramatic current state of the east German economy characterized by mass unemployment and de-

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industrialization have all had far-reaching consequences for German industrial policy. In view of the depth of the crisis there has been something of a détente between the various industrial policy schools, although it has so far not proved possible to develop a new policy concept appropriate to the new situation, nor to produce effective industrial policy instruments. Faced with the immense problems thrown up by the transformation process, German industrial policy had three basic options: - a strategy of preserving core industrial sectors and existing economic structure; - vertical de-industrialization followed by the creation of a new, export-oriented industrial structure in line with the highest technological and workorganizational standards; - initial concentration on the domestic-regional side of the economy and on import substitution in sectors meeting regional needs. Elements of the preservation strategy are to be found in the demand that core industries should be maintained and restructured; the export-oriented modernization strategy manifests itself in the — few — successful examples of multinational concerns establishing production facilities in the new federal states; the domestically oriented industrial policy finds expression in the attempts being made to extend domestic production upstream and downstream of economic sectors — such as construction and the food, drink and tobacco industry — producing for regional markets. The overall evaluation of four years of industrial policy in east Germany must give rise to great scepticism: despite the enormous resource input, it has proved possible neither to prevent a massive process of de-industrialization, nor to create even the beginnings of an export-oriented economic structure. To illustrate this further, let us look at labour market policy, a part of, and in some cases a substitute for, industrial policy in the new federal states. In most OECD countries measures are increasingly being deployed to provide public employment support. The publicly supported employment sector is distinguished from the competitively structured labour market in its receipt of public subsidies, the time limits imposed on employment relations there, the fact that employment serves labour market and social policy, as well as market-determined aims, its supplementary and "bridgehead" function vis-à-vis the primary labour market. A comparison of labour market spending in the OECD countries yields the following results (cf. "Lohnersatzleistungen überwiegen" ["Wage Compensation Benefits Dominate"]). On average the OECD countries spent 2.9 percent of their GDP for the purpose of labour market stabilization. Germany, with 3.5 percent in 1992,

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lay somewhat above the average, although the figure conceals a major intraGerman dichotomy between West Germany, where spending accounts for 1.8 percent of G D P , and East Germany with 19.7 percent. The two extreme values are Japan with 0 . 5 percent and Denmark, which spends 6 . 5 percent of G D P on labour market policy. Table 6:

Labour Market Expenditure in International Comparison As a 9I of GNP As a % of total spending

Japan Switzerland USA Luxembourg Greece Austria Portugal Great Britain Norway France Canada Netherlands Germany Spain Belgium Ireland Finland Sweden Denmark

0.45 0.63 0.84 1.04 1.18 1.46 1.45 2.28 2.65 2.82 2.96 3.22 3.46 3.65 3.87 4.40 5.52 5.99 6.53

Administration

Active measures

Passive measures

4.4 11.1 10.5 3.8 5.9 8.2 5.8 7.5 5.3 4.6 7.4 2.8 6.9 3.0 4.9 3.2 2.9 4.0 1.7

24.5 31.8 20.5 22.2 26.2 12.4 49.4 18.4 37.8 26.9 15.6 29.9 40.7 12.9 21.9 30.9 28.8 49.6 22.2

71.1 57.1 69.0 74.0 66.9 80.2 44.8 74.1 57.0 68.5 77.0 67.4 52.4 84.1 72.9 65.7 68.3 46.2 76.1

Active measures: including training, subsidized employment, rehabilitation and youth support. Passive measures: including wage compensation and early retirement. Data for 1992; except Japan, USA, Luxembourg, France, Belgium and Ireland: 1991; Netherlands: 1990. Original data: OECD. These findings are also broadly confirmed by a number of sectoral studies conducted by management consultancy firms in the machine-tool industry as recently as September 1992. The figures also show that the maintenance of the material subsistence of the unemployed enjoys priority — in terms of spending volume — over active, investment-oriented measures. On average two thirds of labour market policy expenditure goes on wage compensation benefits and early retire-

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ment. Germany lies in third place with 48 percent, behind Sweden and Portugal, in the OECD "activity share" ratings. Analysis of the structure of labour market policy spending reveals that an average of less than 10 percent of total spending is used for training. The figures for subsidized alternative employment are even lower at 6.5 percent on average; the figure for Germany is slightly higher. This — purely quantitative — analysis of the measures of the second strategy alternative thus allows for the following overall evaluation: the publicly supported employment sector makes a significant contribution to a policy of redistribution, justified by social policy objectives, in the face of mass unemployment. In terms of its labour market policy aim, though, the strategy has so far been relatively inefficient. The publicly supported employment sector threatens to degenerate into an institutionalized, secondary labour market, cut off from the primary labour market. This might well be an appropriate strategy for specific target groups, but it is certainly not so for the broad majority of the unemployed. This policy approach thus constitutes neither an effective nor an efficient industrial policy.

5

German Industrial Policy in the Context of the European Union: Potentials, Limitations, Oppositions

Industrial policy, the ensemble of sectoral structural policy, regional structural policy, research and technology policy and policies towards small and medium sized firms, is an integral part of current policy making within the European Community. At the 1991 conference on European political union held in December 1991 in Maastricht, the governments of the EC member states agreed to give the European Commission a mandate to pursue an active industrial policy. This would have been unthinkable during the ReaganThatcher era. According to its architects, industrial policy should not be merely a framework for subsidization and measures which distort market forces, and in order to ensure the security of all unanimous decisions should be required to implement new initiatives. Only under these conditions was Great Britain prepared to accept the mandate, for which France had been the most prominent advocate. Even before the Maastricht Conference the Commission, under Martin Bangemann, had presented a general guideline on industrial policy and commenced discussions on branch-specific provisions covering the electronics and textile sectors and the automobile industry. This had the effect that a precise formulation and discussion of this ideological "hot potato" was already on the table before Maastricht. The aim of EU industrial policy is the promotion of European firms in strategi-

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cally important industrial sectors, the expansion of research and technology policy, the creation of an infrastructural context conducive to industrial production and the implementation of measures for pan-European industrial development in the face of, in particular, the "Japanese challenge" (cf. for a summary of these measures Petrella/Wobbe 1992: 93). The transition from the concept of industrial policy based on sectoral structural policy at national level to a Community-level policy aiming to create economic contexts and providing an infrastructure reflects, of course, a compromise between the contradictory industrial-policy conceptions of France, Great Britain and Germany. The French approach made its impact felt at the programmatic level, while British and German policies are to be found at a substantive level. This compromise entails a number of contradictions and limitations, however, which are in danger of leading to an impasse at Community level as far as industrial policy is concerned. Three examples of such inconsistencies will suffice to illustrate this danger. - At the ideological level, the already serious gap between the theory and practice of industrial policy in Europe is becoming ever wider. Within research and technology policy, the demand at programmatic level for support to be restricted to the pre-competitive area has to face the fact of continuous spending on application-linked projects (cf. interview with Davignon 1992). Protectionist measures continue to exist, and in some areas are on the increase, in a growing number of sectors (cf. Thurow 1992), while it remains difficult to see how an industrial-policy concept of this type can be appropriate to the extension of the EU into eastern Europe. - The scientific basis of the new concept of industrial policy within the EU remains locked in the standard economics of static allocative efficiency and partial economic analysis. Major contradictions are revealed by the official discourse between the EU and the OECD, the latter with its programmatic and scientific re conceptualization of the "key relationships between technology and economy" (OECD 1992). - More fundamentally, it is becoming increasingly doubtful whether such concepts are at all appropriate to the central problems of the last decade of the twentieth century. The three major regions of the "triad economy" are increasingly being pervaded by global competition to realise innovations, a trend which is giving rise to far-reaching structural changes within core economic sectors. Investigations on the European firm level, confirmed by the converging lines of development to be found in the literature, suggest that the EU is in a precarious position within this three-way competitive constellation.

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-

European industry is clearly behind Japan, and in some areas behind the U S A , with regard to competition for innovation (Stalk/Hout 1990; Lesourne et al. 1989); - Europe is also far behind Japan and the U S A with regard to the degree of globalization of its economic transactions, an essential precondition for competitiveness: even Europe's largest firms are in many ways entirely provincial in their mode of operation (OECD 1992). -

A s regards sectoral restructuring, the E U has remained locked in the automobile and electronics age, while Japan and, even more so, the U S A have taken major steps towards the next era dominated by the software industry, bio and genetic technology and high-value services. Thus, as a location for production, Europe is increasingly feeling the pressure of Southeast Asian and East European firms, while, as a development location, it is increasingly falling under the influence of American and Japanese firms (cf. the analyses of the Boston Consulting Group as reported in Behrens/Canibol 1992).

-

In v i e w of both these contradictions and underlying trends, it seems to us to be all too apparent that industrial policy in Europe (and elsewhere) is once again up for discussion.

References "Ausbruch aus der Krise" (1993): Bericht der Zukunftskommission Wirtschaft 2000. Staatsministerium Baden-Württemberg (Ed.). Stuttgart, August. Banner, G. (1993): Anregungen für die kommunale Verwaltungsreform in Deutschland. In: Bertelsmann Stiftung (1993). Behrens, B., H.-P. Canibol (1992): "Gewaltig anstrengen. Im weltweiten Wettkampf der Industrie sammeln die US-Giganten Punkte. Deutschland droht zurückzufallen." In: Wirtschaftswoche, No. 39, 18 Sept., pp. 166-174. Bertelsmann Stiftung (Ed.) (1993): Carl-Bertelsmann-Preis 1993. Demokratie und Effizienz in der Kommunalverwaltung. Gütersloh: Bertelsmann. Bohret, C. (1993): Funktionaler Staat. Frankfurt/Main: Peter Lang. Collis, D. (1988): The machine tool industry and industrial policy 1955-82. In: A.M. Spence and H.A. Hazard (eds.): International competitiveness. Cambridge: Ballinger. Davignon, V. (1992), personal interview with Lehner/Naschold, June. Ellwein, Th. (1992): Gutachten zur Stadt Dortmund. Manuscript. Grupp, H., U. Schmoch (1992): Wissenschaftsbindung der Technik: Panorama der internationalen Entwicklung und sektorales Tableau für Deutschland. Heidelberg: Physica. IFO (Institut für Wirtschaftsforschung München) (Ed.) (1993): Analyse der Wettbewerbssituation des deutschen Maschinenbaus. Vier Fallstudien. Munich: IFO. Jürgens, U., Th. Malsch, K. Dohse (1989): Moderne Zeiten in der Automobilindustrie. Strategien der Produktionsmodernisierung im Länder- und Konzernvergleich. Berlin: Springer.

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Jürgens, U., F. Naschold (1994): Arbeits- und industriepolitische Entwicklungsengpässe der deutschen Industrie in den neunziger Jahren. In: M. Dierkes, W. Zapf (Eds.): Institutionendynamik und Institutionenvergleich. WZB-Jahrbuch 1994. Berlin: Edition Sigma. Lesourne, J., R. Leban, K. Oshima (1989): Europe and Japan facing high technologies. Paris. " Lohnersatzleistungen überwiegen." In: iwd 44, p. 2. Madison, Α. (1989): The world economy in the twentieth century. Paris: OECD. Meyer-Krahmer, F., U. Kuntze (1992): Bestandsaufnahme der Forschungs- und Technologiepolitik. In: Κ. Grimmer, J. Häusler, S. Kuhlmann, G. Simonis (Eds.): Politische Techniksteuerung — Stand der Forschung. Opladen: Leske und Budrich. Meyer-Krahmer, F. (1992): Strategische Industrien im internationalen Vergleich: Arbeitsteilung und politische Instrumente. In: W. Fricke (Ed.): Jahrbuch Arbeit und Technik 1992. Bonn: Dietz. Naschold, F. (1993a): Globale Innovationskonkurrenz und die Wettbewerbsfähigkeit der deutschen Industrie in den neunziger Jahren. In: RKW (1993). Naschold, F. (1993b): Modernisierung des Staates. Zur Ordnungs- und Innovationspolitik des öffentlichen Sektors. Berlin: Edition Sigma. National Machine Tool Builders Association. In: American Machinist 3. Nelson, R.R. (1984): High technology policies. A five-nation comparison. Washington, D.C. American Enterprise Institute. OECD (1989): Industrial subsidies in OECD-countries. Working Paper No. 1 of the Economic Policy Committee. Paris: OECD. OECD (1990a): Public management developments. Survey 1990. Paris: OECD. OECD (1990b): The public sector: Issues for the 1990s. Paris: OECD. OECD (1991): Strategic industries in a global economy. Paris: OECD. OECD (1992): Technology and economy: The key relationships. Paris: OECD. Patel, P., K. Pavitt (1992): Europe's technological performance. Manuscript. Petrella, R., W. Wobbe (1992): Perspektiven und Probleme der europäischen Industriepolitik. In: W. Fricke (Ed.): Jahrbuch Arbeit und Technik 1992. Bonn: Dietz. Porter, M. (1990): The competitive advantage of nations. New York: Free Press. RKW (1993): Lean Production. Zwischen Vision und Realität. Dokumentation einer Fachtagung des Rationalisierungskuratoriums der deutschen Wirtschaft e.V. vom 12.13. Mai 1993. Frankfurt: RKW. Späth, L. (1993): Interview. In: Der Tagesspiegel, 7 March, p. 29. Stalk, G., Th. Hout (1990): Competing against time. How time-based competition is reshaping global markets. New York: Free Press. Sturm, R. (1991): Die Industriepolitik der Bundesländer und die europäische Integration. Unternehmen und Verwaltungen im erweiterten Binnenmarkt. Baden-Baden: Nomos. Theece, D. (1991): Support Policies for Strategie Industries: Impact on Home Economies. In: OECD (1991). Thurow, L. (1992): Head on head. The coming economic battle among Japan, Europe, and America. New York: Morrow. VDMA/UMB (1992): Strategiepapier. Manuscript. Frankfurt/Main. Womack, J., D. Jones, P. Roos (1990): The machine that changed the world. New York: Ranson Associates.

Cooptation or New Possibility? Japanese Labor Politics in the Era of Neo-Conservatism Ikuo Kume

1

Introduction

The 1980s brought drastic changes in the relationship between state and society in most advanced industrial democracies. The tide of neo-liberalism cast strong doubt on Keynesianism and state intervention in the economy. The Thatcher administration and Reagan presidency broke with the past, advocating transformation of existing state-society relation into ones based on market initiative and less government intervention. It is telling that the French socialist government of President Mitterand was forced to abandon a policy of more government intervention and inflationary growth soon after his inauguration. In this sea of change, the trends toward corporatism were seemingly reversed. In Sweden, for instance, the demise of the corporatist arrangement started in the early 1980s, when employers in the engineering industry withdrew from the peak-level wage negotiation, and the nation is now experiencing a drastic transformation of the "Swedish Model." One critical aspect of changing state-society relations in the 1980s is that of state and labor. In the late 1970s and the 1980s, the unions in the advanced industrial democracies suffered from a loss of power. Lowell Turner (1991: 1) posed a question on the future of the union: Are contemporary unions, once critical bastions in the historical development of political and industrial democracy, now a spent force, increasingly irrelevant in highly differentiated modern societies (playing important roles only in countries in earlier stages of development such as Poland and South Korea)?

As Frances Fox Piven (1992: chapter 1) writes, it is true that the decline of labor politics varies in particular nations. Under the neo-conservative administrations of Thatcher and Reagan, the unions in Britain and the U.S. were among the hardest hit. At first glance, the situation for Japan seems similar. We should remember that in the early 1980s Prime Minister Naka-

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sone advocated neo-conservatism following Reagan and Thatcher, and introduced administrative reform to resolve the fiscal crisis without a tax increase (Otake, 1987). The privatization of the Japan National Railway, Nippon Telephone and Telegram, and the Japan Tobacco and Salt Public Monopoly Corporation was an important pillar of the administrative reform. As Mike Mochizuki (1993) analyzes, an implicit objective of this privatization was to transform the leftist public sector labor movement to resemble the "cooperative" big business unions. However, if we look into the labor policy development in Japan of the 1980s, we will come up with an interesting finding: Pro-labor policy continued to flourish in the 1980s. How could the allegedly weakest labor movement in the advanced industrial democracies survive the neo-conservative tide in the 1980s in Japan? Making sense of this puzzle will help us to understand the kind of change that occurred in relations between the state and labor in the 1980s in Japan. In the following, we will analyze the relations between the government and labor in the 1980s in Japan, focusing on three cases: administrative reform in general, employment policy, and government regulation of labor management relations.

2

Labor and the State in the 1980s

2.1

Administrative Reform and Labor

I will focus on the unions' response to the neo-conservative administrative reform. Faced with an increasing budget deficit, the Suzuki cabinet initiated administrative reform in 1981, establishing the powerful Second Provisional Council for Administrative Reform (SPCAR), and the following Nakasone cabinet pursued it further (Muramatsu and Kume, 1988). The term "administrative reform" is rather misleading, because it was a multifaceted package of policies, the common ideology of which was laissez-faire liberalism. Small government, deregulation, and privatization were the political banners of this reform. Therefore, this was, in principle, a neoconservative policy package similar to those in the Reagan and Thatcher administrations. A substantial number of the SPC AR's proposals, though not all, were implemented. First, government regulation was loosened. Telecommunications, for example, was deregulated. Second, three public corporations — the Nippon Telegraph and Telephone, the Japan National Railway, and the Japan Tobacco and Salt — were privatized. Third, the government restrained budget increases following SPC AR's proposals. Consequenüy, the ratio of the budget to GNP decreased in 1984 for the first time since 1973.

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A policy of no-budget-increases continued for five years. These efforts were made to reduce government functions and public expenditures, but were related to the new tide of neoliberalism in which market and individual initiative were regarded as central. According to Michio Muramatsu (1987: 313), the most significant effect of administrative reform is not so much its visible results, such as the JNR reform, as the growing resolve to reduce expenditures ... .its pressures for a reexamination of governmental activities along the principles of small government and autonomous, independent action have been extremely successful.

The administrative reform mobilized wide support, ranging from business groups to private-sector unions as well as the general public, under the banner of "Financial Reconstruction without Tax Increase." Administrative reform boosted the popularity of the Nakasone cabinet. Business groups supported this reform in the hope of avoiding possible tax increases that had been actually planned by the Ministry of Finance (MOF) in the late 1970s. This contrasts with business demands for more spending in the 1970s (Shinkawa, 1993: 157). However, this change was not just opportunistic, but also structural. Mitsutoshi Ito argues that big business groups survived the two oil crises and became confident enough in their economic power to pursue a more autonomous position from the government (Ito, 1988). Union response to administrative reform differed. When the government passed the legislation to establish SPCAR in December 1980, the unions began formulating their own policies to deal with this issue. Sohyo (General Council of Trade Unions of Japan; Public sector-dominated national association of unions) decided to send its vice president to SPCAR, but its attitude was critical of this reform movement. It advocated a policy transformation struggle in cooperation with the Socialist Party in order to demand a new administrative and fiscal structure for the sake of the people. It argued that the fiscal crisis was a product of the LDP's irresponsible rule. In its formal statement, Sohyo argued as follows: Most of the rationalization and administrative reform in the name of fiscal reconstruction could not but victimize people's livlihoods and public-sector workers, and it would not admit any reforms at the expense of workers and the people. It also contended that the public-sector should assume more responsibility to control the economy for building the welfare state (MOL, 1981:506-507). On the other hand, private-sector unions supported administrative reform from the beginning. The private-sector-dominated union federation, Domei, argued that the public sector should introduce the principle of efficiency and productivity increase in its management practice, and also argued for privatization as a way to pursue the goal of small government (MOL, 1981:510). The other private-sector unions, the CPPU (later Rengo), the IMF-JC (International Metal Workers' Unions Federation, Japan Council), and the

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Council of Chemical and Energy Workers' Unions basically shared this attitude with Domei, and they established the National Council for Promoting Administrative Reform (MOL, 1981:514). Here we can find the same dividing line within the labor movement, between the private and public sectors, that appeared in the 1970s. The private-sector unions' support for administrative reform and the small government goal was a logical response in line with their tactics to raise real wages while restraining nominal wage increases in the 1970s. It is interesting that Domei wanted to emphasize tax payers' interests in arguing for administrative reform (Kume, 1988). These unions did not want tax increases for any reasons and preferred small government. Furthermore, they wanted to reduce the internationally high consumer prices in Japan, and for that purpose criticized such policies as the protectionist agricultural policy, which supported higher prices on food, and the health care system, which guaranteed higher incomes for medical doctors (MOL, 1981: 510). The CPPU had been a strong advocate for the policies for small government well before the administrative reform movement, and boasted of its early initiative for administrative reform (Ito, 1988: 56-57). The private-sector unions naturally formed a coalition with management to promote the reform. It is also noticeable that the private unions were eager to use this opportunity to establish their hegemony within the labor movement over the public-sector leftist unions. However, this was not a cooptation of the private-sector unions by government or business. The private-sector unions had their own interest in pursuing the reform, as described above. In addition, the business groups needed the unions' support in order to formulate and implement this reform. In their meeting in March 1981 Domei and Nikkeiren (management association) agreed on their basic attitudes to administrative reform, and Nikkeiren argued that, in order to break through the bureaucrats' resistance to reform, it should rally for national support. The necessity of public support was keenly recognized by business groups. Toshio Doko, chairman of the SPC AR and former president of Keidanren, appreciated the establishment of the National Council for Promoting Administrative Reform by the private-sector unions as an important move for popular support. He also asserted, in his meeting with the CPPU in April, that he would be responsive to the opinions of various social groups in order not to give the wrong impression that SPCAR was led arbitrarily by business groups (MOL, 1981: 515). Furthermore, the possibility that Sohyo and the bureaucracies would form an implicit coalition against the administrative reform seemingly required business to have support from the private-sector unions. In March 1981, Sohyo leaders, the vice ministers (career bureaucrats) or secretary generals of all ministries, and the vice presidents of three public corporations met to

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discuss administrative reform. Their agreement interestingly showed the possibility of an anti-reform coalition. They together argued that although the idea of a small and efficient government was good, it would be very difficult to realize that goal in actual administration, because it was also important to maintain a democratic principle in it. They agreed that the level of administrative service should not be reduced, and that they would continue to coordinate their opinions on the reform (MOL, 1981: 513). Actually, in the processes of the privatization of public corporations, opposition emerged based on an implicit labor-management coalition within those corporations (Mochizuki, 1993). For business, it was necessary to cooperate with the private-sector unions to pursue administrative reform. This was also true for government leaders, especially for Nakasone, who was in charge of administrative reform as a director of the Administrative Management Agency and who then became prime minister. Nakasone committed himself to administrative reform to promote his political career to the prime ministership and to maintain his power after his inauguration (Muramatsu, 1987). After a landslide victory in 1986 election, Nakasone attributed the LDP's victory to his strategy to accommodate the moderate left groups. In the process of administrative reform, Nakasone resorted to this strategy. This meant that the private-sector unions had an opportunity to bargain with the government to realize their own interests. The cases of welfare reform in the process of administrative reform show this point clearly (Campbell, 1992). The Health Care for the Aged Law of 1983 put an end to the unconditional free medical service for the elderly over 70, although the government, after intensive negotiation with various actors including the unions, introduced an extremely small copayment, 400 for the first outpatient visit each month, 300 a day for the first two months when in the hospital. The Pension Reform Law of 1985 was also legislated to lower the benefit level. At first glance, these seem to be a typical antiwelfare policy. However, the private-sector unions supported these policies with some reservations. For instance, Domei agreed that the copayment should be introduced for the elderly to control increasing health care costs, while Sohyo opposed it (Shinkawa, 1993: 165). Domei also endorsed pension reform, because it wanted future contributions not to be too large because the society is aging (MOL, 1984: 531-533). It is true that the privatesector unions did not endorse all welfare reforms. All unions opposed the Health Insurance Reform bill of 1984, which demanded that insured workers pay a 10 percent copayment until April 1986, and a 20 percent copayment thereafter. Although, after intensive negotiations within the Diet, the government proposed that implementation of the 20 percent copayment should require Diet approval again, the unions continued to oppose it. But it is interesting that the unions, especially the private-sector unions, opposed the

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bill because it did not introduce any changes to the medical care system, which enabled the doctors to earn their high incomes (MOL, 1984: 526). Although they did not succeed, the private-sector unions and Nikkeiren worked very closely to control increasing medical costs (Shinkawa, 1993: 168-69). These cases show that the private-sector unions prefer a middle-level welfare state with less burden to a big welfare state with a heavy burden. The National Council for Promoting Administrative Reform, which consisted of the private unions, in 1981 advocated the principle of fair burden-sharing among the policy benefit recipients. It claimed that the handicapped should be entitled to free benefits, while able recipients should pay the fair cost of public services. It also proclaimed that the unfair tax system in Japan which gives benefits to small and medium-sized merchants and industrialists, doctors, farmers, etc., should be reformed. Big business concurred on this principle, and from time to time, the private-sector unions and management cooperated in demanding "fair" policy for workers in the private sector. Mitsutoshi Ito (1988) calls this the big business and labor coalition. We can find a similar pattern of labor politics development at the micro-level in the 1950s and the 1960s, when management and labor in the private sector formed a productivity coalition. In the 1980s, at the national level, the private-sector unions and management worked to introduce the "vigorous welfare society" that SPC AR advocated. It is easy to see that the logic of the productivity coalition within the firm is consistent with the logic of the "vigorous welfare society," in that both principles emphasize the well being of workers based on private initiative and economic rationality. They are opposed to groups that depend on the state for their "unfair" benefits, whether they are public-sector unions or protected industries.

2.2

Employment Policy: Small Government for Labor?

As shown above, private-sector unions committed themselves to the principle of small government in general. However, this principle was not applied to their critical interest, that is, employment security. As we show below, the employment policy was not influenced by this principle. The Employment Measure Law of 1966 was an important departure of the Japanese comprehensive employment policy from the ex post facto public job creation program. This new law prescribed that the government should pursue the goal of full employment in formulating and implementing public policies. This was not the first legislation to state a commitment to full employment; such a commitment was also made in the Law to Establish the Deliberation Committee on Employment in 1957. However, the 1966

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law was very important in the employment policy development, in that it was the basic law to require the government to coordinate its policies to maintain full employment. It required the government to set up the Basic Plan to Facilitate Employment at the cabinet level, in which economic and industrial policies could be coordinated with employment policies, such as the occupational placement service and skill formation measures. Among others, the Subsidies for the Change of Jobs Program, which the Employment Measure Law introduced, shows the characteristic nature of the active labor market policy. Let us briefly review the provisions of this program. Its was targeted at two categories of persons: those who could find jobs easily, such as the handicapped and the elderly, and those who had lost their jobs in the restructuring industries targeted by the government. Those people, after receiving their unemployment insurance compensation, could now receive additional allowances for living, training, and job search trips. Moreover, this program provided employers of the targeted people with subsidies to hire and train them. The basic idea of this program was that the government would try to increase the "value" of the unemployed in the labor market and to help them to find appropriate jobs. Therefore, this is called an "active" labor market policy, which contrasts with the policy mix of public job creation and the unemployment insurance. The latter presumes a clear demarcation between market and government, in that the government would play the role of an emergency shelter, outside the labor market, for unemployed looking for job openings by themselves or waiting for the next upturn. The former seeks active government intervention in the functioning of the market. It requires that the employment policy should be a part of economic policy. Here we can find changes in the nature of the employment policy from state-centered to market-oriented. However, these two policies are somewhat different on another important point. The latter explicitly facilitates labor mobility across the nation, while the former tends to be indifferent to such a move. This policy idea was further developed in the Employment Insurance Law of 1974. This law set up three programs besides the unemployment insurance, using the insurance special account; the Employment Improvement Program, the Developing Worker's Ability Program, and the Employment Welfare Program. The former two are the further development of the active labor market policy of the Employment Measure Law of 1966, in its emphasis on training and labor mobility. The important advancements are; (1) the law has established a stable fund for its policy implementation and (2) it emphasizes preventing the unemployment.1 These programs introduced 1

This is the reason why this law is called the Employment, not Unemployment, Insurance Law.

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many subsidies for the employers to preempt unemployment, such as subsidies for an extension of retiring age, for employment of the workers from the targeted declining industries, and for training of employees, all of which are for the goal of preempting the unemployment. This employment policy development was strongly backed up by labor, especially the private sector unions, after the economic down turn of the first oil crisis. The first oil crisis required management of rationalization efforts, and thus labor was threatened by possible lay-off in due course. Labor pursued the goal to protect employment, not just by demanding management for employment security, but also by demanding the government for employment security policy. The Employment Insurance Law was such an example. However, a continuing economic down turn drove labor to demand more. These demands were strong in the structurally depressed industries (like textile and open hearth and electric furnace steel), in which the production capacity far exceeded the demands. In these industries, the MITI (Ministry of International Trade and Industry) usually tried to help reducing the production capacity to balance the supply and the demand in response to the industries' demands. This industrial restructuring would result in reducing work force in these industries. Therefore, labor unions became very active in demanding the government measures to solve the employment problems in these industries. The Special Measures for the Laid-Off Workers in the Targeted Depressed Industries Law was one of labor's achievements out of their movement. This law prescribes that company managements within the targeted depressed industries set up plans to retrain would-be laid-off workers for new jobs in consultation with the union. The government would also provide laid-off workers with various allowances for job search as well as an extended unemployment allowance. Furthermore, the government would subsidize employers who would employ the targeted laid-off workers. These were the policy repertoires prescribed in the Employment Insurance Law. But this new law introduced more generous measures for targeted laid-off workers, and also made it clear that if the government took part in industrial restructuring, it would also be specially responsible for the employment security of laid-off workers in the restructured industries (Takanashi, 1989: 128; Peck et al., 1987: 88-90). It is also important that this new law together with the Special Measure to Stabilize the Targeted Depressed Industries constituted the comprehensive industrial adjustment policy. The latter law was legislated in May, 1978, at the request of management and labor in the depressed industries, in order for companies in those industries to easily rationalize their production. The main measures were 1) formulation of the plan to bring about a new equilibrium in the industry by reducing production

Cooptation or New Possibility?

229

capacity, 2) financial support for their rationalization efforts, and 3) advising a cartel on rationalization. Furthermore, in 1978, the Ministry of Labor (MOL) succeeded in legislating the Special Measures for Laid-Off Workers in the Targeted Depressed Regions Law. The purpose of this law was to supplement the employment measures of the former laws by targeting the region in addition to the industry. Most economists, however, criticized this government intervention, alleging that it would distort the functioning of the market and might make the restructuring process slower (Uekusa, 1984). If the 1980s principle of neoliberalism had been taken seriously, the employment policy could have been the target of the administrative reform. However, this type of employment policy not only survived administrative reform, but was further developed. The Special Measures for the Targeted Industries and Regions Laws were to expire in 1983, and MOL legislated the succeeding law by integrating those two laws into the Special Measures for Stable Employment in the Targeted Industries and Regions Law, which anticipated a continuing employment problem in some industries. This new law strengthened the employment measures on two points. First, it does not require implementation of the industrial policy as a precondition for targeting. In other words, MOL has more autonomous discretion in implementing the new law, which enables the ministry to take employment into direct consideration. Second, the new law introduced subsidies to companies that educate the would-be laid-off workers for easy job transfers (Takanashi, 1989: 147-148). What is more important to this analysis is the fact that MOL succeeded in enacting this new law just when the Nakasone administration adopted the no-budget-increase principle for the 1983 fiscal year. While the general account budget increase was kept at 0 percent (except redemption of national bonds and tax money allocated to local government), MOL's budget, including its Special Account budget, increased by 5.2 percent. This increase was largely attributable to the new law (Ohara Shakaimondai Kenkyusho, 1984: 462). This pattern can be found in the 1987 fiscal year, when the revaluation of yen after the Plaza Accord of 1985 caused serious economic recession in Japan. In that year, the government was still committed to the surplus budget principle, but MOL's budget (including its Special Account) increased by 7.4 percent. The policy package of "Program to Create 300,000 Jobs" was attributable to this budget increase. Furthermore, the Special Measures for Stable Employment in the Targeted Industries and Regions Law, which was to expire in 1988, was again extended as the Law to Facilitate Regional Employment Development (1987) and the Law to Stabilize Employment in Targeted Industries (1988). This employment policy development shows that state-labor relations in the employment policy arena did not experience significant change in the

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days of small government. MOL eagerly develped these employment policies, and management and unions supported this employment policy development in the 1980s as in the 1970s.

2.3

Labor Ministry Offensive: Deregulating Labor Policy?

I argued that labor and management in the private sector formed a coalition in several important policy arenas, such as employment security and administrative reform. Did labor have influence beyond this coalition base? If the answer is no, it is somewhat difficult to tell such a coalition from management's cooptation of labor. 2 Labor politics in the 1980s in Japan, however, show cases in which labor went beyond this coalition. The unions achieved several important policy victories over business resistance. In these cases, the government, especially the Ministry of Labor, took labor's side against business. The Equal Opportunity for Male and Female Workers' Law of 1985 and the Law to Facilitate Employment of Elderly Workers of 1986 are two examples. Labor unions have been demanding active government intervention to guarantee equal opportunity for female workers and to extend the retirement age to 60. On the other hand, management has been strongly opposed to government intervention on these issues. These new laws, however, prescribe an active government role for these policy goals. Nikkeiren, in 1986, criticized MOL's active intervention on these issues as "the Labor Ministry Offensive." It argued that MOL recently began intervening in the spheres in which labor and management within the particular companies should voluntarily negotiate with each other, and that it was against the government general policy of deregulation (Nikkeiren Taimuzu, January 23, 1986). I will use a typical case of the Labor Ministry Offensive, the workhour reduction policy, to analyze how labor succeeded in achieving its policy victory in this field in the era of neoconservatism and conservative resurgence. The post-war work-hour regulation started as part of the occupational reform. The Labor Standards Law of 1947 introduced the 8-hour day and 48hour week principle for the first time in Japan. Average annual working hours decreased from 2,315 in 1965 to 2,064 in 1975 (Kume, 1990). The work-hour reduction, however, stopped in the middle of the 1970s. This was because many companies restructured their business and assigned more work for employees to survive the economic downturn after the oil crisis. 2

Even if that is a case of cooptation, I still argue that such a cooptation itself is evidence of some labor power, because without any power, management does not have to coopt labor at all, but can just exploit it.

Cooptation or New Possibility?

231

Faced with this new situation, the unions advocated further work-hour reductions by shortening the legal work-hour standards in the Labor Standards Law. However, MOL did not respond to the unions' demand. It stated that the work-hour reduction should be negotiated between labor and management, and thus its own role was to facilitate and support their negotiations (Nomiyama, 1987: 120-24). The ministry's approach in the 1980s became more aggressive and active. In May 1982, the Research Group on the Labor Standards Law, an informal advisory group for the Minister of Labor, started research on work-hour regulations as well as wage and labor contract issues. The second committee of the Research Group, in charge of the work-hour regulation issue, drafted an interim report in August 1984. It proposed introducing a principle of a 45-hour week and a 9-hour day instead of the 48-hour week and 8-hour day principle in the new Labor Standards Law. It also advocated that if the union and management agree on a work-hour reduction to 40 hours a week, MOL would deregulate its work-hour policy to admit a flexible work-hour allocation. This was a progress for the work-hour reduction, in that for the first time since the Labor Standards Law of 1948, shortening the legal work hours standard became a serious policy option. The Second Committee held a series of hearings with 11 unions including five national unions, and 12 business associations, including Nikkeiren. Labor criticized the report for its hesitation in introducing a more bold policy, and advocated the 40-hour week and 8-hour day principle. On the other hand, business also criticized the report but from the opposite direction, arguing that working hours should be negotiated between labor and management, and the government should not intervene in this area (Hiraga, 1987: 114-15). It is interesting to note that although both parties criticized the report, it was business that was on the defensive. Despite management opposition, MOL continued to make efforts to mobilize support for the work-hour reduction policy. It was necessary not just because business groups were opposed to MOL's policy, but also because some LDP members were against it (Nikkei Shimbun, January 9, 1985, Nikkei hereafter). In November 1984, newly appointed Labor Minister Toshio Yamaguchi, who was a member of the small conservative party, the New Liberal Club, that formed the coalition government with the LDP, proclaimed that MOL would put its policy priority on work-hour reduction (Nikkei, November 22, 1984). He subsequently established a liaison conference with MITI for reducing working hours. In February 1985, MITI and MOL had their first formal meeting on this issue and jointly argued for further working hour reductions (Nikkei, February 28, 1985). This strategy was useful for MOL to upgrade the work-hour policy from its "local" issue to a "central" issue of the government.

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MOL also used international pressure to sell its work-hour policy. In June 1985, after getting the CLSC's endorsement, MOL publicly announced its policy proposal, the Prospects and Guidelines for Reducing Work Hours, and it tried to link the work-hour issue to the trade surplus issue. The logic was that: Japanese workers work so long that Japanese companies enjoyed a strong cost advantage and earned too many benefits, which would contribute at the national level to the huge trade surplus. Thus, it was allegedly necessary to shorten working hours (Nomiyama, 1987). For instance, immediately after the newspapers reported management criticism against MOL's policy, Minister Yamaguchi responded to this criticism by emphasizing the work-hour reduction as an effective way to solve the trade friction (Nikkei, August 7 and 8, 1985). MOL, furthermore, could combine these two tactics by incorporating its work-hour reduction policy in a series of cabinet-level decisions to deal with trade problems. In October 1985, the cabinet meeting of economic ministers adopted the Measures to Increase Domestic Consumption as a policy package to reduce the trade surplus. MOL's work-hour reduction policy was one of the major policies in that package. Since then, 14 cabinet-level decisions, including the Maekawa Report of 1986, have advocated the work-hour reduction policy. These cabinet-level decisions supported MOL in its efforts to sell its new work-hour policy. In December 1985, the second committee of the Research Group presented its final report to the labor minister. This report was important on three points. First, it clearly advocated new legal restrictions on working hour. Its reasoning for the legal approach was that due to Japanese enterprise unionism, the low organization rate in small and medium-sized companies, and harsh inter-company competition, it is difficult for the unions alone to realize work-hour reductions within their companies. Second, it proposed the 45-hour week and 8-hour day principle. Originally, it had advocated 9 hours a day, but it shortened the legal daily work-hours to 8, in response to union opposition. Third, while it continued to advocate flexible work-hour allocation as a useful means to facilitate total work-hour reduction, it also proposed more restrictions than in the interim report in response to union demands. MOL submitted this report to the tripartite CLSC in March 1986, and the CLSC held a series of deliberation meetings. But management continued to oppose this report. In contrast, labor basically supported the Research Group report, although it claimed more work-hour reductions. Consequently, the CLSC was almost deadlocked. It was the public representatives, scholars, and ex-bureaucrats of the CLSC who took the initiative to break through this deadlock. They formulated their own proposal and actively persuaded both management and labor to endorse it. The main point was that

233

Cooptation or New Possibility?

the legal work week should be reduced to 40 hours in the end, but for the time being it would be 46 hours, then to be reduced to 44 hours. This was a kind of compromise to management, in that the immediate work-hour reduction was to 46 hours a week not 45 hours a week. But it also formally announced the plan to introduce the 40-hour week for the sake of labor. After intensive negotiation, management and labor representatives endorsed the proposal (Shirai, 1987).3 In this process, the winner was labor. MOL formulated the bill to revise the Labor Standards Law based on this proposal, which passed the Diet in September 1987. Since then, the average working hours for Japanese workers has decreased. This case seems to show that MOL was on the union side and pursued introduction of a more active work-hour policy. My survey data, which includes several specific questions regarding the process of this new workhour legislation, supports this observation by showing that (1) this policy was a success for the unions, and (2) the unions gained this victory without forming the labor-management coalition, but by forming a MOL-labor coalition. First, although some labor scholars and leftist union leaders criticized this new law being a change for the worse, 68.6 percent of 51 union leaders, interviewed by the author in 1989, evaluated the new Labor Standards Law positively. One national union leader said, if asked formally, he could not but say the new law is to a certain degree a victory. But he said he personally believed it was a big victory. 4 Table 1:

Eagerness for Workhour Reduction (average score)

MOL LDP Management Note:

Total

National Center

Manufacturing

Service

2.14 3.76 3.51

2.00 3.50 4.00

1.56 3.63 3.56

2.45 3.87 3.42

Scores range from 1 = very eager to 5 = not at all.

Second, the union leaders active policy for work-hour LDP to be much less eager frequent contact with MOL

3

4

regarded MOL as eager to introduce a more reduction, while they saw management and the (Table 1). In addition, union leaders had more than with management on this issue (Table 2).

One member of the CLSC and a prominent labor scholar published a detailed description of this process. See Taishiro Shirai (1987). Interview with a director of the Policy and Law Department of Rengo, Tokyo, September 1989.

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These data seem to support the interpretation that the unions and MOL formed a coalition to introduce the new work-hour policy. Table 2:

Frequency of Contact in the Workhour Legislation (average score)

LDP JSP DSP Management MOL Note:

3

Total

National Center

Manufacturing

Service

3.63 2.76 3.20 3.24 2.49

3.50 2.75 3.50 3.00 1.75

3.69 3.25 3.00 3.13 2.69

3.61 2.52 3.26 3.32 2.48

Scores are: 1 = often; 2 = several times a year; 3 = once to three times in the whole process; and 4 = never.

Analysis

Why did state-labor relations survive in the era of neo-conservatism in Japan? Why did pro-labor policies thrive in the nation believed to have the weakest labor movement among the industrialized democracies? We will focus on two factors to explain this puzzle: the coalitional base of pro-labor policy and the institutional base.

3.1

Coalitional Base: Labor-Management Coalition for Small Government

The private-sector unions began to change their goals from demanding high nominal wage increases to pursuing real wage increases and secure employment after the first oil crisis. They demanded government tax cuts and an anti-inflation policy as well as an employment policy, while restraining wage demands. In this process, they formed a coalition with management. The policy package of administrative reform was partially a development of these policies. The unions as well as management preferred fiscal reconstruction without tax increases. Both were against big government providing the social groups with policy benefits at the expense of the competitive private sector. The big business unions and management were, for instance, against the "unfair" tax system that provided protected sectors in Japan, such as farm-

Cooptation or New Possibility?

235

ers, small and medium-sized merchants and industrialists, and doctors, with various tax favors. They also criticized the three major sources of the government deficit, that is, the national railway, the food control system, and the national health insurance system. They argued that these systems were protecting various vested interests, e.g. railway workers, farmers, doctors, as well as politicians and bureaucrats related to these systems, at the expense of the private competitive sectors.5 The private-sector unions and management have relatively few stakes in these systems, and thus supported small government. Here it is important to note that Japanese private-sector unions are not so dependent on public job creation programs. They succeeded in securing their members' employment within the firm based on the productivity coalition. The employment policies facilitated this practice, by providing companies in difficulty with subsidies to restructure their business by employing redundant workers. These policies were, in this sense, well embedded in the "economic" institution rather than in the "political" institution, and are free from neo-conservative criticism in Japan. Thus, intensive employment policies could thrive in the days of the small government and supported privatesector union hegemony within the labor movement. The labor accommodation at the company-level supported the private unions' small government orientation at the national level (Kume, 1994).6 The private-sector unions thus were not the victim of the neo-conservative tide in Japan, but rather they rode on this tide. International pressures to open up the Japanese economy facilitated this labor-management coalition. In the 1980s, international pressure hit the traditional supporters of the LDP, such as the farmers and the small and medium-sized merchants, as the cases of the liberalization of agricultural products and the deregulation of the large retail store policy show (Upham, 1993; Kusano, 1984). In responding to these international pressures, the LDP government had every reason to appeal to the private-sector unions or at least to workers for support. This trend fits the LDP's long-term strategy of incorporating workers in its camp. The LDP electoral victories in the 1980s did not stop this trend, but rather facilitated it, because the victory was interpreted as showing the effectiveness of this strategy.7 5

6 7

Very often, the private sector union leaders criticized the public sector being looked after by the government and becoming ineffcient without market competition. Oyakata Hinomaru, which literally means the boss is the Japanese government, is a common saying to criticize the public sector. More comprehensive analysis by the author, see Ikuo Kume (1994). Prime Minister Nakasone's comments on the 1986 land-slide victory confirms this interpretation. He said that the LDP's victory was due to its successful incorporation of moderate leftist groups within its camp.

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The development of the labor policy network helped private unions actively to support the administrative reform. They were the formal members of the SPCAR, and more importantly the CPPU (later the Private Sector Unions Conference [Zenminrokyo]) was consulted intensively by the government in that process. Thanks to the development of communication channels with the government and bureaucracies (Tsujinaka, 1993), the privatesector unions could be a formal and critical actor in the process of administrative reform.

3.2

Institutional Base: Policy Network of Labor

The case of the work-hour reduction policy demonstrates that labor could achieve substantial policy victories over business resistance. Labor was not coopted by management; rather it increased its power in national policy making in the 1980s. In this case, too, international pressure played an important part. Criticism against the longer work hours in Japan as one cause of the trade surplus helped labor and MOL to formulate the work-hour reduction policy. The Rengo official in charge of the work-hour issue recollected that the Maekawa Report of 1986 was very useful in overcoming business resistance at the final stage of the deliberation in the tripartite CLSC meeting. 8 The Nakasone cabinet, faced with an intensified trade conflict, established the Maekawa Committee to formulate a policy proposal to solve the trade problem. The Maekawa Report was submitted to the prime minister in April 1986, and advocated the expansion of domestic demands to balance the trade surplus. It explicitly argued for the work-hour reduction as a means for such a goal, and consequently made the work-hour reduction an international commitment. International pressure to transform the Japanese economy favors labor on this issue too. However, it is insufficient to give credit to international pressure because it seems not to be so omnipotent in changing domestic policy at least in Japan, as the difficulty in opening the Japanese rice market and the regulated sectors to foreign competition show. The success of the work-hour reduction policy was not just a result of international pressure. But we should analyze how this pressure was transformed into a concrete policy change through the domestic political process. I will focus on labor's policy network which has been developed since the 1970s as an important factor in actualizing the international pressure in the form of the favorable work-hour policy for the unions. 8

Interview with a director of the Policy and Law Department of Rengo, Tokyo, September 1989.

Cooptation or New Possibility?

237

The key institution within the policy network for labor is MOL, which we can better understand through the results of a 1985 survey of bureaucrats, in which 251 highranking bureaucrats in 8 bureaucracies were interviewed.9 Historically, MOL has been eager to introduce some pro-labor policy at least since the mid-1950s, although it was different from Sohyo in its policy orientation. Although MOL tried to be a fair arbitrator between management and labor (Naka, 1988), its policy orientation sometimes brought criticism from conservatives as too pro-labor (Nakasone and Kasaka, 1964: 68). The multi factor analysis of answers to several questions about their policy views in the bureaucrats' survey show that MOL as well as the Ministry of Welfare have a distinctive policy orientation, that is, to pursue income redistribution through the political process, and also a non-LDP political orientation (Table 3). 1 0 This finding is consistent with the observation that MOL has a pro-labor orientation. On the other hand, MOL has been depicted as one of the weakest bureaucracies in Japan. It is true that MOL's share in the national general budget decreased from 2.35 percent in 1960 to 0.94 percent in 1985. 11 However, the bureaucrats' survey data of 1985 show that 44 percent of the interviewed MOL bureaucrats recognized an increase in its rank within the government, and this ratio is second largest to the Ministry of Construction among the eight interviewed ministries. In addition, 44.4 percent of MOL bureaucrats replied that it became easier to get the budget for its policies. 9

10

11

This survey was conducted by Professor Michio Muramatsu. I would like to thank Professor Muramatsu for permission to use this data. The interviewed ministries are the Economic Planning Agency, Ministry of Finance, Ministry of Welfare, Ministry of Agriculture, Forestry, and Fishery, Ministry of International Trade and Industry, Ministry of Labor, Ministry of Construction, and Ministry of Home Affairs. This analysis used a factor analytic type of quantitative analysis developed by Chikio Hayashi and known as Type III Quantification Scaling. The statistical techniques assume that all variables, whether independent or dependent, are measured at the nominal level and hence they are most useful for categorical variables and for ordinal variables that do not conform to linear relationships. This method is useful to find the underlying structure of the relationships between the different scales (Miyake, 1991: 233-34). This is similar to the homogeneity analysis by means of altering least squares, by quantifying nominal data by assigning numerical values to the cases and categories. See also Kume (1993). The big budget does not automatically mean the strength of the ministry. The allegedly powerful MITI does not enjoy such a large budget. MOL's budget is also dependent on the unemployment rate, which has been low in Japan. Finally, the policies that caught attention as the MOL Offensive were the regulatory policies, which need less money. The fact that MOL is not a big spender seems to be partly a result of the private sector-union movement. For instance, the employment policy needs less money, as long as the private unions succeeded in forcing management to maintain as much employment as possible (Tsujinaka, 1987: 67).

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This ratio was also second to the Ministry of Construction's. Tsujinaka, based on the same bureaucrat survey data analyzed here, argued that MOL increased its importance as a policy maker within the information network of the government, although it could not increase its budget share (Tsujinaka, 1987). The indication that the percentage of bureaucrats who met the prime minister more than once a week was higher for MOL seems to support the observation that MOL has become a central player in national policy making Table 3:

Bureaucrats' Policy Orientation Dimensions

Variables Standards in using discretion Balance of interests National interest Coordination or efficiency Coordination Efficiency Cooperation with the social groups Necessary Not so necessary Income redistribution Positive Negative Party support LDP Non-LDP 92 Policy difference between LDP and Opposition Large Small Ministries Economic Planning Finance Welfare Agriculture MITI Labor Construction Home Affairs Correlation

Number

First

Second

131 88

0.85 1.45

0.45 0.78

166 85

0.80 1.54

0.42 0.82

45 205

1.98 0.42

1.21 0.26

136 113

0.94 1.13

0.30 0.35

159 92

0.17 0.27

0.89 1.55

148 102

0.39 0.60

1.05 1.52

21 41 41 34 40 27 31 16

1.46 1.70 1.02 1.84 1.97 1.69 0.96 0.06

0.94 0.12 2.07 2.88 0.55 2.13 0.11 2.05

0.51

0.49

Cooptation or New Possibility? Table 4:

239

MOL and Other Political Actors

Influence* (first + second) {%)

Cooperation** (first + second) (%)

Difficult to coordinate*** (first + second) (%)

Policy tribes **** MOF PARC ***** Related groups Top LDP

44.4 25.9 25.9 22.2 14.8

62.9 33.3 29.6 7.4 7.4

* ** *** **** *****

Source:

(policy tribes) (deliberation council) PARC (mass media) (top LDP)

(opposition party (other ministries) (MOF) (related groups) (deliberation council)

Actors which have influence over the MOL. Actors with which the MOL cooperates. Actors which pose difficulty in the MOL's policy formulation. Policy tribes are groups of the LDP politicians who have specific interests and knowledge in the given policy area. PARC is abbreviation for the Policy Affairs Research Council, which is the powerful policy formulation body within the LDP. Tsujinaka (1987: 68).

Furthermore, it is also interesting to note that MOL has intensive negotiations with related political actors. Tsujinaka's analysis of the bureaucrats' data demonstrates that MOL bureaucrats perceived a strong influence on themselves from the political actors closely representing social groups, that is, policy tribes and the LDP's Policy Affairs Research Council. MOL is also working closely with these political actors (Table 4). Putting these data together with the recent appearance of a group of LDP politicians representing salaried employees (Inoguchi and Iwai, 1987), he concludes that MOL has become more open to private-sector unions' policy demands. A further analysis of the data supports his interpretation. MOL also has a greater tendency to regard the deliberation councils, which in the case of MOL are mostly the tripartite body, and the related groups, evidently including unions in MOL's case, as influential than do other ministries (Table 5). At the same time, MOL bureaucrats most often replied that the deliberation councils are the most difficult actor to get through. 12 This means that the tripartite council of MOL is not a token body. All these data seem to add more credit to Tsujinaka's interpretation. Now let me summarize these various findings in a more simplified form by using the multi factor analysis of the variables regarding interaction between bureaucracies and the political actors in the data set. Table 6 is the outcome. There are two dimensions of underlying structure of relationships 12

14.8 percent for MOL, 9.8 percent for Ministry of Welfare, and 7.3 percent for Ministry of Finance. The most and second to the most are included.

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Ikuo Kume

among those variables: The first is political contact with social groups, and the second is political leadership. One interesting finding is that the perceived increase in the rank within the government parallels the first dimension. This means that the more the ministry has contact with the social groups, the more it perceives an increase in its status. This might be a common phenomenon in which the administrative agency mobilizes its supporters to increase its power. MOL as well as the Construction Ministry seem to experience this. However, the second dimension separates MOL from the Construction Ministry and tells another story. Given this second dimension, MOL and MITI have similar characteristics: both have intensive interaction with related social actors (in the case of MOL, unions and management), while they replied that the core political actors rather than lowerranking actors, such as policy tribes, have more influence on their policy making. This finding supports the interpretation that MOL becomes a critical arbitrator between top government officials and unions, and consequently increases its status within the government. Table 5:

Influence of the Related Group/the Deliberation Council (%) Group (first + second)

Economic Planning Agency Ministry of Finance Ministry of Welfare Ministry of Agriculture, Forestry, and Fishery Ministry of International Trade and Industry Ministry of Labor Ministry of Construction Ministry of Home Affairs

Council (first + second)

0.00 4.80 14.60 26.40

9.50 9.80 7.30 0.00

25.00 22.20 6.50 6.30

7.50 11.10 3.20 6.30

Percentage of bureaucrats who perceive the related groups or the deliberation councils to be the most influential or second to the most among other political actors.

This interpretation fits my argument that the LDP has been trying to incorporate labor in its camp and introducing pro-labor policies. But it goes beyond that. The data show that the policy network of MOL has been wellembedded in the government system. This in turn provides the policy-oriented, private-sector unions with a stable and important channel of influence. Furthermore, MOL becomes a more close ally with private-sector union, because the unions themselves become more moderate and "realistic" in their policy demands, as their support for small government shows, and

241

Cooptation or New Possibility? Table 6:

Interaction between Bureaucrats and Political Actors Dimensions

Variables Diet Influential Less Cooperation Top Bottom Influence Top Bottom Party /bureaucracy power relation Party Bureaucracy Respondent's ministry's position Up Equal + down Contact with prime minister Often Rare Contact with the LDP member Often Rare Contact with the opposition party member Often Rare Contact with the related groups Often Rare Ministries Economic Planning Finance Welfare Agriculture MITI Labor Construction Home Affairs Correlation Note:

Number

First

Second

168 82

0.08 0.19

0.71 1.42

37 176

1.78 0.61

1.22 0.19

109 118

0.83 0.98

1.08 1.05

123 104

0.04 0.02

1.05 1.26

93 157

1.39 0.86

0.01 0.02

95 156

0.07 0.00

1.92 1.17

141 109

1.09 1.47

0.72 0.94

128 123

1.11 1.21

0.40 0.42

152 99

0.98 1.57

0.43 0.66

21 41 41 34 40 27 31 16

3.14 2.41 1.10 0.38 0.74 0.85 1.10 0.87

0.29 1.77 2.05 1.90 2.74 0.40 0.26 1.23

0.48

0.43

The variables, Influence and Cooperation, have two values: Top means prime minister, top LDP, or the MOF. Bottom means policy tribes, PARCs, deliberation councils, or related groups.

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closer to MOL's original pro-labor policy stance. This would help MOL to increase its status within the government, and at the same time would help the unions to pursue their policy goals. The unions consequently began enjoying a more central role in the national policy making. The success of the work-hour reduction policy seems to support this interpretation. The policy network for labor has become so well institutionalized that unions have been able to achieve several policy victories over business resistance.

4

Conclusion

Japanese labor fared well in the 1980s. Some students may argue that the well-organized private-sector unions gained policy benefits at the expense of workers in the peripheral sector. It is evident that these organized unions demanded an employment policy in order to protect their self-interests rather than to protect employment in the unorganized sector. However, once such an employment policy was formulated, recipients of the employment policy benefits were not confined to the organized sector. For instance, many small and medium-sized companies received employment adjustment subsidies, of which the amount prescribed per worker is larger than those for large companies, to keep their employees on the jobs. The work-hour reduction policy had a similar spillover effect for peripheral workers. Workers in large companies enjoy relatively shorter work hours than those in the small and medium-sized companies. It is noticeable that management in large companies is not as antagonistic to work-hour reduction. It is management in the small and medium-sized companies that opposed the policy. In the process of formulating the work-hour reduction policy, unions as well as MOL preferred government regulation rather than self-regulation by the union and management, although management (especially Nikkeiren) preferred the latter. It is evident that work-hour reduction in the form of public policy has more spillover effects than that of labor-management self-regulation conducted within the enterprise. Workers in small and medium-sized companies can enjoy positive spillover effects on this issue too. In sum, Japanese unions based on decentralized and fragmented enterprise unionism not only won favorable achievements but also brought about some positive spillover effects for workers in the small and medium-sized companies. The birth of a non-LDP government in 1993 seems to be supported by this labor politics development. It is true that the end of the cold war contributed to the formation of this new government by blurring the dividing line between socialist and conservative. But the same dynamics worked as a

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result of this labor politics development, which eroded the leftist hegemony within the movement and narrowed the policy difference between labor and conservative groups. The splinter groups out of the LDP did not have to worry about the unions' presence within the new governing coalition but rather counted on it as a force to transform the Socialist party into a more "realistic" political actor (Igarashi, 1992). It is interesting that the non-LDP government advocated deregulation as a way to transform the Japanese political economy for the sake of consumers. This is the goal the private-sector unions were pursuing with management in the 1980s. It is uncertain whether the non-LDP coalition will succeed in realizing that goal or will be faced with another realignment., especially after the birth of the Socialist-LDP coalition government in July 1994 But it seems to be clear that labor continues to be one critical actor in the process of political realignment. The Japanese case seems to have some comparative implication. In the 1980s and the early 1990s, we observed a comparative puzzle in state-labor relations. While the labor-dominated corporatism in Sweden experienced a drastic deformation of state-labor relations under a management offensive, Germany and even Italy, which have less powerful labor movements by every conventional standard of labor's strength, such as organization rate and degree of centralization, show more resilience against management offensives. Kathleen Thelen argues that this divergence is attributable to the decentralized nature of the labor movement in the latter two countries (Thelen, 1993). For instance, in Germany labor unions developed a dual system, that is, institutionalized labor management negotiation at the company level as well as the national level. She claims that this institutional development enabled German labor to continue to maintain accommodationist labor politics in the 1980s. The Japanese case seems to support this argument, as the national-level labor-management coalition in the private sector is based on labor-management collaboration within the company. This coalition is so deeply rooted in the Japanese political economy that neo-conservative reform in the 1980s could not destroy it. Furthermore, this kind of labor politics is dependent not on political exchange but more on the functioning of the economy itself, and thus state-labor relations appeared in the 1980s in Japan to be consistent with neo-conservatism.

References Campbell, John C. (1992), How Policies Change, Princeton: Princeton University Press. Hiraga, Toshiyuki (1987), Kaisei rodokijunho (Labor Standards Law Revision), Tokyo: Nihon Rodo Kyokai. Igarashi, Hitoshi (1992), "Seiji-Seito to Rodokumiai" [Politics/Party and the labor union], in Hosei Daigaku Ohara Shakaimondai Kenkyusho (ed.), Rengo jidai no rodo

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undo (Labor movement in the era of the Rengo); 319-348, Tokyo; Sogo Rodo Kenkyusho. Inoguchi, Takashi and Tomoaki Iwai (1987), Zokugiin no kenkyu (A study on the policy tribes), Tokyo: Nihon Keizai Shimbunsha. Ito, Mitsutoshi (1988), "Daikigyo roshirengo no keisei" (A formation of the big businesslabor coalition), Leviathan, No.2: 53-70. Kume, Ikuo (1990), "Gyoseikikan no jiritsusei to noryoku: rodojikan kisei gyosei o tegakari to shite" (Autonomy and Capacity of the State Agency: A Case of the Work Hour Regulation Policy), Kobe hogaku nenpo, No.6: 225-277. Kume, Ikuo (1993), "Tochikatei to gyosei kanryosei: Tochirengo no kakudai to sono seidoka" (Governing Process and the Bureaucracies: Expansion of the Governing Coalition and its Institutionalization), Kobe hogaku nenpo, Vol. 9: 1-36. Kume, Ikuo (1994), Disparaged Success: Labor Politics in Post-war Japan, Ph.D. dissertation, Ithaca, Cornell University. Komiya, Ryutaro, Masahiro Okuno, and Kotaro Suzumura (1984) (eds.), Nihon no sangyoseisaku (Industrial policy of Japan), Tokyo: Tokyo Daigaku Shuppankai. Kusano, Atsushi (1984), Nichibei orenji kosho (The US-Japan Orange Negotiations), Tokyo: Chuokoronsha. Ministry of Labor (respective year), Shiryo rodo undoshi (Documents Labor History), Tokyo: Romugyosei Kenkyusho, annual. Miyake, Ichiro (1991), "Types of Partisanship, Partisan Attitudes, and Voting Choices," in Scott C. Flanagan, Shinsaku Kohei, Ichiro Miyake, Bradley M. Richardson, and Joji Watanuki (eds.), The Japanese Voter: 227-64, New Haven: Yale University Press. Mochizuki, Mike (1993), "Public Sector Labor and the Privatization Challenge: The Railway and Telecommunication Unions," in Gary D. Allinson and Yasunori Sone (eds.), Political Dynamics in Contemporary Japan: 181-99, Ithaca: Cornell University Press. Muramatsu, Michio (1987), "In Search of National Identity: The Politics and Policies of the Nakasone Administration," Journal of Japanese Studies, Vol. 13-2: 307-342. Muramatsu, Michio and Ikuo Kume (1988), "Country Report: Recent Administrative Development in Japan," Governance, Vol. 1-4: 469-478. Naka, Mamoru (1988), Rodosho kenkyo (A Study of the MOL), Tokyo: Gyosei. Nakasone, Yasuhiro and Tokusaburo Kosaka (1964), "Hoshuta wa shisei wo tadase" (Straighten up the Conservative Party), Ekonomisuto, Vol. 42-1: 66-72. Nomiyama, Masayuki (1987), Rodojikan: Sono doko to kadai (Work Hours: Trends and Problems), Tokyo: Rodo Kijun Chosakai. Ohara Shakaimondai Kenkyusho (respective year), Nihon rodo nenkan (Annual of Japanese labor), Tokyo: Rodo Junposha. Otake, Hideo (1987), "Nakasone seiji no ideorogii to sono kokunai seijiteki haikei" (The Ideology of Nakasone's Politics and their Domestic Political Background), Leviathan, No. 1: 73-91. Peck, Merton J., Richard C. Levin, and Akira Goto (1987), "Picking Losers: Public Policy Toward Declining Industries in Japan," Journal of Japanese Studies, Vol. 13-1: 79-123. Piven, Frances Fox (ed.) (1992), Labor Parties in Postindustrial Societies, Oxford: Oxford University Press. Shinkawa, Toshimitsu (1993), Nihongata fukushi no seijikeizaigaku (Political Economy of the Japanese Welfare System), Tokyo: Sanichi Shobo. Shirai, Taishiro (1987), "Rodojikan hokaisei o megutte" (On Revising the Work Hours Law), Nihon rodo kyokai zasshi No. 339: 2-11.

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Takanashi, Akira (1989), Aratana Koyoseisaku no Tenkai (The Development of New Employment Policy), Tokyo: Romu Gyosei Kenkyusho. Thelen, Kathleen (1993), "West European Labor in Transition: Sweden and Germany Compared," World Politics Vol. 46-1: 23-49. Tsujinaka, Yutaka (1987), "Rodokai no saihen to 86 nen taisei no imi" (Transformation of Labor Movement and the Meaning of the 1986 System), Leviathan, No.l: 47-72. Tsujinaka, Yutaka (1993), "Rengo and its Osmotic Networks," in Gary D. Allinson and Yasunori Sone (eds.), Political Dynamics in Contemporary Japan: 200-213, Ithaca: Cornell University Press. Turner, Lowell (1991), Democracy at Work: Changing World Markets and the Future of Labor Unions. Ithaca: Cornell University Press. Uekusa, Masu (1984), "Sekiyukiki Igo" (Post-Oil Crisis), in Komiya et al. (1984): 77101. Upham, Frank (1993), "Privatizing Regulation: The Implementation of the Large-Scale Retail Stores Law," in Gary D. Allinson and Yasunori Sone (eds.), Political Dynamics in Contemporary Japan: 264-294, Ithaca: Cornell University Press.

Concerted Cooperation and Immobilism: Labour Policy in Germany and the Regulation of Early Exit Maria Oppen

1

Introduction

The view that Germany faces a "structural crisis" as a production location within the prevailing global competitive situation is one which is currently widely shared. While the symptoms of the crisis are usually perceived in terms of a cost- and in particular labour cost-crisis, there is a minority view which locates the central causal complex in the inadequate dynamism of productivity and innovation (Jürgens/Naschold 1994). Far-reaching changes are considered necessary in the fundamental labour, social and industrial policy parameters of the — until now very successful — German development path. The combination of rapid productivity growth and a high level of social welfare provision despite low labour force participation rates characteristic of Germany in international terms has clearly come up against its limitations (cf. Naschold in this volume). As productivity growth declines, and particularly against the background of a demographic trend which, as in almost all the highly developed industrialized countries, is leading to an increasingly elderly population, this constellation comes under immense pressure: it is no longer possible to maintain a high level of social security with such low participation rates. This places a question mark over, among other things, the traditional, until now successful, way in which production is organized and labour deployed in Germany and over the prevailing distribution of work and income. It seems that a fundamental reorientation with regard to the use of human resources is required, and this in both quantitative and qualitative terms. The qualitative "under-utilization" of human resources manifests itself, for instance, in the deployment of skilled labour in areas requiring lower skill levels or different qualifications, together with a shortage of skilled labour in other areas, skill degrading resulting from highly specialized and inflexible labour deployment, and the almost total absence of working structures conducive to learning. The quantitative "under-utilization" of human re-

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sources is evidenced by the high and entrenched levels of unemployment in Germany since the mid-1970s. Germany is now in the upper third of the OECD countries with regard to the unemployment rate, with unemployment accounting for the largest share of welfare spending; and this despite a rather low participation rate of women and the rapid increase in early retirement — also since the mid-1970s — which was successively implemented with the explicit aim of easing pressure on the labour market. In order to bring about a new balance between these areas, radical reforms in the system of labour regulation seem unavoidable. Such a fundamental institutional transformation would encompass, among other areas, industrial relations, fairness norms, social security standards and strategies, and the working time regimes. Yet in Germany these spheres are seen to be particularly highly differentiated, legally instituted, and historically and bureaucratically entrenched (Jürgens/Naschold 1994). The broad consensus and the corporatist structures underpinning many of these institutions have until now contributed to their relative stability; yet this now appears to have suddenly changed into institutional immobilism and thus to have become a competitive disadvantage. Taking as an example the labour policy regulation of the transition of older workers from the employment system to the social security system, it can be shown how the network of actors in government, collective organizations and firms has constructed a framework of norms, strategies and procedures which formed the basis for a characteristically German pattern of early exit from working life. Contrary to the declared, official consensus of all the major social groupings which, by agreeing to the pension reform law passed in 1989, expressed their support for an extension to the length of working life, it is not merely the persistence , but a reinforcement of the trend to ever earlier retirement which can currently be observed. And this has occurred in the face of the unmistakable signs that providing financial security for an increasingly extended retirement phase (which now on average begins at 59) and the continued financing of the systematic rejuvenation of firms' workforces threatens to explode the pension insurance system. A shrinking working population must provide for an increasing share of the population in (early) retirement. Given that pension insurance contributions are paid equally by employers and employees, the inevitable increases in contribution rates will not only affect disposable private incomes; the resultant rise in indirect wage costs will also exacerbate the problem of international competitiveness. The dramatic rise in unemployment in the course of the both the on-going economic crisis and the unification process are not sufficient to explain in full the lack of progress made in implementing the reform programme. Taking a labour policy perspective, the thesis put forward and supported

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here is that the linkages, developed over the years, between the instruments and institutions of government and firm-level labour policy, the stable framework of interaction between these actors and the firmly entrenched interpretation of early retirement as a socially acceptable adjustment measure have all, in conjunction with the above-mentioned factors, combined to establish this trend and are now militating against a change of course. The elaboration of this thesis is preceded, however, by a short sketch of some important historical trends in, and the current contours of labour policy in Germany.

2

Retirement Age Policy as an Element of Labour Policy

Compared with other fields "labour policy" has remained underdeveloped as an autonomous area in German politics. State labour policy is fragmented and has interfaces with a large number of other areas, such as education, training and labour market policy, technology policy, health and safety at work, co-determination , working time policy and last but not least, social policy. Consequently, it is a relatively "young" field of research compared, for instance, with industrial sociology or labour market research. I would therefore like to begin by sketching out the boundaries of what I mean by labour policy, with reference to the work conducted by our research department "Labour Regulation," previously entitled "Labour Policy" (Jürgens/Naschold 1982; Naschold 1983; Naschold/Dörr 1992; Oppen 1992). This will be followed by a consideration of the sub-topic of "retirement age policy," the way in which labour policy constitutes and modifies the social time limits to working life. Labour policy finds itself within the tension between productivity growth and welfare improvement. Generally speaking it refers to the technical, economic, political, social and cultural problems of the labour and production process, and the indirect and direct means by which these problems are regulated. The central questions for labour policy revolve around the development conditions, the design principles and the forms of implementation of labour regulation and the way in which the various actor-groups realise their diverse interests in processes of conflict and consensus. In historical terms, labour policy is the history of social and political conflict over the use and organization of labour. While the regulation of labour has always been subject to the prerogative of company owners and managers, over time it has increasingly become the arena for social and political conflict and thus for state and social intervention. In the last century there was some justification in viewing work organization and the use of la-

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bour as a "private matter" for firms. But at the latest with the rise of the Taylorist-Fordist production model, the organization of labour became a subject for public debate. The "pressure" to find social strategies and solutions in the context of the strained relations between firms, the state and the trade unions grew (Naschold/Dörr 1992). The central question in the 19th century was the establishment of the status of wage-earner as the dominant condition of existence and the creation of labour markets. The policies introduced at this time to protect certain groups of workers — protection for youth and women workers -, which restricted the freedom to deploy various categories of wage-earner in production aimed at maintaining in the longer term the required labour potential (Jürgens/Naschold 1982). Towards the end of the 19th century state labour policy was widened to encompass monetary compensation for the risks arising out of the wage-relation which prevented the individual from performing his/her role as wage-earner (unemployment, sickness, accident at work, invalidity, cf. Windhoff-Héritier). The subsequent rise in the level of monetary benefit provided by the social insurance schemes meant that "wage compensation" gradually became an alternative to paid employment. In the course of industrialization, scientific-technical development and Taylorization the workplace became the central arena for conflict over labour policy. Collective workforce opposition and strikes against deteriorating working conditions (narrowing of job content, replaceability of labour, de-skilling) led the trade union movement to take up labour-process-related demands. During the First World War, though, and to an even greater extent in the Weimar Republic, the "rationalisation movement" (Jürgens/ Naschold 1980) tended to defuse this problem constellation. This development found its expression in the Works Constitution Act of 1920, within the framework of which political and trade union opposition was channelled into "wirtschaftsfriedliches Fahrwasser" ("peaceful economic waters," cf. Müller-Jentsch 1986). This marked the institutionalization of the role of the works council as a buffer between workforce and management, its double loyalty as the representative of workers' interests and its support for the employers in pursuing the interests of the firm which continues to this day. During the 1920s, and since the Second World War, trade union labour policy has concentrated on distributive aspects: pay, collectively agreed benefits and demands for an improvement in statutory wage-compensation benefits. Not until the 1960s, i.e. once a relatively secure standard of living had been achieved, did qualitative demands and approaches begin to develop within the trade unions and the SPD (Social-Democratic Party). The result of this was a series of legislative changes which to some extent contained elements of a direct labour policy in addition to merely defensive strategies.

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Examples include the Labour Promotion Act, the Rehabilitation Act, Safety at Work Act, the amendment to the Works Constitution Act and programmes aimed at "humanizing" working life: - The areas of state-regulated labour-policy bargaining at workplace level were extended (co-determination by the works council, introduction of health and safety experts). - The laws implied a more strongly preventive orientation than had previously been the case, and one taking direct effect at the workplace. - In most regulatory areas, however, state intervention usually takes the form of procedural stipulations and monetary incentives rather than substantive rules and regulations. Successively the German state has established the "dual system" of labour law (Rüthers 1986). This was achieved by creating the prerequisites for the labour and production process and compensation for its consequences. Labour law regulates the legal relations between the parties to the labour contract. It includes both statutory protective legislation and the "social selfmanagement" of those involved in working life. The aim of protective legislation is to guarantee a minimum standard of working conditions for all employees. It includes the statutory provisions on minimum holiday entitlement, health and safety at work, protection against dismissal, working time provisions and protection for specific groups of workers (young persons, mothers and pregnant women, the severely disabled). Adherence to the stipulations can be ensured either by state intervention or individual court action. Through the law on collective agreements (Tarifvertragsgesetz) and the Works Constitution Act, the state has established a two-stage system of "social self-management," within the compass of which it refrains from further statutory interference. This is based on the view that those immediately concerned are better in a position to come up with sensible modes of regulating working life and resolving differences of interest. The law on collective agreements determines the responsibilities of the two parties to collective agreements (trade unions and employer federations) in regulating working relations within branches and for certain occupations. Collective agreements in Germany are legally binding on the members of the signatory organizations. The agreements govern wages and the definition of pay groups and other material working conditions such as social benefits, working time, holiday, termination of employment relations, protection measures against the effects of rationalization etc.). The Works Constitution Act regulates labour relations at the level of the individual workplace. Here the actors are the management and the works council. The works council enjoys

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a number of participatory and co-determination rights in addition to its function of ensuring adherence to legislative and collectively agreed requirements. These rights apply to personnel matters (recruitment, personnel planning, dismissal), job design and the working environment according to established scientific standards, concluding legally binding collective plantlevel agreements, and rights to ensure social plans compensating for economic disadvantages in cases of mass lay-offs. The following can be considered to be the conceptual premises of labour (cf. Jürgens/Naschold 1982) policy as the term is used here: - The social sciences tend to treat politics primarily as the politics of state and para-statal institutions, and are usually limited to distributive policy. The understanding of politics proposed here is wider, and includes two forms: the macro politics of (quasi) state institutions as the "politics of production" and the micro politics of firms as the "politics in production" (Burrawoy 1985). The actors at the meso level, trade unions and employers' federations, play a role in both arenas; as partners to collective agreements they set the framework for production structures and processes at firm level, as partners in a trilateral bargaining system with the state they contribute to the formation of economic and social policies. - A further distinction can be made between two fundamental strategies: first the creation of the preconditions for the labour process (ensuring the availability of an adequate — in qualitative and quantitative terms — labour force and the compensation of its consequences) — indirect labour policy (classical compensatory social policy); secondly, intervention in both the form and the content of the labour process (i.e. intervention in the private use of labour, in company personnel policies, in job design, the use of technology etc.) — direct labour policy. In some areas of state regulation both strategies exist side by side, the relative weight of each varying from case to case (e.g. protection policies linked to specific persons). It is indirect policies, however, which are characteristic of state labour policies in Germany. - The two labour policy strategies correspond to specific policy forms; the indirect labour policy is dominated by individualizing, monetary-oriented and legalistic forms of action; typical of direct labour policy, on the other hand, are conflict and processes of consensus building, and bargaining between individual or collective actors. - The approach based on labour policy attempts to establish relationships between the various political levels. What is significant here are the interdependencies, exchange processes and patterns of interaction between the actors on the various levels within the state, collective organizations and firms who have a bearing on labour policy. In pursuit of their specific

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interests and aims they orientate their behaviour to "rules of the game," norms and custom and practice. - The labour policy perspective also seeks to overcome the usual dichotomy between production and social policy. For even if state redistribution policies do not directly intervene in the labour process, there are strong linkages between the two areas: the targeting and form of state regulation takes the firm and the problems prevailing there (against the background of macroeconomic trends) as their point of reference; conversely, at firm level, bargaining over selection and use strategies of labour take complementary social benefits into account. Retirement age policies can now be conceived as a sub-area of labour policy within developed welfare states, as a relationship of interaction and interdependence between the actors of the "politics of production" and the "politics in production." In the first instance this concerns the regulatory processes of two passages of transition between the welfare state regime and the production regime: entry into and exit from the employment system. The mode of entry into working life regulates — together with policies towards the family and the education and training system — the volume and "quality" of the labour force potential entering the labour market. The same is true of the second "interface," of central interest in the present context — the transition from the employment system to the welfare state. This transition is the subject of bargaining and regulation between collective actors and, in the day-to-day practice of implementation, between individual actors (personnel managers, socially insured workers, medical, administrative and legal experts). The regulation of this interface brings with it a series of problem constellations and contradictory interests for the various actors, problems which must be balanced between the production and the social security system. For workers and their representatives these are the relationship between: - (life) working time and leisure; - earned income and social income; - social exclusion or inclusion as mediated by paid employment. For firms and their federations the relationship between:

- the stability and flexibility of personnel policies; - rejuvenation of the workforce (to increase productivity and reduce transaction costs) and the maintenance of seniority norms, career expectations and normative views of equity; - passing on the knock-on costs of the production process (deskilling, sickness, declining performance) and indirect wage costs (through contributions to social insurance funds).

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- For the welfare state the relationship between - the distribution of employment chances between younger and older workforce groups; - the prevention and compensation of the risks to employees from the production process; - rates of economic growth and the scope for distributing resources through social policy. With all the actors, individual and collective, bargaining over retirement age limits is subject to a logic of action that is both complementary and contradictory: the "work principle" and the "transfer" or "insurance principle." The first results from the responsibility of industrial welfare states to guarantee high and stable employment, not only as a precondition for industrial development but also as a response to the increased "general expectation of justice" in modern societies (Naschold/de Vroom 1994). The consequence of this are provisions which limit managerial prerogative over personnel selection and use to a greater or lesser extent, improving job security and re-employment chances. In the wake of technical and scientific progress, expectations have risen with regard to the quality of working life, the design of jobs to minimise health damage and skill-promoting working conditions. Yet the individual risks associated with the production process, and which tend to accumulate with increasing age, are compensated for according to the second logic, the "transfer principle": not least due to rising expectations in this regard, too, government programmes now ensure a high level of — monetary — compensation in some countries. The two logics have opposing effects on the transition of older workers from the employment system to the social security system and thus on the way in which actual age limits are constituted. Whereas the work principle aims to maintain the capacity to work and retain jobs, improving job security and re-entry to paid employment, the insurance principle tends to have the opposite effect, namely "exit" to the welfare state, to the extent that it provides support in excess of subsistence level. The following sections look at the way in which Germany combines the two logics in the field of statutory retirement age policy by means of specific forms of regulation, instruments, patterns of action and process of interaction so as to produce an "externalization regime," in contrast to such countries as Japan and Sweden, which deploy divergent strategies with the aim of integrating older workers into the employment system (internalization regime).

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255

Politics "of Production": Broad Strategic Direction Determined by State Regulation

For many years now Germany has experienced a trend toward increasingly early exit from working life. Between 1969 and 1989 the participation rate of 60-64 year old men has fallen from just under 80 percent to around 30 percent. Only about a fifth of every age cohort now works until the "normal" retirement age of 65. Compared with other industrialized countries such as Great Britain, the USA, Sweden and particularly with Japan, Germany can be considered a world leader in the trend towards early retirement (cf. Figure 1). Characteristic of the German early retirement trend is the once-and-for-all exit from full-time employment (usually from the highest status position achieved during an individual's career) and transition to the social security system. It has been shown empirically1 that the comparatively low participation rates among older workers are due to the relatively uniform early retirement practices adopted by firms. In Japan, where participation rates among older workers are relatively high in international terms, trends have been very different (Kimura et al. 1994). Against the background of broad market expansion and a consistently high level of demand for labour, the dominant pattern is that of "lifetime employment," at least until 1990. Guaranteed employment within the dual firm structure up to "teinen," the obligatory employment limit in large and medium-sized firms, provide for a staged transition from employment to retirement. On reaching "teinen-age" (usually at 60) workers usually begin a "second career," with or without pension entitlements, either on a nonregular basis with the same firm or in small and medium-size enterprises. This does involve substantial loss of income and of status, however. The question as to how the early retirement trend in Germany is constituted and perpetuated will be addressed in the following with reference to the most important developments in externalizing and internalizing strategies and instruments. In the first instance these involve statutory provisions (pension laws) governing exit paths and levels of welfare support on the one hand, and measures to increase job security and promote employment on the 1

The empirical basis for this contribution was elaborated within the framework of an international research project. Between 1989 and 1992 teams from seven countries conducted large-scale national studies of the way in which the transition from employment to retirement was regulated in each case. The studies were based on firm-level case studies and an investigation into state strategies and programmes. The results refer primarily to developments which occurred during the 1970s and 1980s (cf. Naschold/de Vroom 1994).

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other. Thus the presentation in the following section refers primarily to the "politics of production." The bargaining processes at firm level, the interest constellations and action parameters are subject of section 4 (for detailled evidence see Rosenow/Naschold 1994).

YEAR

-©-Germany

Japan -β-Netherlands -»-Sweden *UK -»-USA

Figure 1 : Labour Force Participation Rates

3.1

Security in Old Age

The first cut in retirement ages was made in 1913 for white, and 1916 for blue-collar workers — from 70 to 65 years of age. This trend was maintained with the introduction of the retirement pension for unemployed elderly white-collar workers (1929). From the very outset (1911) it had been the aim of the white-collar insurance fund to provide for a relatively secure, non-working retirement phase; having paid contributions for 40 years, insured persons were to be entitled to around 50 percent of their previous average salary. This law marked the first stage in the constitution of old age as an autonomous phase of life (cf. Nullmeier/Rüb 1991). Old-age pensions for blue-collar workers, on the other hand, were initially conceived as a supplement to earned income, based on the assumption of a general reduction in capacity to work.

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Linking up to these early forms, the pension reform of 1957 laid the foundations for what was to develop into the German externalization regime: - it established security in old age in terms of a maintenance of status with a wage-compensatory function for blue and white-collar workers; the mode of calculation was based on a "normal pensioner" who, after forty years' work would be entitled to a pension representing around 60 percent of average (life) income - this level of security was to be achieved, based on meritocratic ideals, by paid employment, its duration and the average earned income level; - the centrepiece of the reform was the "dynamization" of pensions — their continuous adjustment to current wage trends. A pension which maintained living standards after a long period of paid employment enabled workers to move directly from employment to retirement at 65. Since that time, early retirement paths have also existed for those unable to work (no age limit), for the unemployed (in line with the earlier law on white-collar insurance) and for women (in the latter cases from age 60). Besides the general uncertainty within the actor network concerning the future costs and the macroeconomic effects of the pension reform, there was also controversy within the political system over the inclusion of socialcompensatory elements versus the insurance principle. Moreover, the employers' federations were in favour of a modified form of dynamization, under which economic interests were to have priority over social interests. The private insurance and the banking sectors, on the other hand, put forward a joint proposal for a standard minimum pension, with the aim of promoting the private old-age insurance market and private saving. In the end the aims of social policy largely won the day against specific economic interests and a more market-oriented approach. In order for this to be achieved, a strategy was pursued (Hockerts 1980) which sought to avoid fundamental conflict by developing existing institutional and legal structures, instrumentalizing elections as a means of exerting pressure against hostility from within the governing parties and by mobilizing forces from the opposition, notably the SPD and the trade unions. The pension reform of 1972 led to a number of significant developments, while remaining within the existing institutional framework (cf. Hermann 1988): - the flexible age limit replaced the rigid age limit of 65 for those who had paid insurance contributions for many years — and thus primarily for male employees. After paying contributions for 35 years, workers were

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entitled to retirement at the "flexible" limit of 63 (62 for the severely disabled); - the pension level was raised and was linked more closely to gross pay trends. This reform must be evaluated against the background of extremely favourable economic conditions and immense and predictable surpluses in the statutory pension insurance fund, which created a social climate for extensive social policy reforms. Conflict constellations in the run-up to the reform were linked more to election considerations in view of the gradual loss of political majority for the governing coalition. The result was that the political parties competed with each other to propose a more generous reform option rather than to restrict it. There was a broad consensus — encompassing the trade unions, which had long campaigned for the reduction of the retirement age to 60, the major political parties and the Ministry for Labour and Social Services — on the necessity for flexible age limits without deductions for those retiring early. The arguments put forward for this were health-related and humanitarian in nature; the hope was that fewer people would claim disability pensions, the importance of which had grown substantially as early as the 1960s. The provisions governing the possibility of earning additional income were controversial, however. The opposition took the view that no restriction should be imposed, as in view of the tension on the labour market, nothing should be done to stimulate a further decline in the supply of labour, so as not to restrain economic growth. Unrestricted continued employment with pension entitlement was in contradiction to the health-related intention of the government's proposal, however. In the end, all the parties voted unanimously for the concept put forward by the opposition, which by then had a one-vote majority in the lower house, irrespective of the serious doubts whether such a proposal could be financed in the longer term. In the following period, particularly after the onset of recession in the mid 1970s, it quickly became apparent that an "over-dimensioned bundle of measures" (Hermann 1988) had been put together, which proved to be financially unsustainable in the face of the dramatic rise in unemployment, the perceptible decline in the actual average retirement age and slower nominal wage growth; many of the improvements introduced by the reform law were successively scrapped. The broad social consensus on pension policy dissolved in the subsequent "decremental" political phase, characterized by debate over the distribution of cutbacks among various social groups. Analysis of the numerous short-term consolidation measures and cutbacks in the years between 1977 and 1984 reveals three systematic trends:

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- a renaissance of the underlying conception of the 1957 pension reform became visible — retreat from the idea of a "people's insurance" and a closer orientation towards the insurance principle based on the labour contract and reduction of social-compensatory elements; - the actual level of pension income was reduced by means of a number of separate measures; - the structural core of the earlier reform with regard to retirement ages was maintained, but the motive behind flexible retirement age limits and other forms of early retirement steadily evolved from one of social policy to one of labour market policy. Although, following their victory at the 1972 election, the governing coalition of social democrats and liberals promptly restricted the possibilities for earning additional income without loss of pension entitlement in line with their original conception, around 70 percent of those entitled took up the flexible old age pension in the initial years (Hermann 1988). Clearly, this option was in accordance with a widespread desire on the part of older workers. It did not, on the other hand, prove possible to provide for a staged transition — for health reasons — from employment to retirement via progressive reduction in working hours. The shift in the macroeconomic climate played a central role in ensuring that the flexibilization was used for a one-step and generalized reduction in effective retirement age. The flexible retirement age was a labour market policy buffer; in normative terms it was a signal for a generalized reduction in the retirement age, and this is the way it was actively deployed by policy makers. The same pattern can be seen with other measures: - the minimum age for early retirement for the severely disabled was reduced from 62 to 61 and later to 60; - unemployed persons aged over 58 no longer had to remain available for work (Labour Promotion Act); - 58-year old workers were enabled to take early retirement (early retirement law) whereby the labour market authority made compensation payments if young unemployed persons were recruited in their place. It can be concluded that the two major pension reforms established, on the back of a broad social consensus, the normative basis for the German early retirement trend. The diversification of exit paths, the reduction in pensionable age, the adjustment of the benefit level to income trends and the restrictions on paid employment in retirement were necessary conditions for the trend to earlier and complete exit from paid employment and for the externalization strategies pursued by firms with regard to older workers (cf. Table 1).

260 Table 1 :

Maria Oppen The German System of Retirement Pathways

Types of retirement- Risk covered/ entitlement access instruments conditions* Health (1) Pension due to severe disability (2) Occupational disability pension

Year of introduction

Age limit

Pension level for those with full contributions**

62 61 60 none

Net initial pension level 1988*** Net pension level 1988**** 62.5%

Unemployment 1957

59

Men, all retirements ARV: 70.8% ANR: 66.0%

1987 Unemployment none

57.4 55

Age

1984

58

1957 1972

60 63

Impaired health 1972 1979 1980 Reduced ca1957 pacity to work Reduced capa- 1976 city to work an unemployment

Unemployment (3) "59 provision" (unemployment benefit and unemployment pension) "55 provision" (coal, iron and steel industries) (4) Early retirement provisions

Age (5) Women's pension Age (6) Flexible pension Age for those with full contributions (7) Standard old-age Age pension

ARV: ANR:

65

For those with 40 years of insurance contribution ARV: 73.1% ANR: 66.8% All retirements ARV: 59.8% ANR: 60.3% For those with 40 years of insurance contribution ARV: 75.1% ANR: 68.5%

Blue-collar workers. White-collar employees.

* Usually subject to additional conditions. ** Figures refer to pension level on entering the pension system. *** Pension level on entering retirement as a percentage of previous year's net income (cf. Steeger 1989). Does not include company pensions. **** Standard pension after 40 years of contributions divided by average annual net pay multiplied by 100. Does not include company pensions.

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Yet it was not until the recession of 1974/75 and the persistently high levels of unemployment experienced since then that the health and humanitarian policy intentions shifted. Government intervention initially sought to influence the precarious employment situation of older workers in the face of mass unemployment, and later to bring about a general reduction in the potential labour force. Thus, from the mid 1970s, the pension insurance system was entrusted with labour market policy steering tasks and, at the same time, a share of the costs of unemployment. It is from this point in time that we can speak of a strategy to externalise older workers out of the employment system, as manifested by the dramatic increase in the number of older workers taking the various forms of early retirement. And German participation rates among the older age groups did not recover in the wake of the rising demand for labour from the mid 1980s.

3.2

Non-decisions: The Fate of Part-time Retirement

One indication of the dominance of the logic of externalization and compensation within German retirement policy is the very subordinate role played by integrative strategies and instruments. This is true, for instance, of occupational rehabilitation. Although since the reform of 1957 policy was based on the principle of "rehabilitation before pension," implementation of this principle has always been comparatively vague. Support for rehabilitation is discretionary; the social insurance institutions may only grant them where a reasonable chance of success is thought likely and after consideration of the costs and benefits. This involves not only health-related prognoses, but also consideration of the chances of re-entering the labour market. As a rule the chances for the over 50s with reduced capacity for work and who are initially unemployed are seen as remote. The costs involved in such rehabilitation are therefore usually considered unjustified. This tendency is exacerbated by the fact that employers are not obliged to offer jobs, or design workplaces for workers of limited performance ability. Even in the public sector, fewer "sheltered" jobs are now being offered with the argument that the public sector is under increasing economic pressure. In Germany the "non-decision" to promote part-time employment is one of the clearest indicators of the low status accorded to the "work principle" and the neglect of efforts to integrate older workers. This constitutes an additional and central element in the German pattern, the usually complete, early exit from full-time employment and transition to retirement. Let me illustrate this with reference to a number of central interfaces. The non-existence — on the labour demand side — of a part-time labour market in Germany effectively precluded the possibility of partial retirement

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for health reasons (occupational disability). Two court rulings (1969 and 1976) established an interpretation of this type of retirement which was increasingly orientation to the concrete labour market situation: since then, an individual who is able to work for a reduced number of hours per day or week is entitled to a full disability pension in recognition of the fact that the part-time job market is practically non-existent. This ruling applies where no job can be found appropriate to individual abilities within one year. The individual worker, or for that matter the socio-medical experts,- have no legal basis on which to demand an appropriate job. In practice this has led to a significant extension of early retirement for health reasons. A reform effort was made to oblige employment offices to seek appropriate placement opportunities for three years, but this failed as the labour market authority was in no position to take on additional burdens given its already tight budgets and the persistently high level of unemployment. In addition, counter arguments were put forward: legal-technical problems linked to income and pension levels and the view that the integrative potential of the measure would be small. To this day, this legal framework means that those capable of part-time work are declared, as far as the labour market is concerned, to be "completely disabled" and early retirement for health reasons has become the dominant early-retirement pathway. Against the background of the unfavourable state of the labour market, the discussion which have been under way since the mid 1970s in the EC and Sweden on ways of expanding the range of job offers to young people by offering partial retirement to older workers began to influence the debate in Germany. The funds provided by the EC for this purpose were used in Germany to remove specific employee groups from the labour market, however. The decision to reduce the retirement age for the severely disabled in two stages from 62 to 60 was taken in this context. Very little support was forthcoming for partial retirement. Although they emphasized different aspects, the unions, the employers' federations and the Federal Labour Ministry all argued against such a solution: part-time jobs were not available; employee interest in a more flexible transition to retirement, if it were so pronounced, should be a matter for collective bargaining etc. Only in exceptional cases were collective agreements reached to open up the part-time job market for older workers. It is generally agreed that the law introduced in 1989 (Altersteilzeitgesetz) which aimed to reduce working time for workers aged 58 and older in order to provide re-entry opportunities for the young unemployed has been a failure. The financial incentives for both employee and employer are thought to be inadequate, the labour market authority claims that it lacks the capacity to generate acceptance for and ensure the implementation of this provision, and last but not least there seems to be a lack of objective need for part-time

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work for older workers from any side given persistently high unemployment. An equally unsuccessful future is forecast for the "partial pension" introduced for the over-60s in 1992. Employees must accept a diminished pension entitlement and, as with other measures, the government has again pinned its hopes on the parties to collective bargaining to work out the details of how to promote part-time employment in collective bargaining. These examples show that so far Germany has lacked serious promoters for sustainable concepts for gradual or staged transitions to retirement. Both employers and the unions take the view that complete early retirement by older workers is the better option, particularly with regard to the labour market effects. The non-existence of the part-time job market in turn legitimizes the definition of people who would be in a position to take on parttime work as disabled for labour market purposes. German government has refrained from establishing a legal entitlement to reduced working time and from introducing adequate financial incentives for a reorientation of firms' personnel deployment strategies. The point of reference for this "concerted non-decision-making" with regard to support for part-time employment and staged transitions to retirement are the normative foundations of the German social insurance system: the "normal" employment relationship and the single-breadwinner marriage, the roots of which go back to the white-collar insurance scheme of 1911. The "standard pensioner" on which the politically defined pension level (one linked to a maintenance of living standards) is based is characterized by lifelong, more or less continuous, full-time paid employment. This "normal" occupational biography and the resulting wage-compensation entitlement is a necessary condition for the maintenance of a largely non-working spouse. The single-earner marriage as a socially acceptable model is still considered valid for the state regulation of work and social security, despite the fact that in empirical terms both the normal working biography and the single-earner marriage have been increasingly eroded in recent decades (Quack 1992).

3.3

Employment Maintenance

In contrast to the approach taken by retirement policy described above stands the reform philosophy behind German labour market policy, which, in the 1960s, began to emphasise preventive measures and the integration or reinsertion of (older) workers. In 1969 the Labour Promotion Act (LPA — Arbeitsförderungsgesetz) was passed with the aim of avoiding structural unemployment and to create a labour force structure conducive to economic growth. In view of the then widespread fear of labour shortages in leading economic sectors, the emphasis was on preventive measures concerning

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workforce structures. A secondary aim was to cushion the effects of technological development and structural economic change on employees, and to support the occupational integration of older workers and other problem groups. The following can be considered active employment maintaining and creating measures, which were intended by the legislator to enjoy priority over monetary compensatory benefits: -

vocational training in its various forms; support for occupational rehabilitation; job creation measures; short-time working allowance; monetary (re)integration support for employees and employers; subsidies for firms seeking to expand and for the wage costs involved in employing older workers.

Yet in the wake of mass unemployment and tightening budgetary constrictions since the mid 1970s, even the instruments available to labour market policy were deployed (and the laws amended) in such a way that existing unemployment, particularly that of older workers, led to monetary compensation in the form of transfer benefits rather than attempts to maintain employment. Since then labour market policy has increasingly fallen into line with the externalization strategy of retirement policy, and has done much to ensure the institutionalization of a specific early retirement pathway, namely from paid employment to early retirement for the unemployed (Arbeitslosenruhegeld), usually following long-term unemployment. The reason for this lies in a systematic asymmetry between preventive and curative instruments, one anchored in the principles of the LP A, which reinforces the externalization trend and further reduces the de facto retirement age: - The financing of both active policy measures and passive transfer benefits from the contribution-financed budget of the Federal Labour Office leads to competition between them; during a recession, when contribution receipts decline, the available funds are absorbed by compensatory benefits, the result being a "pro-cyclical dynamic" (Bangel et al. 1992), in which the level of active labour market policy spending declines the sharper the rise in unemployment or the longer it remains at a high level. - The legal stipulations differentiate between the conditions of entitlement to the extent that individuals are legally entitled to compensatory benefits (e.g. unemployment benefit), whereas active measures are largely discretionary, with scope for case-by-case decision-making by the labour market authority, which, when resources are scarce, tends to accord priority to wage-compensation benefits (Scharpf et al. 1982).

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- Individually acquired entitlements are a prerequisite of benefit receipt;: some benefits are only available to the unemployed. The case-by-case orientation to which this gives rise systematically limits the scope for "packaged solutions," in cases where collective measures for entire firms, branches or crisis-hit regions are called for (Kühl 1992). Moreover, since 1975 the LP A has been subjected to numerous cases of central government intervention which served to either restrict/reduce or extend/improve contribution rates, conditions of entitlement, benefit entitlements, and the form taken by various benefits. The stop-and-go policies arising out of the periodic attempts to consolidate public finances have substantially reduced the efficiency of active labour market policy: uncertainty on the part of the various labour market parties concerning the legal position has prevented the establishment of routine administrative procedures and the development of stable co-operative relations in the field of preventive measures (Schmid 1982). The structural principles inherent in the LP A, together with the subsequent amendments, have prevented — against the background of almost twenty years of mass unemployment — a systematic orientation towards active employment maintenance, particularly with regard to older workers. In practice, the labour market authority has withdrawn to purely compensatory functions in the case of older workers, redistributing scarce labour market opportunities to younger people, a strategy which enjoys a high degree of social acceptance. In the economic crisis of the mid 1970s, and indeed as early as 1966/67, it was the segment of older workers which was more than proportionately affected by unemployment. Due to the successive extension of collective dismissal protection agreements, the central problem here was less and less the risk of becoming unemployed, and increasingly that of reentry and thus of the average duration of unemployment (Kühlewind 1986). In response to this trend the government successively extended the length of time to which older workers are entitled to unemployment benefit to 32 months (since 1987); as early as 1985, unemployed persons over 58 were no longer required to be available for work (thus improving the unemployment statistics). This normalized further the direct transition to early retirement for the unemployed (Arbeitslosenruhegeld) and stabilized the trend to final exit from the employment system at a little over 57. The broad-based acceptance by the labour market actors of the successive reduction in the retirement age is reflected, among other things, in the further deterioration in the re-entry chances for unemployed persons from this age category during the 1980s. Given the pressure on the labour market and the experience, gained over a period of years, that older workers neither have a chance of placement in employment nor a great deal of motivation to return to work, the

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predominant pattern of action, not least by those responsible within the relevant administrations, followed the broad consensus of externalization. The fact that not only passive unemployment benefits, but in many cases active labour market policy measures for older workers as well, are just a concealed form of early retirement to the cost of the labour market authority is seen as a problematic problem-solving strategy, but one to which there is no alternative. The exhaustive use of all the statutory options, including the instrumentalization of further training and retraining or job-creation schemes, as quasi-compensatory benefits until the earliest possible retirement age threshold is reached enables younger workers to be integrated into the labour market and represents a socially acceptable solution for older workers. This, at least, is the argument justifying the present system.

4

Politics "in Production"

The establishment and modification of de facto retirement age limits depend not only on the exit pathways available, the social security offered to those in "alternative" roles to paid employment and on the effectiveness (or ineffectiveness) of preventive or rehabilitative measures integrating older workers. Account must also be taken of the strategies to adapt those measures to firm-specific problem solutions by way of personell policy on the one hand (4.2) and the norms and intervention instruments which prevent firms from shifting their flexibility requirements and labour market risks onto older workers on the other hand. Here too, and in accordance with the emphasis on indirect regulation characteristic of German labour policy, the task of influencing labour processes and relations is largely left to collective bargaining at plant or branch level.

4.1

Protection against Dismissal and Rationalization

In the first instance, protection against dismissal has a normative framework set by the Dismissal Protection Act of 1951 in conjunction with the Works Constitution Act. The former declares dismissals which are not "socially justified" to be null and void. If a labour court establishes that a dismissal contravened this principle — and legal practice has shown that this is more likely to be the case with older than with younger workers — the dismissal is invalid. Justifiable reasons for a firm seeking to dismiss workers are, on the one hand, economic requirements and, on the other, attributes or behav-

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iour of an employee. Dismissals for economic reasons can be due to falling sales or to technical rationalization, changes in plant organization or partial closure. Personal dismissals are justified in cases such as inadequate capacity to work for health reasons, inappropriate skills or qualifications or breaches of contract. With the exception of certain specific groups of workers (pregnant women, the severely disabled and members of the works council) there is no general statutory protection for the individual against dismissal. The employee has the option of bringing a case against the employer before the labour court. In practice, though, successful claims almost never result in reinstatement: dismissal protection legislation in Germany is largely "compensation law," dismissal deemed unjustified leading at most to financial compensation to the employee from the employer (Russig 1982). Beyond this, statutory provisions merely contain procedural stipulations and leave the rest to collective bargaining. The works council has the right to be heard on, and the right to appeal against each and every dismissal. Voluntary firm-level agreements — more often found in large firms sometimes allow the works council to set out general selection criteria in cases of multiple dismissals; it has a right to information and to express an opinion on changes in plant operations; finally, in the case of mass redundancies it can force management to draw up a social plan with the aim of mitigating economic disadvantages for those affected (balance of interest). Generally speaking, these provisions only give the works council a say in the way the risks of restructuring are distributed; management is still able to take the decision to implement workforce adjustments. In practice, the common interest of management and the works council in avoiding overt conflict means that selection criteria for specific employee groups are rarely set out; rather compensation payments are offered for voluntary redundancy, the level of which is linked to length of tenure. The fact that in the past it was older workers, particularly in large firms, whose employment was systematically reduced is not due to the weakness of statutory protection against dismissal for the individual but rather despite the much more comprehensive collectively bargained protection (on the complex regulatory conditions, patterns of interaction and logics of action at plant level cf. Rosenow/Naschold 1994). At first sight older workers appear to be very comprehensively protected against dismissal and loss of income by virtue of the framework collective agreements reached by the unions and employers' federations in the 1970s and 1980s. Around 66 percent of all German employees were covered by such collective provisions in 1988. These agreements tend to cover workers over 55, often subject to minimum tenure (e.g. ten years), the effect of which is that such workers are virtually safe from redundancy (and degrouping if they are redeployed within the firm).

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This development was in response to the fact that mass redundancies since the 1966/67 recession had hit older workers hardest. Subsequently, though, it became apparent that even with such provisions, which came closest to an active policy of maintaining acquired rights, it was the logic of financial compensation for production and rationalization risks that was dominant. This, indeed, was the aim of the German metal workers' union, IG Metall, which, especially during the 1970s, forced the signing of such protective agreements, in some cases by strike action (for details cf. Hildebrandt 1982). The unions' central aim was "to remove the fear on the part of the worker and his family of old age, sickness and reduced working capacity, and at least to guarantee that he will not suffer a loss of income" (Steinkühler 1977). This strategy has been termed "defensive" (Hildebrandt 1982) to the extent that it made no attempt to influence causative processes (e.g. rationalization, restructuring), restricting itself to dealing with the consequences for the individual. Additional measures to minimise the health risks of working conditions, establish working structures conducive to learning and appropriate to the needs of older workers, and further training in promising areas were either not foreseen at all or at least were of no practical relevance to older workers in the face of competition, both within the firm and on the external labour market, from younger workers. An example of the latter case was that while a provision was made for employerfinanced retraining for workers redeployed within the firm, in practice management preferred to select younger workers. Thus on the shop floor this model, which had originally aimed to maintain income and status often degenerated into financial compensation for the social consequences of the production process — which were seen as inevitable, to "social benefit for the elderly" (Hildebrandt 1982). Older workers were pushed into early retirement, often with large redundancy payments because no attempt was made to organize their deployment to work appropriate to their skills and abilities; the effect was to further lower the de facto age of retirement. The concept of "protection" adopted by the IG Metall thus had a defensive impact in terms of income maintenance, without curtailing management's interest in flexibility (working time/layoffs/early retirement).

4.2

Problem-solving and Cooperation at Firm-level

In accordance with the aggregate statistical data at sectoral level, the trend of early exit at firm level also proves very homogeneous: personnel adjustment is primarily achieved by means of externalization strategies. Besides shedding younger workers this largely involves the use of the various early

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retirement options. This is evidenced both by the relatively large volume of early retirement and the similarity, in this regard, of personnel management practices across different firms, irrespective of their specific problem contexts and production structures. Against the background of a relatively high level of entrenched unemployment — notwithstanding some fluctuation — since the mid 1970s, German firms made extensive use of the various externalization measures available during the 1980s, irrespective of whether they belonged to: -

contracting or expanding branches; the service or the industrial sector; the public or the private sector; and irrespective of their size.

While different production structures can be shown to be associated with different risk levels for older workers, in terms, for instance, of physical wear and tear or skill devaluation, in the upper age spectrum these differences are rendered uniform by a generalized management utilization strategy: older workers are seen as a flexibility potential for a strategy of personnel adjustment via externalization. Early retirement is used by firms polyfunctionally to deal with a wide variety of problem contexts. At least six distinct problem constellations have been identified (Rosenow/Naschold 1994) in which the orientation to early retirement now plays a predominant role: general structural economic crises, modernization strategies in the face of product and process innovation, cyclical problems on the sales side, firmspecific rationalization processes, the productivity problems of older workers and a desire to meet employee interests. The latter relates to the observation that early retirement has become "normal" also from the point of view of German workers. The comparatively high level of material provision, together with a change in social values which has led to a greater emphasis on leisure, and thus on retirement as a life phase which can be shaped according to individual wishes, have contributed to this trend. To this extent, company early retirement schemes have come to be regarded as "social benefits" for long-service employees. The use of older workers as a flexibility potential for personnel adjustment receives decisive support from a very largely conflict-free social regulation of the transition from employment to early retirement, and not least from the relatively high pension level. Firms' early retirement policies are at the very least tolerated by works councils and often benefit from consensual cooperation between management and the works council. To the extent that early retirement is steered directly by firms, management usually offers employees generous redundancy payments for voluntary early retirement, so

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that early exit has the form of a conscious choice on the part of the employee. As far as the normative regulatory framework is concerned, dismissal protection agreements together with the diverse range of pathways into retirement and the comparatively high pension level provide German firms with an age-specific scope for flexibility which enables management to pursue externalizing personnel adjustment largely without conflict. The "59 models" have institutionalized a pathway to early exit for older workers on the basis of compensation payments by both the state and the firm. At the same time, these models represent a compromise between the defensive claims for employee protection (protection against dismissal, income maintenance) and the personnel adjustment strategies of management. The point at which they meet is retirement at age 60 due to previous unemployment: the employment relation is terminated in mutual agreement at the earliest possible date — depending on the duration of entitlement to unemployment benefit (previously 12, now 32 months). The employer supplements this benefit up to (usually) 100 percent of previous net earnings and compensates for the reduced pension entitlement. Employer offers of this type became widespread in the mid 1970s in the wake of collective agreements on mass lay-offs which had to be reported to the labour market authority and social plans. Later they were systematically employed for workforce rejuvenation at as little cost to the employer as possible on the basis of individual bargaining. This was possible because employees were increasingly willing to participate in early exit under the "59 provision." In this, firm's early retirement practices are supported by a pattern of interaction between management and the works council characterized by convergent interests, a fact which has made a decisive contribution to stabilizing the externalization regime. While management can use early retirement, together with other instruments, to implement personnel adjustment, with full control over volume and time scales and without serious social conflict — and thus systematically to rejuvenate the work force — early retirement enables the works council to safeguard the jobs of younger workers and thus to legitimise the exit of older workers. Early retirement practices clearly represent a common denominator of very different interests and logics of action. In addition to this, the externalization strategy also receives support from a country-specific social orientation which contains no "hard commitments" with regard to continuous employment up to standard retirement age. Externalization, provided it occurs under socially acceptable conditions and leads to the secure status (alternative role) of pensioner, is not considered as a grave infringement of an employment norm oriented to stability. In view of this the parameters of action are, in the context of an acceptable financial provision in old age relatively clearly determined by firms' interests and

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their problem constellations and an essential element of the age-selective logic of externalization. Concomitant to the predominance of the externalization strategy is the consistent absence of efforts made to internalise older workers. Apart from a small number of limited approaches to developing age-specific working structures, firms exhibit no systematic policies to integrate older workers, for instance, redeployment between firms, retraining, creation of new jobs or part time employment appropriate to older workers, etc.

5

Retirement Age Policy and the Constitution of the "Exit-regime"

State labour policy primarily fulfils, according to our initial hypothesis, an indirect steering function for the labour and production process within firms; it establishes the necessary conditions and compensates for the consequences. At the same time, it also has a bearing on problem constellations within firms and branches and is itself a point of reference for the labour policy pursued by firms. Taking the system of state regulation of retirement ages as a point of departure, the concluding sections sketch out a number of characteristic interfaces, interdependencies and forms of interaction between the "politics of production" and the firm-level system of the "politics in production. "

5.1

Change and Stability

In the 1970s and 1980s state retirement age policy was strategically, and on the basis of a broad social consensus, oriented towards a reduction in the length of working life. Over time, however, there has been a shift in the motives for the — consistent — strategy of externalization pursued by the state. The statutory regulation of early retirement pathways was linked primarily to: - the compensation of individual risks (unemployment, inability to work) once they have occurred with the aim of maintaining living standards — since the reform of 1957; - humanization, autonomy and health-related motives via the flexibilization of the transition to retirement — since the reform of 1972;

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- the general reduction in the labour force potential and/or the redistribution of work in favour of the younger generation — since the crisis of 1973/74. The German state has created and stabilized the conditions required for an homogenous trend to an increasingly early termination of working life. This was done by successively extending the range of early exit pathways for employee groups facing specific work-related problems; the reduction in various retirement age thresholds, by raising the pension level; and by facilitating access to retirement possibilities in response to unemployment and firms' externalization strategies. Continuous development of the pension system established in 1957 has generated stable incentive structures which have become a key element of firms' personnel management and of individuals' life plans: - The relatively high level of security and the absence of monetary disincentives have made early exit an attractive option for employees, particularly given the lack of jobs whose working conditions are appropriate to the needs of older workers. - The broad range of pathways generated by the state offers fìrms a package of instruments which can be applied by them in a more or less controlled manner in order to solve a range of problems in a relatively nonconflictual way via the externalization of older workers (conditional on the high level of support in retirement).

5.2

Concerted Cooperation

On the whole the constellations of interaction relevant to retirement ages point to a set of characteristics of German retirement policy on state and on firm level which has become increasingly stable since the end of the Second World War: the cooperation, "concertation" and consensus of the participating actors on early exit from the employment system. Whatever friction there might have been in practical implementation, whatever the conflicts involving major, complex forms of regulation, in all the relevant phases of strategic decision-making German retirement age regulation has been characterized by the prevailing co-operative concertation between all the major actors involved. This pattern of interaction is constituted primarily by a mutually interrelated actor constellations at five levels: - the small network of political technocrats from all these arenas, together with the Federal Ministry of Labour which constitutes a decisive nodal point in the overall regulatory constellation;

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- a political compromise of the major political parties in the arena of partypolitical competition; - a stable "common denominator" between the social partners, the employers' organizations and the trade unions; - the consensus of experts (from the social partners) in the self government of the social insurance adminstrations; - convergent interests between management and the works council on firm level. A number of different modes of regulation play a part within this constellation: the competitive democracy of the party-political system, the strategic choices of government hierarchies, the programming and implementation of relatively autonomous networks of asymmetrically endowed bargaining partners. This regulatory constellation enables political solutions of a relatively complex nature to be found, in which, in principle at least, solutions are optimal at the macro and at the micro level, allowing for questions of (re)distribution: at least this is true as long as the cake being distributed is growing. At the same time, the persistent limitations to this optimality are visible in the structural selectivity of the early retirement regime: the constrained choice facing workers on the one hand, and the specific inflexibilities of this complex system with regard to fundamental innovation, on the other.

5.3

Prevention and Compensation

The "transfer logic" which predominates throughout the German social security system is particularly significant in the field of retirement age policy. The central function of the social insurance system has always been to compensate for risks once they have occurred, by providing transfer benefits, the level of which depends on individually acquired legal entitlements. Although the prevention of the risks associated with the labour and production process has been accorded greater emphasis since the 1960s, with the move from "redistributive to the preventive social policy," a shift reflected in both health and labour market policy, prevention and rehabilitation remain structurally subordinate. There are two main reasons for this: - The point of departure for these instruments is not the causal relationship but the individual; social problems are only dealt with by the social security system after an "insurance case" has occurred. In most cases measures do not affect the production process itself. As a result the state provides few incentives to firms to avoid age-specific problem constella-

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tions at work or to develop "internalizing" solutions (creation of sheltered jobs, part-time work, requirement structures appropriate to the capabilities of the elderly). With the exception of the provisions concerning the severely disabled, firms need have no fear of sanctions. - In almost all cases preventive and rehabilitation measures are not mandatory but discretionary provisions which, when budgets are tight, give way in favour of traditional transfer benefits. The insurance principle, characterized by individual legal entitlements to compensatory social benefits, reinforces, particularly when firms are increasingly seeking to externalise risks, an orientation towards bureaucratic regulations with mass processing within the administrative system. In view of the orientation towards age-selective compensation predominant in both trade union and enterprise labour policy, the social insurance institutions should really be offering innovative advisory and coordination services. A social policy approach aimed at prevention and integration would require considerable efforts to bring about co-operation, stable networks and combinations of prophylactic instruments in order to generate and promote packaged solutions for entire firms or crisis regions. This, however, would require a stabilized infrastructure in terms of organizational and social resources. Given persistently high levels of unemployment, even active measures such as further training or public job creation programmes will take on the form of quasi-compensatory instruments for older workers. Such measures do not offer a real chance of reintegration, they are merely inserted before the actual early retirement process as a social "waiting room. "

5.4

The Link between the Logics of Compensation and Externalization

Over the years the exit pathways and compensatory benefits provided by the state have become closely linked to the externalization instruments of firms. There exist a number of — in some cases optional, in others substitutable — pathways to early retirement which offer both employees and employers attractive incentives: for the employers due to the way in which they can be functionalized to externalise costs to the social security system, which the administration is unwilling or unable to prevent. The link between insured pension and company pension and, in the case of the so-called "59 provision," of unemployment benefit with redundancy payments, provides all those concerned in the bargaining process at plant level with a specific solution to conflicting interests and a reliable assessment of the costs.

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The early retirement trend, programmed by the state and reinforced at firm level, in the course of which employer offers of early exit came to be seen by employees and their representatives as an "acquired right," has led firms (and the administrative social security system) to reinterpret the human-resource potential of older workers. They are no longer seen primarily a productivity resource which should be maintained and developed by means of appropriate training measures, working conditions and requirement structures conducive to health; from management's point of view older workers are primarily an "adjustment resource," by means of whose flexible externalization firms can adjust to changing technical and economic conditions with a minimum of conflict.

5.5

Steering and Control

The need to reverse the early retirement trend poses the question of the capacity of the state to steer externalization processes within firms, or, to put it another way, the extent to which firms are able to instrumentalise the state. A multi-layered network of multilateral bargaining systems, with a limited number of actor systems taking on changing roles, is characteristic of German labour policy. The state's steering potential is relatively high in determining retirement age thresholds and the level of social security provided. The social partners, along with other collective organizations were, it is true, incorporated into decision-making processes at various stages, particularly in the run up to the major reforms: major strategic decisions were taken on the basis of consensus. Yet the predominant orientation of the overall retirement trend was largely established within the framework of competition between the political parties with the support of expert advice from the labour ministry: the privileged status accorded the transfer as against the work principle through the lowering of retirement ages and the provision of pensions adequate to maintain living standards in the absence of a policy of full employment. This cannot be put down to a lack of initiative on the part of firms and their collective organizations. At the same time, the bilateral bargaining systems of the social partners within the statutory framework set by the state (laws on collective agreements and the Works Constitution Act) reveal significant asymmetries. Not only has the state denied itself active intervention in the labour and production system, the ability of trade unions and workplace representatives to exert influence on managerial decisions are subject to strict limits. In the final analysis, the pursuit of humanization aims, measures offering protection against rationalization and measures to design job content and working conditions according to social considerations in the interest of older — and

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other — workers have all largely turned into compensatory measures to cushion social effects. State control over the misuse of social benefit within firms' externalization regimes, too, indicates the uneven balance of power in favour of employers. The attempts made by the state to limit the extent to which the costs of company early retirement schemes could be passed on to the social insurance institutions have failed to overcome the massive opposition put up primarily by large firms (and their works councils). Firms systematically undermined their legal obligations, introduced after agreement with the employers' federations and the unions, to reimburse the Federal labour Office and the pension insurance fund, challenging it in the courts, until it finally had to be withdrawn. The subsequent regulation (since 1992), which intended to make the "59 model" less attractive to firms not facing severe economic difficulties and to the employees affected, has, in practice, not reduced the financial burden on the social security system, but has actually further reduced de facto retirement ages. Not only have the limitations on the extent to which the law can be used to steer developments become apparent; it has become clear that the political-administrative system has only limited possibilities and resources with which to control the justification and economic "legitimacy" of redundancy and externalization once established by employers.

5.6

Design Principles and Patterns of Orientation

An additional interdependency can be observed between regulatory principles and social values. Once implemented, political structural patterns in retirement age policy subsequently influence collective interaction processes, aims and modes of interpretation. It seems clear that a number of guiding principles function as an "institutionalized thought structure" (Milward 1982), providing bridges at the conceptual level between fragmented actors in their daily routine: - The "contract between the generations," the original meaning of which referred to the mode of financing, i.e. that current pensions are financed by the contributions paid by those currently in employment. In view of the excess supply of labour since the mid 1970s, the phrase has increasingly come to encompass the responsibility of the older generation to the younger, namely to grant them access to the "scarce good" of employment. This perspective finds expression not only in statutory incentive structures for firms (early retirement coupled with the recruitment of younger workers), but also in routine administrative procedure, personnel

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deployment within the firm, work structuring, and, last but not least, in the self-definition and expectations of older workers themselves. - The "normal working biography" with its assumption of forty years of more or less unbroken, full-time employment. Not only does this represent the precondition for a pension adequate to maintain living standards; together with the insurance principle this concept perpetuates in the minds of all those involved the traditional view of the normality of the (male) life and work biography, thereby precluding alternatives — such as parttime work for older workers or those with reduced capacity to work — which redistribute social work. It is also the point of departure for workplace seniority models and agreements to protect acquired income and status. - The "equivalence principle" linked to the mode of German social insurance which means that paid employment is a precondition not only of wage but also of transfer income. In view of this, the processes of physical and mental "wear and tear" usually associated with work under the currently prevailing working conditions are taken to be a "normal" byproduct. Early exit, not only as a monetary compensation for reduced performance but also as recognition of "well-earned" early retirement, especially for long-tenure employees, has been granted legitimacy from social policy through the reduction in retirement age thresholds, and is of great relevance for the actions of the actors concerned. These guiding and design principles of German retirement age policy, backed up by the scientific and public discourse on "alternative roles" to paid employment or the "deficit model" of declining productivity with increasing age, have in turn reinforced and legitimized the early retirement trend within a multi-actor interaction framework over the decades. They serve as a point of reference for the reduction of labour market policy efforts with regard to older workers to merely providing monetary security — as comprehensive as possible — for the exit pathways and ensuring that they function with as little friction as possible. They are equally the point of reference for the almost systematic exclusion of older workers from measures to promote skills and employment, both at firm and state level.

6

Outlook

The German labour policy regime for the regulation of retirement ages in the 1970s and 1980s can, in international terms, be seen as a relatively successful combination of a rigorous productivity policy with relatively low

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participation rates and relatively high level of wage-compensation benefits. The structural crisis which has become increasingly evident since the start of the 1990s has however revealed the breaches in the productivity and social pact underpinning this regime. These breaches manifest themselves in fundamental adjustment requirements in three relationships that are currently subject to discussion: - the relationship between market-derived primary income and welfarestate-derived secondary income, which until now has been based on rapid productivity growth; - the relationship between the working population and pensioners which has come under severe pressure from the successive extension of the employment-free third life phase and the demographic trend against the background of the productivity slowdown; - the relationship between the age-specific working capacity of workforces and the technical-organizational requirement structures of enterprise working systems, which are still based on the standard age distribution and are not oriented to age shifts within the working population. The trend to early retirement, the micro and macro-level adjustment of the supply of labour at the cost of older workers and the social insurance institutions, can thus not continue along its current path. At the same time, given that unemployment in Germany is expected to persist in the medium term, merely extending the duration of working life will in no way suffice to solve the financial problems of the employment-oriented welfare state, and here in particular those of the pension insurance scheme. As important as industrial policy initiatives to promote economic growth and, especially, to create new and attractive jobs undoubtedly are, the aim of full employment, of "jobs for all" appears ever more unrealistic. In the longer term what will be required is a fundamental reconstruction of the relationship between employment and social security, a restructuring of the education/training, employment, reproductive work and leisure phases across the life-cycle, and a redistribution of work between the generations and the sexes. In conjunction with such fundamental social innovations, the extension of working life, with a simultaneous flexibilization of the passages of transition with greater individual choice could form a concept which does not involve the risk of marginalization for other labour market groups. An alternative to the prevailing externalization regime would have to meet two strategic conditions: firstly, the state would have to reduce the incentives to externalization (according to the transfer principle), replacing them with integration incentives (according to the work principle). Secondly and simultaneously, firms would have to pursue a rigorous personnel devel-

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opment and work structuring policy oriented towards prevention, so as to make a longer working life with staged transitional pathways both possible and attractive to workers. In the final analysis, however, the criterion for the success of such a strategy for the actor-systems concerned will be the extent to which it proves possible to establish a new productivity and welfare pact in which the productivity gains of a longer and more flexible working life can be used to offset the possible welfare losses, particularly among younger workers. A successful redefinition of the "contract between the generations" cannot be achieved solely with resort to "the law" as a steering mechanism: a normative reinterpretation of prevailing value patterns is also required if more flexible life options for all age groups and a new balance of interests are to be achieved.

References Bangel, B.; Reißert, Β.; Jaedicke, W.; and Weißert, D. (1992): Koordinierung der Arbeitsmarktpolitik in Hamburg. WZB Discussion paper FS I 92-7. Berlin: Wissenschaftszentrum Berlin fiir Sozialforschung. Burrawoy, M. (1985): The Politics of Production. Factory Regimes under Capitalism and Socialism. London: Verso. Hermann, C. (1988): "Die Rentenreform 1972 — Bilanz und Perspektiven nach 15 Jahren," in: Deutsche Rentenversicherung; no. 1-2:1-21. Hildebrandt, E. (1982): Defensive und offensive Ansätze der Besitzstandssicherung in der Tarifpolitik am Beispiel der IG Metall. In: Dohse, K., Jürgens, U.; Russig, H. (eds.): Statussicherung im Industriebetrieb. Frankfurt/New York: Campus. Hockerts, F. (1980): Sozialpolitische Entscheidungen im Nachkriegsdeutschland. Alliierte und deutsche Sozialversicherungspolitik 1945-1957. Stuttgart: Klett-Cotta. Jürgens, U.; Naschold, F. (1982): Arbeitspolitik — Entwicklungstendenzen und Politikformen. In: Politische Vierteljahresschrift, special issue 13: Politikwissenschaft und Verwaltungswissenschaft. Jürgens, U. and Naschold, F. (1994): Arbeits- und industriepolitische Entwicklungsengpässe der deutschen Industrie in den neunziger Jahren. In: Zapf, W.; Dierkes, M. (eds.): Institutionenvergleich und Institutionendynamik. Berlin: Sigma. Kimura, T.; Takagi, I.; Oka, M.; Omori, M. (1994): Japan: Shukko, Teinen and ReEmployment. In: Naschold/de Vroom (1994). Kühl, Jürgen (1992): "Konzeptionelle Überlegungen für die Weiterentwicklung des Arbeitsförderungsgesetzes," in: WSI-Mitteilungen, no. 7:402^11. Kühlewind, G. (1986): Beschäftigung und Ausgliederung älterer Arbeitnehmer. Empirische Befunde zu Erwerbsbeteiligung, Rentenübergang, Vorruhestandsregelung und Arbeitslosigkeit, in: MittAB, no. 2. Milward, Brinton H. (1982): Interorganizational Policy Systems and Research on Public Organizations. In: Administration and Society, vol. 13, no. 4. Müller-Jentsch, J.W. (1986): Soziologie der industriellen Beziehungen. Frankfurt/New York: Campus.

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Naschold, Frieder (1983): Politik und industrielle Arbeit. Forschungsprobleme der Industriesoziologie. In: Leviathan, special issue 5: Arbeitspolitik (Jürgens, U., and Naschold, F., eds.). Naschold, F. (1985): Zum Zusammenhang von Arbeit, sozialer Sicherung und Politik. Einführende Anmerkungen zur Arbeitspolitik. In: Naschold, F. (ed.): Arbeit und Politik. Gesellschaftliche Regulierung der Arbeit und der sozialen Sicherung. Frankfurt/New York: Campus. Naschold, F.; Dörr, G. (1992): Arbeitspolitik. In: Schmidt, M.G. (ed.): Die westlichen Länder. Lexikon der Politik, vol. 3. Munich: Beck. Naschold, F.; de Vroom, B. (eds.) (1994): Regulating Employment and Welfare. Berlin, New York: de Gruyter. Nullmeier, F.; Rüb, F. (1991): Die gesetzliche Rentenversicherung im demographischen, sozialen, ökonomischen und politischen Wandel. Abschlußbericht an die Deutsche Forschungsgemeinschaft. Universität Hannover, Institut für Politikwissenschaften. Oppen, M. (1992): Zukunft von Frauen im Büro — Zur arbeitspolitischen Gestaltung geschlechtsspezifischer Erwerbschancen. In: Färber, Chr.; Schäfer, D. (eds.): Frauen und Ökonomie. Dokumentation zur Ringvorlesung 1991/92 an der Freien Universität Berlin. Berlin: Freie Universität, Institut für Wirtschaftspolitik. Quack, S. (1992): Dynamik der Teilzeitarbeit. Implikationen für die soziale Sicherung von Frauen. Berlin: Sigma. Rosenow, J.; Naschold, F. (1994): Die Regulierung von Altersgrenzen. Strategien von Unternehmen und die Politik des Staates. Berlin: Sigma. Rüthers, B. (1986): Arbeitsrecht. In: Mickel, W. (ed.): Handlexikon zur Politikwissenschaft. Schriftenreihe der Bundeszentrale für politische Bildung. Bonn: Bundeszentrale für politische Bildung. Russig, H. (1982): Ausgestaltung und Effektivität gesetzlicher Regelungen zum Kündigungsschutz und zur Statussicherung bei innerbetrieblichen Personalmaßnahmen. In: Dohse, K.; Jürgens, U.; Russig, H. (eds.): Statussicherung im Industriebetrieb. Frankfurt/New York: Campus. Scharpf, F.W.; Garlichs, F.; Maier, F.; Maier, H. (1982): Implementationsprobleme offensiver Arbeitsmarktpolitik. Frankfurt/New York: Campus. Schmidt, G. (1982): Zur Effizienz der Arbeitsmarktpolitik. Ein Plädoyer für einen Schritt zurück und zwei Schritte vor. WZB Discussion paper IIM/LMP 83-2. Berlin: Wissenschaftszentrum Berlin für Sozialforschung. Steinkühler, Franz (1977): Die Durchsetzung und Anwendung des Lohnrahmentarifvertrages II. In: Werktage werden besser; quoted after Hildebrandt (1982).

Three Contentious Issues in the Political Process of Telecommunications Liberalization in Japan: Neglect of Infrastructural Problems? Koichiro Agata

1

Subject and Goals of Investigation

The reform of telecommunications policy in Japan was carried out in 1985 as part of a privatization package which included the Nippon Telegraph and Telecommunications Public Corporation (NTTPC), the national railway, and the cigarette monopoly. Awareness of administrative reform as an issue had increased after the oil crisis of 1973. In 1981 the Second Provisional Administrative Reform Council was set up. In its report of July 1982 it recommended the package privatization of the three monopolies. At the heart of the proposed reform as it affected liberalization of the telecommunications market were the privatization of the NTTPC, the division of the NTTPC into several regional companies, and the encouragement of competition through liberalization of the telecommunications market. The political process of liberalization in telecommunications began in the wake of these proposals. This study will analyze the actors and their conflicting roles in the political process of telecommunications liberalization, in particular the decision of what sort of company should offer which telecommunications services, and in what way. An important question will be whether, after the telecommunications market was liberalized, it was possible to retain these services as part of the social infrastructure; i.e. whether telecommunications could continue to follow the principles of generality, uniformity, continuity, and security (Hayashi/Tagawa, 1994, Klein, 1991, Tegelen, 1991, Mäding, 1991, Hayashi, 1990, Agata, 1994a). Having approached the problem in this way, the study will then set forth the hypothesis that the general guarantee of infrastructural integrity was not in the foreground of discussion during the political process, despite its importance for the period after the structural reform, because the individual actors in the telecommunications policy network almost never furthered any interests other than their own. Three issues will be investigated in this analysis: (1) the corporate status of the telecommunications service providers, i.e. the privatization of the

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NTTPC and the associated right of its employees to strike; (2) the flotation of shares; and (3) the liberalization of the markets for telephone networks, infrastructural access, and customer premises equipment (CPE). In telecommunications, the basic needs of the citizens have often been met simply by setting up a state monopoly, which, in accordance with the principles of a natural monopoly, provides basic telecommunications equipment and services in a uniform and reliable way. As Japan felt it had already achieved a good-quality general telephone network, very rapid installation of telephone connections, good coverage of the service area, and good automatic telephone services, it also felt that the time had come to transfer responsibility for telecommunications from the public to the private sector (Inoue, 1990:14-18). The question also arose as to whether the NTTPC employees' right to strike should be regulated in some way after privatization. When a public company is to be privatized, shares in it must be issued and then floated. Privatization of a public company is only genuinely effected if the issued shares are actually sold. The question then is how and indeed if the shares should be floated and how the proceeds of the flotation should be used. It is of course possible for a public company to retain its monopoly of the telecommunications market even after it has been privatized. In Japan, however, the attempt was made to fully liberalize the telecommunications market. This market was understood to consist of at least three elements, namely the telephone network market, the infrastructural access market, and the customer premises equipment market (Agata, 1992). The most interesting aspect of the telephone network market was the form of the country's exchange network. Prior to the reform, only the NTTPC could set up and manage the telecommunications network. In the context of liberalization, the question was whether other companies than the NTT should enter the network market after privatization had been effected. As regards the infrastructural access market, the question arose as to how, which, and by whom telecommunications services should be provided. Although it had already been partially liberalized even before the reform, the infrastructural access market in Japan was now opened fully. A customer premises equipment is a device which is used for telecommunications purposes and which is connected to a telephone connection of a public network. Although the Japanese customer premises equipment market had also already been opened to some extent, the reform attempted to bring about an even more thorough liberalization of this market. The question was how and to what extent further liberalization should be effected. These three issues were a subject of contention among a number of actors, who together formed a telecommunications policy network. This policy network was a negotiating system for the actors involved in which their

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various ideas on determining and carrying out policy could be considered (Mayntz, 1993). This study will only treat the policy network as it affected determination of policy. In this context the actors in the policy network should be divided into at least six groups: (1) ministries, (2) the cabinet and its advisory council, (3) the governing party and politicans belonging to it, (4) opposition parties and unions, (5) telecommunications companies, and (6) international actors. These groups will be described in the next section, after which the three above-mentioned issues will be analyzed.

2

Actors

2.1

Ministries

The main actor in the conflict was the Ministry of the Post and Telecommunications (MPT). The ministry was founded in 1949; it now consists of seven bureaus (see Maeno, 1993:77-83). Of these, the bureau for communications policy is of primary interest for the purposes of this study, as it prepared the drafts of the reform bills. The MPT was involved in all three of the above-mentioned issues. Its main opponent in this context was the Ministry of International Trade and Industry (MITI), which has existed in its present form since 1949. The background of the conflict between the MPT and the MITI is the following (Muramatsu, 1994:135-136, Ebato, 1992:115-116). The MPT is responsible for all telecommunications which can be defined as the transfer via channels of information which has been transformed into signals. Among the MITI's responsibilities is data processing, which includes the classification and ordering of literal and numerical data. Such great progress has been made in electronic technologies that there is no longer any clear boundary between the two fields. Thus the conflict between the MPT and the MITI was caused by the overlap in telecommunications and data processing which had been brought about by advances in information and communications technology. The MITI's role in the decision-making process regarding the issuing of shares and the liberalization of the telecommunications market was related to defining the extent of the MPT's responsibilities. Two other ministries took part in the process: the Ministry of Finance (MOF) and the Ministry of Labor (MOL). The MOF is one of the oldest ministries in Japan, having been established in 1869. It was involved particularly in the decision of what should be done with the proceeds of the flotation of shares. The MOL was founded in 1947. Its quarrel with the

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MPT had to do with the regulation of NTT employees' right to strike, an issue which fell within the competence of the MOL's bureau of labor policy.

2.2

The Cabinet and its Advisory Council

The liberalization of the telecommunications market in Japan was part of the general trend towards administrative reform. The Suzuki cabinet began the initiative towards wider-reaching administrative reform, showing its awareness of the need for reform by setting up a special advisory council, the Second Provisional Administrative Reform Committee (SPARC) in 1981. This move contributed significantly to triggering liberalization of the telecommunications market. The succeeding Nakasone cabinet adopted all its predecessor's guidelines on administrative reform. Typically, Nakasone's administration, aided by SPARC, exhibited top-down leadership not only in making decisions on reform, but also in carrying it out (Muramatsu et al., 1992: 164-165). SPARC consisted of nine committee members: three representatives of industry, two from labor unions, and one each from science, the press, the civil service, and local bodies. The committee was broken down into four working groups, the fourth of which dealt with "the Future of the Three Monopolies, the Five Special Types of Property, and the Special Joint-Stock Companies," which included telecommunications. One committee member headed up the working group, assisted by fifteen officials responsible for various areas, and thirteen office workers (Sasaki, 1985). The final report of this fourth working group had a decisive influence on the development of telecommunications reform. SPARC officials not only analyzed the theoretical aspects of privatization, but also gathered data by interviewing the parties affected. In the process, they worked closely with the LDP, MPT, NTTPC, etc. Their goal was to formulate the actual substance of the reform to be carried out and to ensure consensus among the most important actors.

2.3

The Governing Party and Politicians Belonging to it

At the time of the reform discussed here, the Liberal Democratic Party (LDP) was the sole party in power (Murakawa, 1994). Founded in 1955, the party enjoys an established central organization, which plays a decisive role in making important decisions. In addition to the Somu-Kai, its highest body and one whose decisions are practically final, the party has a political coor-

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dination committee, the Seicho-Kai, which makes preliminary decisions for the Somu-Kai. The Seicho-Kai is organized into fifteen special departments, or Bukai, each responsible for a particular policy area. During its many years in government, the LDP made most of its important policy decisions by negotiating with the ministries or industries concerned. Certain LPD politicians from the department (Bukai) responsible for the policy area in question negotiated with relevant authorities and actors, thereby exerting considerable influence on the political process and ensuring that their interests were served in the decisions ultimately made. Because the organization of the various Bukai corresponds almost exactly to that of the standing committees of the upper and lower houses of parliament, the LDP delegates in both houses belong to Bukai corresponding to their standing committees. This tends to increase the specialization of the delegates. LPD politicians who specialize in one particular policy area in this way are called Zoku-Giin. The Bukai which are of importance for this study are those for Post and Telecommunications (Yusei-Zoku, for example see Maeno, 1987: 181-198), Trade and Industry (Shoko-Zoku), and Labor (Rodo-Zoku). The role of highly-placed individual politicians should also be considered. First among these was Ryutaro Hashimoto, who was chairman of the ad hoc Council for Research on Financial and Administrative Problems, or Gyozaisei-chosakai, and was thus responsible for the coordination of party opinion on telecommunications reform. He conducted a very large number of negotiations with various parties concerned, forging several important compromises on the realization of reform. His proposals were often of great importance (Komori, 1988:80-102).

2.4

Opposition Parties and Unions

Of the parties then in opposition, the Japan Socialist Party (JSP) deserves special attention. This party, which in 1994 produced its first Prime Minister in almost 50 years, counts the Zendentsu, or All Japan Telecommunications Trade Union, among its large union supporters. This union supports the principles of social democracy and had at the time of the reforms approximately 280,000 members (Otake, 1992). This made it one of the largest industry-specific unions in Japan. The Zendentsu, as the union most affected by the privatization, played a leading role in the process of reaching consensus on telecommunications reform; the JSP was an important player in discussions with the Zendentsu throughout the process. Two other opposition parties then should be mentioned: Komeito (the Buddhist Party) and Minshato (the Social Democratic Party, SDP). These were generally liberal centrist parties which can be seen as having tipped the

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scales between the LDP and JSP during the last step in the process of making telecommunications reform law. The Oppositions organized an ad-hoc group for periodical consultations about the telecommunications policy together with some other oppositional groups in order to coordinate their own oppinions (Komori, 1988:31-38).

2.5

Telecommunications Companies: the NTTPC or NTT

As in Europe, telecommunications services in Japan were offered en bloc by a MPT monopoly from their inception until the Second World War. This arrangement was in accordance with the principle of uniformity within the country. After the War a public telecommunications company separate from the ministry was preferred in order to promote recovery. The Nippon Telegraph and Telephone Public Corporation (NTTPC) was set up in 1952 to handle domestic calls; the Kokusai Denshin Denwa Co. Ltd.(KDD, International Telecommunications) was established in 1953 as a private sector company with government participation to handle international traffic. The role of the MPT was to regulate the two companies (WGCA, 1989: 7-13). The influence of then NTTPC president Shinto on his company is too important to be overlooked. As a manager from heavy industry, appointed to the presidency in 1981 as part of an internal reform unrelated to privatization, he was guided mainly by the principle that the NTTPC's business should be rationalized from the ground up. Following publication of the SPARC report, Shinto became the standard-bearer of privatization within the NTTPC (Yamaguchi, 1992, Sataka, 1989:160-167). After the privatization the firm is called Nippon Telegraph and Telephone Corporation (NTT).

2.6

The USA as International Actor

Telecommunications policy is one of the policy areas in which foreign actors can have a real and significant influence. This is due to the fact that domestic measures have a direct impact on the interests of the foreign actors and that global developments have a remarkably great influence on domestic conditions. The USA's involvement in the Japanese telecommunications reform was deep but indirect. Its influence was mainly exerted through the MITI; its goal was to further American interests, particularly in the liberalized telecommunications market.

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Three Contentious Issues

3.1

Corporate Status: Privatization

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How should telecommunications services be provided: by a monopoly or in a competetive market, by the state or the private sector, nationally or regionally? These three questions led to conflict among the actors concerned. The paper drawn up by SPARC in July 1982 clarified these three key issues. First, in order to continue to be able to offer cheap telecommunications services and to develop its ability to make technological advances, the NTTPC would be privatized and so transformed into a rationalized business. Second, the disadvantages of the NTTPC monopoly were to be removed. Third, the size of the NTTPC was to be optimized by dividing it into a nationwide network organization and several regional providers of telecommunications services (the following about the political process is mainly based at Muramatsu, 1988, lio, 1993: 68-104, Kojo/Nanbu, 1993 and Fuñada, 1991). This paper gave rise to a heated discussion among the actors on the subject of telecommunications reform (Sasaki, 1985, Matsubara, 1991: 77-87). Among the developments following its publication, the process by which arguments for privatizing the NTTPC finally overcame those for leaving it a monopoly deserves special attention. After the publication of the SPARC report in July 1982, then Prime Minister Suzuki announced his support for administrative reform, which led to the actual implementation of specific reforms. In September 1982 the cabinet decided on a framework for administrative reform which defined the future direction of the reforms proposed by SPARC. The arguments for continuing to run the NTTPC as a monopoly can be summarized in four points. First, there is the security provided by public provision of telecommunications services, including the secrecy of communications and their contents, and a guarantee of universal services even in unprofitable areas. Some reservations were expressed in this connection, e.g. whether, in cases where the operators concerned recorded the contents of individual telecommunications, secrecy could be maintained if these operators were privatized; and whether the provision of the necessary universal services could be ensured after privatization, since private sector companies can refuse to provide services in unprofitable areas. The second point was the sovereignty of Japanese telecommunications in the international context. Various contracts and agreements on telecommunications services could negatively impact sovereignty without public-sector approval. The third argument against privatization was its possible effect on maintenance of research and development capabilities in telecommunications. Some dan-

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ger was perceived that a privatized company's actions would be motivated solely by the search for profits and that consequently applications technologies would be developed at the expense of any basic research and development. Finally, since there had been only one example of privatization in the USA in the first half of the 1980s, and this is a monopoly which had been a private company from the beginning, a strong case could be made that the privatization of telecommunications services was too advanced a step to be undertaken at the time. On the other hand, the need for privatization could be justified by at least three disadvantages of the monopoly system. First, it was very difficult for a public sector monopoly to manage its telecommunications services flexibly because it was obliged to submit its balance sheet to Parliament, entailing an inspection of its budget. Freedom from this review was sought because of problems such as possible work delays caused by slow budgetary decisions in Parliament, and the inflexibility in allocating resources made necessary by the harshness of the budgetary review. In addition, dissatisfaction with remuneration had increased among NTTPC employees in the Zendentsu. A uniform pay scheme for all three monopolies meant that NTTPC personnel received the same compensation as national railroad employees, even though the NTTPC had long shown a healthy annual balance and the national railroad had had ever-increasing deficits. The privatization of the three companies would mean a differentiation of their pay schemes, allowing a better system to be introduced in the healthy telecommunications company. Finally, limitations on the kinds of jobs which could be undertaken were severe due to legal requirements for monopoly businesses. Telecommunications business is an area of rapid change in both applications of advanced technologies and the newest services based on them. The legal requirements for public sector businesses, however, made it difficult to introduce new services on the market or possibly to change rates (the foregoing is based on interviews conducted at the MPT in winter 1993/94). The main actors in telecommunications reform were divided into two groups, one for and one against privatization. The MPT was against privatization and for retaining the public monopoly, stressing the security offered by the public sector and the need to retain sovereignty in telecommunications. Some of the delegates from the Yusei-Bukai of the LDP were also against privatization, as were most of the JSP delegates. The JSP, however, being an opposition party, expressed no official opinion on the subject. On the other hand, the NTTPC itself, its Zendentsu union, and a few JSP delegates who represented the union were very much in favor of the privatization. Factors which strongly influenced their decision included the flexibility the company would gain by privatization, the differentiated pay

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scheme and better pay which would result, and the preservation of a nationwide organization for the NTT and the Zendentsu. The NTTPC and the Zendentsu had at first been against privatization. The NTTPC had not wanted to lose its monopoly on telecommunications, while the Zendentsu had at first issued strong warnings to the effect that privatization could negatively impact the generality and security of telecommunications services (Otake, 1992). What changed their minds was another planned measure which would not only have privatized the NTTPC but also have divided it up into several regional companies in order to promote the competetiveness of the privatized NTT and its adaptation to global changes in the telecommunications market. Since any division of the NTT into regional companies would mean both a further post privatization weakening of the NTT's market position and the dissolution of the Zendentsu's national organization, the two actors feared this measure. In addition, NTTPC president Shinto, motivated by his basic philosophy of rationalization of the NTTPC, strongly encouraged the building of consensus for privatization within the company. The NTTPC and the Zendentsu made the best of a bad lot and supported simple privatization. The Zendentsu was also led to lend its clear support to privatization by its great interest in the implementation of a post-privatization pay scheme which was in accord with the balance sheet. For these reasons the two actors had a very positive attitude towards privatization. The USA, as an international actor, was neutral on the subject of privatization, being more interested in the structure of the telecommunications market than its legal form. The USA particularly requested that resource procurement be liberalized and the markets in customer premises equipment and value added services be opened. It was, however, the largescale reform of AT&T (American Telegraph & Telephone) which started the global tendency towards telecommunications liberalization that indirectly but strongly affected the Japanese reform (Muramatsu, 1988). The changes in the line-up of actors will now be described. The first groupings were an anti-privatization coalition of the MPT, LDP, and JSP and a pro-privatization coalition of the NTTPC. and the Zendentsu. However, as the whole discussion developed, important actors shifted positions to come out in favor of privatization. First, the MPT may have changed its mind on privatization after considering its position relative to at least three other actors (Ito, 1993:15-16). In other words, it tried to strengthen its own position by seizing the initiative on privatization. It was necessary for telecommunications-related industries to adapt to new situations arising from advances in information and communications technology. It therefore seemed important to the MPT to respond to these industries' demands for market liberalization. It acted immediately. This move also served to defend the MPT against the MITI: if after privatization the NTT could dominate the

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telecommunications industry in Japan, and if this allowed other related industries to develop in a stable way, then the MPT could strengthen and perhaps even expand its sphere of responsibility, especially in relation to the MITI. Moreover, the MPT kept in mind its relationship with the NTT. As a monopoly the NTTPC enjoyed a high degree of autonomy from the MPT because a monopolistic telecommunications market did not need MPT regulation very much. Privatization and the related market liberalization would, however, require the MPT to regulate the market to ensure that the reform could progress smoothly. This would give the MPT hegemony over the NTT after privatization. It is very important that in the above process the MPT and the Zendentsu changed their original positions on privatization for various reasons, although both actors were aware of the role telecommunications played as an element of social infrastructure. Their original position was based on a shared technocratic idea, namely that the stability of a monopolistic telecommunications company can lead to continued development of advanced technology and to economies of scale. The Zendentsu was drawn to this idea by its sociodemocratic ideology, while the MPT found it in accordance with its concept of itself as a regulator (Otake, 1992:125-126). Nonetheless the two actors, who could have defended the infrastructural aspects of telecommunications at any time up to the end of the discussion, exerted a quite important influence on the process through their change of course. The Nakasone cabinet, which was formed at the end of 1982 and which was very much in favor of telecommunications reform, gave Hashimoto an important role in intraparty coordination. The politician was the key figure in negotiations on telecommunications reform, not only among Yusei-Zoku, but also among other non-LDP actors, including the MPT, NTTPC president Shinto, and the Zendentsu. The result of these various négociations was an important proposal which Hashimoto submitted to the Yusei-Bukei in September 1983. The crux of the proposal was the transformation of the NTTPC into a special joint-stock company which would be governmentowned and which would not be divided up into regional companies. Although the JSP made a counterproposal to Hashimoto's in October 1983, suggesting that a special measure be taken to transform the NTTPC into government property by issuing shares, another step towards privatization had been achieved. Following Hashimoto's proposal, the MPT began drawing up the draft of the legislation, to some extent cooperating in this with the NTTPC itself. After the elections for the lower house of Parliament in December 1983 the attitude of the LDP delegates towards reform had changed completely. It is suspected that the MPT had brought around the important LDP opponents to privatization during the election campaign (Tahara, 1993:108). The focus

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of discussions on reform was now not whether the NTTPC should be reorganized, but how. In addition, at the end of January 1984 Nakasone's cabinet, with the object of submitting a bill to Parliament, approved a set of guidelines on administrative reform. Finally, in March 1984 the MPT developed a decisive package of reform bills: the Telecommunications Business Law (TBL) and the Nippon Telegraph and Telephone Corporation Law (NTT Law). At the core of this legislation were the privatization of the NTTPC (without division into regional companies) as of April 1985 and the complete opening of the telecommunications market. In April 1984, the cabinet approved the bill for submission to Parliament. Its first stop would be the lower house. Parliamentary debate on the bill focused on important negotiations the Zendentsu had initiated with other actors. As regards the legal form of the NTTPC after privatization, the main issue was the working conditions of its employees. In Japan that meant above all the employees' right to strike (Otake, 1992:133-135, lio, 1993:128-136, Komori, 1988:47-50). The central issue here was whether it should still be restricted in some way, as it had been before by the Labor Minister's power to call a halt to strikes, the Law on Public Telecommunications, etc. This question gave rise to conflicts between the LDP and the MPT as well as between the Zendentsu and the MOL. The right of NTT employees to strike could be subjected to regulation because the NTT would play a central role in the field of telecommunications even after its privatization, which would mean that strikes by its employees would have a significant negative impact on the telecommunications element of the infrastructure. While most politicians and the Rodo-Zoku of the LDP thought that strikes by NTT employees should still be subject to government control because of the general importance of telecommunications, the MOL held that regulation of this right should be as minimal as possible. The Zendentsu, as the union directly concerned, was of course for a complete abolition of any such regulation. The MOL and the Zendentsu's first move was to try to bring the politicians of the LDP around to their point of view. The result was an agreement among the actors that NTT employees should have the right to strike with certain restrictions, e.g. the obligation to announce a strike in advance, the right of the Prime Minister to coordinate large-scale strikes, the right of the employer to demand arbitration, and a ban on strikes in cases of natural catastrophe. The Rodo-Zoku of the LDP officially decided for a limited right to strike after privatization. The Zendentsu nonetheless tried to secure a further weakening of these regulations. The JSP was also of the opinion that the right to strike should be completely unrestricted. On the other hand, the other two opposition parties, the Komeito and the Minshato, were prepared to agree to the entire

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legislative package provided some compromise were made on the right to strike. As the LDP wished to avoid having to pass the law using its majority in Parliament, the JSP suggested a compromise. Prime Minister Nakasone responded with a statement to the Post Committee of the lower house that the strike regulations would be reformed in three years as a first step towards their total abolition. Most actors agreed to this plan; only the JSP was still unsatisfied. The legislative package was passed in July 1984 thanks to the LDP majority, the Komeito and the Minshato. The JSP voted against it. In accordance with Japanese parliamentary procedure, a law only comes into force when passed by both houses. Thus after the law was passed in the lower house it was debated in the upper house. The JSP still insisted that the clause relating to restriction of the right to strike be struck, while the Zendentsu was very much for the passage of the bill. The Zendentsu therefore again tried to change the JSP's mind on the subject. In the end, however, the LDP, the Komeito and the Minshato voted once again for the bill in the upper house. Thus the Telecommunications Business Law and the NTT Law were passed, setting the date for the liberalization of telecommunications in Japan for the first of April 1985. Directly following privatization, the Zendentsu in its capacity of employee and the NTT in its capacity of employer agreed that a works committee should be set up to ensure the equality of employer and employee and to draw up a pay scheme in line with the balance sheet. Discussions of strikes by NTT employees resulted in not a few thoughts on the subject of telecommunications as infrastructure. It is certainly possible that a serious strike at the NTT could interfere with the smooth and certain provision of telecommunications services to society. Thus the regulations contained in the NTT Law just passed concerning NTT employees' right to strike were a sign of the government's awareness of the need for security in telecommunications (lio, 1993:188).

3.2

Flotation of Shares

Once clear guidelines on the privatization of the NTTPC had been established, another contentious question arose, namely what percent of the NTT shares issued should be retained by the government. It was also unclear how the proceeds of the sale of NTT shares and any dividends on the shares owned by the government should be used. The actors in this dispute were the MPT, MOF, MITI, and, to some extent, the NTTPC (the following is mainly based on interviews conducted at the MPT in Winter 1994 and Aoki, 1993:150-165).

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The MPT was for 50 percent government ownership because it felt that this would ensure the stability of the NTT. The MOF, which expected maximum revenues to cover the deficit in the national budget, wanted at least one third government ownership. The NTTPC, which was very much in favor of privatization, held that all shares should be floated on the stock market so that the NTT could enjoy the full flexibilty of a private company. The NTTPC also felt that any government participation would give the government or the MPT a certain degree of control over the NTT. In the end the bill submitted to Parliament in April 1984 stipulated that one third of all shares in the NTT should be retained by the government. This was the result of negotiations in which Hashimoto and the Yusei-Zoku had played a central role. In addition, the JSP and the Komeito emphasized that the fruits of the flotation should be used for the common good of society. The law in its final form contained the same provision for government ownership. Some mention should be made here of the dispute between the MOF and the combined forces of the NTT and the MPT over the amount of capital the company should be determined to have before privatization. The NTT and the MPT wanted to minimize the total sum in order to keep dividend payments to a minimum. The MOF, on the other hand, wanted to fix as high a sum as possible in order to maximize the proceeds of the share flotation. In the end total capital was fixed at a nominal value of 780 billion yen, giving the MOF the victory in the dispute. Two thirds of all NTT shares, of which there were 15.6 million, could be floated. Thus 10.4 million shares were sold, 5.2 million reserved for the government (Tamamura, 1993a:26-27). The next question was how the government should use its expected dividends. This question gave rise to serious disagreements, especially between the MPT and MITI. Now that privatization had taken place, it was reasoned, the pursuit of profit might reduce the resources allocated to basic research in telecommunications. Instead one might expect a focus on applications-oriented research. This concern, which interestingly enough was shared by both ministries, led them to seek an alternative to the research policy which had prevailed under the monopoly. The MPT and the MITI, each hoping to be made responsible for basic research financed with NTT dividends, each decided to reorganize one public utility body under their umbrellas to be responsible for the promotion of basic research. The MPT had in mind the promotion of telecommunications research in the interests of the average user, whereas the MITI wanted to finance reasearch in its own area of responsibility. The MITI was interested in circumventing the budget ceiling it annually suffered from by dipping into the dividend pot (Ebato, 1992:132, Shioze, 1986:152-153). In this context there was also close cooperation between ministries and Zoku-Giin of the LDP. The Yusei-Zoku allied itself with the MPT, the

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Shoko-Zoku with the M I T I , to promote the rival concepts. Hashimoto took the role of arbitrator in this drama. He suggested the following compromise: only one public utility body would be set up to promote basic research, to be jointly controlled by the M P T and the MITI. As both coalitions agreed to this compromise, the Center for Promotion of Basic Technology and Research was set up in October 1985 in accordance with the Law on the Promotion of Basic Technology and Research. Every year until at least 1990 the Center's financial resources were to be evenly divided between the two ministries, 50 percent going to mining and industry, 50 percent to telecommunications. The government owned 260 billion yen worth of N T T stock, yielding total dividends over the six years to 1990 of 128 billion yen ( W G C A , 1992:334-338). Another system aimed at the promotion of research was also set up, a system which had not been expected prior to the reform. From 1986 to 1988 a total of 5.4 million shares were floated. The flotation produced far greater returns than expected due to speculation in the marketplace. While most of the proceeds were earmarked for the settlement of debts, the remainder was to be used for the improvement of regional infrastructures. For this purpose two systems were developed, one involving interest-free financing from the proceeds for cooperative institutions in regional administrative bodies, one involving low-interest financing for private businesses. Both systems contributed to the improvement of regional telecommunications infrastructure, particularly regional telecommunications networks. Thus a total of 64 billion yen in low-interest and interest-free financing were made available for telecommunications. Following a suggestion from industry, the M P T also set up an International Telecommunications Basic Research Institute to use the financial resources allocated and distributed for basic research. The promotion of basic research, which both the M P T and the M I T I had considered important even before the reform, could ensure yet another kind of progress in the field of telecommunications. In view of the fact that the N T T might be unstable after privatization, and in particular that it might not show a healthy balance sheet for many years, it was very important that the system of promoting basic research be financed with the fruits of the share flotation and thus be independent of the business operations of the N T T . Indeed, the N T T P C had been so successful in basic research because as a monopoly it had always had such a healthy bottom line that it could invest a great deal in this area. Although the N T T after privatization was able to invest some profits in basic research every year up to 1993, forecasts predict that in 1994 the N T T will make its first loss, leaving it less room for maneuver in the field of basic research. Thus the system for promoting basic research is vey important.

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295

Liberalization of the Telephone Network, Infrastructural Access, and Customer Premises Equipment Markets

The first signs of the trend towards liberalization of telecommunications which was behind the technological progress in the area as well as the consequent increase in the need for telecommunications appeared in the USA in the 1950s. Largescale reforms of the telecommunications systems in the USA and Great Britain followed in the 1980s, leading to competition in the telecommunications market. The Japanese telephone network and infrastructural access markets as such were created by the Telecommunications Business Law (TBL) after the reform. According to Article 2, Paragraph 4 of the law, a telecommunications company is one which provides telecommunications services which satisfy the needs of third parties. Telecommunications services are defined in Article 2, Paragraph 3 as the transmission of communications of third parties by means of telecommunications equipment and as offering this equipment to others for communications purposes. Thus telecommunications service providers are those which are licensed to conduct telecommunications transactions (Type I Carriers), those which are registered service providers (Special Type II Carriers), and those which have reported their entry into the telecommunications market (General Type II Carriers). Type I Carriers are those which possess their own transmission equipment and which provide their services using this equipment. Type II Carriers, on the other hand, are those which rent the necessary transmission capacity from Type I Carriers. The purpose of this classification is to provide a basis for regulation. Type I Carriers are subject to relatively strict, extensive regulation, while Type II Carriers are largely left to the tender mercies of market forces. Type II Carriers can be further classified as either Special or General. The former provide services to the general public and have a certain minimum size, or market their services internationally. All other telecommunications service providers are classified as General. The differences in the regulation of the two categories are the following. While Special Type II Carriers are obliged to register their entry into the market and their rates at the MPT, and must further do business by means of contracts and tariff units, General Type II Carriers are only obligated to report their entry into the market at the MPT. Type II Carriers primarily offer valueadded services in the field of data transfer (Agata, 1993). As regards the telephone network market, the very creation of the Type I Carrier classification meant the complete abolition of the NTT network monopoly, since it presumed the entry of other network providers into the market. Although it is very important for liberalizion to determine whether the network market is to be opened completely or not, the privatization of the

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NTTPC and the liberalization of the network market seem to have been discussed en bloc. The possibility of allowing the network market to remain the monopoly of a privatized NTT for certain years, as happened in Germany after its second postal reform law (Agata, 1994a), was almost completely ignored. Any privatization of the NTTPC would have to include opening the network market. As already mentioned above, the SPARC report set the guidelines for telecommunications liberalization in general. Similarly, in the debates on privatization it was Hashimoto's proposal of September 1983 which triggered discussion on the telephone network. While he suggested a complete and general opening of the telecommunications network market, the JSP made a counterproposal in October of the same year recommending the continuation of the network monopoly. However, the JSP's supporting union, Zendentsu, was convinced that privatization and the associated network market liberalization were in its interests and thus began to try to persuade the JSP of the necessity of opening the network market at once. The differentiation between the above-mentioned Type I and II Carriers appeared in the guidelines drawn up by the Nakasone cabinet at the beginning of the following year, which in effect meant that the opening of the network market was to be accelerated. In the end the guidelines on network market liberalization were inserted into the bill brought forward by the MPT in 1984 with almost no important changes. Two important clauses were added, however. First, the Telecommunications Business Law clearly required MPT approval for a Type I Carrier's retirement from as well as its entry into the market. This meant that a Type I Carrier which had once entered the network market not only could not retire from the market without MPT approval, but was also responsible for supplying a telephone network in its area, even if this area had become unprofitable. Second, the NTT Law stipulated that after privatization the NTT would have to take responsibility for universal telecommunications services and to contribute to the public welfare. These two clauses on entry into the market and the NTT's responsibility for universal services can be seen as a kind of infrastructural guarantee. From this time on there was almost no debate on whether individual service providers would sweep away the network monopoly. The idea that privatization of the NTTPC would entail the liberalization of the network market seemed to dominate the discussion of reform. In the end liberalization of the network market was brought about by the passage of two laws, as described above. As an example of the market activity which has followed, a total of 14 new providers of cable network services in addition to the NTT were set up in the time between the opening of the network market and 1993 (TPB, 1994:2). The security of the market, however, still depends heavily

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on the NTT: in 1993 the market share of all NCCs (New Common Carriers) combined was only 9.0 percent (InfoCom, 1993:140). The privatized NTT has had no problem meeting its obligation to provide universal services, but probably only because it has always had a healthy bottom line. However, it is predicted that the company will make its first loss in 1994. It remains to be seen what effect this loss will have on the network market in the medium term. As regards the infrastructural access market, two partial liberalizations were carried out even before the 1985 reform. Between 1971 and 1973 the use of leased lines and access to the Japanese telephone network for purposes of data transfer were liberalized in the Public Telecommunications Law (the first liberalization of infrastructural access in telecommunications). After this, businesses selling various forms of information services appeared, but they were still forbidden to offer value-added services on leased lines. The monopoly NTTPC could, however, offer data processing services using its own computer. This led to the establishment of data processing services whose lines and sets were provided by the NTTPC. The overlapping of the boundaries between the MPT and the MITI appeared in the area of value-added services, or Value Added Network (VAN). Here various advanced, computerized data processing functions were carried out using simple telecommunications transmission channels. There were at least three instances of serious conflict between the two ministries over VAN services (Muramatsu, 1988:123-125; Ebato, 1992:115-119 and 124-129). First, in 1981 it became necessary to establish rules governing the value-added services which were already commonly provided in credit-card sales, banking services, etc. The MPT attempted to establish a new set of rules by having a new Law on Data Communications passed. This law would have regulated the licensing, registration, and participation of foreign companies. The MITI, however, wanted value-added services to be left as much as possible to market forces. The MITI was partly motivated to take this position by the fact that more regulation would give the MPT more control over VAN business, whereas less regulation would give the MITI more influence over data transfer and related industries. The final modification of the Public Telecommunications Law liberalized VAN business for small and medium-sized firms. Thus in this instance the MITI achieved at least a partial victory over the MPT. The second conflict between the MPT and MITI occurred in connection with the reforms of 1985. The dispute centered on the new regulations for VAN businesses after the privatization of the NTTPC, particularly on the differentiation between Special and General Type II Carriers. According to the bill prepared by the MPT in December 1983, Special Type II Carriers would also be subject to MPT approval and foreign participation would be

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subject to some type of regulation. To the MITI this regulation appeared to be so strong that industries involved in Special Type II Carrier activities might even be controlled by the MPT. In addition, the provision concerning licensing of Special Type II Carriers would present a serious hurdle to American companies wishing to enter the newly opened VAN market. The American government communicated its concerns to the MITI, which resulted in a coalition of the MITI and the USA against the MPT in the area of regulation of Special Type II Carriers. This conflict was mirrored in the confrontation within the ruling LDP between politicians of the Shoko-Zoku and the Yusei-Zoku. In the intraparty discussions that followed, the ShokoZoku delegates, who were aligned with the MITI, succeeded in weakening the regulations concerning Special Type II Carriers and in striking the clauses relating to supervision of foreign participants. The final form of the Special Type II Carrier regulations, which included a registration requirement but did not address the subject of foreign participation, was a compromise between the MPT and the MITI. The MPT still had some way to influence the industries concerned, but the regulations themselves were weaker, in line with the MITI's interests. The third interministerial confrontation occurred in connection with the ordinances for the Law on Telecommunications Business, specifically the criteria used to differentiate between Special and General Type II Carriers. Although the MTP's proposed limit of 500 channels was the one to appear in the law as passed, MITI had striven for a limit of 10,000 channels: the lower the limit, the more Type II Carriers would fall into the Special category and the more VAN enterprises the MPT would be able to bring under its control. This MPT victory was due at least in part to the efforts of important LDP politicians. In the customer premises equipment market there were demands, particularly from the USA, that foreign products also be sold in Japan. This demand was met by stipulating that in 1980 the NTTPC alone should import customer premises equipments and resell them on the domestic market. Foreign firms could only do business with the NTTPC and had only an indirect influence on the Japanese customer premises equipment market. In this way the NTTPC remained solely responsibile for setting standards and thus for licensing customer premises equipment for use with the public telephone network. The USA, as an international actor, began at this time to demand that standards and licensing be simplified so that its opinions could also be taken into consideration in the process of setting standards (Tominaga, 1990:12-15, WGCA, 1992:130). However, according to the new law, standards were first to be decided on by an advisory council under the MPT umbrella (Muramatsu, 1988:128129). This council had been established in 1982; its members were ap-

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pointed by the Post Minister every two years. A registered institution was responsible for licensing customer premises equipment in accordance with the standards drawn up by the advisory council. It had been organized in 1984 by various specialist institutes for the purpose of carrying out inspections. The licensing procedure for customer premises equipment was thus simplified in that after privatization they were no longer to be inspected by the NTT itself. The question was now how foreign, particularly American, customer premises equipment would be licensed. Foreign institutions were not allowed to participate in the registered licensing institute. The USA once more declared itself unsatisfied with the reform and through the MITI demanded a further simplification. This can be seen as another instance of cooperation between the USA and the MITI against the MPT in that concessions from the MPT on customer premises equipment licensing would lead to the development of electonics industries which were subject to the MITI and thus to an expansion of the MITI's area of responsibility. As the system of standards and licensing had already been organized as described above, a contentious issue was the extent to which the American demand could actually be met. After negotiating indirectly with the USA through the MITI, the MPT made two drastic concessions: a very substantial shortening of the list of things checked in licensing a customer premises equipment, and change of rules to allow foreign institutions to participate in the licensing institute. An important factor in the conflict between the MPT and the USA was a difference in the interpretation of who had which responsibilities in the licensing procedure. In Japan the licensing of customer premises equipment and indeed the general authority to make decisions in the field of telecommunications traditionally fell within the competence of the public sector, i.e. of the public monopoly. In the USA, on the other hand, private institutions were commissioned for this purpose. The Japanese concession on the participation of foreign parties in the licensing of customer premises equipment can thus be seen as a fundamental liberalization of the customer premises equipment market which might also trigger further liberalization in other areas of telecommunications.

4

Conclusions

Based on the above analysis, it may be said that a special feature of the Japanese discussion of telecommunications liberalization was that it was assumed that a privatization of the NTTPC would automatically entail the in-

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traduction of competition into the telecommunications market. There may still have been a possibility for the NTT to continue to enjoy a monopoly for certain years after privatization, particularly in the network market, so that the telephone network would not have to be privatized and opened to competition at the same time. If so, the market liberalization measures and the effects they would have after the reform may not have been properly considered during the discussions preceding the passage of the law. It was also seen that multilateral negotiations between and among the various actors in the policy network were part and parcel of the process of telecommunications liberalization. The MPT and the Zendentsu were particularly important actors from the standpoint of the infrastructural nature of telecommunications. The MPT, a regulatory body, recognized the infrastructural aspect of telecommunications at least in connection with privatization, the right to strike, and the post-share-flotation measures. The Zendentsu at first believed that privatization, and the (in Japan) closely connected liberalization of the network, were disadvantageous. It was particularly important for the political process that both actors changed their minds on privatization after considering other factors. In the case of the MPT, these were its relations with other actors in the policy network after privatization. The Zendentsu was motivated by its substantial interest in privatization. It was top politicians who acted as the hubs of discussion in the negotiating system of the policy network by themselves conducting multilateral negotiations and afterwards suggesting compromises between the confrontation-minded actors. Examples of this in the case of privatization were the suggestion that the NTTPC be reorganized as a special joint-stock company but not divided into regional companies, and the guidelines on administrative reform drawn up by the cabinet. In the case of the share flotation there was the setting up of the Center for Promotion of Basic Technology and Research. An example during the liberalization of the network was the general introduction of competition in the telecommunications market. Finally, the close cooperation within the policy network between ministries and LDP Zoku-Giin should be emphasized. The LDP Zoku-Giin were already specialized in the field of the ministries in question. During discussions of all three contentious issues, the MPT was paired with the YuseiZoku, the MITI with the Shoko-Zoku, and the MOL with the Rodo-Zoku. The Zoku-Giin were able to play the role not only of supervisors of the ministries' behavior, but also of promoters of their interests. Such a supervisory role is a positive result of the politicians' specialization, since with their expertise they can correct any possible mistake which can be made by the ministries. The role of promoter, on the other hand, can be disadvantageous if the cooperation between Zoku-Giin and ministries only serves to

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further their own interests. It can be said that in the Japanese policy network the second role often dominated. In the Japanese discussion of telecommunications liberalization the individual actors considered their own interests more than they could do the question of infrastructure. It can be said that the actors behaved almost as though they were independent of each other. Nonetheless, the infrastructural problems in question may actually have been solved in that the conflict between various interests in the end resulted in a system in which aspects of the infrastructure could somehow be protected, e.g. by the promotion of basic research or the obligation of Type I Carriers to provide a telephone network. However, the responsibility for the network is still particularly dependent on the stability of the Type I Carriers. It therefore remains to be seen whether this system truly provides the requisite support for the infrastructure.

References Agata, Koichiro (1992), "Doitsu denki tsushin seisaku no wakugumi" (Framework for German Telecommunications Policy), in: Waseda Journal of Political Science and Economics, No.307/308, pp.220-255. Agata, Koichiro (1993), Grundriß der japanischen Telekommunikationspolitik, Working Paper Series of Institute for Research in Contemporary Political and Economic Affairs, No.9301, Waseda University, Tokyo. Agata, Koichiro (1994a), Grundfragen zum Vergleich zwischen der japanischen und deutschen Telekommunikationspolitik, Working Paper Series of Institute for Research in Contemporary Political and Economic Affairs No.9401, Waseda University, Tokyo. Agata, Koichiro (1994b), "Gendai denki tsushin shakai shihon to seifu no yakuwari" (Infrastructure of Telecommunications Today and Roll of the Government), in: Kataoka (1994), pp.267-287. Aoki, Sadanobu (1993), Kyodai kigyo NTT okoku — Manmosu kigyo no genzai, kako, mirai (Kingdom of Gigantic Business NTT — Presence, Past and Future of Mammouth Enterprise), Tokyo. Ebato, Tetsuo (1992), Dokyumento nihon no kanryou (Document Japanese Bureaucrats), Tokyo. Funada, Masayuki (1990), "Denki tsushin jigyo niokeru dokusen to kyoso" (Monopoly and Concurrence in Telecommunications Industries — Division of NTT), in: Negishi et al. (1991), pp.81-198. Grande, Edgar/Kuhlen, Rainer/Lehmbruch, Gerhard/Mäding, Heinrich (eds.) (1991), Perspektiven der Telekommunikationspolitik, Opladen. Hayashi, Koichiro/Tagawa, Yoshihiro (1994), Yunibasaru sabisu (Universal Services), Tokyo. Hayashi, Toshihiko (ed.) (1990a), Koeki jigyo to kisei kanwa (Public Utilities and Deregulation), Tokyo.

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Hayashi, Toshihiko (1990b), "Wagakuni Denki tsushin jigyo no sintenkai" (New Developments of Telecommunications Industries in Japan), in: Hayashi (1990a), pp.199216. Héritier, Adrienne (ed.) (1993), Policy-Analyse — Kritik und Neuorientierung, Opladen. lio, Jun (1993), Min'eika no seiji katei — Rinchogata kaikaku no seika to genkai (Political Process of Privatization — Results and Limit of Reform through Advisory Commitees), Tokyo. InfoCom Research, Inc. (1993), Joho tsushin nenkan '93 (Information Communications Almanac '93), Tokyo. Inoue, Teruyuki (1990), NTT — Kyoso to bunkatsu ni chokumensuru johokajidai no kyojin (NTT- Giant Facing Concurrence and Division in the Information Era), Tokyo. Ito, Mitsutoshi (1993), "Administrative Reform," EDI Working Papers, No. 93-33, Washington D.C. Japanese Association for Public Administration (JAPA) (ed.) (1985), "Rincho" to gyosei kaikaku (SPARC and Administrative Reform), Tokyo. Kataoka, Hiromitsu (ed.) (1994), Gendai gyosei kokka to seisaku katei (Contemporary Administrative State and Policy Process), Tokyo. Klein, Gustav (1991), "Der Ausbau der Telekommunikationsinfrastruktur durch die Deutsche Bundespost: Stand und Ausblick," in: Grande et al. (1991), pp. 16-42. Kojo, Makoto/Nanbu, Tsuruhiko (1993), "Denkitsushin no rekishi to nichibei no kisei hikaku" (History of Telecommunications Regulation and Comparative Analysis of Regulation between Japan and USA), in: Okuno et al. (1993), pp.27-74. Komori, Masao (1988), NTT Min'eika no butaiura (Backstage of NTT Privatization), Tokyo. Maeno, Kazuhisa (1987), 21 seiki wa yuseisho no jidai (21th Century is the Era of MPT), Tokyo. Maeno, Kazuhisa (1993), Yuseisho toiu Yakusho (Agency Named MPT), Tokyo. Matsubara, Satoru (1991), Min'eika to kiseikanwa (Privatization and Deregulation), Tokyo. Mayntz, Renate (1993), "Policy-Netzwerke und die Logik von Verhandlungssystemen," in: Héritier (1993), pp. 39-56. Mäding, Heinrich (1991), "Probleme einer rationalen Planung der Telekommunikationsinfrastruktur," in: Grande et al. (1991), pp. 127-151. Ministry of Post and Telecommunication (MPT) (1993), Joho tsushin roppo (Compendium for Telecommunications Laws), Tokyo. Murakawa, Ichiro (1994), Nihonkoku "Seifu" no kenkyu — gendaiseiji niokeru seito no chii (Research of Japan's "Government" — Position of Political Parties in the Contemporary Politics), Tokyo. Muramatsu, Michio (1988), "Min'eika, kiseikanwa, saikisei no kozo — Denki tsushin seisaku no tenkan (Structure of Privatization, Deregulation and Reregulation — Change of the Telecommunications Policy)," in: Leviathan, no. 2, pp. 118-136. Muramatsu, Michio (1994), Nihon no Gyosei — Katsudogata Kanryosei no henbo (Japan's Public Administration — Methamorphosis of an Active Bureaucracy), Tokyo. Muramatsu, Michio/Ito, Mitsutoshi/Tsujinaka, Yutaka (1992), Nihon no Seiji (Politics in Japan), Tokyo. Negishi, Akira/Funada, Masayuki/Ishimura, Zenji/Hienuki, Toshifumi (1990), Tsushin — hoso — joho to ho (Communications, Broadcasting, Information and Law), Tokyo. Okuno, Masahiro/Suzumura, Kotaro/Nanbu, Tsuruhiko (1993), Nihon no denki tsushin (Telecommunications in Japan — Economy for Concurrence and Regulation), Tokyo.

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Otake, Hideo (1992), "Jiyushugi kaikaku nonakano koporatizumu" (Corporatism in Liberalistic Reform — Roll of Zendentsu in the Privatization of NTTPC), in: Leviathan (1), pp. 122-140. Sasaki, Haruo (1985), "Rinji gyosei chosakai no katsudo no keika to seika" (Development and Result of SPARC'S Activities), in: JAPA, pp. 1-28. Sataka, Makoto (1989), Nihon kanryo hakusho (White Paper of Japanese Bureaucrats), Tokyo. Shioze, Yutaka (1986), Yuseisho no gyakushu (Counteratack of MPT), Tokyo. Tahara, Soichiro (1993), Heisei-nihon no kanryo (Japanese Bureaucrats in the Heisei Era), Tokyo. Tamamura, Hiromi (1993a), "Nihon no min'eika" (Privatization in Japan), in: Tamamura (1993b), pp.9-60. Tamamura, Hiromi (1993b), Min'eika no kokusai hikaku (International Comparison of Privatization), Tokyo. Tegelen, Otto Wilhelm von (1991), "Telekommunikation als Infrastrukturaufgabe — Einschätzungen, Interessen und Aktivitäten der deutschen Wirtschaft und ihrer Verbände," in: Grande et al. (1991), pp. 115-126. Telecommunications Policy Bureau of Ministry of Post and Telecommunication (TPB) (1994), Denki tsushin tokei (Statistics of Telecommunication), Tokyo. Tominaga, Hideyoshi (1990), Shin denki tsushin jigyotai no nettowaku to sabisu (Networks and Services of New Telecommunications Carriers), Tokyo. Working Group for Communication Administration in Ministry of Post and Telecommunications (WGCA) (ed.) (1989), Denki tsushin gyosei '89 (Telecommunications Administration '89), Tokyo. Working Group for Communication Administration in Ministry of Post and Telecommunications (WGCA) (ed.) (1992), Denki tsushin gyosei '92 (Telecommunications Administration '92), Tokyo. Yamaguchi, Haruo (1992), NTT ni kaketa yume (Expectancy of NTT), Tokyo.

III The Governance Structure

Revising the Interpretation of the Japanese Economy: Political Intervention and Market Competition in the Distribution System Hideo Otake

1

The Emergence of Revisionist Theories Concerning Japan

Faced with the twin problems of the mounting budget deficit and the everexpanding trade imbalance, the Reagan Administration, through the Plaza Accord of May 1985, dramatically devalued the dollar, in order to reduce the trade deficit. The result was that the U.S. trade deficit was reduced almost 30 percent within two years, from $152.1 billion to $109.3 billion in 1987, and during this period, the U.S. trade account with the EC even managed to record a surplus. However, the trade deficit with Japan improved only a little, decreasing a meager 13 percent from $56.4 billion to $49.1 billion, remaining close to $50.0 billion. As a result, the Japanese share in the U.S. trade deficit had actually increased. In an attempt to improve the trade imbalance, in the late 1980s, numerous negotiations with Japan over individual market areas continued. Market areas in dispute included beef and oranges, semiconductors, construction, and telecommunications. This period of U.S.-Japanese trade frictions was characterized by a shift in the center of attention, from focusing on restricting the flood of Japanese imports into the U.S., towards focusing on the problem of Japanese import restrictions, in order to open Japanese markets. It was during this period that a new line of argument stressing Japanese exceptionalism emerged. Karel van Wolferen's 'The Japan Problem' in the Winter 1987 issue of Foreign Affairs (later published in The Enigma of Japanese Power, 1993), C.V. Prestowitz's Trading Places (1988), and James Fallows' 'Containing Japan' in the May 1989 issue of Atlantic Monthly, are representative of the publications of authors who, in the sense that they revised previous assumptions of Japan and its systems, came to be known as "the revisionists." Despite variations in the details of their arguments, the revisionists shared the basic assumption that the Japanese political/economic system was completely and fundamentally unique vis-àvis those of the U.S. and Europe, closed off to foreign countries, and

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operating by rules different from those of a liberal democracy or a free market. The uniqueness of the Japanese political economy, which had once been regarded with a mixture of surprise and praise as the driving force behind Japan's miraculous economic growth came to be regarded as a serious threat to other countries. The revisionist theory found widespread support in the U.S., not only among journalists, but also among businessmen and free market advocates in big business, and became widely accepted by the mass public. It was around this time, in the late 1980s, that American opinion polls began to show that Japan had replaced the Soviet Union as the greatest threat to the U.S. As mentioned above, the late 1980s was a period in which the U.S. in rapid succession pressured Japan to open markets, with, in many cases, the Japanese making concessions in response. However, it became increasingly clear that merely negotiating over particular products was not going to solve the trade deficit problem, and frustration mounted in the U.S. Congress. Despite the removal of visible barriers such as tariffs, and repeated promises by the Japanese government in negotiations over particular products to ensure greater foreign access, sales figures of American firms (and of American exports) showed little or no improvement, because an increase in imports from the U.S. had not occurred. At this time, within the newly elected Bush Administration, Carla Hills was appointed to become United States Trade Representative (USTR). USTR launched a new strategy towards the Japanese government, one based upon the Omnibus Trade and Competitiveness Act, which had been passed in the previous year. The main feature of this Act was the so-called Super 301 clause, a clause which provided powerful measures, including retaliatory sanctions, that enabled the U.S. to win substantial concessions from its trade partners. Based on this legislation, Japan was coerced into negotiations in the fields of supercomputers, satellites, and forestry. Furthermore, along with these negotiations, the USTR called for negotiations to remove the "structural impediments" in Japanese trade. Underlying this proposal was the fact that U.S. exports to Japan were not increasing, and the recognition that there were structural obstacles in the Japanese economy, as well as the above-mentioned revisionist theories which influenced the U.S. government. In concrete terms, among the impedimentsthe Bush Administration sought to remove were the produceroriented economic structure which was unresponsive to consumer interests, and the poor living standards it produced; and the exclusive social and economic structure hostile to any new or foreign entry. The first of these negotiations, which came to be called the Structural Impediments Initiative (SII), was held in Tokyo in September, 1989. Throughout the negotiations, the Americans took the initiative. First, the American side produced a six-clause list of proposals to the Japanese

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government, which included the following: (1) to increase Japanese public spending, especially for social overhead capital, in order to solve the imbalance between excessive savings and insufficient investment; (2) to revise the land taxation laws and to deregulate real estate use restrictions, to lower the sky-high price of real estate; (3) to simplify import procedures and to reform/abolish the Large-Scale Retail Store Law 1 , in order to allow for greater access of imports into the Japanese markets; (4) to reform exclusionary business practices, such as the bidding system for public works. In response, the Japanese side drew up a seven-clause list of improvements that could be made in the American economy. These included the low savings rate, the lack of long-term perspective among American firms, and the need for more adequate training and education for American workers. Focusing on the list of American demands, the list was targeted at the core of the Japanese economic structure and at the political/administrative system that sustained it. To be frank, it covered issues that could be considered to have no direct relation to foreign trade. Moreover, many issues, such as business practices, were neither directly attributable to government policies, nor to begin with, within the jurisdiction of the Japanese government, and therefore on those issues it was impossible for the Japanese government to promise any immediate improvements. Thus, the negotiations, naturally, were difficult. The American government, frustrated by the lack of enthusiasm on the Japanese side, in the third conference focused on three specific issues: the abolition of the Large-Scale Retail Store Law, the strengthening of the antitrust laws, and a 10 percent of GNP increase in the public works budget. Around this time, Prime Minister Kaifu, stating that "the SII is also important for Japanese consumers," repeatedly urged the ministries to cooperate in reaching an agreement, but the ministries, in order to protect their individual ministry interests, continued to resist making a compromise (cf. NHK Shuzaihan 1990:105). Prime Minister Kaifu lacked strong support within the LDP, the other senior LDP leaders remained largely indifferent, and zoku Diet members continued to support individual ministries. However, in early March 1989, in a U.S.-Japanese summit which was held on short notice in Palm Springs under the urging of President Bush, President Bush strongly urged Prime Minister Kaifu to take action to swiftly conclude the SII negotiations. The completion of the negotiations thus became a top priority issue for Prime Minister Kaifu, who promptly appointed the vice-Secretary General of the Cabinet, Ishihara, to swiftly coordinate the interests of the ministries. 1

It should be noted that it was through these American demands that the Large-Scale Retail Store Law became widely known to the Japanese public.

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In April 1990, at the start of the fourth conference in Washington, D.C., the Large-Scale Retail Store Law became the central issue of debate. This law, one of the most clear examples of Japan's contradiction of free-market principles, became the symbol of the exclusiveness of the Japanese market. Since blocking Toys R Us, a household name among Americans, from entering the Japanese market, this legislation had attracted attention from the press. At the time of the intermediate report of the SII, Japan promized to review the Large-Scale Retail Store Law. In addition, the report also featured a dramatic ten-year plan indicating Japan's projected expenditures for public investment. These Japanese concessions were generally met with favorable responses among the American press, who reported the SII as a success. Furthermore, at the conference for the final report held in late June 1990 in Tokyo, the debate focused on the issue of increasing Japanese public investment, and by how much; once again, this debate led to a political intervention by Prime Minister Kaifu, in this case with the cooperation of Finance Minister Hashimoto. President Bush expressed his satisfaction with the results, which, at least temporarily, served as an effective shield from attacks from Congress. At the completion of the SII negotiations, attention regarding international trade negotiations shifted away from SII and towards the Uruguay Round of the GATT. In viewing the SII, it is important to point out that most of the issues discussed at the SII were problems which had already been recognized within Japan during the Nakasone Administration by the Maekawa Committee, one of the brain trusts of the Nakasone Administration, in the 1986 Maekawa Report, and while the same reforms had been proposed in the first half of the 1980s as part of the administrative reforms initiated by Rincho (the Second Provisional Council on Adminstrative Reform), they had encountered such fierce opposition from individual industries and the ministries that any effort to seriously address the issues was stifled. In this sense, U.S. demands at the SII were not merely expressions of American interests, but also served the interests of Japanese consumers, interests which the neo-liberal ideologues of Rincho had unsuccessfully attempted to promote. The U.S. government itself stressed this point throughout the course of the negotiations. And for this reason, the American demands made at the SII generally met with favorable responses among the Japanese public. However, in terms of attaining the goal of rationalizing the Japanese distribution system, because the SII largely proved unsuccessful, this failure became the focus of the debates within Japan over political reform, as a means of controlling the influence of the iron triangle of politicians, bureaucrats, and businessmen, and, after electoral reforms had been accomplished under the Hosokawa Administration, as the focus of the debates over deregulation.

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The Japanese Political Economy as Seen Through the Large-Scale Retail Store Law

For political scientists, the SII, together with the emergence of the revisionists, prompted a re-evaluation of prior understandings of the Japanese political economy. The arguments of the revisionists and the U.S. government, which stressed the differences between the American and Japanese political economy, represented a transformation of previous images and interpretations of Japan. That is to say, Japan was represented in this new interpretation as a state incapable of mobilizing responsible political leadership not only in the area of defense policy, where Japan has consciously avoided adopting a leadership role, but even in economic management, where stateled policies had hitherto been considered to be the norm. During the era of kodo seicho (high-speed growth), scholars, as they had done so in America, pointed to the strong bond between the politicians, bureaucrats, and business in Japan as the foundation for industrialization and economic growth. The "Japan, Inc." theory, which emphasizes MITI's initiatives in the industrial policies of the 1960s and 1970s, is the classic example of this argument (cf. U.S. Department of Commerce 1972; Johnson 1982).2 This theory resembles the theories of scholars of the neo-statist, institutionalist school, among them Stephen Krasner and John Zysman, who, in their classification of strong and weak states, classify Japan as a typical strong state (along with France, with its powerful bureaucracy). In contrast, the U.S. and Great Britain are classified as typical weak states, lacking a systematic industrial policy (cf. Krasner 1978; Zysman 1983)3. The strength of the state in this context refers to internal strength, in other words, the strength of the state as measured in terms of the position which the state 2

Johnson's study of MITI is an elaboration of the "Japan, Inc." theory, but at the same time, it is often regarded as the precursor of revisionism. Revisionism does not contradict the Japan, Inc. theory, but adds to it the dimension of the Japanese system as dominated by zoku Dietmembers and ministries who are seeking to defend the status quo, producing a generally incoherent picture of the Japanese system. Among the revisionists, Prestowitz's book reflects his experience at the Department of Commerce in negotiating with MITI in several high-tech areas such as semiconductors and electronic communication, and presents an argument reminiscent of Johnson's; whereas Fallows, having worked for Ralph Nader, proposes a new interpretation of Japan as a state dominated by status-quo defending groups unmindful of consumer interests. As these examples illustrate, within the framework of revisionism, different scholars have stressed different aspects of the Japanese system.

3

Krasner argues that, as far as raw materials diplomacy is concerned, top elites of the U.S. government (the top Administration officials with the President at the core) have succesfully promoted the national interest, autonomous from industries and Congress.

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holds vis-à-vis society in the state-society relationship. State refers to the top leaders of the Administration, who represent the national interest, and members of legislative committees (or, in the case of Japan, groups of zoku Diet members), and most of the individual ministries are merely seen as agents that represent societal interests in the political process. In such a theory, the problem is to what extent can the top political leadership realize particular policies domestically. In Japan's case, it is generally agreed that the relative autonomy of the Japanese state enabled technocrats, such as those of MITI and the Finance Ministry, to vigorously promote the rationalization of industries, independent of pressures from consumers, local residents, and even industries. However, while the revisionists and the revisionist-minded American negotiators at the SII accepted the traditional arguments that Japan did not operate by market mechanisms, they diverged from the conventional views in assessing Japan's top Administration leaders and the economic ministries as incapable of promoting the national interest, blocked by groups seeking to protect their self-interests. Without foreign pressure, it was not possible to achieve even reforms that would promote Japan's national interest (such as those prescribed by the Maekawa Report). This argument was consistent with the line of argument that was proposed in the 1980s by Japanese political scientists who emphasized the increasing influence of zoku Diet members and political parties vis-à-vis the bureaucracy (Muramatsu 1981; Inoguchi/Iwai 1987). U.S. academic research conducted at the same time confirmed this interpretation of Japanese politics (cf. Calder 1988; Upham 1993). 4 These studies claimed that the autonomy of the Japanese bureaucracy had been pervaded by pressure from various societal groups, and that the bureaucracy had ceased to exercise the leadership it had enjoyed during the high-speed growth era, giving rise to an inert, fragmented political system in which the overwhelming interest of its actors lay in the preservation of the status quo. The Large-Scale Retail Store Law (cf. Upham 1993; Tatebayashi 1991, 1992; Tsuruta 1980; Kusano 1992), which became a focal point of the SII, was intended primarily to restrict the activity of large-scale retail stores such as supermarkets. The laws created ambiguous procedures that could be used to delay new supermarket openings for, in some cases, more than ten years. For the Americans, this was both outrageous and unfair. Although the issue was discussed both at Rincho and at the new Gyokakushin (the new 4

Upham's research was cited extensively by U.S. negotiators to support their arguments at the SII. For studies attributing a greater role to the influence of industries, and presenting a Japanese version of the iron triangle model, see Rosenbluth (1993); see also Ramsayer/Rosenbluth (1993).

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Administrative Reform Council) which succeeded it, fierce opposition from MITI and small businesses successfully prevented any explicit proposals for reform from being written into the Councils' recommendations. In 1982, at the height of the era of neo-liberal reforms in Japan (cf. Otake 1994), contrary to the emphasis on deregulation, measures to strengthen restrictions against large-scale stores were taken; an administrative guidance issued by ΜΓΓΙ established conditions for new openings which were so stringent that it was difficult for almost any large-scale store which sought a new opening to fulfill them. At first, the restriction on the opening of supermarkets through the LargeScale Retail Store Law was the result of demands of local retail store owners, who exerted repeated and considerable pressure on local Diets and Diet members. The passage of the original law in 1973, the reform that strengthened the law in 1979, and the MITI administrative guidance of 1982 that further restricted the opening of new supermarkets were all achieved as a result of vigorous pressure activities undertaken by small storeowners targeted at the LDP Commerce and Industry Committee. As well, in in some localities, small and medium retail storeowners managed to pressure local Councils into adopting their own measures which further restricted new supermarket openings. Furthermore, the Shokyocho, an organization of local storeowners which is responsible for coordinating actual negotiations between the supermarkets and the small-scale storeowners, took advantage of a long-standing custom which prevented supermarkets from registering without prior agreement with local stores, and used it as a veto to successfully delay the opening of large-scale stores, as well as to substantially reduce their floor-size. The Large-Scale Retail Store Law was therefore symbolic of the inertia dominating Japanese politics, an inertia in which economically inefficient actors could take advantage of political instruments to protect their self-interests. Contrary to the assumptions of the Japan, Inc.theory (or the assumptions of some of the revisionists) that the Japanese system protected the interests of the elites, the system functioned to promote the interests of the economically weak. This inertia was also an expression of local autonomy. However, it should be pointed out that over the years, MITI has consciously avoided becoming an advocate of sectoral interests in order to endorse protectionist policies, and has been fairly consistent in its support for modernizing the distribution industry and in its reluctance to strengthen the LargeScale Retail Store Law. MITI's policies in the 1960s, when deregulation of the distribution sector led to a rush of new large-scale store openings, essentially reflected this fundamental position. The reversal was the result of the increased influence of the LDP Dietmembers who were pressured by small businesses.

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Thus, the flood of expansion of large-scale supermarkets in the 1960s and 1970s and the excessive competitionfor market share among supermarkets were some of the chief factors that led to the passage of the Large-Scale Retail Store Law in 1973 (cf. Kusano 1992:129-130). Despite the legislation, openings of new supermarkets continued to increase throughout the 1970s, often accompanied by bitter struggles with local storeowners; as a result, the Large-Scale Retail Store Law had to be strengthened in several instances to effectively restrain the expansion of large-scale stores. The decrease in new supermarket openings in the 1980s was more a result of the worldwide recession which stagnated consumption, than of the 1982 administrative guidance which strengthened restrictions against large-scale stores. Thus, the pattern of conflict which emerged in the Japanese distribution sector was almost identical to the structure which characterizes American opposition to Japanese corporations seeking to expand their operations in the U.S. As seen from the perspective of the corporation which is expanding, the expansion indicates the existence of active competition within the sector. As well, one must not overlook the fact that many of the supermarkets which quickly expanded during this period were originally modest enterprises, which conquered the competition against existing large-scale retail stores, including department stores (cf. Nakamura 1985). This evidence indicates that, as far as the distribution sector is concerned, the simple model of Japan as consisting of a closed economy with a political system preoccupied with the protection of vested interests is an interpretation which does not enhance understanding of the Japanese economy.

3

A Re-evaluation of the Japanese Political-Economic System

In the 1980s, various Japanese economists conducted extensive and systematic research on MITI's industrial policies (for example, Komiya et al. 1984, English translation 1988), prompting a re-evaluation of Japanese industrial policy among scholars. The studies generally agreed that during the 1950s, when the foundations of high-speed growth were laid, while measures adopted by MITI and the Finance Ministry had considerable effect in reviving key industries such as steel, the growth of leading export industries, such as cameras, transistors, and motorcycles, was accomplished primarily by the industries themselves, without extensive government assistance. After economic growth accelerated in the 1960s, MITI pursued industrial rationalization policies which were closely modeled after French economic plans, and were designed to strengthen Japanese industries in the

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face of the impending liberalization of Japanese capital markets. These policies attempted to promote mergers and to restrict the entry of new competitors. However, as studies of MITI's industrial policies which were conducted by various Japanese economists in the 1980s stressed, strong opposition from individual sectors and from zaikai (the top business community), who advocated capital investments and market entry in accordance with free-market principles, defeated these attempts in the planning or legislative stage. Or, if MITI succeeded in enacting measures into law, they were mostly ignored by corporations (particularly those eager to enter into new markets) and could not produce the results MITI had hoped for. MITI also attempted to coordinate the production levels of individual corporations, fearing that excess production would pull the economy into recession, but the willingness of corporations to expand their market shares through competition, corporations' strong eagerness to invest, and the autonomy of corporations all contributed to MITI's failure in coordinating production levels of individual corporations. From these examples, these economists concluded that MITI's attempt to control the free market was ultimately a failure; and because of MITI's failure in industrial policy, it was argued that free market mechanisms had been given free rein in the Japanese markets, spurring growth that surpassed any expectations. This line of argument came to dominate the debate among economists in the 1980s, perhaps reflecting the neo-liberal intellectual climate of the era. It is interesting to note that the conclusions of these arguments were the exact opposite of the theories submitted earlier by Johnson and others. Supplementing these arguments were studies that re-evaluated the dynamics of small and medium enterprises in Japan, enterprises which had previously been dismissed as remnants of the traditional sector. Various studies (including those by Sabel and Piore) which emphasized the (previously overlooked) efficiency of small and medium enterprises and their role as the champions of flexible specialization were conducted in Japan. These studies stressed that, unlike large corporations, small and medium enterprises were more directly susceptible to market forces, and therefore were, on the one hand, more responsive to market signals which caused them to adjust to changes in demand, and, were, on the other, more flexible in their use of labor, free from the rigid employment practices, such as lifetime employment, which characterize large corporations (cf. Chusho Kigyo Seisaku Shingikai 1980; Nakamura 1982).5 Moreover, the entrepreneurial spirit is prevalent within labor in Japanese small and medium enterprises; labor in small and medium enterprises, aided by 5

For studies of jiba industries (small- and medium-size industries with closely knit production networks) refer to Friedman (1988).

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governmental loans, exhibits a high motivation to start their own businesses. As a result, Japanese small and medium enterprises are characterized on the one hand by a large number of bankruptcies, and on the other, by a large number of new entries; consequently, the number of small and medium enterprises in Japan has not declined. This indicates not stagnation, but the prevalence of the entrepreneurial spirit in the sector. This has had an important political consequence; small businessowners and those aspiring to become small businessowners exhibit a strongly neo-liberal political culture in their hostility towards labor unions and the welfare state; as such they have been the chief defenders of the small government in Japan (cf. Otake 1991).6 Thus, these economists argued, the capacity of the Japanese political system to maintain its small government with its heavy emphasis on the free market, was enhanced by this economic system, at the same time that the political system reinforced the economic system. Arguments for the Japanese-type small government were further supported by the following evidence; (1) frequent tax cuts were given as high-speed growth brought in an abundant flow of revenue into the treasury, and as a result, the share of government expeditures in the GNP in Japan remained low (about 20 percent) compared to the other industrialized nations throughout the post-war era; (2) only a small number of corporations were nationalized; (3) land use restrictions were weak, reducing urban planning to almost completely a nominal role; (4) the prevalence of the culture of self-help, of not depending on the government, as reflected in the high savings rate, the strong Japanese propensity towards home ownership, and the intensity of the exam war and the accompanying amount of attention paid to education. In order to explain the success of administrative reform in the 1980s, which was based on a neo-liberal ideology comparable to that used in the Thatcher/Reagan Revolutions, in a country where neither the welfare state nor Keynesianism has ever played a major role, I believe that the widespread support for small government in the business world and at the popular level is a crucial factor which cannot be overlooked. However, the very products of the neo-liberal work ethic in Japan, such as insufficient consumption (or excess savings), or excessive working hours,

6 Owners of small businesses in Japan generally exhibit a strongly individualistic personality, and because of this, collective attempts at modernization, such as the development of local shopping areas, have been largely unsuccessful. Although owners of small businesses have been successful in collectively opposing the expansion of large-scale retail stores, efforts at more extensive cooperation, tends to fall apart. This is also part of the reason why cooperative endeavor in the agricultural sector has met with little success.

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became the seeds of U.S.-Japanese trade friction. From an economic standpoint, the accumulation of capital through the restraint of consumption in no way contradicts capitalist principles. At the same time, seemingly excessive cooperation between labor and capital, which is embodied in labor's frequent self-restraint in wage negotiations or in its close coodination with capital, can be said to be a reflection of the weakness of social democracy (or social democratic rights) in Japan, which is itself rooted in the excessive liberalism in Japan. The failure of the zaikai (corporate) leaders to stimulate consumer demand during the administrative reform era can be largely explained in this light; the chief problem in Japan in the 1980s was not the lack of (or inadequate) steering room for market mechanisms, but an excess of it; and the zaikai leaders, with their predominately Confucian asceticism (the counterpart of Protestant ethics in Japan), simply lacked the tools to handle the task. In contrast to interpretations which attributed Japanese growth to the free market, another line of argument, which emphasized the importance of certain exceptional features of the Japanese market emerged. Advocates of this interpretation pointed to uniquely Japanese economic practices, such as Japanese-style labor relations, which are characterized by lifetime employment, the seniority wage system, and enterprise unions; Japanese-style management, which neglects stockholders' interests while exhibiting a great concern for its workers; bank keiretsus, which are centered on Japan's main banks; and corporate keiretsus, which are characterized by stock sharing and subcontracting practices. All of these practices functioned not only to serve short-term interests but also to establish long-term relationships; and they can be seen as a form of mutual penetration of the market by the organization, and vice versa (cf. Imai/Itami 1993), if not as an intermediate mixture of the two. The origins of these practices can be traced back to the 1920s, when they emerged in response to the economic crises of the period. Originally intended as institutional mechanisms to mitigate the inherently volatile effects of the free market, these institutions provided the basic foundation for rapid economic growth during the post-war era. If these institutions are artificial, they are not the creations of government. In other words, they emerged spontaneously, without any direct relevance with government, to meet the specific needs of the economy (a spontaneous order, to use Hayek's phrase), which functioned effectively as a built-in stabilizer or institutional backdrop to the market. These intermediate organizations ensured a certain degree of stability inside and outside of the corporation, but they are ineffective in perfecting market competition or controlling competition. But, because these institutions ensure corporations a degree of stability, they make it possible for corporations to engage in even more intense competition. Thus, characteristic traits of the Japanese econ-

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omy, such as the intensity of individual competition among workers of a corporation (for promotions), within the framework of lifetime employment, and the fierce (often excessive) competition among corporations, can be largely attributed to these stabilizing mechanisms within Japanese markets. Whereas the control measures which were implemented by the government after the Second World War, and which, in large part, were inherited from control organizations formed by the government during the War, mostly failed to achieve their goals during the continued economic boom, as the above discussion of MITI's failure to restrain corporate equipment investment has demonstrated, on the other hand, it must be noted that corporations have relied on the above-mentioned institutions such as lifetime employment to function as built-in stabilizers during recessionary periods (if and when they came). This has had the effect of further fueling excessive sectoral competition. To illustrate this reasoning, using an analogy of an automobile, because the driver had effective brakes which he could rely on, the driver could take the risk of driving at full speed. These economic mechanisms, embodied in institutions such as keiretsus, constitute the core of the uniquely Japanese market institutions, which became the main topic of debate during the SII, where, these institutions were attacked as the origins of barriers to the entry of foreign firms into the Japanese market, and had to be reformed. While these institutions are certainly unique to Japan, the institutionalist understanding of the market is that the market can take on a wide range of varying structures (cf. Hall 1986); and in this sense, the Japanese market is not in any way exceptional. On the contrary, it can also be argued that the American market, with its clear division between the organization and the market, its lack of long-term practices and its reliance upon on-the-spot transactions, is far more exceptional than that of Japan's. 7 Revisionism's appeal arises from the fact that, although the Plaza Accord and the devaluation of the dollar effectively curbed U.S. trade deficits with the EC, U.S. deficits with Japan diminished very little. Furthermore, within Japan, revisionism coincided with an argument that had begun to attract support, that the Japanese-type market structure which had sustained high-speed growth was beginning to exhibit dysfunctions, and therefore needed to be reformed. Proponents of this argument often looked upon the American-type market as the model to emulate. The popularity in Japan of arguments advocating universal market mechanisms following the arguments of Friedman or Hayek, and the implementation of neo-liberal reforms (such as deregulation or pri7

This is not to deny the existence of stabilizing institutions such as the seniority system of employment, or the formulation of the Japanese equivalent of keiretsus in the U.S., although to a much smaller extent than in Japan.

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vatization) in the 1980s can be interpreted as reflections of such intellectual trends in Japan.

4

A Re-evaluation of the Large-Scale Retail Store Law

From this institutionalist perspective, it would be inaccurate to dismiss the various trading practices present in the Japanese distribution sector as merely traditional or irrational; they perform distinctly rational functions which are perfectly consistent with market mechanisms. Although intensive research on the Japanese distribution system has only just begun, many experts are already skeptical of unilateral attacks (made by the U.S. government or the Japanese press) which criticize the Japanese distribution system as composed of economically irrational institutions (cf. Miwa/Nishimura 1991)8. Certainly, there is some truth to the claims that local businesses often exhibit protectionist and exclusive behavior, and that government has served to reinforce these traits; however, as a whole, the distribution sector has continuously adjusted to rapid changes in society, and this process of adaptation has definitely been a competitive one. While Japanese consumers are not very price-conscious, they are stringent in their demands for quality, such as courtesy, quick delivery, and prompt repair service; their tastes are often volatile, and they are quick to perceive changes in style. Japanese retail stores have strove to, and have succeeded in, fulfilling these severe demands, and in doing so, have constantly had to innovate both technologically and institutionally in order to keep up with the competition9. Just to name a few of the institutional innovations which have occurred in the retail sector, supermarkets, specialized stores, discount stores, do-it-yourself stores, franchise chain stores, road-side stores, mail-order stores, convenience stores, and large leisure centers, have sometimes broken through gaps in the market, otherwise defeating intense competition among existing forms of retail stores. These continuous waves of innovation have been dubbed as the distributive revolution. This competition has been marked by a large number of entries and exits, an indication that the Japanese distribution sys-

8 Miwa and Nishimura represents one of the first systematic research projects concerning the Japanese distribution sector, and is the product of a collaborative research project which was created when the Japanese distribution system became a political issue during the SII. 9 To take the example of book stores, for instance, ordered books arrive much faster in Japan than in the U.S.

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tem is not necessarily stagnant compared to other industrialized nations 10 . Although protectionist measures have controlled competition to a certain extent, without fundamental reforms to the underlying market structure which spurns competition, the success of such protectionist measures has been limited. Furthermore, although the distribution policies of the 1970s were characterized by the protection of small- and medium-size enterprises, the dominant policy pattern of the 1960s, as well as in the 1980s, has been the promotion of competition through deregulation and other measures. Over the longer term, Japanese distribution policy has oscillated between protectionist policies (strengthening restrictions against large-scale retail stores) and policies promoting competition (through deregulation for largescale stores). One scholar has argued that overall, these policy changes, including the use of administrative guidance, have ensured a constant number of expansions for large-scale stores (Tatebayashi 1991). The reason for this is the continuous dominance among top political elites and in MITI, not to mention zaikai (corporate) elites, of a neo-liberal ideology, which favors the economies of scale and free competition (cf. Otake 1979)11. To summarize, the Japanese distribution system has constantly innovated in order to respond to the demanding preferences of Japanese consumers, and in the process, has formulated unique institutions of its own. Government policies have often failed to restrain this free competition. In an era which can be conceptualized as the second industrial divide, it can be argued that Japanese distributors, characterized by high-price, high-quality services and small scale, have accomplished a system of flexible specialization ahead of the other industrialized nations. From this standpoint, large-scale stores which rely on low-price merchandise can be seen as an anachronism. The difficulty which foreign producers face in entering the Japanese market stems largely from the fact that foreign producers cannot create in a short period of time an institutional arrangement which includes a distributive network which will enable them to respond to the unique demands of Japanese consumers, and from the fact that foreign producers also lack the know-how to effectively take advantage of such existing institutions (cf. Aghion/Bolton 1987:388-401)12. For, even in Japan, short-term business For an introduction to the Japanese distribution sector, see for example Nihon Keizai Shinbunsha (1990). 11 Since the 1950s, MITI has consistently endorsed the view that modernization should be accomplished through expansion of scale; however, in the post-war era, MITI has also supported the promotion of efficiency through free competition. 12 New Japanese enterprises seeking to enter Japanese markets encounter the same difficulty as foreign corporations; for them, entering the American markets is a much easier task.

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relationships are the norm for products whose quality or whose differences of brand name are of little importance (such as cement); when the value of the yen surged after 1985, for instance, imports from South Korea and Taiwan increased dramatically. On the other hand, for products where service after purchase and other accompanying services play a major role in retail (such as automobiles), foreign attempts at market entry have been largely unsuccessful. However, in recent years, a small number of foreign corporations who have been willing to make intensive long-term investments to nurture their dealers (Mercedes-Benz, for example), have begun to become successful (cf. Wakasugi 1991). The most striking aspect in the behavior of Japanese corporations is their willingness to forfeit short-term benefits for the establishment of long-term business relationships; and this structure tends to function particularly to the disadvantage of American corporations, who often favor short-term profits. This is particularly true in markets where small-scale retail stores are dominant (such as pharmacies specializing in over-the-counter drugs).

5

Conclusions

Although the structural impediments to entry were deemed unfair by American standards, setting aside politically created impediments, such as the Large-Scale Retail Store Law, characterizations of the exclusiveness of Japanese distribution markets as artificial impediments represented misleading attacks. Legal restrictions on large-scale retail stores are not unique to Japan; they are widely used in European states such as France and Italy, and urban planning considerations impose stringent restrictions on the new openings of large-scale retail stores in Germany. The reluctance of smalland medium-scale retail stores to sell foreign products in comparison to large scale stores (one of the main reasons why the Large-Scale Retail Store Law came under attack in the first place) should be attributed more to trade practices which are particularly conspicuous in relation to small- and medium scale stores, such as return policies, rebates, and the sending of sales representatives by producers. Stimulated in part by the attempt of Toys R Us to expand its operations in Japan, the reform of the Large-Scale Retail Stores Law was regarded as one of the chief means of resolving trade frictions; however, this produced the unintended effect of including the closed nature of the Japanese distribution system in the debate. 13 As we have seen, However, since 1983, Toys R Us has achieved a rapid expansion in Japan (19 stores have opened as of September 1994, and the company plans to open 100 stores by the

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Japanese distributive institutions are not necessarily inefficient, but they are sustained by the spontaneous order in the market, and perform economically rational functions, at least to a certain extent. However, in addition to harsh criticisms from the U.S. government and from Japanese consumers, the recent surge of the yen, in large part caused by the mounting Japanese trade surplus, and the subsequent hollowing out of the Japanese industrial sector, have made immediate reforms of these "rational" institution imperatives. As pointed out earlier, in terms of political culture, free competition in Japan has been sustained by excessive liberalismand weak social democracy. A reform which, in a liberal sense, reduces excessive liberalism and promotes, in some sense, social democracy 14 , is necessary. Japan today must rise to the formidable challenge of solving this paradox.

References Aghion, P., P. Bolton (1987): Contracts as a Barrier to Entry. In: American Economic Review, 77, June: 388-401. Allinson, G.D., Y. Sone (eds.) (1993): Political Dynamics in Contemporary Japan. Ithaca: Cornell University Press. Ariga, Κ., E. Namikawa (1991): Ryutsu Hiyo to Sannyu Shoheki. In: Y. Miwa, K. Nishimura (1991). Calder, Κ. (1988): Crisis and Compensation: Public Policy and Political Stability in Japan, 1949-1986. Princeton: Princeton University Press. Chusho Kigyo Seisaku Shingikai (1980): Chusho Kigyo no Saihakken: 80 Nendai Chusho Kigyo no Bijon. A government report. Tokyo. Fallows, J. (1989): Containing Japan. In: Atlantic Monthly, May. Friedman, D. (1988): The Misunderstood Miracle: Industrial Development and Political Change in Japan. Ithaca: Cornell University Press. Hall, P. (1986): Governing the Economy: The Politics of State Intervention in Britain and France. Cambridge, UK: Polity Press. Imai, Κ., T. Itami (1993): Soshiki to Shijo no Sogo Shinto. In: M. Ito (ed.): Nihon no Kigyo Sisutemu. Tokyo: Yuhikaku. Inoguchi, T., T. Iwai (1987): Zoku Giin no Kenkyu. Tokyo: Nihon Keizai Shinbunsha. Johnson, C. (1982): MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975. Stanford: Stanford University Press.

14

year 2000), contributing to a fall in prices in the Japanese toy market. Encouraged by the success of Toys R Us, Sports Authority, one of the leading sports retail stores in the U.S., is also currently planning to launch stores in Japan. The Japanese-type institutions described here are corporatist in nature, in the sense that they are characterized by long-term, stable bargaining. These institutions function as a shield from the inherent instability of the market, and at the same time prevent significant unemployment, and can be characterized as essentially social democratic.

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Komiya, R., M. Okuno, and K. Suzumura (1984): Nihon no Sangyo Seisaku. Tokyo: Tokyo Daigaku Shuppankai. Komiya, R., M. Okuno, and K. Suzumura (1988): Industrial Policy of Japan. Tokyo: Academic Press Japan. Krasner, S. (1978): Defending the National Interest: Raw Material Investment and U.S. Foreign Policy. Princeton: Princeton University Press. Kusano, A. (1992): Daitenho: Keizai Kisei no Kozo. Tokyo: Nihon Keizai Shinbunsha. Miwa, Y., K. Nishimura (eds.) (1991): Nihon no Ryutsu. Tokyo: Tokyo Daigaku Shuppankai. Muramatsu, M. (1981): Sengo Nihon no Kanryosei. Tokyo: Toyo Keizai Shinposha. Nakamura, S. (1982): Chuken Kigyoron (3rd ed.). Tokyo: Toyo Keizai Shinposha. Nakamura, S. (1985): Chosen Suru Chusho Kigyo. Tokyo: Iwanami Shoten. NHK Shuzaihan (1990): Nichibei no Shototsu. Tokyo: Nihon Hoso Shuppan Kyokai. Nihon Keizai Shinbunsha (1990): Besikku Ryutsu Nyumon. Tokyo: Nihon Keizai Shinbunsha. Otake, H. (1979): Gendai Nihon no Seiji Kenryoku Keizai Kenryoku. Tokyo: San-ichi Shobo. Otake, H. (1991): Hatoyama-Kishi Jidai ni Okeru Chiisai SeifuRon. In: Nihon Seiji Gakkai (ed.): Nenpo-Seijigaku: Sengo Kokka no Keisei to Keizai Hatten. Tokyo: Iwanami Shoten. Otake, H. (1994): Jiyushugiteki Kaikaku no Jidai. Tokyo: Chuo Koronsha. Prestowitz, C.V.Jr. (1988): Trading Places. New York: Basic Books, Inc. Ramsayer, J.M., F.M. Rosenbluth (1993): Japan's Political Marketplace. Cambridge, MA: Harvard University Press. Rosenbluth, F.M. (1993): Financial Deregulation and Interest Intermediation. In: G.D. Allinson/Sone (1993). Tatebayashi, M. (1991): Kouri Ryutsu Seisaku no Keisei Katei (1). In: Hogaku Ronso vol.130 No.3. Tatebayashi, M. (1992): Kouri Ryutsu Seisaku no Keisei Katei (2). In: Hogaku Ronso vol.130 No.5. Tsuruta, T.(ed.) (1980): Sekai to Nihon no Ryutsu Seisaku. Tokyo: Nihon Hyoronsha. Upham, F. (1993): Privatizing Regulation: The Implementation of the Large-Scale Retail Stores Law, In: Allinson/Sone (1993). U.S. Department of Commerce (1972): Japan: The Government-Business Relationship. Washington: U.S. Department of Commerce. van Wolferen, K. (1993): The Enigma of Japanese Power. Tokyo: Charles E. Tuttle. Wakasugi, R. (1991): Kigyokan Torihiki Kankei to Yunyuhin Ryutsu: Yunyusha to Semento. In: Miwa/Nishimura (1991). Zysman, J. (1983): Government, Market, and Growth: Financial Systems and the Politics of Industrial Change. Ithaca: Cornell University Press.

Future Perspectives of State and Administration in Japan and Germany Michio Muramatsu and Frieder Naschold

The contributions of this volume have elaborated — in historical and comparative perspectives — some essential trends and issues of the state and administration in selected policy arenas in Japan and Germany. In this final chapter, the focus is shifted to the future, in an attempt to analyze some of the future tendencies and dimensions resulting from most recent developments of reforming state and administration which — albeit with distinct profiles — are under way in both Japan and Germany. In the following, (1) the two countries are placed in the general context of modernization trends in the "OECD world." We then (2) work out their specific national profiles and (3) outline the most important issues of the modernization of the central state in Japan and Germany.

1

State and Administration in Japan and Germany in the Context of Modernization Trends in OECD Countries

Since the 1980s the public sector in many OECD countries has been undergoing far-reaching processes of restructuring. The dynamics and orientation of this restructuring have been determined by the confluence of three factorcomplexes: economic crisis, tensions within the institutional framework of the welfare state and party-political mobilization processes (for more details, see Naschold, 1996). The mainstream of public sector modernization is nowadays oriented towards the views and strategies of the New Public Management Movement (see Caiden, 1991) (taken here as a combination of public choice theories and managerialism, see Aucoin, 1990), whose critique centers on the size and, more importantly, the structure of the public sector, focusing on the prevailing regulatory mechanisms, such as governance by rule, the fune-

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tional division of labour according to the single-task-related workshop principle, pronounced hierarchy, the lack of process-chain-linked cooperation, the lack of strategic management etc. The inadequacies of the traditional, i.e. bureaucratic, rule-oriented conception of the public sector identified by the New Public Management Movement lead to corresponding demands for change. The most important of these are governance by objective and results, performance management and results budgeting (management by results), contract management of autonomous "results centres," contracting out and the formation of quasimarkets. Table 1 summarizes the central characteristics of both regulatory models from the perspective of the New Public Management Movement. Table 1 :

New Public Management Movement: Two Regulatory Models

Traditional bureaucratic regulatory model

NPM-regulatory model

Governance by rules (Regelsteuerung)

Governance by objectives/results (performance-management) inclusive results-budgeting and capping Product-related organization in the form of a process chain

Functional division of labour according to the single-task-related workshop principle and process-chain-related interface problems in cooperation Pronounced hierarchies Modest use of competitive instruments Lack of strategic management

Contract management between autonomous "result centres" Contracting-out and the formation of quasi-markets Customer orientation instead of producer dominance

The two OECD surveys of 1990 and 1993 attempt to categorise the most important modernization initiatives implemented in the OECD countries according to the type of restructuring they entail. We have supplemented this secondary analysis with primary research, adding three additional modernization strategies (relating to work organization, human resources and industrial relations). The picture which emerges is summarized in Figure 1. The type of measure most frequently encountered — if large-scale initiatives are accorded greater weight than smaller ones — is the creation of autonomous agencies and governance by results systems, followed by market-type mechanisms, privatization and the reorganization of publicly owned enterprises; after this come decentralization and strategic management. Three large-scale projects were identified to reduce the size of the public sector and the same number to normalise industrial relations (in the sense of bringing the public sector into line with the private sector). In just four cases, smaller initiatives were found relating to work organization and to

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human resources; no large-scale initiatives have been implemented in these areas. If these initiatives are grouped together into initiative types, the main thrust of public sector reform in the OECD countries becomes more readily apparent (see Table 2).

Devt. oí agencies

Mgt. Market type Reorg. of Privatiby results mechanism pub. enterp sation

Decentral./ devolution

Strateg mgt.

Limits to size

Industr. relation

Work organis.

Human resources

Source: F. NasctoM/WZB 1994

Figure 1 : Number of Modernization Initiatives According to Type of Measure (OECD Countries)

Table 2:

1. 2. 3. 4. 5.

Distribution of Modernization Initiatives by Initiative Type

Initiative type

(large-scale/small-scale)

New governance and management systems (3, 4, 6, 7, 8) Market mechanisms (1, 2) Limits to the size of the public sector (5) Normalization and decentralization of industria relations (11) Changes in the labour process inclusive human resources (9, 10)

15/25 5/15 3/0 3/0 0/8

Rather surprisingly, new governance and management systems are the predominant focus of modernization initiatives. In contrast to what might be deduced from the public discussion, they take clear predominance over the introduction of market elements, although the latter is clearly the second major current in the modernization trend. Equally unexpected is the fact that, despite government proclamations to the contrary, major "cutback"

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strategies have only been implemented in three countries (Japan, Great Britain and New Zealand). Largely ignored in the public discussion, three significant initiatives have been made to normalise and decentralise public sector industrial relations systems. Measures to reform the labour process in the context of governance and management reform, on the other hand, are relatively widespread, but the initiatives are all limited in scope. Let us now turn to the distribution of the various modernization initiatives across the OECD countries.

Figure 2:

Modernization Initiatives by OECD Countries, 1980-1994

As can be seen from Figure 2, the selected OECD countries exhibit a pronounced "pecking order" with regard to public sector modernization initiatives. At this quantitative level, four groups of countries can be distinguished: New Zealand and the UK clearly constitute the avant garde with regard to modernization, exhibiting eight and seven large-scale reform initiatives respectively. They are followed by a three-country group — the Netherlands, Denmark and Sweden — each with three, respectively two major initiatives. Finland and Norway form a third group: Finland has just one large-scale initiative in the area of MbR, Norway none, but both are ahead of the fourth group by virtue of their large number of small-scale initiatives. The last group is very heterogeneous, consisting of Japan, Germany, USA and Austria. With the exception of the successful and very long-term programme to stabilise the size of the public sector in Japan, none of these countries exhibit major public sector modernization initiatives.

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The extent to which this purely quantitative distribution of the modernization initiatives is reflected in qualitatively different modernization strategies in the various countries, and particularly in Japan and Germany, will now be examined by describing the reform profiles of each country.

2

State and Administration in Japan and Germany: Two Modernization Profiles

2.1

Japan: Persistence of Governance by Rule and Reduction in Public Sector Employment

The point of departure for Japan differs from that among all the other OECD countries. Japan has the leanest government, occupying last position in all the three welfare state indicators; this is quite simply because Japan has developed a welfare state quite recently and the society has not yet aged. At the same time, Japan has experienced long phases of rapid economic growth and the fastest rates of productivity growth, accompanied by low rates of inflation and unemployment. Although the economic contraction of 1992 and 1993 calls for some minor adjustments to be made to this overall picture, the basic evaluation remains valid. Public sector reform has been pursued as a continuous process since the 1980s, although with a very different profile from that in most of the other OECD countries. Public sector reform in Japan primarily involves the stabilization and improvement of bureaucratic governance by rule, underpinned by an almost unbroken reduction in staffing levels, since mid-1985 supported by limited but specific privatization and deregulation measures. A number of comments are required concerning this profile, so very different from that of the other OECD countries considered so far. As in the Japanese private sector (e.g. in line with the corporate philosophy known as "Toyotism"), the Japanese interpretation of internal public sector modernization on the western pattern — whereby Japanese observers tend to focus on Thatcherite strategies — is one of great scepticism among the officials in government. Performance management and neo-Taylorist managerialism are at odds with Japanese work and leadership philosophy with their great emphasis on process control rather than highly specified objectives and control of the results. The practical consequence of this for the public sector differs, however, from the private sector in relying on governance by rule and its continuous improvement. Japan is the only OECD country which — from a low initial level — has steadily reduced the relative size of public sector employment over a period

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of 17 years: from 6.3 percent in 1974 to 5.9 percent in 1991. These are far lower than the figures for the USA, the UK and the Netherlands. At the same time, the decline in staffing levels has provided an incentive — and here the orientation is clearly to private industry — to enhance and develop the labour process. The modernization strategy relies on the quality of its leadership and human resource potential at local level to put this incentive into effect. Since the mid-1980s governance by rule has been supplemented by market-type governance elements. Yet the influence of government and the administration remains strong: privatizations have been few and very specific in nature and even the privatized firms have remained very much in the shadow of the government hierarchy. Besides the almost complete absence of pressure arising from economic and welfare state problems, the very different profile of public sector reform in Japan is to be explained with reference to three power constellations: - The persistence of governance by rule and its process qualification in the context of staff reductions is based on a historic compromise between the state bureaucracy and the LPD government. - Active modernization measures, such as the privatization and regulation initiatives implemented in the mid-1980s, reflect the fact that Japan has been squeezed by, on the one hand, external pressure (particularly from the USA in the context of world trade liberalization) and, on the other, by a domestic power constellation consisting of the Office of the Prime Minister, the Ministry of Finance and a powerful commission at the interface between government and business, responsible for developing and propagating reform proposals and supervising their implementation. - The provisional end of LPD autocracy represented an objective chance to break open the existing regulatory system. The failure so far to implement an alternative form of public sector modernization reflects the weakness of the coalition government and the still intact strength of the LPD and the state bureaucracy. Equally this failure points to the lack of alternative policy concepts among the Japanese elites.

2.2

Germany: Persistence of Governance by Rule and the Use of Skilled Labour

Despite the innumerable systemic differences, the public sector modernization constellation in Germany bears considerable resemblance to the overall profile in Japan: the persistence of governance by rule in the face of all the

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variations on the theme of governance by results is the dominant feature of Germany's public sector strategy. The framework of economic conditions consists of rapid economic and productivity growth, with relatively high unemployment — particularly compared with the Scandinavian countries prior to 1991 — and a comparatively high level of welfare state compensation. As far as overall government spending is considered, Germany occupied the middle ground in OECD terms; its public sector employment share places it in the lower third of the OECD countries. The German welfare state is largely oriented to the transfer rather than the work principle, focusing on consumption but not on services. Public sector reform in Germany underwent a significant, although in the final analysis unsuccessful, phase during the 1970s. The profile since 1980, on the other hand, is characterized by two main features: - stabilization and improvement of bureaucratic governance by rule; - sporadic privatization of public enterprises and deregulation without a fully developed competitive strategy or an overall concept for the state as a guarantor of certain services. Germany lacks both a tradition of, and forces for governance by result, performance management in the Scandinavian or Dutch sense, or managerialism in the British sense. German politics and administration rely on the persistence of an effective system of bureaucratic governance by rule. This governance, in turn, is based on highly skilled human resources, with major investment made in vocational training. This strategy of improving governance by rule via the use of skilled labour comes up against a double limitation, however: personnel management in the German public sector lags significantly behind that in parts of the private sector; and public sector work organization remains characterized by a high degree of horizontal division of labour and vertical hierarchy, a fact which places strict limits on skill enhancement and learning at work. Since the mid-1980s efforts have been made to ease the burden on the system of governance by rule by privatizing public enterprises and deregulating a number of policy areas. The central characteristic of this strategy is that it is not based on an offensive strategy of privatization and deregulation underpinned by a competitive model, but rather seeks to ease the burden on the central state apparatus. Privatization and deregulation are thus defensive rather than offensive strategies in Germany. The German modernization profile can be traced back to a limited number of historical and contextual conditions and to the balance of political power. The economic and welfare state situation has not so far thrown down a major challenge to measures for change. In addition, the decentralized un-

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derlying structure of German government, in contrast to the much more heavily centralized systems in Great Britain, New Zealand and in the Scandinavian countries, has not been conducive to comprehensive modernization. On top of this comes the relatively high functional skill level of public sector employees in Germany. Against this background, and given the total absence of a developed tradition outside that of governance by rule, there is a minimal consensus among all the relevant social groupings in Germany regarding the persistence and improvement of the existing public sector structures. Political conflicts and mobilization arise only on questions of improvement and organizational development, of the status of civil servants and the extent to which privatization and market instruments should be deployed. More recently, the rapid increase in pressure due to economic crisis and the discussion on the reform of the welfare state have led to a debate within the public sector itself. In view of the constellations described above, and the threat of party-political fragmentation, no far-reaching strategies of public sector modernization are to be expected in Germany for the foreseeable future; at most a moderate continuation on the current path is likely.

3

Issues and Trends in Modernizing the Central State in Japan

In the atmosphere of neo-liberalism in the 1980s and 1990s, which demands less deregulation and small government, there are five major subjects under the broader theme of administrative reform, which are under consideration by the government. As was discussed in the Introduction, administrative reform in Japan is defined as the downsizing of the civil service and the budget. Such goals repeatedly appeared as political issues in the post-war period, in particular after 1960 when Japan experienced a labour shortage because of rapid economic growth and demands to respond to new social needs had political support. Transferring personnel to the policy areas of greater demand became an important government strategy from the late 1950s. In 1962 the Ikeda cabinet introduced an advisory commission on administrative reform through which the prime minister hoped to persuade the public to reprioritize policy areas. To do this the commission proposed giving more power to the prime minister. For example, a proposal was made to transfer the bureau of the budget from the Ministry of Finance to the Office of the Prime Minister. In fact, this proposal and many others were never realized: only the introduction of a new law concerning limitations on the total manpower of the civil service was implemented.

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By the 1980s and 1990s, Japan became once again sensitive to the question of the appropriate size of the civil service. This time, however, the budget also became an equally important target of administrative reform. In 1981 the so-called Provisional Second Administrative Reform Commission was established to promote again the goal of downsizing government. Recommendations were issued, and among its most important achievements was the privatization of the telephone and national railway corporations. In many ways we are still in a period in which administration is affected by the 1981 Commission: - Downsizing continues to be the most important issue of administrative reform. In OECD countries Japan is viewed as having the smallest government. Nonetheless, in Japan there is still much support for downsizing the civil service even further. This is partially explained by the influence of business in pushing this agenda. The outcome of this discussion concerning downsizing, however, remains unclear with much to be settled. Privatization should be another subject in the broader area of administrative reform. - Decentralization is attracting the notice of the public and also watchers in this field. In the 1970s and 1980s all three levels of government increased the size of their budgets. In 1972 welfare programmes were introduced. Interestingly, even after the welfare state was accepted by the conservatives and business, leftists in Japan never acknowledged or accepted the permanent expansion of the state. One interpretation of this is that the leftists still warily remember the prewar nightmare of state intervention in society. For similar reasons, it is the left which favours decentralization of government; it has been the ministry bureaucracies and conservative politicians who have opposed decentralization because decentralization would mean the breaking up of the central conservative establishment. Even the conservatives today, however, are now beginning to accept the need for further decentralization. - Deregulation is another important issue that will affect Japanese politics in further. Neoclassical economists have been in the forefront of promoting this issue. First, while they have long insisted that deregulation is necessary, only recently have their views on government and the economy gained acceptance in policy circles. Another reason is that they see deregulation as an important issue in U.S.-Japan economic negotiations. Neoclassical economists tend to be sensitive to the size of the market and in both theory and reality they place emphasis on the American market: free markets are a conceptual ideal and pragmatically it is necessary to satisfy the Americans to avoid trade retaliation. - On the other hand, there are now a group of social scientists which is more skeptical about the economic advantages of deregulation. If regula-

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tion has been helpful in improving the quality and competitiveness of Japanese goods, why should Japan deregulate? There is still another group that believes Japan may need regulation, but more to accomplish social goals, such as shortening working hours and abolishing gender discrimination. - Another concern is the quasi-governmental public corporations called tokushu jojin. There are 87 such corporations and they are under scrutiny for downsizing or termination. One of the criticisms raised is that utility of these organizations has declined. These organizations including the Japan Development Bank and Housing Loan Financing Agency, were useful in the process of catchup economic development by serving as subsidiaries of the ministry bureaucracies of the central government. But they may not longer be needed. Second, the personnel management of the central ministries is being criticized. The Minstry bureaucracies have an interest in maintaining these organizations for other than their official purposes such as second jobs for the retired higher civil servants. The retired higher civil servants who are placed as executives in the public corporations usually have received very good salaries. Some say that young able college graduates go into the civil service because of their interest in these second jobs. However, their organizations may not otherwise be needed, and are targeted for termination. - Openness of the decision process becomes an important subject. For example, the Administrative Procedural Act has been introduced since October 1994 into the Japanese decision system concerning the central administration to require new procedure often including notice and hearing. The Open Information Act is under consideration in the Agency of the General Management for proposal as cabinet sponsored bill. Transparency is now thus a major reform subject in Japanese public administration. The public bidding system has been changed by law from competition among designated companies to a bidding system. The new Administrative Procedural Act is applied to the administrative decisions in local government and all local governments also are in the process of adapting their own procedures to the new Act. There are many other ideas or concrete plans for reform. For example, measures to respond to the impact of the Hanshin earthquake are now regarded as necessary and urgent. The Federal Emergency Management Agency in the United States has become a model for policy makers in Japan's government. Another example is the care for the elderly which is a policy area increasingly being emphasized. The so-called Gold Plan (goorudo puran), the long-term and comprehensive programme of the Ministry of Welfare which is targeted to the problem of Japan's aging

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population, a famous example of the various reorganization programs which are underway. In order to meet the needs of those aged living in local communities, for instance, the integration of health and welfare offices, which are scattered all over the country is being proposed. This reorganization plan is an adaptation to the privatization of the welfare programs of the aged. This is because intensive care is needed by the elderly, particularly those who are confined in bed, after public facilities for the elderly will be closed due to privatization.

4

Issues and Trends in Modernizing the Central State in Germany

4.1

Three Basic Requirements of Government Policy

Against this background a policy of public-sector modernization for the next decade must meet three minimum requirements (beyond that of constitutional conformity). 1 - Government policy must be active and forward-looking. In the context of the 1990s this demand, which harks back to the 1970s, cannot mean merely continued growth of government responsibilities, and certainly not their mere reduction (on the neo-liberal platter). What is required is continuous "task controlling" of the demands made on the state, a critical process in which government delegates tasks and ceases to perform functions no longer required, while continually facing up to new responsibilities. - Government policy must increasingly be implemented through decentralized cooperative networks. The traditional state-centredness of government policy must give way to a greater degree of cooperation with civil society. This implies that citizens will be enabled to take on greater responsibility and be given a wider range of choices in the context of government policy (this after all is the deeper meaning of the phrase "citizen-oriented government," once stripped of its PR-cosmetics), and requires an analysis of the range of services to be provided by the state and by market organizations.

1

The following argument is based on a previous publication by one of the coauthors. See Naschold (1994).

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- Government policy must take greater account than hitherto of economic criteria of efficiency and effectiveness. In the restrictive macroeconomic constellation of the 1980s and 1990s the use of social resources must be continuously subject to the requirement that they be employed efficiently and effectively. This implies both a rise in intra-administrative efficiency and also an economic calculation of alternative uses and modes of application.

4.2

Redefining Public-sector Tasks: Political Task Controlling

The continuous process of differentiation within modern societies, the shift in demand structures in favour of services and the competition between political parties for government office are three of the key mechanisms responsible for the "secular" historical trend towards an ever expanding government role. This trend received a further boost from the social-democratic policies pursued in the 1970s in Germany and elsewhere in Europe. The restrictive macroeconomic constellation of the 1980s and the subsequent conservative policies aimed at "rolling back" the state have only stopped these trends to a limited degree and even this only temporarily. The central aim of public-sector modernization is to redefine government responsibilities in such a way that, faced with restrictive macroeconomic constellations and the need to apply economic efficiency criteria, existing responsibilities can be restructured so as to create the room for the priorities of a new programme of government. In the light of past experiences, it is proposed that a system of political task controlling be developed. Events in other countries have shown that such task controlling cannot be reduced to a purely fiscal programme of cuts. What is required to perform this complicated function is a complex, political, organizational and technical infrastructure. The following points sketch out the contours of political task controlling on these lines: - A necessary political precondition of task controlling is clearly the elaboration of a project and task-related government programme, which must be implanted in the existing structure of government responsibilities. In contrast to the 1970s, such a programme should not seek to cover the entire spectrum of public-sector activities, but rather should clearly emphasize politically desirable priorities while defining those matters considered to be of only secondary importance. It must in any case be formulated in a clear, project and task-related manner. The project and task-oriented government programme provides the frame of reference for political task controlling.

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- There is no systematic body within the current system of German government responsible for the continuous restructuring and redefinition of tasks. Based on experiences in other countries, it is proposed that a minister of state in the Federal Chancellor s Office be assigned responsibility for political task controlling. The Minister of State is to head a small working party, an analytical group of up to five persons. These activities are to be supported by an external consultative group consisting of individuals from (not representatives of) the scientific community, business and social groups, together with a network of think-tanks. An equivalent form of political accountability must be created within ministries. The controlling function should, however, largely be performed by the line organization. - Besides the project-linked government programme, the three most important instruments of political task controlling are: (1) continuous task criticism by means of political ABC analyses (impulses and experiences from the conservative camp are not necessarily without their merit); (2) systematic use of expiry dates for laws and programmes (particularly for the provision of subsidies and the executive s field of action) linked to the continuous evaluation of laws and programmes. These evaluations are, in contrast to the 1970s, to be less programmatic and more management-oriented; (3) analysis of the degree of "vertical integration" in the provision of in-house public services by means of market tests and contracting out. - With regard to existing tasks, such controlling can, in principle, lead to three results: the task is scrapped altogether; task performance is "passed on" to the market; or it is passed on to social organizations. The reduction in the public-sector's "vertical integration" by delegating tasks to the market can, again in principle, be accomplished in one of three ways: (1) contracting out, i.e. the purchase of services from the private sector within a regulatory framework set by the state; (2) the complete privatization of government tasks; (3) relaxing governmental controls (deregulation). - Experience suggests that within the framework of an active, forwardlooking policy, privatization and deregulation are less promising courses of action than that of reducing the scope of public service provision by contracting out non-priority areas (market test and contract management etc.), while retaining governmental responsibility for target definition and controlling. All the evidence is that it is here that the potential for reducing the burden on the public sector and for efficiency gains are greatest. The government-backed boost to the self-organization of society this implies, citizen enablement and social networks and social movements could constitute a characteristic emphasis of a post-interventionist, socialdemocratic government policy. Reducing the "depth" of public service

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provision via the market and allowing social groups to take on public tasks could be the two "trade marks" of the redefinition of the scope of government within the framework of a social-democratic government policy. - Political task controlling on these lines makes certain requirements of civil service administration. The present excessive degree of horizontal and vertical division of labour within the German public administration poses a barrier to flexible task steering by making specific public tasks the raison d'être of individual departments. Much can be learnt in this respect from Japanese experiences with lean and flexible forms of organization in both the private and public sectors: reducing an excessive division of labour in hierarchies and small units; flexible and decentralized responsibility for resources; executive positions on fixed-term contracts and linked to specific tasks, rotation, continuous upgrading of qualifications, task-related performance appraisal and pay components all represent inner-administrative preconditions for flexible task steering. - International experience indicates that task controlling, while it must occur within the state apparatus, requires professional support from competent consultancy bodies. In countries such as Sweden, Great Britain and Japan it is instructive to note that the traditional advisory and controlling organizations — such as auditing departments, scientific advisory boards or classical consultancy firms — have only been used for this purpose to a limited extent. Rather, public-sector advisory bodies (in Sweden) or progovernment think-tanks (as in Great Britain) are frequently entrusted with the task of providing external support. Similar support systems, appropriate to the German context, would therefore have to be developed.

4.3

Modernization of Central State Organization

A surprisingly broad international consensus exists with regard to the strategic orientation of organizational modernization both within private firms and public authorities. The key terms are: reduction of over-complexity, creation of homogeneous production segments, flatter hierarchies, decentralization of responsibility for tasks and resources, re-evaluation of the degree of vertical integration with regard to suppliers. These areas represent the point of departure for reform and modernization in Germany.

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339

Reducing the Complexity of Ministerial Organization through Differentiation between Administrative Agencies

As is the case with many firms, there is considerable evidence for the view that the organizational structure of central-government administration (especially at ministerial level) is excessively complex. Typically, 5-10 percent of activities within the organization involve political decision-making (and its preparation), while 90 to 95 percent are involved in the execution of such decisions and the provision of services (based on comparable figures from Great Britain). For a number of reasons it appears advantageous to reduce such complexity by separating the two functional areas — political decision-making and preparation on the one hand, execution and the provision of services on the other — each specializing in one function. Such functional differentiation within organizations has been shown by research to be conducive to efficiency. Such an approach also receives support from Sweden, where the long experience of such policies has been judged very successful, and the reform discussion in Great Britain since the Fulton Commission under a Labour government in 1966. Three points are to be noted in this context: first, not all areas are equally suited to such functional differentiation; second, a number of competing models exist regarding the structure and function of the agency, (care must be taken to avoid the agency becoming too independent from political control); the political responsibility of ministries before parliament must be redefined and brought up to date.

4.3.2

Flattening Hierarchies

There can be no doubt but that the very hierarchical way in which central and state government in Germany is organized is inappropriate to modern organizational requirements, to the criteria of effectiveness, economic efficiency and customer-oriented quality. Large hierarchies incur excessive personnel costs and, especially, decision-making costs in terms of both quality and delivery times. Moreover, the quality of customer-orientation declines as hierarchies grow. In view of the considerable legal problems involved, it would appear sensible to commence by examining the position of "Ministerialdirigent" (head of a sub-department) as a level in the hierarchy. Staff at this level should be transferred to task and project-related functions. The resultant extension of the responsibilities of ministerial directors is acceptable. Reducing hierarchical differentiation must be linked to an extension of horizontal functional areas, decentralization, and fixed-term contracts for executive staff.

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Task Integration within Work Units

The reduction in hierarchies must be accompanied by increased integration of functions and tasks "on the ground." The aim should be to set up organizational units with broad responsibilities, defined, as extensively as possible, according to product segments. It is only within such large groups that flexible task steering — including controlling, productivity-raising teamwork and quality-oriented work on an entire product — is possible. The extent to which members of an executive staff can also be rotated is a further challenge to organizational structures.

4.3.4

Decentralization of Responsibility for Tasks and Resources

Functional differentiation, flatter hierarchies and task integration are to be complemented by decentralization of responsibility for tasks and resources. The strategy of creating cost and profit centres employed in modern private firms (and the limitations of this strategy) are matched by a double-edged need for change within the public administration: the reduction of the centralized powers of the federal ministries of Finance and the Interior, and the devolution of responsibilities from top ministerial level to the operational units. Other countries have shown that the scope for decentralization is both wide and fruitful, although proper account will have to be taken of the local (German) context in determining their concrete form.

4.3.5

Re-evaluation of the Degree of Horizontal Integration of Public Service Provision

Within private industry, the re-evaluation of the division of labour between the firm itself and its suppliers is at the centre of current rationalization strategies. Discussions have already begun under the slogan of "redefining public-sector activities" on a re-evaluation of vertical integration and the contracting out of public tasks to private "suppliers" subject to governmental regulation. Yet re-evaluation and contracting out can also be seen as means of raising efficiency within the existing organization: the British experience has shown that around 80 percent of the contracts reached under compulsory competitive tendering were placed in-house, although cost savings still amounted to around 25 percent. Yet at the same time, the British experience also reveals the possible disadvantages of such an approach, namely where it serves as an instrument of a dogmatic cost-cutting and privatization policy at the cost of product quality

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for consumers and of deteriorating working conditions for producers. Taking account of developments in Sweden, though, it is clear that a re-evaluation of vertical integration by means of contracting out, out-sourcing and competitive tendering can and should be deployed as an important instrument to raise economic efficiency and quality. The public service is not a hermetically sealed, sovereign administration, but a network organization operating in the context of diverse relations with suppliers and employees. The experiences of other countries suggest that this package of instruments has a surprisingly large modernization potential.

4.3.6

Product-Segmentation and Process-chain Optimization

The proposals made so far can all be integrated within the current overall framework of German central-government administration, with due regard to the constitutional guarantees regarding the division of responsibilities between central, state and local government. Clearly, taking a longer-term perspective, it would be conceivable to also subject this division of tasks to re-evaluation according to the criteria of economic efficiency and customeroriented quality production. Beyond mentioning a few key terms — the creation of strategic product and task segments, optimization of the entire process chain, interface management etc. — the discussion of such a longterm strategy will be pursued no further at this point.

4.4

From Personnel Management to Personnel Development

As has already been repeatedly emphasized, employees are central to performance potential, especially within the public administration. If, as may occur in the foreseeable future, tight labour markets become a longer-term problem, the "personnel factor" will become the decisive constraint on public-sector development. Thus both the quantitative and qualitative dimensions of the public sector require a transition — along the lines envisaged by the ILO — from the "bureaucratic" to the "efficiency" model of personnel policy. In this area, too, the German administration has lost its place at the top. Thus major restructuring away from bureaucratic personnel management and towards human-resource-oriented personnel development is required. The international discussion provides relatively clear guidelines in this regard: what is needed are their nationally specific innovative adjustment and subsequent implementation. The following subsections sketch out a number of points of departure for a strategy of personnel development, whereby the close link with organizational development is to be noted.

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Continuous Professionalization

In international terms, the initial level of qualifications of German administrative personnel is consistently high across all areas. The process of continuing training and skill upgrading, however, exhibits serious deficits. This is due to the very limited and unsystematic forms of on-the-job-training and the quantitative and qualitative inadequacy of further training. A pragmatic approach to this problem would start by improving publicsector further training. The following measures seem appropriate to a modernization of the personnel-development function: - increasing the share of personnel costs spent on further training to 1-1.5 percent a figure which would still be substantially below that for the private sector (just under 2 percent), where labour intensity is lower; - extending further training from the higher echelons to all civil service grades; - introducing a greater degree of task-orientation in further training, with due regard to the new problematics described above, new managerial instruments etc.; - linking formalized further training to elements of on-the-job-training, including greater use of rotation; - rendering working-time regimes more flexible in line with further-training needs (in particular sabbatical models need to be drawn up).

4.4.2

Training for Managerial Staff

Political executive staff and top-level civil servants are, it seems, the only occupational group in Germany for which there is no systematic offer of further training nor a demand for training in line with employees professional functions. A sequential and task-related training programme for such staff is therefore required.

4.4.3

Work Structures Conducive to Learning

Skill-upgrading, as an important element of personnel development, is only relevant to performance if the way in which work is organized accepts, enables and supports working structures and processes which are conducive to learning. It is here that the close relationship between personnel development and organizational development becomes particularly clear. The trend in the international discussion — both with regard to the public sector and,

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particularly, in leading private-sector firms — points very clearly to the direction of qualified group work with "holistic" task structures. Qualified teamwork in the context of the reorganization of the classical administration mentioned above is seen as the motor behind productivity growth and quality production. At the same time, as a structure conducive to learning, it also represents the cornerstone of a modern personnel development strategy.

4.4.4

Fixed-term Contracts for Executive Staff

Rigid hierarchies are a major obstacle to working structures conducive to learning. Consequently, the proposal that executive staff should be employed on fixed-term contracts gains considerable significance in this context, as it avoids the restrictions of classical hierarchies and motivates the staff to raise performance. So far, experience has shown that the negative side-effects of such a model are relatively limited.

4.4.5

Personal Responsibility for Results, Employee Evaluation and Linking Pay to Job Requirements

The classical bureaucratic model of the civil service may have been — with regard to its effects on personnel development — appropriate to a sovereign administration primarily responsible for setting conditions. It is certainly no longer adequate to meet the personnel-development requirements of active, forward-looking government, to the initial skill level of public-service employees to competition with the private sector on tight labour markets. In the process of service provision as currently organized there is little by way of personal, transparent feedback, in most cases no personal responsibility for results, and performance has no direct impact on pay. The aim here is not, as some critics have claimed, to throw overboard the entire bureaucratic seniority model, career structures and needs-related pay levels. What is required is to ensure that the required link is forged between personal responsibility for results in decentralized working structures, systematic and transparent leadership and staff evaluation, and task and performance-linked components in pay scales. Clearly these functional requirements pose serious problems due to the current legal provisions governing civil service pay and career structures. At the same time, the international trend is clearly moving toward the direction just described: personal responsibility for results and transparent leadership and staff evaluation, and pay components linked to job requirements are all important elements in a working environment conducive to learning and tar-

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geted personnel development. It would certainly be possible to open up traditional career paths in ways which would not lead to the collapse of the entire system. Japan and Sweden, in particular, have shown that even the introduction of small changes in the described direction can achieve significant results. A first step might be to raise the maximum limits for "promoted positions" (under § 26 of the law governing German civil service pay) which limit the extent to which higher qualifications lead to higher pay. In this context it is important that the relaxation of these restrictions must not be allowed to be misused for "automatic promotion," but must be situated within the context of personal responsibility for results, personnel management and pay linked to job requirements. Similarly, the distinction between pay components linked to labour market requirements and those linked to job requirements must be maintained.

4.4.6

Greater Equality among Personnel

One of the main reasons often given for Japan's higher levels of productivity in many core industrial sectors is the decidedly egalitarian personnel structures and management style (although with authoritarian leadership structures) in Japan, in contrast to the considerable traditional degree of status differentiation within European (and U.S.) firms. Status differences of this type are particularly pronounced within the German civil service. From the point of view of Germany's competitiveness and attractiveness as a production location, such a degree of status differentiation is thus counterproductive. Modernization of the German public sector, here its staff relations, requires a weakening of rigid career paths and groups and other similar structural features of the traditional principles of civil service life.

5

Concluding Remarks

In the beginning, it was mentioned that a comparison of Germany and Japan was a comparison within a framework of similarity. The observations we have made regarding differences in policy and systems, however, provide a more complex view of the origins of similarity. When one considers primarily outcomes, and the higher one goes up the level of abstraction to the macro level to compare such outcomes as political bankruptcy, economic development and political stability in the two countries, the easier it is to find similarities. Often these similarities nonetheless are arrived at through rather different meso- and micro-level goals, processes, and environments.

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Many different routes can exist leading to resemblences regarding policy and administrative outcomes at the macro level. The modernization of the public sector in Japan and Germany has followed different pathways and has used different terminologies during the past few years. Yet two considerations apply to both countries: (1) While the modernization gap relative to the leading OECD-countries in the area must be closed, Anglo-Saxon patent recipes should not simply be slavishly imitated; (2) it is rather essential to creatively develop the respective traditional patterns by adopting innovative modernization experiences from those countries in a pragmatic way. This could indeed prove to be a decisive test for the public sector in Japan as well as in Germany.

References Aucoin, P. (1990): Administrative Reform in Public Management: Principles, Paradigms, Paradoxes and Pendulums. In: Governance 3/2, pp. 115-137. Caiden, G.E. (1991): Administrative Reform Comes of Age. Berlin, New York: de Gruyter. Naschold, F. (1994): Modernisierung des Staates. Zur Ordnungs- und Innovationspolitik des öffentlichen Sektors. Berlin: Edition Sigma. Naschold, F. (in Cooperation with M. Lahtonen and C. Riegler) (1996): New Frontiers in Public Sector Management. Trends and Issues in State and Local Government in Europe. Berlin, New York: de Gruyter.

About the Contributors

Koichiro Agata, Dr.rer.publ., is Associate Professor of Public Administration at the School of Political Sciences and Economics, Waseda University. His current research interests are a comparative analysis of Japanese and German Telecommunications policy and new developments in the field of multimedia. Adrienne Héritier is Professor of public policy at the European University Institute. Her main areas of research are: policy analysis, and policy making in Europe. Mitsutoshi Ito, Professor of Political Science for College of Policy Science at Ritsumeikan University, is coauthor of books on local councillors (with Michio Muramatsu), on pressure groups in post-war Japan, and on politics in Japan (with Michio Muramatsu and Yutaka Tsujinaka). His current research focuses on the National Diet, local governments, and public policies in contemporary Japan as compared with other countries. Ikuo Kume is Professor of Political Science on the Faculty of Law, Kobe University. He has published on Japanese labor politics and political economy. Gerhard Lehmbruch has formerly taught in Heidelberg and Tübingen; since 1978, he is Professor of Political Science at the Department of Administrative Science, University of Konstanz. He has published on comparative and German politics and policy making, with an emphasis on consocietal democracy, corporatism, and federalism. Masaru Mabuchi, Professor of the Faculty of Law at Osaka City University, is the author of a book on the role of the Japanese financial

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About the Contributors

ministry. His current research interest is a comparative analysis of Japanese and French political economy in terms of "new institutionalism. " Michio Muramatsu is Professor of political science at Kyoto University. He is author of numerous books including Bureaucracy in Post-war Japan (1981, Sengo Nihon no Kanryosei), Local Government in Japan (1988, Chiho Jichi), and Japanese Public Administration (1994, Nihon no Gyosei); many of his contributions and journal articles are also published in English language. He is coeditor of the book Civil Service in Japan (to be published by Oxford University Press). He is currently President of the Japanese Political Science Assiociation and co-editor of Leviathan (The Japanese Journal of Political Science). Frieder Naschold is director of the Research Unit II, Technology-WorkEnvironment, of the Science Center Berlin (WZB). His research interest are development trends in the industrial and public sectors, labour and industrial policy from an international, comparative perspective and applied research in the field of innovation and development. His latest publications are Regulating Employment and Welfare (1994, coedited with Bert de Vroom) and New Frontiers in Public Sector Management (1996), both published by Walter de Gruyter. Maria Oppen is senior sociologist at the Research Unit II, TechnologyWork-Environment, of the Science Center Berlin (WZB). Her current research interests focus on the interplay of state (labour and social) policy and organizational innovation policy in the sector of public and private services, with a particular interest in the development of services' quality and the "gendered" quality of work life. Her latest publication is Qualitätsmanagement (1995). Hideo Otake, born in 1943, received his Ph.D. from Tokyo University, and is currently Professor of Political Science at the Faculty of Law, Kyoto University. He is author of nine books and many articles on Japanese politics, including Adenauer and Yoshida Shigeru (1986) and Post-war Politics: Germany and Japan (1992). Kuniaki Tanabe is Associate Professor of Public Policy at Tokyo University. Among his publications in Japanese are "Structure of Public Assistance Policy in Japan, " in The Journal of the Association of Political and Social Sciences (Kokka Gakkai Zassha), Vol. 100 (1987); and "Strikes in Japan," in The Journal of Law (Hogaku), Vol. 52 (1988). His next project focuses

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on the development of financial relationship between center and local government in Japan. Hellmut Wollmann, Dr. jur., is Professor at the Humboldt-University, Berlin. His main research areas are: policy and public administration analysis, and the transformation processes in Central and Eastern European countries.

de Gruyter Studies in Organization Vol. 69 Frieder Naschold

New Frontiers in Public Sector Management Trends and Issues in State and Local Government in Europe Translated by Andrew Watt. With Case Studies by Robert Arnkil and Jaakko Virkkunen in Cooperation with Maarit Lahtonen and Claudius Riegler 1996. 23 X 15.5cm. XVI, 329 pages With 54 figures and 38 tables Cloth. ISBN 3-11-015016-6 Vol. 53 Frieder Naschold and Bert de Vroom (Editors)

Regulating Employment and Welfare Company and National Policies of Labour Force Participation at the End of Worklife in Industrial Countries 1994. 23 X 15.5cm. X, 496 pages With 38 figures and 110 tables Cloth. ISBN 3-11-013513-2 Vol. 77 Robert Chia

Organizational Analysis as Deconstructive Practice 1996. 23 X 15.5 cm. XIV, 245 pages With 10 figures Cloth. ISBN 3-11-014559-6 Vol. 74 Adrienne Héritier, Christoph Knill, and Susanne Mingers

Ringing the Changes in Europe Regulatory Competition and the Transformation of the State. Britain, France, Germany In collaboration with Rhodes Barrett. 1996. 23 X 15.5cm. XIV, 363 pages Cloth. ISBN 3-11-014765-3 Vol. 73 Udo Staber, Norbert Schaefer, and Basu Sharma (Editors)

Business Networks Prospects for Regional Development 1996. 23 X 15.5 cm. XIV, 240 pages With 14 figures and 12 tables Cloth. ISBN 3-11-015107-3

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