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  • Summer Tangent: Economist.com summary of Amakudari system

    Posted by Dr. ARUDOU, Debito on August 11th, 2010

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    Hi Blog. For a Summer Tangent, here’s a good summary of Japan’s Amakudari system, and its effects on politics and prospects for reform. The Economist has come a long way from when I first read it back in the Eighties, when it basically assumed that Japan’s postwar economic miracle was due to theoretical economic efficiencies (as opposed to a closed captive domestic market and sweetheart-deal overseas trade access). Now they have people here on the ground (well, one that I’ve met, and I found him knowledgeable and impressive) who aren’t blinkered by mere Adam-Smithism and clearly know their way around. Good. Have a read. It’s short and sweet.  Arudou Debito in Sapporo

    ///////////////////////////////////////

    Japan’s overpowerful bureaucrats
    Summertime, and the living is easy
    Politicians fail to end cosy ties between pen-pushers and business
    Aug 5th 2010 | TOKYO

    http://www.economist.com/node/16743989?story_id=16743989

    A SWATHE of high-ranking bureaucrats from Japan’s biggest ministries began in new posts on July 30th, doled out as part of an annual summer rite. A gaggle of even more senior ones were asked to retire—and immediately won cushy, lucrative jobs at quasi-public agencies and private foundations. Some were even sent to companies in industries they had previously regulated.

    The practice is called amakudari (meaning “descent from heaven”). It has long reflected unhealthily close relations between bureaucrats and business, distorting the work of civil servants on the look out for a plum job, and burdening firms with the deadweight of ex-pen pushers serving as “senior advisers”. At its worst, it lets civil servants enrich themselves, pay back vested interests and resist economic reform. One reason why Japan’s banking crisis in the 1990s took so long to fix was because former senior staff from the finance ministry and Bank of Japan had moved to the banks that needed fixing. They pressed their former deputies to bail them out on soft terms, and then failed to carry out much-needed surgery.

    For decades politicians of all stripes have vowed to end amakudari. True to form, the new Democratic Party of Japan (DPJ) came to power promising change, but so far has done little, though there is talk of shutting a few quangos—such as a farm-road-planning group linked to the agriculture ministry. In theory this could mean big changes: around 100 “public corporations” are attached to ministries and another 6,500 semipublic associations exist. Together, such firms enjoy an annual budget estimated as large as ¥3.4 trillion (around $40 billion).

    But few expect action soon. The rationale for amakudari is that, given Japan’s strictly hierarchical society, getting old civil servants out of the way is the only means of letting younger ones rise. Companies comply because they rely on cosy official contacts to prosper: a board director at a big Japanese firm concedes that its heavenly arrivals help to ease interactions with regulators.

    Kicking this unhealthy habit, therefore, requires broad, sharp changes to much of how Japanese culture, politics and business works. Don’t expect to see that done by next summer.

    ENDS

    10 Responses to “Summer Tangent: Economist.com summary of Amakudari system”

    1. debito Says:

      And as a completely random coincidence, this article relates the issue back to previous Debito.org discussion about the JET Programme:

      The Japan Times, Wednesday, Aug. 11, 2010
      Screeners question if benefits outweigh the costs
      By MINORU MATSUTANI

      (excerpt) … CLAIR’s ¥3.6 billion budget to promote international exchange programs is shared by the 47 prefectures and 19 major cities, including ¥858 million for the JET program, in the current fiscal year.

      The jigyo shiwake mainly targets wasteful spending by the central government. But the panel leveled criticism at CLAIR and the JET program, noting local governments receive vast grants and many former senior central government officials have landed lucrative positions at CLAIR after retirement in the practice known as “amakudari.”

      However critical, the panel didn’t recommend a specific funding cut for the JET program.

      Instead, the panel’s focus appeared to be on non-JET-related operations of CLAIR, including its seven overseas offices and wages paid to amakudari ex-bureaucrats.

      In their summary, many panel members said CLAIR’s seven overseas offices are unneeded and should be closed…

      http://search.japantimes.co.jp/cgi-bin/nn20100811f2.html

    2. Chuckie Says:

      Not really related to the topic so not really required for posting, but in defence of Adam Smith – and so that I might go some way toward rescuing a fellow Scot from the tyranny of misconception – he was actually a bit of a socially-aware capitalist. (Even Scottish capitalists are a bit socialist. Figures.) A political economist rather than a financial economist, he was if anything a bit naive about his whole ‘invisible hand’ of the market, believing that it would work because people genuinely cared about the wellbeing and happiness of others. Maybe ‘Hayekism’ would be a better neologism.
      Chances of this Economist story making the Japanese version?

    3. Joe Says:

      Amakudari is the carrot that brings good people into bureaucracy. Bureaucrats give up a lot of income to work for the government instead of within the private sector. One of the few reasons that an intelligent person would choose to do this is the belief that they will be “rewarded” later in life with a high-paying, cushy job that would bump up their retirement income (as social security payments were based on years of work times the LAST salary received), giving them security and the good life in their golden years.

      Now that it is possible that the Amakudarari system will be torn down (and I believe that the social security system has already changed to a weighted average of career income to water down the aforementioned benefit), the end result will almost certainly be a slow brain-drain in the bureaucracy, as fewer and fewer highly qualified people will be drawn to it. This will result in either a gradual and continuous decline in government services, or raises in government salary packages to be more competitive, an option that would probably cost more money than amakudari currently does.

      – Low pay for bureaucrats? Yeah, right. Their incomes (and guaranteed bonuses) have so long outdistanced those of the private sector that they’ve had to be cut by five percents year after year (I know because my private-sector university (which lacks a union) keeps using it as a justification to cut our pay).

      Brain drain impending? Not with this kind of job security (also no longer the domain of the private sector; furthermore we hear more about corrupt bureaucrats with their hands in the till getting shuffled rather than fired). Great work in two lost decades of recession if you can get it.

      Sorry, I don’t feel at all sorry for the bureaucrats as either allegedly long-suffering or needful of sweetener incentives to work there.

    4. Level3 Says:

      @Joe

      Where are these “good people” in the bureaucracy that controls Japan?
      They certainly haven’t been doing much in the last 20 years to prove their “talent”,
      except the talent for keeping the amakudari system running and filling their own bank accounts.

      How about let’s not put some hypothetical and dubious “brain drain” in the bureaucracy ahead of the very real and present fact that the entire system is basically corrupt and won’t make the changes necessary due to these “brainy” bureaucrats’ personal self-interest. I guess they are pretty smart after all, eh?

      Have you not read any news recently? It was an OLD story that civil servants accepted a low-ish salary for job security. But these days, all over the First World civil servant salary on average far exceed private sector AND they still have job security AND giant guaranteed pensions (while people with private pensions have seen those pensions dwindle in value due to the global recession)

      Seriously Joe, where do you get your news?

    5. Jeff Says:

      To Joe’s point, I want more exceptional people in governments that affect me, not less. However, care how much that costs? Not so much. If a way can be found to set up the incentives correctly to exclude dead wood and bad actors, even better.

      No good way to do that stands out so far…

    6. HO Says:

      You can see the level of salary of civil servants on page 9 here.
      http://www.jinji.go.jp/kankoku/h21/pdf/21setumei.pdf

    7. cstaylor Says:

      Amakudari is the how the Japanese bureaucracy prunes its upper ranks to make way for younger executives. You can only have so many vice-ministers: the rest are farmed out to other departments or companies.

      The American equivalent is K-street.

    8. Mark in Kanto Says:

      Well, I know I risk bashing, because anti-public sentiment is so strong and free-marketeering, “market banzai!” types have pretty much taken over the “free” world, but here goes.

      I don’t know where many of the above writers get their notion that in general government workers are floating in dough, while the destitute workers of the private sectors are all on skid row. I don’t like fat cats no matter where I see them, but if you want to compare public and private do me a favor and compare something comparable: say, an amakudari to an “advisor” at some Fortune 500 company, a minister of the government to a CEO of IBM or Halliburton. You say the amakudari is incompetent? I agree, and point out that so is the CEO. You say the amakudari got the job through a combination of luck, politics, and cut-throat activity? How, true, and so did the CEO. You say the amakudari is vastly overpaid? Ture enough, but so is the CEO, and by a few extra zeroes at the end of his figure that even the amakudari cannot dream about. You say the CEO can be fired? Sure he or she can, but in fact unless they are so grossly incompetent (read BP, for example) they rarely are. And then with golden parachutes. The amakudari can in fact also be fired and sometimes are. But no parachutes.

      I work in a low-level government job and believe me, our pay has been cut, cut, cut, to the point that several colleagues have jumped ship and gone into the private sector just to make MORE money. My field doesn’t allow that luxury, but still I cannot understand where people get the idea that public and private are simply the same. Go into the private sector you take risks–the risk of failure, yes, but also the “risk” of hitting it big. The government job does not, in my case, even ALLOW me to take risks. I am stuck in a job with low pay, considerably lower than what several similar private institutions pay. WhatP do I get? Pesumably a little security. Is it worth it? Maybe so, maybe not, depending on what kind of personality you have, whether you sleep better dreaming about starting your own business or worse worrying about going bankrupt.

      Just do me a favor and stop pretending every government worker down to the girl at the cash register of the shiyakusho is some kind of overpaid moneybag. And the vast majority of civil servants are of her type, not of the amakudari fat cats. Great pensions? Gotta be kidding. Lots of perks? Where exactly are they–I’ve seen little of it beyond what my private sector colleagues have? And guaranteed salary raises? I make a good deal less than 10 years ago, and now way less than my colleagues in the USA. We get told year after year that the “private sector” bonuses have gone down, so ours have to as well. It cuts both ways. And there is no end in sight.

      End of rant.

      The other side of the story.

      – Thanks for that. I can think of a few counterarguments, but not right now: It’s clear that people are hurting in a deflationary economy.

    9. Hoofin Says:

      What is hard to understand is that if government and businesses don’t have any money, they DO have money for this kind of corruption.

    10. level3 Says:

      @Mark

      But you see, the difference is, the government should not make limits on private salaries by decree in a free society (as much as some would like to, at least until millionaire movie stars and producers raise objections, but I digress). Though I think we could agree the government dictating salaries of $1 for executives of failed banks surviving on tax money would be acceptable. And that’s the thing, when taxes pay for something, like a government salary, we the people DO in theory get a say into how much that salary should be. You have a parallel option with private salaries, you can just opt out. Just don’t buy the prodcuts of a company whose pay structure you disagree with as being “unfair” (turn in your iPhone before your next rant). Tell your friends to do the same. But just try to uphold this moral code without being a hypocrite.
      If only people could opt out of whatever portion of their tax money they feel is going to government waste. But we free marketers have no such choice, that’s called tax evasion, we ‘d have to suffer the inconvenience of going to jail. Leftists do have the choice to opt out, and only suffer the inconvenience of not being able to waste money on trendy things. Having that choice to opt out of funding “unjust” private companies themselves apparently isn’t enough though, they aren’t happy unless their choice is imposed on everyone else, too.

      I don’t see how you could be making a good deal less than 10 years ago if you have held the same civil service job all along. Now, if your job (just assuming) is as a contract instructor through a public school and your hours are being cut, I can see how it could happen, but I don’t see how it would be applicable to discussions of full-time civil servant salaries and benefits. Have you been a full-time civil servant in the same job for the past 10 years and your salary now is lower than 10 years ago for the same amount of work? Apples to apples, please.

      Yes, we can agree that part-time and wage earners in government jobs may be losing out. But is this not precisely because departmental budgets devoted to paying full-time civil servants and their annual salary increases plus bonuses and benefits leaves nothing for the part timers? The lowly instructor gets cut to half last year’s koma, just so the principal and various administrators can retire in style?

      I mean, my salary now is slightly lower than 10 years ago, because I’ve switched careers. But I am not claiming that my current bank balance proves the private sector is unfair. Life is unfair. We could blame whichever system doesn’t jive with our own political beliefs – but there will always be people richer, smarter, more beautiful, or just plain luckier than us. And sure, a lot of them are assholes and/or don’t deserve it. Tough. Replacing the rich and powerful with the political and powerful (who then become rich) doesn’t change anything for the little man.

      Anyway, we can’t get make progress if we don’t define which countries and which salaries we’re talking about.
      Some countries HAVE been cutting civil servant salaries a bit in the very recent past, while others have, well.. not, and the government employees have already begun preemptively kicking and screaming before they have even been dragged “down” to maybe just raises merely in line with inflation.
      I saw this “Federal workers earning double their private counterparts”
      http://www.usatoday.com/money/economy/income/2010-08-10-1Afedpay10_ST_N.htm

      So, for Federal employees in the USA, the old myth of low pay trade-offs for job security is exactly that, an old myth.

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