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The politics of the growth of regional disparity in Japan

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The politics of the growth of regional disparity in Japan

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THE POLITICS OF THE GROWTH OF REGIONAL DISPARITY IN JAPAN

by

Euisuok Han

_____________________________________________________________________

A Dissertation Presented to the
FACULTY OF THE USC GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
DOCTOR OF PHILOSOPHY
(POLITICAL SCIENCE)

August 2010

Copyright 2010 Euisuok Han
ii
Acknowledgements
This journey was longer than I expected when I left Korea, however this day
has come with the help and support of many people. I would like to take this
opportunity to express my deepest gratitude to everyone who have helped and
supported me during my study.
I am heartily thankful to my dissertation committee members: Apichai W.
Shipper, Jefferey Sellers, and Saori Katada. Professor Shipper has been my mentor
and advisor since I decided to study Japan. His Japanese politics class led me to
consider Japan as a dissertation topic and a life-long interest. As my dissertation
advisor, he taught me to be a full-fledged scholar and teacher. Professor Sellers and
Professor Katada gave me invaluable advices and insights to develop my study.
Professor Sellers‟ advice on urbanization issue was invaluable in accomplishing this
dissertation. Professor Katada generously decided to sit on my dissertation committee.
Her advice allowed me to stick to the fundamental issues of my dissertation. I want to
thank my three committee members for the advise, encouragement, and mentoring
that they have given me throughout my studies. Without their support, my dissertation
would not have been possible.
This dissertation was also possible with great supports and help from many
friends and individuals. Tomoko Bialock, the Japanese Studies Librarian in the East
Asian Library at USC, generously offered her time to help me find and use Japanese
newspaper articles. Thanks to her, I was able to access Japanese newspapers,
including local papers which were critical in my dissertation. I would also like to
iii
thank Professor Nobuhiro Hiwatari of the Institute of Social Science at the University
of Tokyo, who gave me an opportunity to conduct field research from July 2007 to
July 2008 in the same institute. He provided an unknown foreign student the valuable
opportunity. During the field research, I also gained help from Dr. Hak-Soo Oh of the
Japan Institute for Labour Policy and Training. With his help, I was able to access
the institute‟s library. My friend Haruhiko Furumura gave me his time during my stay
in Tokyo. My understanding about Japanese politics and culture were deepened with
his kind invites to many social activities. Meetings with his Waseda Univeristy
alumni and colleagues were the most enjoyable events during my stay. During my
field research, financial support from the ACE-Nikaido Fellowship in Japanese
Studies from East Asian Studies Center at USC partly helped me to travel to Japan
and conduct my field research.
A dream of becoming a scholar or a teacher began with the encouragement
from my mentor, Professor Hoon Jaung of Chung-Ang University in Korea. I
completed my master‟s degree with his guidance and it changed a part of my life, if
not all of it. I would like to thank him for inspiring me to choose this profession.
I owe my gratitude to many friends who provided support during my study. I
want to thank my friends from Albany, Alhambra, Burlington, and Gangnung.
Especially, I would like to thank Hyeyoung Chang and Youngjoo Chi for sharing
their time in academic conversations. Thanks to them, my daily life in LA was
enjoyable too. I would also like to thank Sookhyun Cho in San Diego, Changhee Ryu
and Ilchol Hwang in Seoul for their support during my study.
iv
This dissertation would not have been possible without the support of my
family. My parents, Bokkyo Han and Kyuok Choi, always believed in me. With their
support and trust, I could finish this work. My father and mother was the stronghold
of this journey, supporting me to keep heading toward my goal. I would like to let
them know how I admire them. I would also like to thank to my sister, Yoomi Han
and brother-in-law, Youngsun Lee for their love and support.

v
Table of Contents
Acknowledgements ii

List of Tables viii

List of Figures xi

Abstract xii

Chapter I. Introduction 1
1. Puzzle 2
1.1. Overview of the Growth of Regional Disparity 2
1.2. The Political Component of Regional Disparity 6
2. Theories of Regional Inequality 8
2.1. Economic Perspective 8
2.2. The Politics and Policy Perspective 13
3. A Politics and Policy Perspective on the Regional Disparity in Japan 15
3.1. Politics and Policy Factors of the Regional Disparity in Japan 16
3.2. Framework for the Growth of Regional Disparity in Japan 19
3.3. Alternative Explanations for the Increase of Regional Disparity
in Japan 24
3.4. Comparison of Regional Disparity among OECD Countries 26
4. Research Method 29
5. The Organization of the Dissertation 34

Chapter II. Policies for Regional Equality and Reforms of the Japanese System 36
1. Historical Background 38
2. Policies for Regional Equality since the 1960s 42
2.1. Regional Industrial Development Policies 42
2.2. Pork Barrel Politics 44
2.3. Financial Transfers from the Central Government 53
2.4. Protection and Promotion for Small, Medium-Sized Companies 55
2.5. Trends of Regional Disparity in Japan 59
3. Reforms in the 1980s and 1990s 60
3.1. Reform Movements in the 1980s: Nakasone Reform 62
3.2. Reforms in the 1990s 64
3.3. Challenges to the Japanese Political Economy 69
4. Conclusion 72

vi
Chapter III. The 1994 Electoral Reform and Politics in the 1990s 74
1. Electoral Politics under the 1955 System 76
1.1. Farmers and Organized Votes 77
1.2. Malapportionment: Overrepresentation of Rural Constituents 79
2. Changes of the Party Politics in the 1990s 80
2.1. Defectors from the LDP in the early 1990s 80
2.2. Introduction of the SMD and PR System 82
2.3. Changes in the Organized Votes: The Case of Farmers 83
2.4. Increase of the Urban and Non-affiliated Voters 87
3. Implication of the Increase of Urban, Non-affiliated Voters to Regional
Disparity 91
3.1. Electoral Politics in the 1990s 92
3.2. The House of Councilors Election in 1998 93
3.3. The House of Representatives Election in 2000 94
3.4. LDP‟s Defeats and Interests of Urban, Non-affiliated Voters 97
3.5. Election of Koizumi as the LDP President and Prime Minister 100
4. Elections under Koizumi: The Koizumi Effect 102
4.1. House of Councilors Elections in 2001 and 2004 104
4.2. House of Representatives Election in 2003 and 2005 106
4.3. Electoral Politics under Koizumi 108
5. Conclusion 110

Chapter IV. Regional Development Policies and Public Works Projects 112
1. Regional Development Policies and Public Works Projects 114
2. Increasing Criticism against Public Works 118
2.1. Political Corruption and Environmental Devastation 118
2.2. Growth of the Budget Deficit and Inefficiency of Public Works 121
3. Public Works for Revising the Japanese Economy 123
3.1. A New Direction for National Regional Development 124
3.2. Public Works for International Competitiveness 126
3.3. Urban Development to Revitalize the Economy 131
4. Revision of Regional Development Laws and Urban Renaissance
Program 137
4.1. Changes of Laws Supporting Balanced Regional Development 137
4.2. Urban Renaissance Program 140
4.3. New Laws for Developing Urban Areas 146
5. Conclusion 151

Chapter V. Fiscal Decentralization and Local Finance 153
1. Background of Decentralization in Japan 155
1.1. The Decentralization Movement in Japan 156
1.2. Decentralization in the Hashimoto Administration 158
2. Administrative Decentralization during the 1990s 159
2.1. The Recommendation Reports of the CDP 160
2.2. The Package Law of Decentralization 163
vii
3. Fiscal Decentralization in the 2000s 167
3.1. The Council for Decentralization Reform and Fiscal
Decentralization 170
3.2. Trinity Reform 177
4. Trinity Reform and Its Impact on Local Finance 186
4.1. Trinity Reform and Local Finance 187
4.2. Decentralization after Koizumi 192
5. Conclusion 194

Chapter VI. Conclusion 196
1. The Politics and Policy Approach to the Regional Disparity in Japan 197
1.1. Regional Equality under the 1955 System 198
1.2. Challenges to the Japanese Political Economy 199
2. Response to the Challenges: the Politics and Policy Approach 202
3. The Politics and Policy Approach and Its Implication for the Study of
Regional Disparity 205
4. Prospect for Regional Disparity in Japan 210
4.1. Politics after Koizumi 211
4.2. The DPJ Government and Regional Disparity 212
5. Conclusion 213

Bibliography 215

viii
List of Tables
Table 1.1: Ratio of Population and General Prefectural Product 5

Table 1.2: Ratio of GDP Per Capita of Regions within a Country in 2001 27

Table 1.3: Gini Index of Regional GDP Per Capita in 2001 28

Table 1.4: Gini Index of Regional Unemployment Rates in 2003 29

Table 1.5: Urban and Rural Prefectures in Japan 31

Table 2.1: Percentage of Vote Share by the LDP in Lower House Election 39

Table 2.2: Comprehensive National Development Plan in Japan 41

Table 2.3: Per Capita Public Works by Prefecture in 1997 45

Table 2.4: Percentage of Construction Workers in Selected Countries 46

Table 2.5: Percentage of Construction Workers in Japan 47

Table 2.6: Percentage of Agricultural Expenditures in Government Spending 50

Table 2.7: Fiscal Equalization by Local Allocation Tax in 1993 54

Table 2.8: Ratio of Employment in the Manufacturing Sector by Company
Size 56

Table 2.9: Japan‟s Major Small Business Policy 57

Table 2.10: A Chronology of Administrative Reforms 67

Table 2.11: Japan‟s Rankings of International Competitiveness 70

Table 3.1: Percentage of Population in Big Cities, Towns and Villages 90

Table 3.2: National and Regional Farm Household Population 90

Table 3.3: SMD Seats of the LDP in the 2000 General Election 95

Table 3.4: SMD Seats Gained by Selected Political Parties 95

Table 3.5: Votes for the LDP Candidates by Selected Organizations 105
ix

List of Tables, Continued
Table 3.6: Koizumi Effect in Single-Seat Districts in 2003 Election 107

Table 3.7: PR Vote‟s Share in the Tokyo Metropolitan Area 110

Table 3.8: LDP PR Vote‟s Share by Types of Districts 110

Table 4.1: Comparison of Public Works Spending in 1996 114

Table 4.2: Long-Term Debt of National and Local Government 122

Table 4.3: Objectives and Strategies of the Grand Design for the 21
st
Century 125

Table 4.4: Public Works Budget for Maintenance of Airports and Harbors 130

Table 4.5: Evolution of Long-Term Development Plan for the Capital
Region 132

Table 4.6: Annual Change Ratio of Budget for Maintenance of Road 136

Table 4.7: Revision of Laws for the Development of Urban Areas 139

Table 4.8: Designated Areas of Prompt Renovation, 2002-2007 143

Table 4.9: Construction Orders from Governments (2001-2004) 143

Table 4.10: Number of Employees in Construction Industry (over 15 years) 144

Table 4.11: New Laws for the Development of Urban Areas 147

Table 5.1: The Rationale for Decentralization 161

Table 5.2: Recommendations of the Committee for Decentralization
Promotion 162

Table 5.3: Overview of the Package Law of Decentralization 165

Table 5.4: A Chronology of Decentralization, 1989-2000 167

Table 5.5: Recommendation Reports of the CDP 169

Table 5.6: Outstanding Borrowing of Local Finance 171
x

List of Tables, Continued
Table 5.7: Increase of the Aged in Rural and Urban Prefectures (age over 65) 173

Table 5.8: Annual Population Growth Rate of Prefectures, Selected Years 174

Table 5.9: Reports of the Council for Decentralization Reform 176
Table 5.10: Major Suggestions in the Basic Policy Related to Trinity Reform 181

Table 5.11: Ratio of General Revenue Sources to Total Revenue for
Municipalities 183

Table 5.12: A Chronology of Decentralization, 2001-2007 186

Table 5.13: Transfer of Revenue Sources and National Subsidies 189

Table 5.14: Changes of the Local Tax and the Local Allocation Tax 190

Table 5.15: Change of Local Revenues and Expenditures (2002-2005) 191

Table 5.16: Annual Changes of Revenues and Expenditures in the Chiba
Prefecture 191

Table 5.17: Annual Changes of Revenues and Expenditures in the Fukushima
Prefecture 192

Table 6.1: Mechanism of the Increase of Regional Disparity 204
xi
List of Figures
Figure 1.1: Framework of the Growth of the Regional Disparity in Japan 23

Figure 1.2: Map of Japan by Prefecture 33

Figure 2.1: Producer Support Estimate by Country 52

Figure 2.2: General Government Debt as a Percentage of GDP 71
Figure 4.1: Public Investment Per Capita (Real Value) 117
xii
Abstract
Japan maintained a high level of regional equality from the 1970s through the
1990s. The LDP‟s policies, especially regional industrial development policies, public
works, national subsidies, and financial transfers to local governments, played
important role in reducing regional disparity between urban and rural areas, resulting
in strong support from the rural electorate. This made the LDP‟s long-term
dominance possible. In the 2000s, however, regional disparities between urban and
rural areas began to increase. This dissertation explores the causes of the regional
disparity from a politics and policy perspective.
Starting in the 1980s, Japan faced international and domestic challenges, such
as economic globalization, a decline of economic growth, budget deficits, and an
aging society, which made it difficult for Japan to sustain the 1955 System. These
problems necessitated a reform of the system. But attempts to reform made little
change until the LDP reconsidered its rural-based electoral strategy. The increasing
power of urban, non-affiliated voters during the 1990s began to shift the LDP‟s rural-
oriented policies. After the election of Koizumi as prime minister, the government
reduced public works projects in rural areas and redirected them toward urban areas.
These projects focused on the renovation of urban centers and the construction of
international airports and harbors. This was a response to strong demands to improve
international competitiveness. Meanwhile, the government launched decentralization
reform to cope with problems arising from globalization, an aging society, and rural
depopulation. In particular, concern over local budget deficits under the conditions of
xiii
the increase of the aged population and depopulation in rural areas facilitated fiscal
decentralization from the early 2000s. This resulted in a high reliance on local
revenue sources rather than financial transfers from the central government, providing
benefits to local governments in urban areas while it damaged financial conditions of
local governments in rural areas. This study argues that the increase in regional
disparity was a result of the changes in the LDP‟s traditional, rural-oriented policies,
aimed to improve Japan‟s economic performance and to secure the party‟s political
power. In particular, a policy shift in public works and local finance (fiscal
decentralization) considerably increased the regional disparity.
1
Chapter I. Introduction
Several Western observers have praised the high level of socioeconomic equality
in Japan that has been maintained since the 1970s. This level is manifested by the
country‟s low Gini coefficient, social equity, and high ratio of the people‟s consciousness
of belonging in the middle class. However, the notion of an egalitarian society faded
away in the late 1990s with growing economic inequality and relative poverty. The so-
called „disparity society‟ (kakusa shakai) became an archetypal word to describe current
Japanese society. Regional disparities between urban and rural areas also began to
increase in the 2000s. Recent studies primarily focus on economic factors that may have
affected regional disparity. But those economic studies neglect the fact that the high level
of regional equality prior to the 1990s was a result of political considerations by the LDP
and its policies for rural areas. The LDP government has historically implemented
policies favorable to the rural electorate in exchange for their strong electoral support and
at the cost of urban dwellers. Therefore, political considerations are also important factors
in understanding the recent growth in Japan‟s regional disparity. This is clearly evident in
the 2007 House of Councilors election, when the traditional LDP support from the rural
areas rejected the party due to the increase in regional disparities. The growth of regional
disparity raises several questions. Why did regional disparities increase in Japan? What
political and policy factors caused the growth of regional disparity? How did those
factors affect the growth of regional disparity between urban and rural areas?
This dissertation seeks to answer these questions by exploring the policy
2
mechanisms of the growth of regional disparity and the political logic behind it. Although
economic and sociological approaches have provided several explanations for the
increasing regional disparity, they have neglected politics and policy factors. From the
1980s, Japan confronted international and domestic challenges, such as economic
globalization, a decline of economic growth, budget deficits, and an aging society, which
made it difficult for Japan to sustain the “1955 System”. Therefore, the Japanese
government and the LDP attempted several reforms to cope with those challenges.
However, burdens on the 1955 political economy system increased during the 1980s and
1990s, while reforms of the system made little change. But in the 2000s, the LDP began
to change its traditional policies and regional disparities increased. This study examines
the political and policy response to the challenges that Japan confronted and its impact on
regional disparity. It traces changes in electoral politics after the electoral reform of 1994
and the government‟s policies for public works and local finance since the 1990s. This
study explains the causes of the increase in regional disparity from a political and policy
perspective.
1. Puzzle
1.1. Overview of the Growth of Regional Disparity
According to an OECD survey, the Gini coefficient of Japan increased from 0.265
in the mid-1980s to 0.295 in the mid-1990s and to 0.314 in 2000 (OECD, 2005c). In fact,
the Gini coefficient of Japan in 2000 (0.314) was higher than the average of all the 25
OECD countries (0.308). Poverty rates, which are measured as the proportion of
individuals with income less than 50% of the median income of the total population,
3
increased from 13.7% in the mid-1990s to 15.3% in 2000. The average poverty rate of 25
OECD countries in 2000 was 10.2%. According to the Income Redistribution Survey by
the Japanese government, the Gini coefficient of redistributed income increased from
0.314 in 1981 to 0.381 in 2002 (Ministry of Health, Labour, and Welfare, 2002). These
facts are of interest because Japan is believed, throughout the world, to be a country with
a high degree of socioeconomic equality.
The income disparity among individuals and societal groups is not the only
feature of increasing inequality in Japan. Scholars are also concerned about the growing
social inequalities in education and health services as well as economic inequalities,
given the country‟s low birth rate and the rapid increase of the elderly population during
the 1990s and 2000s (Higuchi, 2003; Shirahase, 2005). As a part of these growing
inequalities, regional disparities began to increase and became notable recently. Regional
disparities in Japan have been manifested in widening gaps in socioeconomic indicators
such as income, education, living standards, and unemployment among different regional
districts (chiiki or chiho), among urban and rural prefectures (ken), and between big cities
(daitoshi) and small towns (machi, mura).
1
Economic indicators clearly show the
increase of regional disparities. For example, the income per capita of the central-urban
Tokyo prefecture was 1.73 times higher than that of the peripheral-rural Aomori
prefecture in 1996 but the gap widened to 2.19 times in 2004 (Cabinet Office, 2007).
Regional differences in the labor market situation also widened from 1997 to 2003

1
Japan is composed of 47 prefectures. Although regional blocs are not official administrative units, they
are frequently used as a unit of surveying socioeconomic conditions for policy making. The Japanese
government (Cabinet Office) prefers to group the prefectures into eight or nine regional districts except for
Okinawa (e.g., Hokkaido, Tohoku, Kanto, Tokai, Hokuriku, Kinki, Chugoku, Shikoku, and Kyushu). In
contrast, the grouping of the Bank of Japan differs from that of the Cabinet Office (Hokkaido, Tohoku,
Hokuriku, Kanto-Koshinetsu, Tokai, Kinki, Chugoku, Shikoku, and Kyushu-Okinawa).

4
(Higuchi, 2005). The variance in the unemployment rate shows the widening gap of
regional disparity. While the overall national unemployment rate increased from 3.4
percent to 5.3 percent, the rate increased just 0.9% in the prefectures of the Tokyo
Metropolitan Area (the Greater Tokyo Area includes Chiba, Kanagawa, Saitama, and
Tokyo prefecture), while the rate increased over 2.7% among prefectures in the Tohoku
area (including Akita, Aomori, Fukushima, Iwate, Miyagi, and Yamagata, or prefectures
in the northeastern part of Japan).
The growth of regional disparities is also revealed in the increasing gaps in
population, health care service, and the financial ability of local governments between
urban and rural areas. For example, the population of the Akita Prefecture in the Tohoku
area decreased 5.6% between 1995 and 2005 (from 1,214 thousand to 1,146 thousand),
but that of the Kanagawa Prefecture in the Tokyo Metropolitan Area increased 6.61%
(from 8,246 thousand to 8,791 thousand) in the same period (MIAC, 2007). A
comparison of urban and rural areas clearly shows the increasing regional gaps (Table
1.1).

5
Table 1.1: Ratio of Population and General Prefectural Product (Nation=100)
Rural Tohoku Area Tokyo Metropolitan Area
Year 1995 2000 2005 1995 2000 2005
Population (%) 9.9 9.8 9.6 25.8 26.1 26.7
General Prefectural
Product (%)
8.5 8.6 8.2 30.2 31.2 31.8
Source: Statistical Yearbook of Japan, Kenmin Keizai Keisan (Survey of Prefectural
Economy).
Public opinion reveals that Japanese people have increasingly recognized the
widening regional disparity since 2000 (Cabinet Office, 2007). The public opinion survey
by the Cabinet Office in 2007 showed that Japanese people pointed to „health and welfare
(31.9%),‟ „education (36.1%),‟ and „regional disparity (26.5%)‟ as the most serious social
problems. The survey also shows that the respondents who replied that regional disparity
was one of the most serious inequalities increased from 15.6% in 2006 to 27.1% in 2007
(Cabinet Office, 2006 and 2007). On the other hand, income disparity was counted as the
most serious issue of the regional disparities, while labor market condition, health care
and social welfare were pointed to as the second and third (MLIT, 2006). Another survey
shows that 80 percent of Japanese people believe socioeconomic disparities between
individuals and regions are widening (Yomiuri Shinbun, 3 March 2007). Similarly, 83
percent of respondents living in rural areas (towns and villages) replied that their quality
of life was deteriorating. In contrast, over 60 percent of respondents living in
metropolitan areas such as Tokyo and Osaka answered that their quality of life was
improving (Nikkei Shinbun, 24 December 2007).

6
1.2. The Political Component of Regional Disparity
Following increasing public concern about socioeconomic inequalities in the late
1990s, the discontent of rural residents over the increasing regional disparity began to be
expressed in national elections. For the LDP, the result of the 2004 House of Councilors
election was a sign of the rural agricultural areas‟ opposition to reforms implemented
under Prime Minister Koizumi (Scheiner, 2006). Most importantly, widespread
resentment felt by rural residents towards the increasing regional disparities turned into a
huge defeat for the LDP in the 2007 House of Councilors election (Nikkei Shinbun, 1
August 2007; The Japan Times, 6 August 2007). The defeat rendered the LDP a minority
party in the Upper House. The LDP gained only 37 seats, while the Democratic Party of
Japan (DPJ), a major opposition party, gained 60 seats among 121 seats.
2
Although it was
an election for the less powerful Upper House, the outcome was surprising to observers
of Japanese politics in that the LDP‟s defeat resulted from its failure to gain seats in rural
electoral districts. This was unusual because rural and agricultural areas had long been
strong and firm support bases for the LDP and its governments (Baerwald, 1986; Curtis,
1988; Flanagan, 1991; Hrebenar, 2000; Hickman and Kim, 1992; Schiener, 2006).
Why did the LDP lose in rural districts? According to opinion surveys undertaken
after the 2007 election, the public and high-ranking officers in local LDP organizations
replied that major reasons for the defeat were the mismanagement of pension records, the
political fund scandal involving the Minister of Agriculture, Forestry and Fishery, and the
increase in regional disparity (Asahi Shinbun, 2 August 2007). Among these reasons, the

2
The total number of the House of Councilors members is 242, but the election is held for selecting only
half of the members like the U.S. Senate election.

7
increase of regional disparity was the central factor reflecting rural constituents‟
judgment of long-term policies of the LDP and its government, while the government
mismanagement and political scandal issues influenced their judgment on short-term
LDP performance. In fact, the increase in regional disparity became a target in the
election campaigns by opposition party candidates in rural districts. For example, an
opposition challenger in the Shimane Prefecture, Akiko Kamei, blamed the economic
reforms of the Koizumi and Abe governments for rising regional disparity. She argued in
her campaign speech that “huge Tokyo-based department stores and supermarkets have
come into the prefecture, driving small shops into bankruptcy and sending the profits
back to Tokyo, not to the people of Shimane” (The Japan Times, 25 July 2007). That is,
the LDP policies induced the increase in regional disparity between urban and rural areas.
This was ironic because the LDP has traditionally given benefits to rural constituents in
compensation for their electoral support. In addressing this claim from the opposition
parties, the LDP politicians asserted that the increase of regional disparity was just a
temporary phenomenon during the progress toward economic recovery. They insisted
that urban areas typically enjoy the fruits of economic recovery ahead of rural areas, but
that rural areas would enjoy the same fruit soon. This is similar to an explanation from
economic perspectives for the increase in regional disparity. The question remains
whether politics and policy factors played any role in the current regional disparity. Did
the LDP government shift its traditional rural-supporting policies? If so, why did the
LDP change its policies? This study attempts to answer these questions from a politics
and policy perspective.
8
2. Theories of Regional Inequality
Regional inequalities have been identified at the international level, the national
level, and the sub-national level. Regional inequality at the international level has been
approached by liberal economic theories, Marxist theories, and structural theories
focusing on inequality between developed countries and less developed countries and on
poverty in the poor countries (the North-South problem). For example, Wallerstein
(1974) suggests a framework that explains the economic disparity between advanced
industrialized countries and underdeveloped countries from a Marxist perspective using a
center-periphery dichotomy. While Wallerstein explores regional disparity at the
international level, his perspective extends to explore regional differences within a state
and develops into “domestic (internal) colonialism” discourse. Moreover, the integration
of new member countries into the European Union (EU) and the implementation of EU
regional policies raised concerns over national level regional disparity between the
existing member countries and new ones, which might increase with regional trade
integration (Martin, 1988). Regional disparities at the sub-national level have been
widely studied in comparison to the international and the national levels. This is because
sub-national disparities easily align with political and ethnic tensions, undermining the
sociopolitical stability and national integration of a country. Intensified regional disparity
often induces regional conflicts or secession movements as evidenced in Canada, Spain,
Italy and Yugoslavia.
2.1. Economic Perspective
Most of the attempts to provide generalized explanations of regional inequality or
regional disparity have been made by economists. Focusing on economic indicators such
9
as per capita income and GDP, they have investigated how economic factors, such as
industrial structure, factor mobility, and a level of market openness, affect regional
disparity. Economic convergence or divergence has been a major interest of their studies.
While convergence theorists rely on economic factors, divergence theorists have
acknowledged the impact of government policies on the level of regional disparity.
A. Convergence Theories
Economic studies of disparities have often dealt with the convergence or
divergence of regional income gaps. In his seminal 1965 work, examining relations
between national development and regional inequality, Jeffrey G. Williamson claims that
the level of regional income disparity tends to increase in early stages of economic
development and to decrease in advanced stages of national economic growth. He argues
that the so-called „regional dualism‟ or the „North-South problem‟ occurs through the
disequilibrating effects of internal factors such as labor migration, capital migration,
central government policies, and interregional linkages. But these same factors will work
as equilibrating factors later, eventually resulting in regional economic equality. That is,
the pattern of the relationship between economic growth and the level of regional
inequality will be an “inverted U-shaped curve,” suggested in a study of the relationship
between economic growth and the level of income inequality (Kuznets, 1955). This
argument was extended further to a neoclassical growth model that posits an underlying
factor-market equilibrium mechanism that results, ultimately, in the convergence of
regional incomes (Ezcurra and Rapún, 2006). Analyzing regional disparities among
European Union countries, Barrios and Strobl (2005) assert that the relationship between
national per capita income level and regional inequalities shows an inverted U-shaped
10
curve pattern. In addition to supporting the convergence theory, Sala-i-Martin (1996)
calculates the „speed‟ of regional convergence, proposing that regional income disparity
tends to converge by 2% per year in his study of the U.S., Japan, and five European
countries.
While emphasizing the equalizing role of economic factors and the ultimate
convergence of regional disparity, convergence theories consider policies as feeble
factors in reducing regional disparity. To prevent potential increases in inequality among
member countries, the EU has implemented several funding programs, such as the
Structural Funds, the Cohesion Funds, and the European Investment Fund, in less
developed EU countries. The effectiveness of these regional development policies
continues to be debated. There are some studies that have cast doubt on the effectiveness
of such policies. Boldrin and Canova (2001) conclude that EU regional policies,
implemented on the assumption that market mechanisms alone cannot generate economic
convergence, have had little effect in fostering economic growth at the EU level. In fact,
they assert that those policies even exacerbate existing inequalities. A study of the impact
of EU regional policies on the economy of Spain also concludes that EU regional policies
implemented through the Structural and Cohesion Funds were not effective (Rodríguez
López et al., 2006).
Whether we accept convergence theory explanations of regional disparities or not,
the time span required for convergence still remains a controversial issue. Sala-i-Martin
himself (1996) perceives a potential problem in his estimate of „2% per year
convergence,‟ noting that “A speed of two percent is quite slow. It implies that 50 percent
of the distance between an economy‟s initial level of income and its steady state
11
disappear in about 35 years” (p. 1349). For non-convergence theorists, the time span
leaves room for policy intervention. Canova and Marcet (1995) claimed that the „slow‟
speed suggested in modern convergence literature implies a need for policy intervention
so that poor regions can catch up with rich ones, because “poor regions cannot expect to
become as well off as rich ones unless structural changes occur” (pp. 21-22). Moreover,
local residents‟ perception of relative inequality between regions calls for a national
government‟s policy intervention since regions are both political and social entities in
many countries.
B. Divergence Theories
While the convergence theory of regional disparity is based on neoliberal
economic theory, some economists have argued that convergence theory overlooks
empirical evidence. For instance, Philippe Martin (1998) points out that a convergence of
income did not occur across regions inside of each European country during the 1980s,
even though income differentials decreased among European countries. That is, an
„endogenous growth model‟ or „economic geography‟ better predicts economic disparity
among regions within a country, while the convergence theory based on the neoclassical
growth model is appropriate for the pattern of economic disparity among countries.
Martin disparages the neoclassical growth model‟s assumption of factor mobility,
maintaining that “not all factors of production are equally mobile and many people will
have to stay in the regions in decline” (pp. 762-765). Paul Krugman (1991) also asserts
that endogenous factors such as transportation costs, economies of scale, and the share of
manufacturing sectors decide core-periphery patterns. As a result, differentiation of an
12
industrialized core and an agricultural periphery could persist. In the wake of these
observations, several case studies have rejected the relevance of convergence theory.
Applying the statistical method used in the Sala-i-Martin‟s 1996 study, Gezici and
Hewings (2004) find that there is no evidence for convergence of GDP per capita across
either provinces or regions in Turkey from 1980 to 1997. They assert that government
intervention on behalf of economic competitiveness in the global market actually
stimulated divergence rather than convergence. They explain the absence of regional
convergence in Turkey as the result of externally-oriented policies targeting highly
productive regions. These policies provided significant advantages to metropolitan cities
such as Istanbul. A study of Greece by Petrakos and Stratsis (1999) showed that regional
inequalities increased during the stage of economic expansion but decreased during
economic recession. Although the authors do not reject a general trend of regional
convergence in Greece, they suggest that the trend was a result of economic recession,
particularly the recession in core economic areas during the 1980s, and not a result of
factor mobility. They also point out that the development in core regions did not diffuse
automatically to other areas in the country.
Both convergence and divergence explanations of regional income gaps have
common problems concerning the measurement of regional disparity, statistical methods,
and explanatory variables. For example, economic studies of regional disparity do not use
consistent measuring indices, adopting different ones such as per capita income, GDP per
capita, household income, and even household consumption of electricity or car
ownership.

13
2.2. The Politics and Policy Perspective
Although many ignore the role of government policies, some economists
acknowledge the impact of government policies on regional disparities. For example,
economic analysis of Japan‟s public investment shows that allocation of public
investment was used as a policy tool in reducing regional inequality (Akita and Kataoka,
2003; Yamano and Ohkawara, 2000). But most economic studies of regional disparity
have overlooked the significance of government policies and politics in regional
disparities.
In contrast, political scientists study the impact of policies and politics on the
level of regional equality. Studies of distributive politics, which connote geographic or
territorial dimensions, have suggested theoretical models of government resource
distribution (Lindbeck and Weibull, 1987; Weingast et al, 1981). Horiuchi (2007)
distinguishes two models of distributive politics: the “discretionary allocation model,”
which emphasizes a ruling party or a ruling party coalition as a unitary actor, and the
“free competition model,” which emphasizes competition and coordination among
individual politicians. In particular, the ruling party‟s resource allocation strategy
(discretionary allocation model) has been a major subject of empirical studies of party
politics. But there have been debates about the target of the ruling party‟s pork barrel
politics. Some argue that resource allocation is centered on „swing voters‟ or „marginal
districts,‟ while others argue that „core supporters‟ gain the benefits. For example,
investigating the national government subsidies of South Korea between 1988 and 1997,
Kwon (2005) argues that disproportionately large amounts of national subsidies have
been allocated to „swing‟ provinces where electoral contests are competitive. On the
14
other hand, exploring pork barrel politics in Italy, Golden and Picci (2008) claim that
districts of „core voters‟ gained more public works investment.
The logic of distributive politics has been expanded to explain regional disparity
within a country. Investigating regional disparity in Israel, Gradus (1983) argues that
regional disparity there resulted from differences in regional power distribution in the
national politics (representation in the parliamentary, Knesset) as well as differences in
socioeconomic conditions. However, case studies of South Korea reject this assumption
(Kwon K, 2004; Yoon, 2000). For instance, the Gyeongsang province (the southeastern
region of Korea) is believed to have gained favored economic benefits, because most
high ranked positions in the national government (including the presidency) have been
occupied by elites from the Gyeongsang province for three decades. However, Kwon and
Yoon conclude that regional income distribution has been relatively fair and the argument
for regional disparity in Korea lacks empirical evidence.
The impact of government policies on regional disparity is exemplified well in
case studies of China (Chen and Flesisher, 1996; Chen and Zheng, 2008; Ho and Li,
2008; Ohnishi, 2007; Wang and Hu, 1999; Wu, 2002). These studies conclude that
government policies were main causes of increasing regional disparity in China,
especially between coastal and inner areas.
3
The Chinese government implemented
development policies such as Special Economic Zones (1980), Coastal Open Cities
(1984), Coastal Economic Open Zones (1985-1988), and Customs-Free Zones (1990-

3
Although most studies have investigated the regional disparities of China focusing on three macro-regions
(coastal, central and western areas consisted of a group of provinces), several studies adopted micro level
of regional unit – six or seven regional groups or thirty-one provinces (“province” of China is similar to
“state” of the U.S. or “prefecture” of Japan).

15
1993), targeting the development of costal urban areas in the 1980s and 1990s.
Consequently, disparity between regional districts and between urban and rural
municipalities within a region increased. Foreign direct investment also facilitated the
uneven development of regions, while fiscal decentralization in the 1980s and early
1990s limited the central government‟s capacity to equalize gaps between rich areas and
poor ones, favoring local governments in coastal region (An, 2005; OECD, 2001; Shen,
2004; Wang and Hu, 1999). Recognizing the increased regional disparities, the Chinese
government launched fiscal reforms aimed at transferring financial resources from rich
provinces to poor ones in the mid-1990s, and projected the Western area development
plan in connection with the 10
th
Five Year Plan in 2000 (OECD, 2001).
While most studies of regional disparity have focused on economic factors or
policy factors, Putnam (1993) applies a cultural perspective to explain different levels of
socioeconomic development in Italy, investigating the relationship between local political
culture and effectiveness in local government. Comparing the northern and southern
regions of Italy, he concludes that “economics does not predict civics, but civics does
predict economics, better indeed than economics itself” (p. 157).
3. A Politics and Policy Perspective on the Regional Disparity in Japan
There have been many attempts to explain the high level of socioeconomic
equality in Japan. Economists have suggested that a low level of wage differential among
different industrial sectors has been a significant factor supporting Japan‟s relatively high
level of economic equality, pointing out that wage differentials narrowed through
“productivity differential inflation” (Nakamura, 1981) or “white-collarization of blue
16
collar workers” (Koike, 1988). In addition, the distinctive job practices and industrial
relations of Japanese firms facilitated egalitarianism among workers (Gordon, 1998).
Equality was enabled not only by economic factors, but also by cultural and political
factors. Culturalists have emphasized the familism, group-oriented mentality, and
communitarian values of Japanese society as influential elements promoting
socioeconomic equality (Dore, 1973; Fukutake, 1982; Vogel, 1979). Above all, the
government‟s policies and the LDP‟s electoral politics from the 1960s have played
substantial role in reducing socioeconomic inequalities in Japan (Estévez-Abe, 2008).
3.1. Politics and Policy Factors of the Regional Disparity in Japan
The elites, bureaucrats, and policy experts began to share the ideal of equality to
keep sociopolitical stability in the 1950s (Milly, 1999). In pursuit of this goal, the
government implemented various redistributive and protective measures. Moreover, the
electoral considerations of the LDP and its politicians accelerated equality-oriented
policies (Calder, 1988; Pempel, 1998). Japan‟s way of achieving socioeconomic equality
was different from that of the Scandinavian welfare states. Estévez-Abe (2008) suggests
that the Japanese welfare state has provided “functional equivalents” instead of general
social protection programs performed in many welfare states like Sweden. She points out
that functional equivalents such as public works, subsidies to rural families, and market
restricting regulations, instead of individual-based universal welfare programs, have been
provided for specific groups of beneficiaries such as small businesses, farmers, and rural
areas. Similarly, DeWit and Steinmo (2002) argue that the Japanese redistribution of
income has been performed based on region (from urban areas to rural areas), rather than
17
class (from high income class to low income class), through a highly distributive taxation
and budget system.
The achievement of Japan‟s egalitarianism, especially the low level of regional
disparity, has been crystallized by the government‟s support and compensation for rural
areas and for less productive and less competitive sectors. Support for less productive
sectors also helped to reduce regional disparity because the proportion of those sectors
such as agriculture and small and medium-sized companies was higher in rural areas than
in urban areas. The level of regional equality between central-urban areas and peripheral-
rural areas has improved since the 1970s. In particular, residents of the rural and poor
areas gained redistributive benefits of raising standards in public facilities, income, and
education (Calder, 1988; Fukutake, 1982; Scheiner, 2006; Pempel, 1998; Vogel, 1979).
Studies of Japan‟s regional equality have noted the significant role of regional
development policies (Calder, 1988; Muramatsu, 2001; Pempel, 1998), public works and
agricultural subsidies (Calder, 1998; Johnson, 1986; Scheiner, 2006; Mulgan, 2000 and
2003; Wright, 2002), and financial transfers to local governments (Mochida, 2001;
Muramatsu and Iqbal, 2001; Wright, 2002) in reducing regional disparity. However,
efforts to change these policies began with the rapid increase of the budget deficit and
political changes in the 1990s. Attempts to reform continued and even accelerated in the
2000s under the Koizumi administration.
With the collapse of the “1955 System” in 1993, Prime Minister Morihiro
Hosokawa and the non-LDP coalition government accelerated political and
administrative reforms. The reform movement became a major political agenda in
Japanese politics (Nakano, 1998). In 1994, Japan replaced the multi-member districts
18
(MMD) electoral system with a combination of a single member districts (SMD) system
and a proportional representation (PR) system. A major goal of the political reforms was
to reduce money politics practices and political corruption connected with pork barrel
public works. The reform agenda included fiscal reform, privatization, deregulation, and
decentralization. The reform-oriented Hashimoto administration launched administrative
reforms, which focused on restructuring the government organizations. This led to the
merger of public works related ministries. As a part of the reforms, the government
moved toward the decentralization of its system. The promotion of decentralization was,
in part, associated with the rooting-out of money politics, since centralized transfer
payments to local governments constituted important sources of pork barrel politics
(Takao, 1998). Another goal of the reform was to reduce inefficiency in the central
government‟s disbursements to local governments (Akio, 1997; Doi, 2004). It is a well-
known fact that most of the local governments have depended on financial transfers from
the central government. The funds for Japan‟s inter-governmental transfers are raised
from urban areas, especially from Tokyo and Osaka, and redistributed to rural areas. The
central government has formulated and financed major public spending programs for
local governments such as health care, education, public housing, and social services
(OECD, 2005). Local tax revenue substantially declined with the economic recession in
the 1990s, whereas decentralization imposed an increased burden on local government
spending with its emphasis on local autonomy and responsibility (Fukui and Fukai, 1996;
Rozman, 1999). Those reforms were accelerated under Prime Minister Koizumi, who
advocated neoliberal economic reforms and small government. In fact, he tried to change
the 1955 political economy system epitomized by Tanaka Kakuei, which had supported
19
rural areas via earmarked grants, agricultural subsidies, and public works (Kabashima
and Steel, 2007).
3.2. Framework for the Growth of Regional Disparity in Japan
Instead of economic and sociological perspectives, this study focuses on policy
mechanisms and the political logic behind the increase in regional disparity. To explore
the causes of the increase in regional disparity in the 2000s, I trace changes in the major
policies which have contributed to the reduction of regional disparities since the 1960s. I
have found that regional industrial development policies, public works, national subsidies
(such as agricultural subsidies), and financial transfers to local governments (including
the local allocation tax), have played important roles in reducing regional disparity
between urban and rural areas. These policies also resulted in the strong support from the
rural electorate, making the long-term dominance of the LDP possible. However,
maintaining these rural-supporting policies became difficult in the face of international
and domestic challenges since the 1980s.
The 1955 System, under which rural residents and less productive sectors
benefited at the expense of urban taxpayers and internationally competitive sectors, had
been secured by the high growth of the economy and political stability. However,
burdens on the system intensified with economic globalization. Less competitive,
domestic sectors became exposed to international competitions, while export-oriented
industries stagnated. A decline in economic growth and rapid increase in social welfare
costs as well as tax cuts and public investment for stimulating the economy led to large
budget deficits throughout the 1990s. Demographic changes – an increase of the aged
population along with a low birth rate – worsened the financial condition of the
20
government and raised concern over its future. These problems necessitated a reform of
the political economy system. But attempts to reform made little change until the LDP
reconsidered its rural-based electoral strategy. My politics and policy perspective pays
attention to the LDP‟s responses to the political and economic difficulties that the 1955
System faced. The increase in regional disparity was a result of the changes in the LDP‟s
traditional, rural-oriented policies, aimed to improve Japan‟s economic performance and
to secure the party‟s political power. In particular, a policy shift in public works and local
finance (fiscal decentralization) considerably increased regional disparity.
As Figure 1.1 illustrates, my explanation of the growth of regional disparity
focuses on three components: electoral politics, international competitiveness, and budget
deficits. First, I argue that the 1994 electoral reform and the increase of urban, non-
affiliated voters caused regional disparity through the LDP‟s reconsideration of its
traditional policies, which had been beneficial to the rural electorate. During the 1990s,
many LDP candidates in urban districts lost elections due to the urban voters‟ increasing
dissatisfaction with the LDP‟s pork barrel practices and policies which had supported
rural areas. After those defeats, LDP politicians realized that their party could no longer
rely solely on the rural electorate in order to maintain its dominant position. As a result,
the LDP shifted its traditional, rural-oriented policies toward urban-oriented ones, leading
to the growth of regional disparity. Second, I argue that concern over international
competitiveness increased regional disparity. A decline in Japan‟s economic performance
under increasing globalization raised concerns among big businesses and policy experts
over international competitiveness. They increasingly demanded reforms to promote the
efficiency and competiveness of Japanese industries. As a part of the policies to improve
21
international competitiveness, the government‟s development strategy became centered
on urban, metropolitan areas. In order to increase competitiveness, the government
reduced public works projects in rural areas and redirected them toward urban areas,
renovating urban centers and constructing international airports and harbors. Third, I
argue that the budget deficit was a major reason for the growing regional disparity.
During the 1990s, continuous economic recession and a rapid increase in welfare costs
increased the budget deficits of the central and local governments. In particular, the
increase of the aged population and depopulation in rural areas, ineffectiveness of local
public works‟ projects, and lax management of local budgets caused a large concern over
local finance. Attempts to solve these problems led to the growth of regional disparity.
Fiscal decentralization was a policy measure for dealing with the local budget deficits.
This resulted in a higher reliance on local revenue sources rather than financial transfers
from the central government, providing benefits to local governments in urban areas
while damaging financial conditions of local governments in rural areas.
The politics and policy perspective shows that the LDP‟s responses to
international and domestic challenges, particularly those to the 1955 System, led to a shift
in the party‟s traditional, rural-oriented policies and ultimately resulted in regional
disparity. Since the 1980s, improving international competitiveness and reducing budget
deficits became important national tasks to improve Japan‟s economic growth. But
reforms for these tasks were delayed due to the LDP‟s political interests in rural districts.
It was because policies for international competitiveness and balanced budgets would
take away benefits that traditionally had been given to the rural residents and domestic,
less competitive sectors. Economic recession continued in the 1990s, while the budget
22
deficit and the aged population rapidly increased. Meanwhile, the increase of urban, non-
affiliated voters began to threaten the LDP‟s political dominance with their
dissatisfaction with the LDP‟s politics and policies. In the 2000s, after the election of
Koizumi as a prime minister, the government shifted its traditional, rural-oriented
policies toward urban-oriented ones. This resulted from mixed motivations caused by the
three variables.
Tracing policy changes in public works and financial transfers, this study reveals
the policy mechanisms of the growth of regional disparity and the political logic behind
the policy shifts. The LDP had to change its traditional policies regarding public works
and local finance. In this respect, the increase of regional disparity during the last decade
can be explained, in part, by the decline in public works expenditures in rural areas as a
result of Prime Minister Koizumi‟s reforms. In the 2000s, the government abolished or
revised the previous regional development policies and carried out public works projects
focusing on the development of urban centers in metropolitan areas to revitalize the
economy. This was largely a response to strong demands for improving international
competitiveness under globalization. Facing a budget deficit, an aging society, and rural
depopulation, the government launched fiscal decentralization, emphasizing local
autonomy, self-reliance of local governments, and the revitalization of local economies
through competition. But a major goal of fiscal decentralization was to reform the local
finance system, aiming at reducing budget deficits. Thus fiscal decentralization resulted
in higher reliance on local revenue sources rather than the central government‟s financial
transfers.
23
Figure 1.1: Framework of the Growth of the Regional Disparity in Japan

Similar to T.J. Pempel‟s claim that the Japanese political economy was
undergoing a “regime shift” in the 1990s, my politics and policy approach begins by
examining the problems that Japan faced in the 1990s. The Japanese government needed
to transform its political economy to cope with international and domestic challenges
such as a decline of economic growth under globalization, a rapidly growing budget
deficit, and the increase of the aged population and depopulation in rural areas. A
response to those problems was a shift in public works policies and fiscal decentralization.
Changes in electoral politics during the 1990s facilitated the shift of the traditional, rural-
oriented LDP policies. As a result, regional disparity between urban and rural prefectures
and between big cities and small villages increased in the 2000s.

Electoral Reform
and Politics
International
Competitiveness
Budget Deficit
Policy Shift

•Public Works
•Local Finance

Regional
Disparity

24
3.3. Alternative Explanations for the Increase of Regional Disparity in Japan
A. Global City, Urban Hierarchy, and the Straw Effect
In the 1990s, world city, global city, or global city-region discourses began to
appear in the literature about large cities, such as New York and Tokyo, in the context of
globalization.
5
These discourses focus on the distinctive characteristics and functions of
such cities within the global economy (Sassen, 1991; Scott, 2001). Comparative
economic advantages and autonomous economic mechanisms are at work in such cities.
As centers of financial and commercial networks and as centers of knowledge-intensive
industries, they are seen as stimuli for increasing regional disparities between
metropolitan areas and non-metropolitan areas under the present global economy. In
contrast, studies emphasizing Japan‟s domestic political economy have interpreted the
government‟s role as that of a developmental state in that it promotes the competitiveness
of metropolitan cities in the context of global competition (Saito, 2000; Saito and
Thornley, 2003; Waley, 2007).
Machimura (1998) claims that the global city discourse is used as an ideology by
politicians and administrators to rationalize the priority of restructuring Tokyo to
compete with other global cities such as New York and London. To explain the
expansion of the Tokyo Metropolitan Area prior to the 1990s, some Japanese scholars
adopted „urban hierarchy‟ concept. Fujita and Tabuchi (1997) assert that based on their
observations of major firms‟ relocation of their headquarters, an „urban hierarchy‟ has
been strengthened between metropolitan areas and non-metropolitan areas since the

5
In fact, Tokyo is not a city. Tokyo prefecture is composed of 23 wards, 26 cities and several towns and
villages.

25
1980s, centered in the Tokyo Metropolitan Area. That is, high ranking management
functions of multinational corporations and knowledge-intensive industries became
concentrated in the metropolitan areas, while mass-production plants moved to foreign
countries rather than to peripheral regions in Japan. This resulted in increasing regional
economic disparities between metropolitan areas and non-metropolitan areas.
Improvements in transportation and communication services may have facilitated the
process. The government has built bullet-train lines, expressways, and airports to promote
economic revival in rural-peripheral areas. But the results of these improvements
included the closure of local branches and the concentration of branch offices in
transportation-hub cities or metropolitan areas (Kosuke, 2007; Tsukai, 2003). The result
of the so-called “straw effect” increased disparities between metropolitan and non-
metropolitan areas. For example, progress in transportation services did not attract many
metropolitan tourists to rural areas, as was expected, but led to increased visits by rural
residents to big cities for shopping or leisure purposes (Kosuke, 2007).
B. Local Policy Initiative
Several studies of inter-governmental relations in Japan have noted the autonomy
of local governments‟ policy-making (Samuels, 1983; Muramatsu, 1997; Kitayama,
2001). Muramatsu and Iqbal (2001) suggest that local policy initiatives are primarily
worked in three main areas: business promotion, industrial regulation, and welfare
provision. Local policy initiative studies have paid attention to the role of local
governments in obtaining resources from the central government and in promoting local
development policies. Yamamoto (1987) writes about the efforts of the prefectural
government of Chiba as an example of local policy initiative. The Chiba Prefectural
26
Government launched a massive investment of fixed capital in its coastal industrial zone
to attract investment and the relocation of large firms. Kitayama (2001) points out that
local governments began to emphasize promotion of local industries through their own
developmental policies in the 1980s. The local policy initiative perspective provides
insight into regional disparities among municipalities. But it is important to note that the
level of local autonomy differs by legal status such as the government ordinance-
designated city (seirei shite toshi) or the special case cities (tokurei shi). The level of
policy initiative depends on the local government‟s legal status (Jacobs, 2003).
3.4. Comparison of Regional Disparity among OECD Countries
Although regional disparity and development have been noted particularly in
developing countries, the issues have received considerable attention even in developed
countries such as Italy, Canada, and the UK. For example, the increase of regional
disparities between the northern and southern areas of the United Kingdom was a major
concern during the 1980s. Government policies based on Thatcherism, their impact on
regional disparity, and electoral politics were main topics of political debates in the UK.
While a majority of voters in the depressed northern area strongly supported the Labor
Party, a majority of voters in the rich southern area supported the Conservative Party.
Observing the region-based sociopolitical cleavage, conservative politicians began to
advocate the necessity of so called “one nation politics,” emphasizing the reduction of
regional disparities (Martin R. 1988). However, the regional disparity issue has been
neglected by both parties and their leaders such as Prime Ministers Thatcher and Blair
(Morgan, 2002).
27
A report by the UK parliament illustrated that the gap of GDP per capita between
the three highest areas (London, South East, and Eastern regions) and the three lowest
northern regions has increased over 30% since 1997. Regional disparities are also
reflected in life span, income, and the level of living quality (ODPM, 2003). The OECD
regional database (2007) illustrates the seriousness of regional disparity in the UK. For
example, GDP per capita ranged from five times the national average in the richest region
to just above half of the average in the poorest region of the UK. The level of regional
disparity was also high in countries such as Turkey, France, Mexico, and the US. In these
countries, income per capita of the richest region was around four times higher than that
of the poorest region (OECD, 2007).
Table 1.2: Ratio of GDP Per Capita of Regions within a Country in 2001 (National
Average = 1.00)
Country Highest region Lowest region
The United Kingdom 4.46 0.60
The United States 3.32 0.65
Japan 1.92 0.73
Italy 1.56 0.59
Sweden 1.51 0.96
Source: OECD, 2007 (TL3 level).
6

Except for a few countries like the UK, regional disparity was not an important
issue in advanced countries. However, the increase of new member countries in the EU

6
Countries use the term “region” differently and its size and population also varies. The OECD
distinguished TL2 and TL3 to make cross national comparison possible. For example, Japan has 10
regional districts (TL2) and 47 prefectures (TL3), while the US has 51 states in TL2 level and 179
Economic Areas (defined by Bureau of Economic Analysis) in TL3 level. On the other hand, Germany has
16 Länder and 97 Spatial Planning Regions (group of Kreise). The OECD also classified urban and rural
regions based on population density, but applied a different standard for Japan due to its high level of
national population density (OECD, 2007).

28
revitalized studies of regional disparity. Regional disparity and regional development
issues became a policy agenda of many OECD countries again in recent years (OECD,
2005b). The concern over regional disparity in the EU region was concentrated on
disparities among member countries. But comparing regional disparities among countries
is not an easy task. The OECD has developed comparable statistical indicators at the
subnational level and provided various regional disparity data such as GDP per capita,
productivity, health, and education (OECD, 2002; OECD, 2003b).
7

Table 1.3: Gini Index of Regional GDP Per Capita in 2001
Country Gini index
Turkey 0.32
Mexico 0.27
Korea 0.18
UK 0.18
OECD average 0.15
Italy 0.14
Japan 0.09
Sweden 0.06
Source: OECD, 2005 (TL3 except for Mexico).
Although there are some difficulties in comparing regional disparities among
countries, comparative indicators illustrate that regional disparities in Japan are relatively
low compared to other OECD countries. For example, regional disparity in GDP per
capita between 1994 and 2000 was 6
th
from the lowest, and regional disparity in
unemployment rates in the same period ranked 3
rd
from the lowest among 25 OECD

7
To provide regional data, the OECD distinguished regional disparities as two dimensions: geographic
concentration and territorial disparity (OECD, 2003a). According to the OECD, “geographic concentration
indicates the extent to which a small number of regions accounted for a large portion of a certain economic
phenomenon such as unemployment, while territorial disparity refers to the degree to which the intensity of
this phenomenon differs between regions such as unemployment rates” (OECD, 2003a. p. 2).

29
countries (OECD, 2003a; OECD, 2005a). However, this does not mean that regional
disparity in Japan is not a serious issue. The OECD data does not reflect the recent
increase in regional disparities in Japan and does not take disparities among regional
districts and between big cities and small cities into account.
Table 1.4: Gini Index of Regional Unemployment Rates in 2003
Country Gini index
Italy 0.43
Germany 0.28
Canada 0.24
UK 0.19
OECD average 0.19
US 0.12
Japan 0.11
Netherlands 0.09
Source: OECD, 2007 (p. 83, TL 3).
4. Research Method
In exploring the growing inequalities in Japan since the late 1990s, most studies
of the current regional disparity claim that economic and demographic factors are major
causes of increasing regional disparity (Higuchi, 2005; Hiura, 2006; Mizuho Research
Institute, 2007; Ohtake, 2005; Shinohara, 2007). For example, Shinohara (2007) claims
that industrial structure is a prominent factor in widening regional disparities. According
to the study, in the economic recovery stage in the early 2000s, prefectures with a high
portion of export-oriented machinery industry grew faster than prefectures with a high
portion of primary industries. However, those studies do not consider politics and policy
factors as important sources of inequality, and few empirical studies are conducted from a
politics and policy perspective, failing to provide adequate explanations of the current
30
regional disparity in Japan. We should not overlook the fact that economic and social
equality in Japan during the 1960s and the 1970s was the outcome of political
considerations and government policies targeting specific groups and areas (Calder,
1988; Pempel, 1998; Vogel 1979). From this perspective, this study explores policy
mechanisms and the political logic behind the growth of regional disparity. To explore
political and policy factors, I trace changes in the policies that supported rural areas and
lessened regional disparities. My “process tracing” method focuses on the increase in
regional disparity among different regional districts, among rural and urban prefectures,
and between big cities and small towns,
Studies of Japan‟s prefectures have categorized them as urban and rural
prefectures, especially based on the „densely inhabited districts‟ (DID) ratio as defined by
the census.
8
For example, Reed (1986) distinguishes between urban, industrial
prefectures and rural, agricultural prefectures. On the other hand, Muramatsu (1986)
divides Japanese prefectures into urban prefectures, quasi-urban prefectures, and rural
prefectures, using the ratio of primary industries in each prefecture‟s economies. The
National Land Agency, now merged into the Ministry of Land, Infrastructure and
Transport, used to distinguish between 15 metropolitan prefectures (daitoshi ken) and 32
provincial prefectures (chihou ken). For this research, I have selected several urban and
rural prefectures among all 47 prefectures based on the DID ratio and the percentage of
agricultural workforce. Applying these criteria, the prefectures of Japan are categorized
as follows:

8
“The population density of Japan‟s rural areas (defined as non-DID areas) is 124 persons per km
2
in 1990,
while that of all OECD territory is on average 27 persons per km
2
(OECD 1998, p. 225).”

31
Table 1.5: Urban and Rural Prefectures in Japan
Regional District Rural Prefecture Urban Prefecture
Hokkaido
Tohoku Aomori, Iwate, Akita,
Yamagata, Fukushima

Kanto I

Saitama, Chiba, Tokyo,
Kanagawa
Kanto II Ibaraki, Tochigi,
Yamanashi, Nagano

Hokuriku
Tokai Aichi, Shizuoka
Kinki I Kyoto, Osaka, Hyogo
Kinki II Wakayama
Chugoku Tottori, Shimane
Shikoku Tokushima
Kita Kyushu Saga
Minami Kyushu Kumamoto, Kagoshima
Source: Japan Statistical Yearbook. Categorization based on the DID ratio and the
percentage of agricultural workforce.
This categorization is similar to the widely used distinction between metropolitan
areas and non-metropolitan rural areas of Japan. Japan has three metropolitan areas: the
Tokyo metropolitan area (Saitama, Chiba, Tokyo, and Kanagawa prefectures), the Osaka
metropolitan area (Kyoto, Osaka, Hyogo, and Nara prefectures), and the Nagoya
metropolitan area (Gifu, Aichi, and Mie prefectures).
9

The increasing regional level disparity is prominent in a comparison of
metropolitan areas and non-metropolitan areas. In particular, increasing regional gaps
between Tokyo metropolitan areas and non-metropolitan Tohoku and Kyushu areas are
frequently mentioned in newspapers and economic reports. For a regional district level

9
Prefectures included in the metropolitan areas are slightly different, depending on the government
agencies. A report of the Cabinet Office defined three metropolitan areas as Minami Kanto region (Chiba,
Kanagawa, Saitama, and Tokyo prefecture), Tokai region (Aichi, Gifu, Mie, and Shizuoka prefecture), and
Kinki region (Shiga, Kyoto, Nara, Wakayama, Osaka, and Hyogo prefecture) (Cabinet Office, 2008).

32
comparison, I selected the Tokyo metropolitan area (urban prefectures including Chiba,
Kanagawa, Saitama, and Tokyo prefectures) and the Tohoku region (rural and
agricultural prefectures including Akita, Aomori, Fukushima, Iwate, and Yamagata). The
selection of both regional districts allows a convenient comparison since all prefectures
(except for Miyagi) in each regional district fall under the same category. In fact, the
Tohoku region (northeastern part) is composed of six prefectures including Miyagi, but
this prefecture is not categorized as a rural prefecture. This study also focuses on regional
disparity at the prefectural level and sub-prefectural level. Case studies are used to
identify causal factors and to trace a process of increasing regional disparity.
Considering geographic proximity and accessibility, I chose the Chiba Prefecture
as a sample urban prefecture and the Fukushima Prefecture as a sample rural one. Within
each prefecture, municipalities are selected to compare regional disparity between big
cities and small towns. Specifically, the capital city of the Chiba Prefecture, Chiba City, a
„designated city‟ by government ordinance (seirei shitei toshi), is selected to conduct a
comparative study of regional disparity between big cities (Chiba city) and small towns.
10

10
As of 2009 Japan has 18 ordinance-designated cities. To be qualified as an ordinance-designated city, a
city should have a population over 500,000.

33
Figure 1.2: Map of Japan by Prefecture

Source: www.sabine.ca/map-japan.html
Documentary research was conducted tracing changes of major explanatory
variables. To trace changes in national policy and politics, I relied on minutes of the Diet
committee session (Committee on Land, Infrastructure and Transport), reports of the
decentralization-related committees, the proceedings of the Council for Economic and
34
Fiscal Policy under the Cabinet, and ministerial documents from the mid-1990s and mid-
2000s. Statistical time-series data between the mid-1980s and mid-2000s are gathered on
public works, demographics, national disbursements, and local finance. For this study, I
conducted field research in Tokyo between July 2007 and July 2008, as an affiliate of the
University of Tokyo (Institute of Social Science).
5. The Organization of the Dissertation
This dissertation consists of six chapters. Chapter Two provides a description of
the background policies and politics that supported regional disparity and of reforms that
attempted to change the previous Japanese political economy system. Through a literature
review, the chapter identifies important political and policy factors that have influenced,
on a relatively high level, the regional equality of Japan. Chapter Three examines
changes in electoral politics of the 1990s, focusing on the electoral reform of 1994 and
subsequent elections, showing that the LDP‟s electoral considerations shifted its rural-
oriented policies toward urban-oriented ones. The impact of the increase of urbanization
and socio-demographic change on the LDP‟s policies involved with its electoral politics
are investigated in this chapter.
In Chapter Four and Chapter Five, I conduct analyses of empirical data focusing
on two major causes of the growing regional disparity. These chapters show that concerns
over international competitiveness and budget deficits caused regional disparity. Chapter
Four traces changes in the national public works projects and regional development
policies. Reasons for the redirection of public works projects from rural to urban areas in
the 2000s and the impact of this redirection on local economies are explored. Chapter
35
Five investigates the decentralization process and its impact on the local finances of
governments in urban and rural areas. This chapter focuses on the central government‟s
financial transfers to local governments, exploring the causes and effects of fiscal
decentralization.
The final chapter, Chapter Six summarizes the argument and findings of this
study. This chapter also explores the applicability of my politics and policy perspective to
other countries and its explanatory limits.

36
Chapter II. Policies for Regional Equality and Reforms of the Japanese System
The growth of economic inequalities was a major issue for the Japanese
government after World War II. In particular, it was a big concern for the LDP politicians,
who feared the expansion progressive political forces. For this reason, LDP politicians
began to appeal to farmers in order to prevent a red-green (workers-farmers) coalition.
The government launched various policies to reduce socioeconomic inequalities,
including regional disparity. Japan‟s electoral politics, under which the LDP depended on
support from rural districts, facilitated implementation of policies favoring rural areas. As
a result of rural-oriented policies such as regional industrial development policies, public
works, and financial transfers, residents of rural areas enjoyed a similar level of income
and public services compared to those of urban dwellers. This was made possible by the
rapid growth of export-oriented industries and consequent increase of the government‟s
tax revenue. But the Japanese economy began to slow down in the mid-1970s. For
example, the average GDP growth rate during the 1980s was around 5%, while that of the
1960s was around 10% (Cabinet Office
11
; MIAC, 2005). The manufacturing sector in
particular, which had led rapid economic growth, began to shrink in the 1980s. At the
same time, less competitive domestic industries as well as productive export-oriented
industries were exposed to stiff international competition with economic globalization.
Moreover, the increase of the aged population placed a large financial burden on the
government budget. As a result, policies for supporting less competitive sectors and rural
areas became difficult to sustain. Under these conditions, Prime Minister Yasuhiro

11
http://www.esri.go.jp.

37
Nakasone launched reforms to overcome the problem in the mid-1980s. However, the
LDP‟s policies supporting rural areas and pork barrel practices did not change due to the
vested interests of bureaucrats and politicians.
In the early 1990s, the burst of the bubble economy and a series of corruption
scandals involving pork barrel practices led to strong public criticism of the LDP. This in
turn led to the party‟s defeat in the 1993 general election. The LDP‟s traditional policies
under the 1955 political economy system supported less competitive domestic sectors and
rural areas at the expense of export-oriented sectors and urban taxpayers. Sustaining this
practice became difficult with increased international competition and continuous
economic recession. As a result, the budget deficit of the central and local governments
increased, while the effectiveness and the efficiency of the government‟s spending
declined.
During the 1990s, there were several attempts to reform the LDP‟s traditional
policies to cope with new challenges such as economic globalization, the aging society,
and the budget deficit. As in the 1980s, however, the LDP and its government did not
change its traditional rural-supporting policies due to the vested interests of bureaucrats
and politicians. The necessity of reform to deal with the inefficiency of public sectors,
decline of international competitiveness, and increase of the government‟s budget deficit
increased. In fact, electoral politics was a main reason for the LDP‟s hesitation to reform.
From the mid-1990s, electoral reforms were carried out in pursuit of less corruption,
policy-based competition, and a two-party system. In particular, the introduction of a
single member districts system and of a proportional representation system in the 1994
electoral reform substantially increased the power of urban voters.
38
1. Historical Background
Before World War II, the income gap between cities and agricultural villages in
Japan was high due to the income differential between primary sectors and non-primary
sectors (Nakamura, 1981). The Sectoral income differential continued even after the end
of the war and the income gap between urban and rural areas also persisted because the
majority of rural households in the late 1940s were farm households, earning most or all
of their income from agricultural products (Fukutake, 1982; Jussaume, 2003). In fact,
Japan was not an egalitarian country, and equality was not an important socio-political
principle before the Second World War (Milly, 1999; Tachibanaki, 2005). However, the
war‟s devastation and the U.S. Occupation have contributed to equalization in Japan.
That is, democratization and reform policies initiated by the Allied General Headquarters
(GHQ), such as land reforms and a new tax system, shifted Japanese society towards a
more equality-oriented one (Milly, 1999; Tachibanaki, 1996). However, the wage
differential between large firms and small firms considerably widened in the period of
rapid economic growth began from the mid-1950s. The rapid industrialization and
urbanization caused a high level of socio-economic inequalities. The increasing
disparities between urban and rural areas began to be recognized by influential
economists and bureaucrats of the Ministry of Labor and the Ministry of Health and
Welfare. Politicians, bureaucrats, and policy experts perceived the need for improving
economic equality and for lessening poverty and social disparity (Calder, 1988; Milly,
1999).
Following the recognition of socioeconomic inequalities during the 1950s,
electoral politics accelerated the LDP‟s strong support for social stability, pushing the
39
government to implement protective and redistributive policies during the 1960s. LDP
politicians and the government were concerned that the low-income class was a target for
mobilization by communist party organizations. This concern further increased with the
election of progressive governors and mayors in many municipalities during the 1960s.
The LDP wanted to consolidate its support base and to impede the power of the Japanese
Socialist Party, the Japanese Communist Party, and other leftist organizations by
promoting a sense of equality in society (Milly, 1999). In fact, protective and
redistributive policies for rural areas generated strong electoral support from the rural
constituents in the 1970s and 1980s. Table 2.1 shows that the ratio of votes for the LDP
has been much higher in rural constituencies than in relatively urban constituencies in the
House of Representatives elections.

Table 2.1: Percentage of Vote Share by the LDP in Lower House Election
DID % of
constituencies
1972 1976 1980 1983 1986
1-29 57.4 61.9 66.0 61.5 63.4
Rural 30-39 48.3 52.8 57.2 56.0 58.6
40-49 51.0 51.9 54.9 53.9 58.2
50-69 40.9 44.0 45.8 44.0 49.6
Urban 70-89 32.1 32.1 37.7 34.6 39.0
90-100 24.3 24.6 30.7 27.5 30.7
Average 41.8 44.6 47.9 45.8 49.4
Source: Mulgan (2000, p. 344). Higher percentage of DID means a constituency is
more urbanized.
The government‟s reports demonstrated its continuous interest in regional
disparity. The 1961 Economic White Paper by the Economic Planning Agency expressed
concern for income disparity among prefectures, mentioning that per capita income of
40
Tokyo was 2.6 times more than that of Kagoshima in 1958 (pp. 445-452). Narrowing
regional disparity became a major national policy and was embodied in the
Comprehensive National Development Plan (CNDP) established in 1962. The
transportation networks of Shinkansen (bullet train) and highways were projected to
reduce regional disparity in the New Comprehensive National Development in 1969. The
1970 New Economy and Society Development Plan also illustrated that the idea of
launching regional development projects to develop less populated and less industrialized
areas continued (Economic Planning Agency). In 1977, the third Comprehensive
National Development Plan, which described its aim as the improvement of the living
environment, contributed further to regional equality, making it possible for rural
residents to enjoy public amenities, education, and health services comparable to those in
urban areas. The income of rural residents also became closer to the income of urban
residents. The fourth Comprehensive National Development Plan announced in 1987
addressed the concentration problem of population and functions in the Tokyo
Metropolitan Area.
41
Table 2.2: Comprehensive National Development Plan in Japan
The CNDP The New
CNDP
The Third
CNDP
The Fourth
CNDP
Cabinet
Decision
October 1962 May 1969 November 1977 June 1987
Objective
Year to be
Achieved
1970 1985 1987 2000
Background 1.Rapid
economic
growth
2.Overextended
city and
expansion of
income gap
3. Income
doubling plan
1.Rapid economic
growth
2.Concentration of
population and
industries to urban
areas
3.Information,
internationalization,
and technological
advancement
1.Stable
economic growth
2.Regional
dispersion of
population and
industry
3.Limited natural
resource and
energy
1.Concentration of
population and
functions to Tokyo
2.Employment
problem in rural
areas caused by
changes in
industrial structure
3.Internationalizatio
n
Objective Balanced
development
among regions
Extending equal
possibilities of
development to all
regions
Total adjustment
of human habitat
Construction of
multi-polar nation
Development
method
Building of
development
hubs
Large-scale
projects
Restricting
overconcentration
on metropolitan
areas and
balanced use of
national land
Inter-transportation
and communication
network
Amount of
Investment
¥ 130 trillion to
¥ 170 trillion
(public investment)
at 1965 prices,
1966-1985.
¥ 370 trillion
(public
investment) at
1975 prices,
1976-1990.
¥ 1,000 trillion
(public and private
investment) at 1980
prices,
1986-2000.
Source: Ministry of Land, Infrastructure and Transport (2009).
12

Despite these government plans, regional disparity increased in the mid-1980s.
The growing concern over regional disparity, especially regional disparity between three
metropolitan areas and non-metropolitan areas, was expressed in the 1986 Economic
White Paper (pp. 245-251). In addressing the growing regional disparities, the LDP
government implemented various policy measures to solve the depopulation problem in

12
http://www.mlit.go.jp/koukudokeikaku/zs5/hikaku.html.

42
rural areas and to improve rural residents‟ quality of life, such as local conditions of
education, medical services, and culture.
2. Policies for Regional Equality since the 1960s
Politics and policies played substantial role in reducing socio-economic gaps. The
LDP government and politicians sought socioeconomic equalities in the process of rapid
economic development, and pursued strong electoral support from rural constituencies
and from less productive domestic sectors. To achieve those goals, the LDP government
conducted various redistributive and protective measures such as regional (industrial)
development projects, public works and subsidies, and protective or promotional policies
for small-to-medium firms and for less productive sectors such as agriculture and small
retailers. Consequently, Japan achieved a high level of socio-economic equality in the
1970s. Moreover, the level of regional equality between central-urban areas and
peripheral-rural areas has also improved (Calder, 1988; Curtis, 1988; Milly, 1999;
Pempel, 1998; Vogel, 1979).
2.1. Regional Industrial Development Policies
The beginning of postwar regional policy can be traced back to the National Land
Development Act of 1950. Concerns over socioeconomic problems caused by the rapid
outflow of the population from farm villages to cities resulted in the subsequent
enactment of rural area development laws such as the Hokkaido Development Act (1950)
and the Tohoku Development Act (1957). On the other hand, the Capital Region
Maintenance Act (1959), the Kinki Region Maintenance Act (1960), and the Chubu
Region Maintenance Act (1960) were legislated to restrain overpopulation and
43
overconcentration of factories in metropolitan areas. Enactment of these region-based
development laws continued until the 1971 Okinawa Region Development Act. In
addition, several functionally-specific laws such as the Special Measures Act for Heavy
Snowfall Areas, which mostly benefited rural areas, were promulgated in 1962.
In 1960, the Japanese government passed the „National Income Doubling Plan,‟
which aimed to double per capita income in ten years. It also adopted a plan that aimed to
disperse industries, especially manufacturing firms, from the Tokyo and Osaka areas to
other Pacific Coast areas. This plan resulted in expanding industrial regions to the Pacific
Belt areas, covering areas from Tokyo to the Kitakyushu region. Regional income gaps
were not reduced in the beginning due to the wage differentials among industries, but
migration from rural areas to the industrialized areas gradually diminished interregional
income disparity (Fujita and Tabuchi, 1997). However, the impact of the Pacific Coast
Belt scheme was limited to the Pacific area. Therefore, the government began to expand
regional development projects to areas beyond the Pacific coast. These schemes included
the project to develop fifteen “New Industrial Cities” in 1962, the project to develop six
“Special Areas for Industrial Consolidation” in 1964, and the “Special Act for
Developing Depopulated Areas” in 1970.
Skeptics of the effect of these regional development projects, such as Fujita and
Tabuchi (1997), point out that the true effects of the development projects are uncertain
and difficult to measure statistically. Kitayama (1995) also asserts that most of the new
industrial cities were not successful, while Yamamoto (1987) argues that there was little
incentive for manufacturing factories to move into new places. However, the local
industrial development projects, and particularly those projects that helped to redistribute
44
wealth from industrialized urban areas to less developed and remote rural areas, have
been positively evaluated by many scholars (Calder, 1988; Muramatsu, 2001; Pempel,
1998; Pempel and Muramatsu, 1995).
The regional development projects continued in the 1980s. The Ministry of
International Trade and Industry (MITI) proposed the „Technopolis‟ program to build
high-tech industrial cities and passed the Technopolis Law in April 1983. Subsequently,
MITI approved 23 regional sites and allocated ¥ 4.1 billion in conditional loans and ¥ 4.3
billion in low interest loans to promote regional industrial parks. The technopolis were
usually located in major urban centers in nonmetropolitan prefectures such as
Utsunomiya City of the Tochigi Prefecture, Kōriyama City of the Fukushima Prefecture,
and Oita City of Oita Prefecture (OECD, 2005b). Hein and Philippe (2006) claim that the
southwestern region, where many powerful politicians came from, had a large share of
technopolis. This was exemplified by Morihiko Hiramatsu, the long time governor of
Oita Prefecture and former director of MITI, and Morihiro Hosokawa, a governor of
Kumamoto in 1983 and Prime Minister in 1993. During the 1980s, manufacturing firms
were increasingly moving overseas, seeking cheap labor. In order to cope with this
situation, MITI developed the Regional Research Core Program to bring high-tech
research to certain rural regions and to strengthen local R&D facilities during the 1990s.
2.2. Pork Barrel Politics
Studies of Japanese party politics and the electoral system have emphasized the
importance of rural areas as supporting bases of the LDP and its government, underlining
the close relations between sociopolitical networks and LDP politicians. Through these
relations, “pork barrel” practices became prominent in Japanese politics under the „1955
45
System.‟ Emphasis on public works and agricultural subsidies was a defining
characteristic of Japan‟s postwar political economy. There is a broad consensus on the
centrality of pork barrel politics practiced by the LDP government and LDP politicians,
both in the Diet and in local elections under the 1955 System (Fukui and Fukai, 1996;
Wright, 2002). Johnson (1986) points out that the result of pork barrel politics was to
“redistribute income from the rich sectors to the poor ones and to ensure that high speed
growth did not benefit one group to the exclusion of others” (p. 20). Wright (2002)
asserts that “public works provided the „third leg‟ of a grand electoral strategy, which
included agricultural subsidies, and tax breaks and spending measures for small
businessmen” (p. 454). As a consequence, the regional inequality between urban areas (or
prefectures) and rural areas narrowed during the 1970s and 1980s. The LDP gained
strong electoral support from rural constituents, and social stability was strengthened in
Japan.
Table 2.3: Per Capita Public Works by Prefecture in 1997
(Unit: 1,000 yen)
Prefecture Per Capita Public Works
Most-taxed
Metropolitan
Prefectures

Tokyo 325
Osaka 272
Aichi 276
Kanagawa 273
Chiba 245

Least-taxed
Rural
Prefectures

Okinawa

439
Nagasaki 445
Kagoshima 455
Koichi 598
Shimane 691
National Average 363
Source: Dewit and Steinmo (2002, p. 172).
46
A. Public Works
The LDP‟s pork barrel politics began in earnest with Prime Minister Tanaka
Kakuei‟s notion of “Remodeling of the Japanese Archipelago (Nihon Retto Kaizouron)”
in 1972. Following the oil shock in 1973, public spending increased rapidly in the early
1970s and various projects were implemented in finance, construction, and transportation
in support of backward areas (Vogel, 1979; Wright, 2002). In fact, spending on these
public works often went to poor agricultural prefectures located on the coast of the Sea of
Japan. Public works spending as a percentage of national budget expenditures continued
to increase in the mid-1980s. During that time, Japan‟s public works spending as a
percentage of GNP more than doubled that of France and quadrupled that of the U.S.
(Calder, 1988). One result was the growth of the construction industry.
Table 2.4: Percentage of Construction Workers in Selected Countries
1980 1990 2000
Japan 9.9 9.4 10.1
Germany 8.0 6.6 9.0
Italy 10.0 8.8 7.8
South Korea 6.2 7.4 7.5
The U.K. 6.5 8.0 7.2
The U.S. 6.3 6.5 7.0
Source: International Labour Organization (LABORSTA Internet)
Workers in construction companies accounted for around 10 percent of the
workforce. Moreover, the proportion of construction workers in public works projects
among all construction workers became higher in rural areas than in urban areas. This
was a direct result of bias in public works projects toward rural areas.
47
Table 2.5: Percentage of Construction Workers in Japan
Tohoku region
(Rural prefectures)
Tokyo
Metropolitan Area
National
Average
1985 9.82 8.38 9.02
1990 10.12 9.01 9.47
1995 11.83 9.56 10.34
2000 12.20 8.56 9.99
Source: Statistical Yearbook of Japan (2007).
The construction industry, with more than 560,000 companies directly employing
6 million people, depended heavily on public works contracts. At the same time, farmers
were able to obtain additional income as part-time construction workers. Thereby, the
construction industry indirectly provided more than 10 million additional jobs (Wright, p.
454). The public works spending declined somewhat in the mid-1980s, but the
government increased public works spending again in the late 1990s, as the economy
moved into recession.
Although pork barrel politics is considered to contribute much to the reduction of
regional inequality, there is a debate about an influential variable in the Japanese pork
barrel policymaking process: the power of individual politicians and bureaucratic
processes. The “personal power approach” notes the influence of individual politicians,
particularly senior and influential LDP leaders and/or cabinet ministers, and especially
the Minister of Construction and the Minister of Transport, in the distribution of public
works. The relationship between constituents‟ political support and LDP politicians‟
influence on public works and government subsidies has been examined in a number of
studies (Calder, 1988; Fukui and Fukai, 1996; Johnson, 1986; Meyer and Naka, 1999). In
Chalmers Johnson‟s examination of Prime Minister Tanaka Kakuei‟s influence on public
48
works in the Niigata Prefecture, he notes that the Niigata Prefecture had become the
number one beneficiary among 47 prefectures in terms of public works expenditure per
person by 1983. Concretely, he points out that “In 1982 each resident of Niigata
prefecture paid an average of $554 in taxes, while per capita spending on public works
was $1,644. On the contrary, the per capita tax payment in Tokyo was $3,060, whereas
the per capital public works spending was just $815” (p. 8). Calder supports Johnson‟s
finding of strong relations between public works and powerful LDP politicians with
additional examples from the Shimane Prefecture and the Oita Prefecture. According to
Calder, people in the Shimane Prefecture, where three of the most powerful LDP
members and bureaucrats at the time (Noboru Takeshita, Yoshio Sakurauchi, and Kichizo
Hosoda) were from, received great benefit through the political influence of these
politicians. Although the per capita income of the Shimane Prefecture in 1984 ranked
only 36
th
among 47 prefectures and the per capita payments of the national tax ranked
43
rd
among all prefectures, the Shimane Prefecture ranked second in the number of
museums and art galleries per capita and thirteenth in number of public libraries per
person among all prefectures (Calder 1988, p. 275).
Moreover, Meyer and Naka (1999) find that factors such as overrepresented
voting districts (rural prefectures), representatives‟ party affiliation with the LDP, and
their seniority or position within the LDP were significant in determining the distribution
of the central government‟s financial transfers. Exploring the cases of the Okayama
Prefecture and the Toyama Prefecture, Fukui and Fukai (1996) find that the distribution
of public works funds was the primary target of lobbying activities by local governments,
Diet members, and interest groups. The Distribution of public works depended on
49
subjective judgments of decision-makers in each ministry, although financial transfers,
such as local grants-in-aid which targeted poorer, revenue-deficit local governments,
were distributed to all eligible localities based on “universal criteria”. These studies
emphasize how politicians were able to obtain necessary political and financial support
from koenkai (politicians‟ local support organizations) and constituents, by compensating
them with national government‟s public works and subsidies.
However, claiming credit has been a very common election strategy to improve a
legislator‟s chances of winning. From this perspective, studies highlighting the influence
of individual politicians and bureaucrats have been criticized for their methodological
defects and for overlooking exaggerations by politicians. A multivariate regression
analysis for public works projects implemented between 1964 and 1988 shows that the
LDP‟s construction-tribe (kensetsu zoku) members did not funnel public works projects
to their home prefectures, and that their influence in delivering pork to their own
constituency was much less than one might expect (Woodall, 1996). A high-ranked
official of the Ministry of Construction estimated the tribe members‟ influence at around
5 percent of decisions involving the allocation of public works projects (Woodall, p. 121).
Woodall argues that the LDP construction-tribe members used their regulatory power to
ensure that particular construction companies received public works orders, rather than
solely using their clout to channel public works projects into their districts. Reed (2001)
insists that Japan‟s bureaucracy is inclined to favor an automatic allocation system
because it is easier to implement, while minimizing politicians‟ influence on the policy-
making process. He points out that “the Japanese literature is full of anecdotes of political
influence over grant allocation, but most are unconvincing because the implications are
50
not spelled out and counter-hypotheses are not tested” (p. 117). Wright (2002) also
argues that it is difficult to identify individual LDP politicians‟ influence on public works
within a prefecture in the electoral districts. Scheiner (2006) suggests that Japanese
clientelism is more universally distributed and that even those who do not support LDP
candidates, especially those among farmers, still benefit from public works and subsidies.
B. Agricultural Subsidies
In addition to public works, subsidies - especially agricultural subsidies - played a
key role in reducing regional inequality by subsidizing farm income. Rice subsidies were
prominent measures used to support farmers because eighty or ninety percent of farm
families were engaged in rice farming (Vogel, p. 81). Kabashima (1984) points out that
between 1971 and 1977, the percentage of agriculture expenditures in total government
expenditures of Japan was at least four or five times higher than that of the U.S., Britain,
and West Germany. Specifically, in 1975, the Japanese government‟s agriculture
expenditure was 10%, while that of the U.S. was 0.5% and West Germany 1.4%.
Table 2.6: Percentage of Agricultural Expenditures in Government Spending
1974 1975 1976 1977
Japan 10.5 10.0 8.8 7.9
U.S. 0.8 0.5 0.7 1.4
U.K 4.0 3.2 2.1 1.5
West Germany 1.6 1.4 1.2 1.1
France 3.8 3.8 3.7 3.7
Source: Kabashima (1984, p. 329).
Moreover, farmers could take up side jobs as part-time workers in rural areas.
Consequently, national per capita income of farm households came to exceed that of
51
workers‟ households during the 1970s and 1980s (Fukutake, 1982; Kabashima, 1984). By
1972, per capita income of farm households had exceeded the national average for
worker households. In 1980, the average income of farm families was 13.4 percent higher
than that of worker families (Fukutake, p. 97). At least until the mid-1980s, farmers could
enjoy government support.
During the 1990s, the Japan Federation of Economic Organizations (Keidanren)
began to call for liberalization of restrictions on agricultural imports in response to
increased globalization and international pressure. Nevertheless, support to the
agricultural sector continued. To estimate the level of agriculture‟s dependence on
subsidies in each country, OECD has used the producer subsidy equivalent (PSE) as an
indicator. OECD defines the PSE as “an indicator of the value of the monetary transfers
to agriculture resulting from agricultural policies in a given year” (OECD 1997a, p. 21).
According to the OECD report (1997a) on agricultural policies among member countries,
Japan ranked second only to Switzerland in terms of the PSE in 1994. Japan‟s PSE was
75%, next to Switzerland‟s 81%. Both percentages were much higher than the EU‟s
(49%), the United States‟ (19%) and Australia‟s (10%), while the average of OECD
countries was 42% (p. 31).
In 1999, the OECD replaced the former Producer Subsidy Equivalent with the
Producer Support Estimate. The Producer Support Estimate (new PSE) is defined as “an
indicator of the annual monetary value of gross transfers from consumers and taxpayers
to agricultural producers, measured at the farm-gate level, arising from policy measures
that support agriculture, regardless of their nature, objectives or impacts on farm
production or income (OECD 2005a, p. 170).” The average PSE in 2001-2003 was 31%,
52
which declined from the 1986-1988 average of 37%.The PSE has fallen in all countries
during the period, except Hungary, Japan, Mexico, Poland and Turkey (2005a, p. 170).

Figure 2.1: Producer Support Estimate by Country
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
New
Zealand
Australia United
States
OECD
Average
EU15 Japan Korea Switzerland
1990
1995
2000

Source: OECD Factbook (2005).
Rice subsidies were particularly well known examples of the government‟s strong
support for less productive sectors (Vogel, 1979). For example, Japan‟s producer rice
price in 1988 was more than eight times higher than world levels (Calder 1988, p. 9). It
was very supportive of certain regions, since rice has been the most important income
source for farm households. According to Mulgan, rice constituted 71.1 % of the average
farm household gross agricultural income in the Hokuriku region, 48.0 % in the Tohoku
region and 40.5 % in the Chugoku region (Mulgan 2000, p. 23). Subsidies and subsidized
loans for agricultural disaster relief, farm improvements, agricultural public works (such
as land infrastructure development), and small business ventures operated by part-time
farmers also provided economic benefits to farmers (Mulgan, 2003).
53
2.3. Financial Transfers from the Central Government
Although financial transfers from the central government to local governments
have received relatively little attention in the studies of Japanese egalitarianism,
government transfers have played a significant role in equalizing regional gaps. Providing
standardized local services and allowing equal access to public goods were the basic
purposes behind intergovernmental fiscal relations since World War II (Hill and Fujita,
2000; Mochida, 2001; Wright, 2002). To achieve these goals, the central government has
provided about a third of the revenues of local governments in the form of transfer
payments from the national general account, supplementary budgets, and other accounts
(Wright, 2002).
The first attempt to equalize local finance after World War II was the introduction
of the local finance equalization grant in 1950, in accordance with the Shoup
Recommendation.
13
However, the new tax system did not work well, and the grant was
replaced by the local allocation tax in 1954 (Mochida, 2001).
14
The local allocation tax
was aimed at redistributing financial resources from rich prefectures to poor ones. The
amount of the tax increased in 1967 (Kitayama, 1995). Consequently, local financial
transfers – especially the local allocation tax – were disproportionately allocated to areas
with poor financial resource bases (Mochida, 2001; Muramatsu and Iqbal, 2001).
Prefectures which had low taxation capacity, as measured by prefectural tax revenues,
gained more financial resources (as measured by general revenue) after fiscal transfers

13
Recommendations for Japan‟s new tax system by the Shoup Mission headed by Professor Carl Shoup in
1949. He proposed sufficient and independent revenue sources for local governments (Mochida, 2008).

14
In fact, local allocation tax is not a tax but a grant for local governments.

54
from the central government (Table 2.7). That is, the amount of money transferred from
the central government was inversely proportional to the level of fiscal capacity of local
governments. For example, in fiscal year 1993 the Tokyo Prefecture collected the highest
prefectural tax per capita (¥ 196,000) among 47 prefectures, while the Okinawa
Prefecture collected the lowest (¥ 60,000). However, the general revenue (sum of the
prefectural tax, the local allocation tax, and the local transfer tax) of Tokyo was 206,000
yen per capita, while that of Okinawa was 213,000 yen per capita in that year (Mochida
2001, p. 88).
Table 2.7: Fiscal Equalization by Local Allocation Tax in 1993
(Unit: 1,000 Yen per capita)
Prefecture Prefectural
tax
Local
allocation tax
General
revenue
Tohoku Area
(except for
Miyagi)
Aomori 70 167 245
Iwate 77 176 262
Akita 75 179 262
Yamagata 80 154 244
Fukushima 101 106 216

Tokyo
Metropolitan Area
(except for Tokyo)
Saitama 98 24 127
Chiba 102 26 133
Kanagawa 115 2 122
Source: Mochida (2001, pp. 89-90). The Miyagi Prefecture is excluded because the
prefecture does not fall into the category of rural prefecture. Tokyo is excluded due to
its unique status. Tokyo does not receive the local allocation tax at all.
The central government‟s transfers were channeled to local governments mainly
in the form of the local allocation tax and the specific-purpose grants (national treasury
disbursements). Although the specific purpose grants from the central government were
also important sources of revenue for local governments in Japan, the local allocation tax
55
played the most significant role in equalizing financial disparities between rich and poor
areas (Mochida, 2001; Muramatsu, 1997; Muramatsu and Iqbal, 2001; Pemple and
Muramatsu, 1995). The specific purpose grants and the local allocation tax are distributed
in different ways. While the specific purpose grants are conditional grants such as
matching-type categorical grants, the local allocation tax is distributed to local
governments as an unconditional transfer based on a distribution formula. Mochida
described the local finance system as “centralized tax administration, decentralized
provision of public services, and dependence of local government on intergovernmental
transfers” (2001, p. 85).
2.4. Protection and Promotion Policies for Small and Medium-Sized Companies
The LDP government provided various protective policies for less competitive
sectors, such as small businesses in manufacturing and distribution as well as agriculture.
These economic sectors were strong support bases for the LDP. Protective and
promotional policies were implemented to redress problems stemming from the dual
economy in which highly productive and competitive export-oriented large firms coexist
with less productive small and medium firms. Ikuo Kume depicted these LDP
government policies as “developmental policy without losers” (cited in Pempel and
Muramatsu 1995, p. 37). Policies implemented by the LDP government contained
favorable tax benefits, subsidies, and protective regulations, allowing small and medium
sectors some distance from both domestic and foreign competition (Wright, 2002).
One important reason for backing the small business and domestic sectors was
that they helped Japan preserve a low unemployment rate (Calder, 1998; Nishimura and
Tachibana, 1996). For example, small and medium enterprises (SMEs) comprised 99.4%
56
of all business establishments and accounted for 81.4% of employment in 1981
(Yokokura 1988, p. 513). In fact, the ratio of small to medium firms and that of workers
in such small and medium firms in Japan was higher than in other major industrial
democracies (Kitayama, 1995).
Table 2.8: Ratio of Employment in the Manufacturing Sector by Company Size
(Unit: percentage)
Number of
Employee
Japan
(1986)
U.S.
(1985)
U.K.
(1989)
West
Germany
(1986)
1-99 54.8 27.6 24.6 15.4
100-999 31.2 46.6 25.8 34.7
Over 1000 14.1 25.8 49.7 49.9
Source: Kitayama (1995, p. 373). The U.S. and Japan are calculated based on business
establishments. The U.K. and West Germany are on company.
15

While policies to protect less productive and less competitive sectors helped to
reduce economic inequality in general, these policies also reduced regional disparities
between urban and rural areas. This is because rural areas tend to depend more on the
economy of small to medium firms and less productive primary industries than do urban
areas.
A series of laws for supporting less productive and less competitive sectors were
passed. The government enacted the Basic Agricultural Law in 1961 and the Staple Food
Law in 1994. In 1963, it passed the Basic Law for the Modernization of Small and
Medium Sized Enterprises. In 1966, it passed a law mandating that public works

15
The number of business establishments is the sum of the number of companies and the number of
individual agents. In Japan, “small and medium” business establishments are defined as business
establishments with under 300 employees (under 100 in the wholesale and service sectors and under 50 in
the retail and service sectors) (Small and Medium Enterprise Agency 2000, p. 176).

57
contracts be awarded to small and medium-sized local firms. In addition, the government
provided generous low-interest loans channeled through the Fiscal Investment and Loan
Program. These types of support also favored small businesses during the 1980s (Calder,
1988; Pempel, 1998). To protect small distributors and stores, the government introduced
the Large Scale Retail Store Law in 1973 and strengthened it further in 1982. Protective
measures were provided in the form of lenient tax provisions and low-interest loans,
while tax evasion by farmers and small business owners has been overlooked (Scheiner,
2006). Furthermore, Nishimura and Tachibana (1996) claim that the inheritance tax was
the most important measure giving distorted preference to small business owners and
mom-and-pop stores, allowing them to stay open even when the businesses were not
profitable. Moreover, prefectures had their own entry regulations to protect such retail
stores. These regulations were imposed equally on all the municipalities within a
prefecture. To protect laborers, the government enacted the Employment Measures Law
(1966), the Minimum Wage Law (1969), and the Development of Local Employment
Law (1987). Table 2.8 shows that the government has consistently carried out protective
and promotional policies for small and medium-sized firms during several decades.

Table 2.9: Japan‟s Major Small Business Policy
High growth period

Small and Medium Enterprise Basic Law (1963)
SME Modernization Promotion Law (1963)
Stable growth period

SME Business Conversion Law (1976)
Traditional Industry Law (1974)
Enterprise Castle Town Law (1978)
Production District Law (1979)
Transition period

New SME Business Conversion Law (1986)
SME Harmonization Law (1988)
SME Restructuring Promotion Law (1993)
Source: Small and Medium Enterprise Agency (1999).
58
While many studies have emphasized the positive role of “protective” policies
and laws on behalf of small and medium firms, several Japanese scholars have challenged
the Western view of the effectiveness of those policies. For instance, Miwa (1995) asserts
that the effectiveness of such policies had been trivial. Miwa acknowledges that the small
business policies were implemented as a part of social policy, noting that “the policies for
small business during this period were designed to solve the medium and small
enterprises problem - dual structure” (1995, p. 405). Miwa‟s view accentuates the
promotional, not protective, character of small-medium business policies. Kitayama
(1995) and Miwa (1995) suggest that government policies for small to medium business
have been implemented as “promotional” measures influenced by conditions of market
competition, not as protective measures to insulate small to medium business from heavy
competition. That is, government policies for small and medium manufacturing firms
differed from the protective agricultural policies of providing import restrictions or
subsidies. Yet protective and promotional policy views are not mutually exclusive in that
neither denies the supportive role of these policies for small and medium firms.
Yokokura (1988) writes that the main elements of SME policies were financial
incentives and SME organization policies. He maintained that government financial
support was used to achieve specific policy goals rather than to protect marginal firms.
Local governments, such as prefectural governments, had also adopted their own small
business policies to provide business consultation and technical assistance as well as
financial support to small and medium companies (Kitayama, 2001; Miwa, 2004).

59
2.5. Trends of Regional Disparity in Japan
Although Japan has sustained a relatively high level of regional equality since the
1960s, the level has fluctuated within a certain range. For example, Akita and Kataoka
(2003) find that regional inequalities peaked in 1958, but declined steadily until 1979.
According to them, regional inequality increased again during the 1980s, and declined
during the 1990s. Their estimation showed that the regional distribution of GDP in the
major metropolitan areas decreased from 54.3 percent to 51.7 percent during the 1990s.
Applying a different measurement of regional disparity, Kitayama (1995) finds that 25
prefectures had a per capita income 50 % below that of Tokyo in 1955, while 37
prefectures had a per capita income 50% below that of Tokyo in 1961. The number of
prefectures in the same category rapidly decreased to 4 in 1975. However, the number of
prefectures with less than half of Tokyo‟s per capita income increased to 9 in 1979 and
then to 12 in 1980. Kitayama points out that Tokyo‟s “overconcentration problem” raised
the regional disparity issue again in the 1980s.
16
Theil‟s measure of per capita income
differentials, which is widely used to evaluate a level of disparity, shows that the regional
disparity between three metropolitan areas and non-metropolitan areas declined during
the 1960s and 1970s, but increased slightly during the 1980s.
17
A 1989 survey by the
Tokyo Metropolitan Government reveals that the average per capita income of Tokyo
was 51.3 percent higher than that of the national average, while the personal income of
rural prefectures such as Aomori and Kagoshima was half of the national average

16
When the „Tokyo‟ problem is mentioned, it frequently means „Tokyo metropolitan area‟ including
neighboring prefectures of Kanagawa, Chiba, and Saitama (Nakamura, 1996).

17
The three metropolitan areas are the Tokyo Metropolitan Area (Saitama, Chiba, Tokyo, and Kanagawa
prefectures), the Osaka Metropolitan Area (Kyoto, Osaka, Hyogo, and Nara prefectures), and the Nagoya
Metropolitan Area (Gifu, Aichi, and Mie prefectures).

60
(Nakamura A., p. 195). Trends in regional disparities among prefectures within
metropolitan and non-metropolitan areas were similar to the trend in disparity between
metropolitan and non-metropolitan areas during the same period (Fujita and Tabuchi,
1997). Shirai‟s calculation of the coefficient of variation of per capita income (2004a)
also shows that regional disparity increased slightly in the 1980s but declined moderately
in the 1990s.
As shown above, there are several indices used to measure regional disparity,
including prefectural GDP, prefectural income, per capita GDP of prefectures, and per
capita income of prefectures. These indices can also be analyzed using different measures,
such as the Gini coefficient, the coefficient of variation, the weighted coefficient of
variation, the variance of logarithmic income, or Theil indices (Akita and Kataoka, 2003).
Although different measurements lead to slight differences in determining specific years
or levels of regional disparity, overall observations have been similar among various
studies. The government and politicians concern for the increase of regional disparity has
continued since the 1950s, but regional disparities during previous eras differed from the
current regional disparity in that those regional disparities were not widely perceived by
the public and politicians as a serious sociopolitical problem.
3. Reforms in the 1980s and 1990s
Protective and redistributive policies for less competitive sectors and rural areas
were prominent characteristics of the Japanese political economy under the 1955 System,
enabling the LDP‟s long-term dominance. As Kawabata (2006) suggests, the Japanese
political economy could be viewed from a dual structure perspective as including both a
61
developmental sector and a distributive sector Since the rapid economic growth in the
1950s and 1960s, the developmental sector has supported the distributive sector (e.g,
agriculture, small business), and business leaders in the developmental sector have agreed
with the LDP policies for supporting the distributive sector, recognizing the utilities in
constraining the influence of the Left (Kawabata, 2006). However, economic challenges
from the mid-1970s, such as the Oil Crisis and a slowdown of economic growth, led to a
slight change in the developmental sector‟s position. The manufacturing sector, which led
the rapid economic growth during the 1960s and 1970s, began to shrink in the 1980s due
to emerging international competitors. Meanwhile, the national debt and budget rapidly
increased with the growth of social welfare services and public works. Between 1973 and
1981, social security expenditures increased 4 times and subsidies for the construction of
primary and secondary schools 5 times (Kumon, p. 147). Concern about the budget
deficit expanded among the LDP leaders and bureaucrats of the Ministry of Finance,
while an increase in corporate taxes to reduce the deficit raised discontent among big
business, especially the Keidanren (the Japan Federation of Economic Organizations)
(Kawabata, 2006; Vogel S., 2006).
In dealing with the growing expenditure and budget constraints, the government
enacted a wide range of reforms, including administrative reorganizations. Meanwhile,
the U.S. government helped to facilitate those reforms by pressing Japan to liberalize its
economy (Vogel S., 2006). In 1981, deregulation and privatization began in earnest with
the establishment of the second Provisional Commission on Administrative Reform
62
(Rinchō II: PCAR) under the Suzuki cabinet.
18
Director-General of the Administrative
Management Agency Yasuhiro Nakasone, who became prime minister in 1982, directed
the PCAR. A former chairperson of the Keidanren, Toshio Dokō, was appointed as its
head. The Commission played an important and influential role in the process of
administrative reform (Kumon, 1984; Masujima, 1999; Wright and Sakurai, 1987). In
1983, it was succeeded by the Provisional Administrative Reform Promotion Council
(Gyōkakushin I: PARPC).
3.1. Reform Movements in the 1980s: Nakasone Reform
Prime Minister Yasuhiro Nakasone (1982-1987) was the most reform-oriented
prime minister during the 1980s. As an advocate of neo-conservative agendas such as
privatization and deregulation, Nakasone launched reforms that emphasized reducing the
size of the government under the slogans of “simple and effective government” and
“fiscal reconstruction without tax increase” (Nakano, 1998; Otake, 1996). The reforms
during the 1980s targeted basic policies of the LDP: public works, social security,
education, and agricultural policies (Masujima, 2006). Although reforms were limited
due to the opposition of certain LDP politicians with vested interests, the Nakasone
government succeeded in privatizing key public corporations, including the Nippon
Telegraph and Telephone, the Japan National Railways, and the Japan Tobacco & Salt

18
The first Provisional Commission on Administrative Reform (Rinchō I) was set up in 1961. The
Commission had suggested various reform measures until 1980, focusing on efficiency and reduction of
administrative costs. In fact, the most obvious impact of administrative reform at that time was the leveling
off of the government personnel (Pempel, 1982). The national government employees had declined in the
1970s and the portion of all government employees was much smaller than any other advanced countries,
despite an increase of local government‟s employees caused by the expansion of local public services in
social welfare and education. Although its reform efforts changed the administrative organizations and
functions to some extent, most of the recommendations by the first provisional commission did not reach a
stage of implementation (Kumon, 1984; Masujima, 2006).

63
Corporation. In addition, it reduced some programs for social security, public works, and
agriculture. Education was another focus of Nakasone‟s reforms. As a result of these
reforms, the overall budget reduced, while subsidies for public works continued to
increase. In fact, these reform efforts during the 1980s eliminated the fiscal deficit, and
the government achieved a balanced budget by the end of the decade (Katz, 2003).
However, reforms for deregulation and decentralization were less successful (Masujima,
1999).
In part through his reform efforts, Nagasone secured his second term as prime
minister, winning the House of Representatives election on June 1986 (Wright and
Sakurai, 1987). In the 1983 general election, the LDP lost 35 seats and its simple majority
(gaining 250 seats out of 511 seats). In his 1986 election campaign, Nakasone stressed
the progress that the LDP had made in promoting administrative and educational reforms.
The LDP secured 304 seats out of 512 seats. It was the most stunning electoral victory in
the LDP‟s history.
19
Similar patterns of relations between reform initiatives and elections
by the LDP are shown in the general elections under the leadership of Prime Minister
Ryutaro Hashimoto and Junichiro Koizumi. Strong leadership was an essential factor for
successful reforms in the second Rinchō (PCAR) period (Samuels, 2003). Masujima
(1999) notes that political leadership was a significant factor in the success of reform, and
that the progress of administrative reform came only after politicians secured their
increased role relative to bureaucrats, arguing that further progress would depend on
election campaigns and outcomes. While attempts at administrative reform continued
after the Nakasone administration, those efforts did not cause notable changes during the

19
Liberal Democratic Party. http://www.jimin.jp/jimin/english/history/chap11.html.

64
late 1980s and early 1990s. It is attributed to a lack of strong reform leadership by
succeeding prime ministers and to the political difficulties the LDP faced.
3.2. Reforms in the 1990s
In the 1980s, the Japanese economy became more open and internationalized, as
Japan expanded its domestic demand for foreign goods following the 1985 Plaza Accord
and the 1986 Maekawa Report. By the late 1980s, sustaining its traditional dual economy
or dual structure became difficult (Katz, 2001) due to slow economic growth, stiff
international competition, and increasing inefficiency of less productive and less
competitive sectors such as agriculture and construction. At the same time, demands from
export-oriented big businesses as well as foreign pressures to open the Japanese market
became stronger. The collapse of the bubble economy and the rise of political scandals
led to the LDP‟s defeat in the 1993 general election. Although it returned to power in
1994, it was its first defeat since 1955. In the mid-1990s, reforms became a dominant
theme of Japanese politics, as the government launched economic liberalization and
structural reforms in order to reduce the budget deficit as well as to promote the
efficiency and competitiveness of less productive sectors. But continued economic
recession and deep-rooted, vested interests of politicians and bureaucrats made the
structural reforms of the previous system lag. Meanwhile, the rapid increase of the aged
population raised concern over Japan‟s future.
A. Electoral Reform of 1994
During the 1990s, LDP‟s clientelism and „money politics‟ became a target of
huge criticism. The 1988 Recruit Scandal forced Prime Minister Noboru Takeshita to
resign. Combined with the public complaint about rising sales tax, the corruption scandal
65
resulted in the LDP‟s defeat in the House of Councilors election in 1989 (Reed, 1997).
Although it was a defeat in the less powerful Upper House election, it was the first time
since its founding in 1955. The back scratching relationship between the politicians and
construction companies was a main source of those corruption scandals. Subsequent
corruption cases strengthened the public‟s antipathy toward LDP‟s money politics. In
particular, the scandals involving Sagawa Kyūbin and a powerful LDP politician, Shin
Kanemaru, outraged the public, leading to a rapid decline of LDP support. The collapse
of the LDP dominance originated from faction politics. The Recruit Scandal, Prime
Minister Takeshita‟s resignation, and defeats in several local and by-elections intensified
inner-party conflicts regarding clientelistic politics and political reform. In 1992, the
largest faction, the Takeshita faction, split when Ozawa lost the election for faction
leadership. Ozawa and his supporters sided with the opposition parties to dissolve the
Diet by casting their vote of non-confidence against the Miyazawa government. In 1993,
the LDP lost control of the government. Reforms in the mid-1990s were concentrated on
political aspects rather than administrative ones.
In 1994, Japan went through a major electoral reform to reduce the influence of
“money politics” and political corruption. The most significant change was the
introduction of the single member district (SMD) system and the proportional
representation (PR) system in the Lower House election. The medium sized multi-
member district system under the 1955 System had long been criticized because it tended
to facilitate clientelisitic politics and faction politics. Supporters of the new system
expected the introduction of the SMD and the PR systems to reduce corruption and bring
about policy-based politics and a two party system (Christensen R.V., 1994; Krauss and
66
Nyblade, 2005; Maeda, 2009). Another goal of the new electoral system was the
correction of malapportionment. Overrepresentation of rural constituents was a long time
concern of party politics. For example, in 1971, the value of a rural vote was five times
larger than that of an urban vote. After 1994, the maximum-minimum representation gap
reduced to 2.3 (Katz 2003, p. 286). Discourse on political reform extended to an
administrative reform. The non-LDP Hosokawa administration also sought deregulation,
decentralization, and reorganization of the central government (Masujima, 1999 and
2005). Administrative reform continued under the LDP, Social Democratic Party of
Japan, and New Party Sakigake coalition government in 1994.
20
Every prime minister
since the mid-1990s has announced his support for reforms in the direction of
deregulation, administrative reform, and privatization (Mulgan, 2002).
B. Hashimoto Reform (1996-1998)
In 1996, Hashimoto became the prime minister. For him, decentralization and
deregulation were prerequisites for government reform. After winning the 1996 House of
Representatives election, Hashimoto launched intensive efforts to advance administrative
reform. Between November 1996 and January 1997, his government established the
Administrative Reform Council (ARC) and identified six key areas of reform (Masujima,
2006). But Hashimoto‟s reform was centered on the ARC‟s proposal of reducing the
number of ministries to half. The reorganization of public works-related ministries was
another important task of reform (Masujima, 2005; Mishima, 1998).

20
Administrative Reform (gyōsei kaikaku) comprehended various aspects of reforms in Japanese politics.
For example, Prime Minister Nakasone‟s „administrative reform‟ included fiscal reform, privatization and
deregulation. On the other hand, Prime Minister Hashimoto‟s „administrative reform‟ was defined more
narrowly, focusing on the power of bureaucrats and government organization (Mishima, 1998).

67
In fact, the demand for the reform of public works ministries and their policies
had risen during the 1990s. This was in response to the growing concern for accumulated
government debts, ineffective public works, and the problematic practice of bid-rigging
(dangō) in the construction industry (Mishima, 1998). However, the restructuring of three
public works-related ministries – the Ministry of Construction, the Ministry of Transport,
and the Ministry of Agriculture, Forestry, and Fisheries – and the partial privatizing of
the postal service were difficult tasks of the reform. The government‟s tentative reform
plan was moderated by opposing actors such as the bureaucrats of each ministry,
agricultural and construction policy tribes (zoku) and construction companies. Hashimoto
could not help but abandon several substantive elements of the projected administrative
reforms because of the opposition forces. For example, his attempt to split the Ministry of
Construction and to privatize a part of the postal service was abandoned (Kawabata,
2006; Masujima, 2006; Mishima, 1998). Although the Hashimoto reform was
concentrated on narrow aspects of administrative reform, it was a notable change that
cabinet functions and the prime ministerial leadership were strengthened, with these
changes coming into effect in 2001 (Bevacqua, 1997; Cargill and Sakamoto, 2008:
Masujima, 2005).
Table 2.10: A Chronology of Administrative Reforms
Date Event
July 1980 Suzuki Cabinet begins.
March 1981 Establishment of the Rinchō II with Toshio Dokō as its head.
April 1981 Set-up of the Headquarters for the Promotion of
Administrative Reform with Prime Minister Suzuki at its
head.
July 1981 Issues its first report focusing on government expenditures
and administrative rationalization.
68
Table 2.10, Continued

Nov. 1982 Nakasone Cabinet begins.
March 1983 Final Report of the Rinchō II.
May 1983 Cabinet approves the new outline for administrative reform.
July 1983 Establishment of the first PARPC with Toshio Dokō as its
head.
Dec. 1984 Cabinet approves an outline for the promotion of
administrative reform in 1985.
June 1985 Publication of the PARPC‟s first report, focusing on health
insurance, special corporations (tokushu hōjin), and
decentralization.
Dec. 1986 Cabinet approves a policy for administrative reforms to be
passed in 1987.
April 1987 Establishment of the second PARPC with Bunpei Ootsuki at
its head.
Nov. 1987 Takeshita Cabinet begins.
June 1989 Uno Cabinet begins.
Aug. 1989 Kaifu Cabinet begins.
Dec. 1989 Cabinet approves a list of reforms to be passed in 1990 on the
relationship between central and local governments.
Oct. 1990 Establishment of the third PARPC with Eiji Suzuki at its
head.
Jan. 1991 Miyazawa Cabinet begins.
Dec. 1991 Issue a report focusing on fairness and transparency in
administrative procedures.
Dec. 1992 Cabinet approves the special system for decentralization
Aug. 1993 Hosokawa Cabinet begins.
Feb. 1994 Cabinet approves a policy on the future of administrative
reform
April 1994 Hata Cabinet begins.
June 1994 Murayama Cabinet begins.
July 1994 Cabinet approves a policy on the future of deregulation.
Dec. 1994 Cabinet approves a policy for the promotion of
decentralization.
July 1995 The Decentralization Promotion Law comes into effect.
Jan. 1996 Hashimoto Cabinet begins.
Dec. 1997 Issue the final report of Administrative Reform Council.
July 1998 Establishment of the Deregulation Committee.
July 1998 Obuchi Cabinet begins.
July 1999 The Package Law for Decentralization is passed.
Source: Masujima, 1999 and 2006.
69

3.3. Challenges to the Japanese Political Economy
Support for reform was strengthened with the expansion of the public‟s
disappointment in the government‟s capability revealed in the events of the 1990s such as
the mismanagement of the Great Hanshin (Kobe) earthquake and HIV-tainted blood
(Curtis, 2001). As a part of administrative reform, decentralization became a priority
during the 1990s. The Decentralization Promotion Act was enacted in 1995. Following
recommendation reports of the Decentralization Promotion Committee, the Package Law
for Decentralization (Chihō Bunken Ikkatsu Hō) was passed in 1999. Reforms in the
1990s began to shift the LDP‟s traditional policy practices but did not achieve substantial
changes to the 1955 System. Meanwhile, the politics of reform transformed the central
cleavage within the LDP (Samuels, 2003). On the one side, old socialists and old-guard
LDP politicians favored a continuation of the redistributive and protective policies such
as trade protection, regulation, and public works spending for declining and
uncompetitive sectors. On the other side, reformers favored economic and administrative
reforms such as deregulation, privatization, and reduction of public works to increase
efficiency and competitiveness (Schoppa, 2001). Reforms of the Japanese political
economy system did not go smoothly due to conflicts between two political forces.
Throughout the 1990s, burdens on the Japanese system increased, while reforms delayed.
A. Economic Globalization and International Competitiveness
The Japanese economy faced stiff international competition with the economic
globalization beginning in the 1980s. In fact, the international competitiveness of Japan
consistently declined during the 1990s as seen in the decline of Japan‟s ranking in various
70
international comparisons with the OECD countries. Big businesses, policy experts, and
some politicians increasingly demanded economic liberalization and structural reforms to
improve the competitiveness of less productive domestic sectors. In fact, comparison data
of international competitiveness showed that Japan‟s ranking has lowered consistently.
Using IMD World Competitiveness Yearbook data, Motohashi (2002) shows that Japan‟s
overall ranking of international competiveness declined from 1
st
in 1990 to 4
th
in 1995,
and to 30
th
in 2002.
Table 2.11: Japan‟s Rankings of International Competitiveness
1992 1993 1994 1995 1996
Domestic economy 3 2 2 6 5
Internalization 7 6 9 12 14
Government 19 14 17 19 21
Infrastructure 24 23 24 27 26
Management 1 1 1 2 2
Science & technology 2 2 2 2 2
People 2 2 2 1 4
Source: World Competitiveness Yearbook, 1996. Comparison with the OECD
countries and around twenty developing countries.
B. The Increase of the Budget Deficit
According to a report on the government‟s fiscal condition, the public debt
reached 782 trillion yen (roughly 6.5 million yen or 65,000 dollars per person) at the end
of 1994 (McCormack, 1996). It is considered a „crisis‟ when the level of public
indebtedness becomes a quarter of a country‟s GDP. In 1995, Japan‟s budget deficit was
7.6 percent of its GDP and cumulative debt was 59.1% of GDP. Minister of Finance
Masayoshi Takemura referred the situation as „fiscal crisis‟ (McCormack, 1996).
However, the government debt continued to expand during the 1990s in response to US
71
pressure to expand domestic demand and to the domestic economic slowdown after the
collapse of the bubble economy. Fiscal deficits of the national and local governments
combined were 8.2% of GDP in 1999 and accumulated long-term debts reached 130% of
GDP in 2001 (Cabinet Office, 2001). Japan became the number one country in terms of
debt burden.

Figure 2.2: General Government Debt as a Percentage of GDP
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
Luxembourg
Korea
Norway
United Kingdom
Finland
United States
OECD Average
Germany
Italy
Japan
1990
1995
2000
Source: OECD Factbook (2005).
The decline in tax revenues caused by a prolonged economic downturn and tax
cuts aggravated the situation. For example, corporate enterprise tax and corporate
resident tax revenues for prefectural governments decreased from 40.2 trillion and 6.4
trillion yen in 1990 to 25.1 trillion and 5.3 trillion yen in 2000 (Shirai 2004b, p. 1).
Economy stimulus packages by the government during the 1990s, including increases in
public investment, tax cuts, and an expansion of loan programs, worsened the condition.
72
What was worse was the fact that fiscal stimuli failed to boost the economy and decrease
unemployment rates, unlike the 1980s (Hiwatari, 2001; Katz, 2003). At the same time,
the rapid increase of social welfare expenditure with the increase of the aged population
worsened the fiscal condition of the government. While the proportion of the aged (65
and over) was 9.1% of the total population in 1980, it became 14.5% in 1995 and 17.3%
in 2000 (MIAC 2005, p. 11). The government‟s expenditure for social security also
increased, accounting for 16.5% of the general account expenditure in 1990 and 19.7% in
2000 (MIAC 2005, p. 43).
The snowballing public debt of the government during the 1990s increased the
need for reforms of the fiscal and public sectors, including the privatization or abolition
of public corporations and cuts in public expenditure and public works. Requests for a
drastic structural reform of the Japanese economy grew gradually in the 1990s, to
overcome the prolonged economic recession (Mishima, 1998). These economic
difficulties led to a political environment in which the public is more receptive to a
reform agenda (Mulgan, 2002).
4. Conclusion
This chapter presents the motivation and policy mechanisms of the reduction of
regional disparity in Japan since the 1960s. It shows that policies and politics both played
important roles in this process. Government policies for socioeconomic equalities were
carried out based on geographic regions instead of socio-economic class. The government
implemented policies to support rural areas. In particular, regional industrial development
policies, public works, national subsidies, and financial transfers were major components
73
in reducing regional disparities in the past. Since the 1980s, however, these policies
became difficult to maintain, with an economic slowdown raising a concern over the
budget deficit and a decline in the competitiveness of less productive sectors. To
overcome these problems, the government launched various reforms from the mid-1980s.
Economic decline and corruption scandals led to the defeat of the LDP in the
1993 general election. From the mid-1990s, reforms of the Japanese political economy
system attempted to deal with new international and domestic challenges such as a
decline of international competitiveness under economic globalization, an increase of the
aged population, and a budget deficit. While the need for reforms to improve
international competitiveness and to reduce the budget deficit was growing, a continued
economic recession and strong opposition from bureaucrats and politicians slowed
reforms of the traditional policies. During the 1990s, these problems that Japan
confronted became worse. Meanwhile, the electoral reform of 1994 and changes in
electoral politics in the 1990s brought about a shift of the LDP‟s policy position in terms
of electoral strategy.

74
Chapter III. The 1994 Electoral Reform and Politics in the 1990s
Empirical evidence has shown that the urban/rural distinction was one of the
noteworthy features dividing electoral districts in their support for Japanese parties (Reed
and Scheiner, 2003), although the urban/rural divide in Japanese politics was not as
distinctive as those in Europe (Hyde, 2002). In particular, the LDP has been the dominant
party in rural districts while the Kōmeitō and the JCP have gained more votes from urban
districts (Hrebenar, 2000). The LDP government has provided benefits to rural areas
through regional development policies, public works projects, financial transfers and
subsidies, in exchange for the rural electorate‟s support. However, a huge defeat for the
LDP in the 2007 House of Councilors election demonstrated that rural districts were no
longer an immutable support base for the LDP. It was unusual in that the LDP had been
the dominant party in rural districts since its founding in 1955. The widespread discontent
of rural constituents with the LDP resulted from its reform policies that caused the
growth of regional disparity between urban and rural areas. This chapter examines
changes in electoral politics, which made the shift in the LDP‟s traditional, rural-oriented
policies possible.
Since the 1980s, burdens on the 1955 System have increased with a decline of
economic growth under globalization, the increase of the aged population and the budget
deficit. At the same time, criticism of the LDP‟s clientelistic politics has increased due to
corruption scandals, while the effectiveness and efficiency of pork barrel, public works
projects to local economy has declined. Under these conditions, there were several
75
attempts to reform the 1955 System, in which less productive sectors were protected and
rural residents gained favors at the cost of productive sectors and urban dwellers.
However, reforms made little change to the LDP‟s traditional, rural-oriented policies due
to electoral considerations. For example, farmers and their organizations such as the
Japan Agricultural Cooperatives (nōkyō) strongly supported the LDP in exchange for the
party‟s rural-oriented policies. Although the increase of urbanization and depopulation in
rural areas caused a slight change in policies for rural, agricultural districts, the LDP‟s
rural oriented policies continued in the 1980s. Overrepresentation of rural constituents
was another reason for the rural districts‟ electoral strength.
The LDP‟s defeat in the 1993 general election, caused in part by certain party
members‟ defections and the public‟s antipathy toward political corruption, led to the
introduction of a new electoral system. The multimember districts system under the 1955
System had been criticized for causing malapportionment, faction politics, personal
network-based campaigns, and pork barrel politics. Therefore, the ruling coalition parties
introduced a single member districts system and a proportional representation system in
the Diet election, hoping to pave a path toward policy-based politics, less corruption, and
a two-party system. The LDP‟s traditional, rural-oriented policies began to change after
these electoral reforms. For instance, Horiuchi and Saito (2003) observe that the gaps in
the government‟s subsidies between urban and rural areas narrowed following the
electoral reform of 1994 that reduced the malapportionment ratio between over-
represented (rural) districts and under-represented (urban) districts. The electoral reform
of 1994 and the increase of urbanization shifted the political configuration of electoral
politics. During the 1990s, the decline of farmers‟ votes and organized votes for the LDP
76
was notable, while the number of urban, non-affiliated voters increased. Criticism by
urban, non-affiliated voters of the LDP‟s rural-oriented, pork barrel policies such as
public works projects and financial transfers brought about the LDP‟s continuous defeats
in urban electoral districts. The LDP politicians began to reconsider their rural-oriented
policies and to adopt urban-oriented policies for garnering urban votes. This chapter
shows that changes in electoral politics formed the circumstances under which the LDP
could break away from its traditional policies, resulting in regional disparity.
1. Electoral Politics under the 1955 System
Clientelism and pork barrel politics have played a major role in maintaining the
long term dominance of the LDP, bringing about the strong and firm electoral support
from rural constituents (Calder, 1988; Fukui and Fukai, 1996; Hrebenar, 2000; Johnson,
1986; Scheiner, 2006). Numerous studies have emphasized the active role of the
organized votes and political funds from organizations such as farmers and construction
companies. Specifically, the JA (Japan Agricultural Cooperatives, nōkyō) and farmers‟
support for the LDP was the basis of the LDP‟s strength in rural districts and a
contributing factor reinforcing pork barrel politics (George, 1981and 1992; Kabashima,
1984). Under the 1955 System, Japan had adopted a medium-sized districts system in
which voters elect a multiple number of Diet members (MMD) with a single
nontransferable vote (SNTV). In general, two to five members were elected in a district.
Therefore, even a candidate with less than 20% of the votes can be elected (Stockwin,
1989). In other words, in five member districts, it was possible to be elected to the House
of Representatives by only 14% of the total electorate when voter turnout is 70%. As a
77
result, each candidate developed strong ties with a relatively small group of constituents
to be elected. In addition, the system made survival of small parties possible and brought
about the creation of factions within parties since a party could register multiple numbers
of candidates in an electoral district. Under these conditions, politicians developed
personal networks and supporters‟ organizations (kōenkai) (Curtis, 1971; Flanagan, 1991).
However, the personal network-based campaigning style caused the continuous pork
barrel practices and periodic corruption scandals – money politics. In this regard, many
scholars have criticized the MMD with SNTV system (McElwain and Reed, 2009).
1.1. Farmers and Organized Votes
Organized votes have been a major source of the LDP‟s electoral success. In
particular, farmers have been a strong support base for the LDP in rural areas. Meanwhile,
construction companies were more important in urban areas, providing political funds as
well as votes (Peng-Er, 2005). Famers and their organizations (nōkyō) mobilized support
for the LDP, while the LDP reciprocated with protective policies for agriculture (George,
1981and 1992). The power of farmers came basically from their numbers. In 1978, 16.2
million farm household members among the total of 22.2 million had the right to vote,
accounting for 20.45% of the national electorate, even though the agricultural workforce
was only 10.5% of the total workforce (George 1981, p. 412). Meanwhile, the total
membership of the JA was about 5.2 million in 1976, including a broader range of
participants beyond farmers (George 1981, p.410). Farmers‟ political influence was
strong, given their relatively small numbers (Gordon P, 1990). George (1981) argues that
farm household members continue to identify with and vote as farmers, and the power of
farmers‟ vote has been intensified by its concentration in rural and semi-rural districts.
78
Kabashima (1984) claimed that political participation (voting, campaign, and communal
activity) of farmers was more active than other occupational groups. Unlike Germany or
the U.S., voter turnout in rural districts has been higher than that of urban districts in
postwar Japan (Richardson, 1973). In contrast to the farmers‟ political clout, there has
been no political party to support the interest of urban consumers (George, 1981).
21

George points out that opposition parties such as the DSP (Democratic Socialist Party),
the Kōmeitō (Clean Government Party) and the JCP (Japan Communist Party), which
relied on votes from metropolitan and urban areas, were also supportive of protective
policies for the agricultural sector.
Since the 1980s, there has been a change in the relationship between the farmers
and the LDP. Gordon (1990) noted that support for the rice protection policy has eroded
within the Japanese society and government. During his visit to the U.S. in 1986, a Diet
member, Katsuya Ikeda, criticized Japan‟s rice policy as unfair to both international
competitors and Japanese consumers. Minister of International Trade and Industry Hikaru
Matsunaga also disparaged the policy in February 1990. In addition, the second largest
opposition party, the Kōmeitō, and the biggest business organization, Keidanren, began
to support liberalization of the rice market. According to a 1990 survey, public support
for partial liberalization of the rice market was 65%, while 21% supported full
liberalization (Gordon 1990, p. 951). Foreign pressure to open the agricultural market
also became stronger after the 1987 Uruguay Round. But its impact on agricultural
liberalization was limited, as the LDP and other political parties continued to support

21
Requote from Michael Donnelly, “Japan‟s Rice Economy: Conflict over Government Authority and
Markets,” (1980, p. 22).

79
farmers (Itoh, 1994). Farmers‟ voting power remained powerful and substantial and could
still make a difference for certain conservative candidates in elections (George, 1992).
1.2. Malapportionment: Overrepresentation of Rural Constituents
In addition to the farmers‟ organized power, overrepresentation of rural
constituents was a pillar of their political strength. This was a main criticism of the
Japanese electoral system under the 1955 System. Overrepresentation of rural areas,
especially in the House of Representatives election, amplified the electoral power of the
rural electorate. For example, in 1985, the number of voters of the most populated
(urban) district in the Chiba Prefecture was 4.4 times as many as that of the least
populated (rural) district in the Hyōgo Prefecture (Curtis 1988, p. 50). Although the
Supreme Court ruled that this problem be corrected, the malapportionment rate was still
high in 1990. The value of one vote of the most overrepresented district was 3.18 times
higher than that of the most underrepresented district (Hrebenear 2000, p. 46). The LDP,
which traditionally relied on support from rural districts, had no incentive to correct the
issue. The malapportionment had worked well for the LDP, especially in the House of
Representatives elections (Hickman and Kim, 1992; Jou, 1999; Thies, 1998).
Understandably, the LDP preferred to delay the changes in many traditional policies for
rural areas, despite rapid urbanization (Curtis, 1988; George, 1981; Thies, 1998). In other
words, the LDP‟s rural-oriented policies remained insulated from the full impact of
socioeconomic changes for a time. However, the new electoral system of 1994 corrected
some of the overrepresentation of rural areas.

80
2. Changes of the Party Politics in the 1990s
One of the most astounding events in the 1990s was the end of the LDP‟s
dominance in 1993. As a result of the 1993 House of Representatives election, the first
non-LDP government was established. In 1994, the new government launched political
reform and the electoral reform bill, introducing single member districts and a
proportional representation system. The electoral reform was facilitated by several
preceding events, such as the LDP politicians‟ corruption scandals and the split of the
LDP (Kohno, 1997; Reed, 1997; Sakamoto, 1999). The 1989 Recruit Scandal, which
caused the LDP‟s defeat in the House of Councilors, and the Sagawa Kyubin scandal
involving Shin Kanemaru, then vice-president of the LDP, generated requests for reform
from within the LDP as well as from the public. Two groups within the LDP, junior
politicians and the Ozawa group, actively requested reforms, although their motives were
different (Sakamoto, 1999). Junior politicians criticized the MMD system for having
brought about pork barrel politics and party factionalism. In contrast, the Ozawa group,
which was led by Ichirō Ozawa, believed that a two-party system was necessary for
Japan to cope with new challenges in the post-Cold War era. The electoral reform was
followed by the Revised Political Funds Regulation Law.
2.1. Defectors from the LDP in the early 1990s
The increasing requests for reform within the LDP as well as from outside
resulted in the defection of certain LDP politicians. In 1992, there was a split of the
Takeshita faction into two groups: a group led by Keizo Obuchi and a group of junior
reformers led by senior members Tsutomu Hata and Ichiro Ozawa. After voting for a
motion of no-confidence against the Miyazawa government in May 1993, the Hata-
81
Ozawa faction members defected from the LDP in June 1993. Studies demonstrated that
„reform‟ was a major factor determining whether an LDP Diet member left the party
(Kato, 1998; Reed, 1997; Reed and Schiener, 2003).
Why did certain LDP members, especially from the Takeshita faction (the Hata-
Ozawa faction), defect from the party? The reform issue affected the resistance of „urban‟
representatives against their own party which hesitated to launch reforms. Intensive
politicization of the reform issues encouraged members from urban districts to resist the
traditional LDP-style politics and to impress voters with their eagerness for reform,
because urban voters showed more interest in reform issues than did rural voters (Kato,
1998).
22
Within the LDP, those urban representatives had difficulty reflecting their
constituents‟ interests.
23
In fact, the defectors from the LDP favored deregulation of the
economy and market liberalization (Rosenbluth, 1996).

22
Kato argued that almost 70% of junior members (one or two-term) in the Takeshita faction were elected
from electoral districts in cities (1998, p.862).

23
In addition to the “urban” factor, Saito (2009) argued that the LDP members from infrastructure-rich
areas were more likely to defect, giving examples such as Masayoshi Takemura and Ichirō Ozawa who
represent rural constituents. He claimed that once infrastructure was built, voters as well as their
representatives lost incentive to be loyal to the LDP.

82
2.2. Introduction of the SMD and PR System
As mentioned above, the multimember district system was criticized because it
was believed to cause personal network-based politics, pork barrel politics, and political
corruptions. Supporters of the single member district (SMD) system asserted that a new
electoral system would bring about less corruption, party(policy)-based politics, and a
two party system (Christensen R.V., 1994; Krauss and Nyblade, 2005; Maeda, 2009;
Otake, 1996; Sakamoto, 1999). It is logical to assume that a candidate cannot win without
obtaining support from diverse groups of constituents in the SMD system and without
representing the broader interests of the electorate, unlike the previous MMD system
under which a candidate concentrated on a narrow constituency or on specific industry
groups (Krauss and Pekkanen, 2004; Mulgan, 2002). In 1994, the Diet passed an electoral
reform bill, introducing the SMD system for 300 House of Representatives members and
the proportional representation (PR) system, based on 11 regional blocs, for 200
members.
24

Several studies of the impact of the new electoral system illustrate that previous
practices such as personal networks-based political campaigns were not changed as
expected (e.g., Christensen, 1998; Krauss and Pekkanen, 2004). But one obvious result of
the introduction of the SMD system was a lessening of the malapportionment ratio. The
new electoral system shifted a large number of seats from rural districts to urban ones,
reducing the ratio of malapportionment (Kabashima and Sugawara, 2005). Rural
residents were still overrepresented, but while the average ratio of malapportionment

24
The number of House of Representatives members elected by the PR system reduced to 180 from the
2000 general election.

83
before the electoral reform was 3 to 1, it became around 2 to 1 after the reform (Krauss
and Pekkanen 2008, p. 21). Enhancing the value of urban votes made it difficult for the
LDP to keep its long term dominance without boosting support from urban voters. At the
same time, pork barrel politics, which strengthened the LDP‟s success under the MMD
system, became difficult in the new electoral system. Under the previous electoral system,
the number of the House of Representatives members selected in most districts was
between three and five. Consequently, the average vote share for last placed candidates
was 21% in three-seat districts, 16% in four-seat districts, and a mere 13% in five-seat
districts between 1958 and 1993. By contrast, in the 2000 House of Representatives
election under SMDs, winners obtained an average of nearly 49% of the votes cast
(Schaap 2005, p. 139). In this regard, the LDP politicians‟ personal-vote strategy became
more expensive and less effective. Scheiner (2003) maintains that it is difficult to provide
target constituents with pork effectively in broadened districts. In addition, the PR system
based on 11 regional blocs made candidates appeal to the electorate using broader issues.
2.3. Changes in the Organized Votes: The Case of Farmers
Even after the electoral reform, the LDP remained a rural-based party. The result
of the 1996 House of Representatives election illustrated that the LDP did much better in
rural districts than in urban districts (Reed, 2003). However, the political configuration of
Japanese party politics changed in the 1990s. First, opening Japan‟s agricultural market
weakened the party loyalty of farmers to the LDP. Moreover, the support of small
businesses also declined with economic liberalization. Second, urban dwellers became
politically more important. Pempel (1998) asserts that electoral support in large cities for
84
conservative parties, such as the LDP, dropped steeply between the 1960s and the 1990s,
posing a potential threat to conservative politicians.
The opening of the agricultural market illustrated that the LDP and its policy
positions had been changing with the export sectors‟ demand and foreign pressure.
Although the pace of liberalization of the agricultural market was slow due to strong
opposition from rural-based political parties, the Japanese government opened its market
incrementally (Itoh, 1994). It agreed to lift import barriers for beef and citrus in 1990. In
1991, the LDP politicians began to mention the possibility of lifting the import ban on
rice. Those policy changes were applauded by Keidanren, the most influential business
organization in Japan (Rosenbluth, 1996). In 1993, the non-LDP Hosokawa government
decided to partially open the rice market, against opposition from the LDP and the JSP
(Japan Socialist Party). Japanese exporters continuously urged opening agricultural and
retail sectors to avoid foreign retaliation. In addition, demographic changes and an
increase of urban residents influenced a shift in the LDP‟s policy position. The LDP
members representing the interests of export sectors and urban districts pushed for
changes in the protective policies for the agricultural sector (Rosenbluth, 1996). As a
result, farmers‟ solid support for the LDP began to fracture. For example, in the 1995
House of Councilors election, the JA‟s political organization, the National Council of
Agricultural Movement (zenkoku nōseikyō) recommended non-LDP candidates for the
first time in its history, despite the JA (nōkyō) executives‟ concerns over the decline in its
political power. In addition, liberalization of the agricultural market in the early 1990s
increased non-affiliated voters among farmers. According to the council‟s surveys, 33%
85
of the respondents in 1995 were farmers who did not support any party, up from 8% in
1992 (Nikkei Shinbun, 23 July 1995).
Disintegration of the JA‟s support for the LDP and the decline of the
organization‟s vote-gathering power were evident in local organizations. In the 1993
House of Representatives election, the political organization of the Fukushima Prefecture
JA (nousei satshin renmei) recommended candidates of the JSP, the JRP (shinseitō) and
the LDP as well as an independent candidate. The Executive Director of the Fukushima
Prefecture JA, Toshio Yasuda, commented that dependence solely on the LDP is not a
good political strategy under the unstable conditions of multi-party competition
(Fukushima Minpo, 24 July 1993). In contrast, in the 1996 House of Representatives
election, the Fukushima JA decided to support the LDP. However, the organization did
not announce specific support for the party‟s individual candidates. Meanwhile,
organizations of the Fukushima Prefecture‟s construction companies decided to
recommend all LDP candidates, but the authority to decide about campaign activities for
individual candidates was granted to local branches in each electoral district. This was
due to their specific relations with local-based, powerful non-LDP politicians. For
example, in the 1996 House of Representatives election, the Fukushima Prefecture JA
could not disregard an influential politician Kozo Watanabe, an LDP defector and
candidate for the New Frontier Party (NFP, shinshintō) (Fukushima Minpo, 26 October
1996). Therefore, the Fukushima JA did not actively support an individual LDP candidate.
In the 2000 House of Representatives election, the Fukushima JA declared its support for
the LDP candidates. However, the Fukushima JA‟s local branch in the Tamura Gun (in
the Fukushima Prefecture‟s 3
rd
electoral district) did not follow the decision of the
86
prefectural JA, recommending the DPJ‟s Koichiro Genba, a native of the region, instead
of Yoshiyuki Hotsumi, ex-bureaucrat of the MAFF and the LDP Diet member
(Fukushima Minpo, 17 June 2000 and 30 June 2000).
25
Similarly, the local branch of the
Chiba Prefecture JA in its 9
th
electoral district did not recommend any individual
candidate in the 1993 and 1996 Lower House elections, because the branch members‟
support was divided between the NFP‟s Yukio Jitsukawa and the LDP‟s Kenichi Mizuno.
An executive of the JA‟s local branch decided that it had better not recommend a specific
candidate since both candidates showed a similar policy-orientation for agriculture and
since its members had different preferences for each candidate (Chiba Nippo, 13 October
1996).
The vote-gathering power of the JA also declined due to the increase of farm
households with a side job (kengyōka). Councilor (sanji) of the Fukushima Prefecture JA,
Katsuya Sato showed that, unlike previous elections in which estimation of the number of
votes from the members was possible when an influential person requested a vote for a
specific candidate or party, the estimation became difficult because each member of a
farm household would decide based on different information. That is, the interests of
farm household members in agricultural policies became diverse. The decline in the JA‟s
votes for the LDP was facilitated by the farmers‟ increasing distrust of the government‟s
agricultural policies. A farmer in the City of Fukushima stated that the influence of the
JA top leader‟s instructions for voting was not strong as it had been (Asahi Shinbun
Fukushima edition, 10 June 2000).

25
“Gun” is a traditionally used unit of a region which includes several villages and towns (machi and
mura). It is usually translated into county or borough, while it is not an official administrative unit.

87
2.4. Increase of the Urban and Non-affiliated Voters
A. Non-affiliated Voters and Electoral Implication
One of the characteristics of the Japanese party politics in the 1990s was the
increase of non-affiliated voters (mutōha) - the number of people who do not support any
political party. While only about 15% of voters in their early twenties tended not to
support any party in 1980, the percentage of non-affiliated voters in the same age group
was over 70% in 1998. Meanwhile, the number of voters in their forties who do not
support any party also increased from less than 10% to over 60% in the same period
(Hyde, p. 65). Weisberg and Tanaka show that in 1995, nearly half of the voters claimed
no party-support, up from 30 to 35% during the 1970s and 1980s (2001, p. 77). In another
survey, the number of floating voters (including non-affiliated voters) began to increase
from 28% to 35% during the Hosokawa administration (1993-1994) and reached between
45% and 50% during the Hashimoto administration (1996-1998) (Reed 2003, p. 147).
Since the 1990s, the increase in the number of non-affiliated voters has been prominent in
big cities like Tokyo and ordinance-designated cities with a population over 500,000
(Mainichi Shinbun, 30 June 2000). But the increase in the number of non-affiliated voters
was a common phenomenon in urban and rural areas. In the Chiba Prefecture, the
proportion of non-affiliated voters was 49.9% at the time of 1995 House of Councilors
election and 49.3% during the 1996 House of Representatives election (Chiba Nippo, 17
July 1995, and 15 October 1996). Meanwhile, non-affiliated voters accounted for 18.2%
of the total voters in the Fukushima Prefecture during the 1995 House of Councilors
election, while the proportion in the national level was 31.2% (Fukushima Minyu, 19 July
1995, and 20 July 1995). At the time of the 1998 House of Councilors election, the
88
proportion of non-affiliated voters in the Fukushima Prefecture rose to 43.2% and the
proportion was 38.5% in the 2000 House of Representatives election (Fukushima Minyu,
8 July 1998, and 20 June 2000). Newspapers have pointed out that non-affiliated voters
were the key factor deciding a candidate‟s victory or defeat in elections during the 1990s.
The increasing numbers of non-affiliated voters affected the electoral strategies of
political parties and their candidates, and made elections in Japan less predictable
(Christensen, 1998; Peng-Er, 2005). The increasing numbers of non-affiliated voters,
especially in urban and semi-urban areas, resulted in a high potential for a media
campaign, while the public image of the prime minister became considerably more
important (Christensen, 1998; Krauss and Nyblade, 2005). From the mid-1990s,
projecting a reformist image became an important strategy to attract non-affiliated voters
(Peng-Er, 2005). The increase in the number of non-affiliated voters put much burden on
the LDP‟s electoral strategy in that non-affiliated voters‟ responses are based on
contemporaneous, short-term evaluations of parties (Krauss and Nyblade, 2005).
Meanwhile, victories by independent candidates in gubernatorial positions demonstrated
that anti-party sentiment among the electorate also increased in the 1990s (Mulgan, 2002).
B. Socio-demographic Change and Urbanization
The increase in non-affiliated and urban voters was a notable phenomenon during
the 1990s. In advanced democracies, most political parties try to reflect the interests of
their constituents in order to obtain electoral support. In this respect, we can assume that
the LDP, along with other political parties, would increasingly propose policies that
reflect urban interests. According to data from the Prime Minister‟s Office (sōrifu),
75.9% of the population resided in urban areas in 1975, compared to only 37.3% in 1950
89
(Thies 1998, p. 470). But the estimation of the level of urbanization differs by methods of
measurement. The definition of “urban” and “rural” localities also differs by countries
and by organizations. For example, the United Nations‟ data indicates that 53.5% of the
Japanese population resided in urban areas in 1950 (1974, p. 9).
26
On the other hand, the
concept of “urban” or “rural” is defined based on administrative units such as prefectures
and municipalities. In this regard, the OECD (2007) estimated that 55% of the Japanese
population lived in urban areas (12 prefectures) whereas only 14% lived in rural areas (14
prefectures) as of 2003.
27
While those categorizations of urban and rural areas are based
on the DID ratio, some scholars distinguish urban from rural areas based on the ratio of
the primary sector‟s workforce among the total one. That is, urbanization reduces the
population working in the primary sector, such as agriculture. One way to measure the
urbanization of Japan is to observe the trends in the percentages of the population living
in big cities (daitoshi) and in small villages and towns (machi, mura). The table 3.1
demonstrates that urbanization has consistently increased over the last decades.

26
Regarding definition of “urban” localities, see United Nations (1974).

27
The OECD defines a rural community as a community having a population of less than 150 inhabitants
per square kilometer. However, it applied different standard for Japan (500 inhabitants per square kilometer
since the national average population density exceeds 300 inhabitants per square kilometer). In addition,
the OECD defines predominantly rural area as an area where more than 50% of its population lives in rural
communities, while an area where less than 15% of the population lives in rural communities as urban area
(OECD, 2007).

90
Table 3.1: Percentage of Population in Big Cities, Towns and Villages
(Percentage, National Total = 100)
Year 1960 1970 1980 1990 2000 2005
Big cities* 19.79 24.51 24.81 25.63 26.52 29.47
Villages and Towns 36.49 27.83 23.81 22.63 21.32 13.70
Source: Statistical Yearbook of Japan (MIAC), *Big cities with a population over
500,000.
Japan‟s rapid urbanization in the 1960s was a result of industrialization and the
migration of rural residents to cities for jobs. The rapid increase of the population in big
cities in the 2000s occurred for the same reason. The rapid decrease of the population
living in villages and towns between 2000 and 2005 can be explained, in part, by the
merger of municipalities. With the rapid decline of rural population, farm household
population also rapidly decreased. The national total farm household population
accounted for 25.34% of the total national population in 1970, 18.25% in 1980, and only
8.3% in 2000.
Table 3.2: National and Regional Farm Household Population
(Unit: 1,000 person)
1988 1991 1994 1997 2000 2003
Nation Total 19,238 13,698 12,791 11,549 10,467 9,647
(%) 15.7 11.0 10.2 9.2 8.3 7.6
Tohoku Region 3,121 2,547 2,396 2,216 2,016 1,868
(%) 32.0 26.1 24.5 22.5 20.5 19.2
Source: Statistical Yearbook of Japan (MIAC)
Although the proportion of the farm household population was still relatively high
in rural areas such as the Tohoku region, Table 3.2 demonstrates that the farm household
population has consistently decreased. The impact of urbanization on electoral politics is
91
easy to assume. Unlike rural representatives with strong personal networks, urban
representatives face an issue-volatile electorate rather than a candidate-centered one
(Reed and Scheiner, 2003). In addition, urbanization also changes the urban residents‟
sympathy toward rural areas. Curtis (2001b) points out that urban residents, in the 1960s
and 1970s, sympathized with the agricultural rural communities and showed little
opposition to government spending for rural areas. In the 1990s, such sympathy and
compassion for rural areas changed, as urban residents increasingly criticized the
government‟s excessive spending on public works. According to Curtis, the change was a
result of a generational shift in the urban population. That is, the younger generation of
urban residents who were born in the cities showed little sympathy for the rural areas,
while older generation of urban residents had strong sympathy for rural areas since most
of them came from rural areas (Curtis, 2001b).
3. Implication of the Increase of Urban, Non-affiliated Voters to Regional
Disparity
Some observers argue that urbanization had influenced policy preference of the
LDP since the 1970s. Thies (1998) argues that the LDP became a majority-urban party in
the late 1970s and urban politicians began to call for policy changes that would reflect the
interests of urban dwellers. For Thies, the shift was indicated in the decline of budget
spending for agriculture, including subsidies to farmers. Curtis (1988) also observes that
rural districts (farmers) became less important since the majority of people lived in
metropolitan areas and large cities. Consequently, securing the support of urban voters
became an important task to retain political power. He argues that since the 1970s, the
92
LDP has become a “catch-all” party in which farmers interests are less powerful.
However, before the 2000s, there had been no drastic policy change, as seen in
Koizumi‟s reform. This may be attributed to the continuation of the organized voting
power of farmers and the malapportionment of rural areas (Curtis, 1988; George, 1992;
Kabashima, 1984; Thies, 1998). Both Curtis and Thies claim that the overrepresentation
of rural areas delayed the LDP government‟s policy responsiveness to urbanization.
Urban voters‟ antipathy toward the rural-oriented policies was not articulated during the
1970s and 1980s. Urban-rural cleavage was not transformed into an essential
sociopolitical cleavage during this period. In this regard, further study is needed to
explore when and how urbanization evolved into a policy issue.
3.1. Electoral Politics in the 1990s
Retreat from the LDP‟s traditional policies favoring rural areas would be
inevitable with the changes in the interests of the majority of the electorate, the urban
voters (Pempel, 1998; Thies, 1998). George (1992) maintains that the long term power of
farmers‟ votes and their ties to the LDP would be weakened with the LDP‟s attempt to
attract urban voters. Rosenbluth (1996) agrees that the LDP‟s pork barrel politics were
effective when groups of voters were identifiable and targetable, but urbanization and
internationalization made the practice more difficult and costly. The relative success of
Hosokawa and his Japan New Party in the 1992 House of Councilors election, achieved
by attracting urban centrists, was one sign of the advent of urban interests in party politics.
The victories of independent candidates in the 1995 Tokyo and Osaka gubernatorial
elections also revealed the importance of the voting power of non-affiliated voters as well
93
as their anti-party sentiment, shocking both the LDP and opposition parties (Nikkei
Shinbun, 10 April 1995).
From the mid-1990s, LDP politicians began to consider the increases in urban and
non-affiliated voters as significant factors in the electoral politics. Even after the
defection of certain urban representatives from the LDP, a discord surrounding the
electoral reform between urban and rural representatives within the LDP continued. The
idea of organizing a so-called New City Party (toshi shintō) was discussed among the
LDP‟s urban representatives, in consideration of the growing importance of the urban,
non-affiliated voters after the electoral reform (Asahi Shinbun, 22 February 1994;
Hokkaido Shinbun, 18 August 1994). The LDP‟s growing concern for urban, non-
affiliated voters was also demonstrated in the 1995 House of Councilors election. For
example, a document for election campaigning written by the LDP‟s Public Relations
headquarters on June 6
th
, prepared for the election in July 1995, was centered on
campaigning measures to attract non-affiliated voters (Nikkei Bijinesu, 10 July 1995).
The result of the election revealed that non-affiliated voters were strong in urban areas,
such as Tokyo, although organized votes, though declining, remained important (Nikkei
Shinbun, 24 July 1995). Votes from members of the organizations of small and medium-
sized firms declined as a result of the LDP‟s deregulation and import liberalization
policies (Nikkei Shinbun, 26 November 1995).
3.2. The House of Councilors Election in 1998
The result of the 1998 House of Councilors election was a defeat for the LDP. Its
number of seats was reduced from 111 in 1995 to 103 in 1998 among the total of 252
seats. Non-affiliated voters, especially in urban areas, were more likely to vote for the
94
opposition parties than the LDP. For example, in the PR voting of the 1998 House of
Councilors election, the number of non-affiliated voters in big cities who voted for the
DPJ was almost four times as many as that of those who voted for the LDP (Thies 2002,
p. 153). All LDP candidates who ran for seats in the urban prefectures with more than
three districts, such as Tokyo and Kanagawa, lost in the election. As a result, the LDP
lost its majority position in the House of Councilors, while possessing a bare majority in
the House of Representatives. The result influenced electoral strategies of the LDP and
the opposition parties. To overcome weak support from urban voters, the LDP established
the City Council for the LDP (jimintō toshi mondai taisaku kyōgikai) under the LDP
president‟s direct control to deal with urban issues. Meanwhile, the DPJ and the JCP
accelerated their efforts to obtain urban, non-affiliated votes. The DPJ leader, Yukio
Hatoyama, declared that “non-affiliated voters would decide a ruling party” (Chūgoku
Shinbun, 1 January 1999).
In 1999, the LDP built a coalition with the Kōmeitō, which had criticized pork-
barrel politics and political corruption of the LDP. It was interpreted as the LDP‟s effort
to garner urban voters, since the Kōmeitō had strong organized votes in urban districts.
From the LDP‟s perspective, delivering urban votes through a coalition with the Kōmeitō
would strengthen the LDP‟s in urban districts, leading to a long-term dominance (Reed,
2003).
3.3. The House of Representatives Election in 2000
The result of the 2000 election was perceived as another defeat for the LDP,
especially in urban districts. Urban voters demonstrated dissatisfaction with the Obuchi
administration (Kabashima, 2000 and 2002). The LDP remained strong in its traditional
95
bases, but the votes the LDP collected showed a negative correlation with the level of
urbanization in both the SMD and the PR seats (Table 3.3 and 3.4). The LDP gained just
61 seats among 145 seats in urban districts that include a city with a population over
300,000 (Nikkei Shinbun, 11 July 2000). By a different measurement, the LDP obtained
only about 30% of urban seats, due to the dissatisfaction of urban voters, and won around
80% of rural seats (Mainichi Shinbun, 7 October 2002).
Table 3.3: SMD Seats of the LDP in the 2000 General Election (Total seats = 300)
28

District type City Semi-city Middle Semi-
rural
Rural
Number of seats 84 97 32 27 60
Seats gained (%) 32 61 69 81 78
Source: Mainich Shinbun (7 October 2002, p. 5). Categorization by the DID ratio.
Table 3.4: SMD Seats Gained by Selected Political Parties (Total seats = 300)
2000 LDP DPJ Kōmeitō Other Total
Urban 34 50 7 9 100
Intermediate 66 24 - 10 100
Rural 77 10 - 13 100
Source: Kabashima and Sugawara (2004, p. 37). Categorization by the DID ratio.
At the same time, the LDP‟s attempt to gain urban votes through a coalition with
the Kōmeitō was a failure (Reed, 2003). The LDP‟s seats dropped from 271 among the
total of 500 to 233 among the total of 480. In contrast, the DPJ did well in urban districts

28
Methods of distinction between urban and rural districts differ. Distinction using the DID ratio seems to
be the most popular way, but some used the ratio of primary sector workforce. For example, Reed defined
the electoral districts with less than 40% of the population living in DIDs are rural, while those with
between 40% and 80% as urban, and those with over 80 % as metropolitan districts (2003, p. 189). In his
calculation, Japan has 99 rural districts, 103 urban districts, and 98 metropolitan districts among 300 SMDs
in the mid-1990s. On the other hand, George categorized a rural electorate as one in which 40 to 59 per
cent of the population work in primary sector and a semi-rural electorate as one in which 30 to 39 per cent
of the population work in the sector, following the criterion proposed by a Japanese political scientist
(1981, p. 412).

96
and its seats increased from 95 to 127. The DPJ‟s victories in many urban districts, where
reform was widely supported, caused great anxiety among LDP politicians (Katz, 2003).
The LDP-Kōmeitō-New Conservative Party (NCP) coalition government maintained
their ruling position, but the number of seats of the Kōmeitō and the NCP also dropped as
a result of the 2000 election. The LDP had lost urban support in past elections, but the
consecutive defeats in 1998 and 2000 were considered a serious threat to the LDP‟s
future. Reed (2003) points out that the LDP and coalition parties acknowledged the result
as a loss and reconsidered their electoral strategies.
The sense of the LDP‟s loss was amplified by the defeat of a number of
prominent LDP candidates in Tokyo, such as Kaoru Yosano, a former Minister of
International Trade and Industry (Kabashima, 2000). In a post-election analysis,
Kabashima pointed out that the result demonstrated both urban voters‟ opposition to the
LDP‟s clientelistic politics and the possibility of the DPJ being an alternative ruling party
(Nikkei Shinbun, 19 July 2000). After his loss to a DPJ contender, Takashi Kosugi, a
former Minister of Education, Science and Culture and the LDP incumbent of the Tokyo
fifth district, explained it as follows:
The party‟s top brass still doesn‟t fully recognize the significance of our urban
defeat. Thanks to the initial target having been set low, they‟re taking the peculiar
position that the party was victorious, but in urban areas we suffered a rout. The
LDP has turned completely into a „rural party,‟ one that can‟t campaign
successfully in the cities.
29

After consecutive defeats of the LDP, political commentaries in the media
criticized the LDP‟s biased public works projects and financial transfers that favor rural
areas (Sankei Shinbun, 23 July 2000; Mainichi Shinbun, 7 October 2002).

29
Asahi Shinbun, 29 June 2000. Re-quote from Kabashima (2000, p. 24).

97
The LDP‟s urban representatives were shocked by the defeat in urban districts in
the 1998 and the 2000 elections. Even though the LDP was still a ruling party, fear of a
defeat in the upcoming 2001 House of Councilors election was growing among the party
members (Köller, 2006). The party‟s urban representatives criticized the LDP‟s
traditional policy, arguing that only rural candidates of the LDP would win in future
elections without a policy change (Mainichi Shinbun, 7 October 2002).
3.4. LDP‟s Defeats and Interests of Urban, Non-affiliated Voters
Consecutive defeats in the 1998 and 2000 elections intensified LDP politicians‟
concern over urban voters. After the defeat in the 1998 election, disturbances among the
LDP‟s urban representatives led to a scheme to create the New City Party (toshi shintō)
(Nikkei Shinbun, 14 August 1998). Urban voters‟ criticism of public works spending
caused the LDP to review the public works projects (Sankei Shinbun, 3 August 2000).
According to various studies, non-affiliated urban voters are more policy-oriented and
tend to oppose pork-barrel politics (e.g., Scheiner, 2005). In this regard, if urban
representatives want to be elected, they need to attract these voters through reform-
oriented policies. The LDP leaders began to emphasize the political significance of urban
voters. After the 1998 election, the LDP held the first meeting of the City Council for the
LDP (jimintō toshi mondai taisaku kyōgikai) to grope for city-centered policies. In the
meeting on August 13, then Secretary-General of the LDP Yoshirō Mori affirmed that
“the defeat of the 1998 election resulted from a huge defeat in urban districts. In the
upcoming general local election and the House of Representatives election, we cannot
secure majority seats without winning in urban districts (Nikkei Shinbun, 14 August
1998).” The concern over the growing urban voters evolved into the proposal of policies
98
for cities. For example, the Chairman of the City Council for the LDP, Kōji Kakizawa,
stated that a policy proposal for big cities was schemed as a electoral strategy for the next
general elections. He predicted that the LDP would lose about 70% of its single member
districts of the three metropolitan areas, if the vote share of the LDP in the 1998 election
was to apply to the House of Representatives election. He maintained that city-oriented
policy measures are measures for recovering the economy, emphasizing of the need for
urban renovations such as improving traffic congestion and transforming the Haneda
Airport into an international airport for the Tokyo Prefecture (Nikkei Shinbun, 5 October
1998). On November 16, the government released “Urgent Plans for Recovering
Economy,” which included public works projects for cities (toshi kata kōkyo jigyō). The
plans were controversial, due to the fiscal deficits of big cities and to resistance from
rural areas (Nikkei Shinbun, 30 November 1998). Therefore, public works projects for
urban areas were not substantially implemented. For the 2000 House of Representative
election, the DPJ was campaigning for reform of public works to get support from urban
voters and enjoyed victory in urban districts (Mainich Shinbun, 30 June 2000).
The attempt to transform the LDP‟s rural orientation into an urban-centered one
reemerged after losing in metropolitan areas in the 2000 House of Representatives
election. It was a result of the public‟s criticism of the LDP‟s pork barrel politics,
excessive public works spending, and fiscal overload. Consequently, the request for a
review of the LDP‟s policies for city areas became stronger. The Liberal Democratic
Party in the House of Councilors (san’in jimintō), which consists of the LDP politicians
in the Upper House, decided to set up a project team to deal with urban issues in
preparation for the 2001 election (Sankei Shinbun, 23 July 2000). Changes to the LDP‟s
99
policy position were announced by its top leaders. On August 5, 2000, the LDP‟s sectary-
general Hiromu Nonaka acknowledged at the LDP headquarters that the unequal transfer
of allocation taxes to poor municipalities was raising complaints from urban
municipalities (Chūgoku Shinbun, 24 September 2002). In a meeting for a drastic review
of public works projects held at the end of July 2000, the Chairman of the LDP‟s Policy
Research Council, Shizuka Kamei, decided to reconsider 233 public works projects
(Ehime Shinbun, 6 October 2000). After visiting reclamation areas in the Shimane
Prefecture, Kamei reported in a TV news program that too much tax poured into the
project and claimed that he had been a supporter of reviewing public works projects since
he had been the Minister of Construction (Chūgoku Shinbun, 27 August 2000).
Meanwhile, a former President of the City Council for the LDP, Kōsuke Itō, advocated
the regional government system (dōshū sei) and self-reliance of municipalities in terms of
revenues (Mainichi Shinbun, 7 October 2002).
The large-scale public works projects, which benefited traditional party supporters,
became increasingly unaffordable with the rapid increase of public debt (Köller, 2006). In
addition, the result of several gubernatorial elections in 2000 showed that an anti-public
works position had become an attractive campaigning strategy even in rural areas, casting
a doubt on the effectiveness of the promise of public works as an electoral strategy (Reed,
2003; Scheiner, 2003). The election of independent candidates in the Nagano Prefecture
and the Tochigi Prefecture showed widespread anti-public works and anti-party
sentiments. Those events caused the LDP to reconsider its policies on public works
projects.

100
3.5. Election of Koizumi as the LDP President and Prime Minister
The election of Koizumi as the LDP president and prime minister demonstrated
that the public no longer favored the traditional LDP politics. Koizumi ran unsuccessfully
for the LDP presidency in 1995 and in 1998 on reform-oriented issues such as the
privatization of postal services. With the continued economic recession in the 1990s, the
public considered the traditional LDP politics an obstacle to Japan‟s future and became
more receptive toward drastic policy changes to overcome the situation (Kabashima,
2003; Mulgan, 2002). The voters wanted to change the previous party politics, especially
that of the LDP, and to reform the Japanese political economy system. Koizumi was in a
minority position within in the LDP, since he had shown strong support for neoliberal
reform, small government, and changes in pork barrel policies that threatened to
undermine the LDP‟s support bases (Kabashima and Steel, 2007a). By the time he ran for
the 2001 LDP presidency, however, Koizumi‟s reformist position was becoming widely
accepted by the public. Newspapers often portrayed Koizumi as the reformer, while
describing reform as a necessity for the economy (Kabashima and Steel, 2007b). He
emphasized “structural reform without sanctuary” and reform of the LDP‟s traditional
pork barrel politics and faction politics. Koizumi‟s reforms included deregulation, market
liberalization, privatization, cutbacks to public works spending, and a break from the
LDP‟s pork barrel politics and faction politics. In other words, Koizumi‟s reform agenda
was about a reform of the Japanese political economic system and the LDP‟s traditional
politics. His reforms gained strong support from the public, while his popularity
increased before the LDP‟s presidential election. Koizumi‟s appeals for reform were in
101
tune with the increase of non-affiliated voters and urbanization (Köller, 2006). Public
opinion polls showed that support for Koizumi‟s reform agenda was at least 10 per cent
higher in major urban districts than rural ones (Nikkei Weekly, 18 June 2001).
Koizumi emphasized anti-faction politics and a change in the LDP in his party
presidential campaigns, vowing to change traditional LDP policies such as heavy public
spending, pork barrel politics, and the protection of special interests (Mulgan, 2002). His
election promise of breaking the traditional LDP politics received widespread support
from the public. Koizumi‟s political stance attracted urban voters as well as non-affiliated
voters. Changes to the LDP‟s selection process in 1998, according to which party
representatives from the 47 prefectures participate in the party presidential election, also
benefited Koizumi. Not being bound by power relations within the party, local
representatives considered each candidate‟s public popularity when they chose the party
leader (Kabashima and Steel, 2007a; McElwain and Reed, 2009). Koizumi‟s victory
came from the support of the LDP‟s urban chapters. They believed that Koizumi‟s policy
position might attract urban, non-affiliated voters more than that of Hashimoto‟s (Lin,
2009). Indeed, public support was much higher for Koizumi than Hashimoto. According
to a pubic opinion survey, 12 percent of the respondents supported Hashimoto, while
among the respondents who identified as non-affiliated voters, only 9 percent supported
him. In contrast, 51 percent of the respondents and the 49 percent of non-affiliated voters
supported Koizumi (Asahi Shimbun, 16 April 2001).
31
The LDP members selected
Koizumi as a new party president and prime minister, expecting his popularity among
urban and non-affiliated voters would help them win in the upcoming election. After

31
Re-quote from Lin (2009, p. 123).
102
losing the LDP presidential election in 2001, Taro Aso stated that Koizumi won “because
he was the antithesis of the traditional LDP politician” (The Japan Times, 25 April
2001).
32

Koizumi is one of the few LDP prime ministers elected from a metropolitan
prefecture, the 11
th
district of the Kanagawa Prefecture. Most of his predecessors were
from rural areas.
33
In fact, Prime Minister Koizumi already recognized that heavy
dependence on rural districts as a political base would no longer suffice for the LDP to
maintain its position as a major party. In his early career, Koizumi stressed the
importance of urban voters for the future of the LDP. After winning the 1972 House of
Representatives election, Koizumi commented on the LDP‟s electoral strategy for the
future: “The LDP is already a minority party in urban areas. We have to be conscious of
this and proceed with reforming our party” (Takashi, p. 12). Koizumi‟s political career
showed that he had distanced himself from the traditional LDP politics, such as Prime
Minister Tanaka‟s rural-oriented, redistributive politics. In contrast, his policy position is
located in the tradition of the Kishi-Fukuda-Abe line of the LDP leaders who favored
market-oriented policies (Kabashima and Steel, 2007a; Köller, 2006).
4. Elections under Koizumi: The Koizumi Effect
Koizumi‟s reforms aimed to reduce the LDP‟s dependence on pork barrel politics
and the organizational vote, since the clientelism and the organized votes no longer

32
Re-quote from Kabashima and Steel (2007b, p. 105).

33
Toshiki Kaifu was the only prime minister representing metropolitan area (the Aichi Prefecture in the
Nagoya Metropolitan Area) before him.

103
guaranteed electoral victories (Reed, 2003). Rejecting the idea of increasing government
spending to stimulate the economy, he proposed fiscal reconstruction, including
privatizing the postal services system. This appealed to the urban residents. Kabashima
observed that Japanese politics in the 2000s was becoming driven by opposing interests:
those of rural voters and those of urban voters (Kabashima and Sugawara, 2004).
Koizumi‟s neoliberal reforms and small government would undermine the LDP‟s
traditional support bases. But from an electoral strategy angle, the growing urban, non-
affiliated voters became the key to future elections. Koizumi acknowledged that without
urban support, the LDP would not survive (Kabashima and Steel, 2007a). Understandably,
his reform policies received strong support from urban voters, who voted him into the
office of premiership. Policies such as the reduction of subsidies to local governments
and the cutback of public works spending appealed to urban voters (Saito, 2009). As a
result, Koizumi‟s LDP successfully collected enough urban votes to hold onto its
majority position.
Koizumi‟s reforms and his popularity led to the LDP‟s victory in the 2001 House
of Councilors election. However, opposition to Koizumi‟s reforms within the LDP also
became stronger. For example, Koizumi‟s plan to freeze highway construction and to
privatize the Japan Highway Public Corporation met with strong resistance within the
LDP (Mulgan, 2002). Faltering reform affected Koizumi‟s popularity. In a 2003 survey,
48.2% of the respondents supported Koizumi and his administration, down from 72.8 %
in 2001 (Kabashima 2003, p. 357). The respondents who shifted from support to no-
support stated that it was mainly due to insufficient progress in Koizumi‟s structural
reforms (Kabashima, 2002 and 2003). Although his support went down from his first
104
year, Koizumi‟s popularity and the support for his administration was still high in
comparison to previous LDP prime ministers and their administrations. Koizumi could
keep a relatively high level of public support with his reformer stance.
4.1. House of Councilors Elections in 2001 and 2004
The election of Koizumi as prime minister affected voters‟ support for the LDP.
According to a survey after Koizumi‟s election, the LDP‟s approval rating exceeded, for
the first time since 1993, the percentage of non-affiliated voters (Lin, 2009). As a result,
the LDP did well in the 2001 metropolitan assembly election and in the 2001 House of
Councilors election. The 2001 elections were clear victories for the LDP. Koizumi
promised voters that he would “change the LDP in order to change Japan” (Reed and
Shimizu, p. 18). Mulgan (2002) asserts that Koizumi‟s vision and commitment to reform
was effective to obtain votes of non-affiliated voters, in contrast to the traditional LDP
campaign style that relied on organized votes and pork-barrel promises. The LDP‟s
victory in the election came with its biggest gains in cities, traditionally the weakest
electoral bases of the LDP. Kabashima insists that Koizumi‟s strong reformist image
induced the rise of the LDP‟s popularity in urban districts (Kabashima, 2004). Meanwhile,
the 2001 House of Councilors election demonstrated that the effectiveness of the
national-level organized votes for the LDP declined (Köller, 2002). This decline also
influenced the traditional relationship between the LDP and its support organizations
(Nikkei Shinbun, 5 August 2001).

105
Table 3.5: Votes for the LDP Candidates by Selected Organizations
(Unit: thousand)
(Selected) Support Organization Number of Votes
Year 1980 2001
Taijū (Former tokutei postmasters) 1,030 470
Japan Federation of Construction
Contractors
1,740 270
Ishi Seiji Renmei (Doctors) 830 220
Japan Federation of National Land
Improvement
1,160 200
Japan Agricultural Cooperatives 1,120 160
Japan Dental Federation 930 100
*Jidōsya Sōren (JAW) 1,100 230
*Jichirō (AJPMWU) 1,410 350
*Japan Teachers Union 660 170
Source: Nikkei Shinbun (5 August 2001, p. 2). *Organizations supporting the DPJ in
2001.
Although Koizumi‟s popularity had declined substantially, his reform policies
boosted urban votes in the 2004 election (Kabashima, 2004b). Kabashima asserts that the
dependence of the LDP on Kōmeitō‟s votes was demonstrated in the 2004 Upper House
election. According to exit polls, more than 60% of the Kōmeitō supporters cast their
votes for the LDP candidates in most prefectural districts (Kabashima 2004a, 15).
Meanwhile, Reed (2004) maintains that the 2004 House of Councilors election illustrated
the reduced effectiveness of the organized votes and the increased importance of non-
affiliated voters, indicating that the LDP‟s traditional clientelistic strategy had not worked
well since the electoral reform. The reduction of the organized votes increased the LDP‟s
dependence on Kōmeitō‟s organized votes (Nikkei Shinbun, 9 July 2004). The declining
voting power of organizations also occurred in both businesses and labor unions. For
example, candidates recommended by the former tokutei postmasters (Taijū) gained
282,000 votes in the 2004 election, a decline from 470,000 in 2001. Votes from the Japan
106
Federation of Construction Contractors also reduced from 278,000 in the 2001 election to
253,000 in 2004. Similarly, one of the biggest supporting organizations for the DPJ,
Jichirō (AJPMWU), garnered only 167,000 votes for its recommended candidate in the
election, a decline from 350,000 in 2001 (Nikkei Shinbun, 16 August 2005. p. 3). The
decline of organized votes also affected the electoral strategy of candidates for SMD
seats. If there are 300,000 organized votes nationally, it means only 1,000 organized
votes in each district under the current 300 SMD system. According to a former minister
and LDP member, election campaigns that only depend on organized voters can no
longer secure the party‟s victory in elections (Nikkei Shinbun, 16 August 2005).
4.2. House of Representatives Election in 2003 and 2005
House of Representatives elections clearly demonstrated the Koizumi effect. His
reform policies resulted in the increase of urban, non-affiliated voters‟ support. The
House of Representatives election in 2003 showed that the Koizumi effect was strong in
big cities. The LDP gained 237 seats among the 480, while the DPJ obtained 177 seats.
The coalition parties (the LDP, Kōmeitō, and New Conservative Party) obtained 275
seats, four more seats than in the 2000 election. But it was uncertain whether the LDP
won or lost, casting doubt about the LDP‟s future. The DPJ collected more votes than the
LDP in PR seats, while increased seats in SMD districts (Kabashima and Sugawara,
2004a). Nevertheless, the Koizumi effect helped the LDP gain seats. According to
Kabashima and Sugawara (2004a), the LDP gained 14 more seats in SMDs, as a result of
the Koizumi effect (Table 5.6.). Schaap adds that the coalition with the Kōmeitō also
helped to halt the LDP‟s decline in urban areas, particularly in the Tokyo Prefecture
(Schaap, 2005). The LDP gained 12 seats among 25 Tokyo SMDs, four more seats than
107
in the 2000 election. One of the characteristics of the election was a newly published
“manifesto – party platform” by the opposition DPJ to appeal to voters, followed by the
LDP and other parties. In this respect, Japanese politics was heading toward a party and
policy-based pragmatic electoral competition (Krauss and Pekkanen, 2008; Schaap,
2005).
Table 3.6: Koizumi Effect in Single-Seat Districts in 2003 Election (Total = 300)
LDP
Urban Intermediate Rural Total
Actual seats 2000 34 66 77 177
Actual seats 2003 31 58 79 168
Projection 2003 26 53 75 154
DPJ
Urban Intermediate Rural Total
Actual seats 2000 50 24 10 84
Actual seats 2003 60 35 10 105
Projection 2003 65 39 12 116
Source: Kabashima and Sugawara (2004, p. 35 and 37). * Projection 2003 shows a
simulated result of the 2003 election without the Koizumi effect.
The urban voters‟ support for (Koizumi) reform was revealed again in the 2005
House of Representatives election. Koizumi believed that the postal reform was an
important component of administrative and financial reform (Maclachlan, 2006). It was
connected with redirecting money from public works to the private sector as well as with
strict decisions on public works spending and investment (Izumi, 2005). Although there
was a strong opposition from certain LDP politicians to the postal reform, the public
supported Koizumi‟s reform policies. A survey in September 2005, two months before
the election, showed that urban, non-affiliated voters who generally preferred the DPJ
began to support the LDP with Koizumi‟s message of the postal reform (Krauss and
108
Pekkanen, 2008). The huge swing of urban voters to the LDP resulted in a remarkable
victory for the LDP, which won 296 seats with almost 48 percent of the popular vote. In
contrast, the DPJ gained only 113 seats with 36 percent of the popular vote. The election
confirmed the rise of non-affiliated voters and the decline of organized votes (Maclachlan,
2006). Maeda (2009) maintains that the victory of many LDP candidates with few or no
local personal networks was a notable phenomenon in the election, illustrating the
possibility of a party-centered election and the importance of the party leader‟s (prime
minister‟s) popularity. The result also demonstrated that a small margin of swing votes
can bring about huge gaps between votes and seats under the SMD system. It was a risky
component for both the LDP and the DPJ (Krauss and Pekkanen, 2008).
4.3. Electoral Politics under Koizumi
The increase of urban, non-affiliated voters has two policy implications: First,
their interests are in the opposite side of the LDP‟s traditional rural-based pork barrel
politics. Second, they easily swing their supporting party based on temporary policy
issues, increasing the number of competitive districts. In fact, the vote share of non-
affiliates has fluctuated by election. In the 2000 Lower House election, the number of
votes the DPJ obtained from non-affiliated voters was three times more than that obtained
by the LDP. But in the 2001 Upper House election, the LDP won around half of the non-
affiliated votes. Then the DPJ garnered five for every three non-affiliated votes won by
the LDP in the 2003 Lower House election. In addition, the ratio of the DPJ‟s non-
affiliated votes to that of the LDP was 2 to 1 in the 2004 Upper House election
(Kobayashi 2004, p. 10). The trend was parallel to Koizumi and his cabinet‟s approval
ratings. Although public support was relatively high, Koizumi and his cabinet‟s approval
109
ratings declined between 2002 and 2004 (Kabashima, 2002, 2003, and 2004). The level
of the public support was closely connected with the progress or delay of reforms.
Despite relatively good performance in urban districts, Reed and Shimizu (2009) consider
the 2003 Lower House election and the 2004 Upper House election to be defeats for the
LDP. They argue that the appearance of Koizumi as a “normal” prime minister, not the
reformer Koizumi, caused the LDP‟s poor performance in those elections. The stagnant
reform led to a decline of public support. In the 2003 and 2004 elections, the LDP
achieved less success in urban districts, while the party did well in the 2001 and 2005
elections. In the 2001 House of Councilors election, non-affiliates that the LDP gained
were twice as many as those of the DPJ during Koizumi‟s high popularity. In contrast,
according to an exit poll after the 2003 House of Representatives election, about 55% of
non-affiliated voters voted for the DPJ, while around 25% of them voted for the LDP.
The number of non-affiliated voters was estimated as fifty million (Nikkei Shinbun, 8
November 2003 and 10 November 2003).
Although certain reforms faced strong opposition from party members, Koizumi‟s
reform continued during his premiership. It was involved with a shift of the LDP‟s
electoral strategy designed to attract urban, non-affiliated voters. Kobayashi (2004)
claimed that non-affiliated voters had an obvious policy-orientation to fiscal
reconstruction. He asserts that the majority of non-affiliated voters supported the DPJ in
the 2000 Lower House election due to the party‟s call for fiscal consolidation. In contrast,
in the 2003 Lower House election, the majority of those voters supported Koizumi‟s LDP,
which advocated fiscal reconstruction and structural reform. Koizumi reforms and
“assassin” candidates led to the LDP‟s huge victory in the 2005 election. Clearly, the
110
victory resulted from the LDP‟s success in garnering non-affiliated votes while keeping
the votes of its traditional supporters (Yomiuri Shinbun, 14 September 2005).

Table 3.7: PR Vote‟s Share in the Tokyo Metropolitan Area
(House of Councilors election)
Saitama Chiba Tokyo Kanagawa
1998 20.4 23.9 19.0 18.2
2001 35.0 36.5 34.5 36.7
2004 27.2 29.3 26.5 27.8
Source: Kabashima and Sugawara (2004b, p. 22).

Table 3.8: LDP PR Vote‟s Share by Types of Districts
(House of Representatives election)
Urban Intermediate Rural
2000 21.2 28.8 35.8
2003 30.9 34.6 40.0
2005 38.6 37.3 38.7
Source: Kabashima and Sugawara (2005, p. 13). Categorization based on the SMD
seats.
5. Conclusion
In sum, the LDP under Koizumi‟s leadership was electorally successful in urban
districts. Urban voters provided strong support for his reforms, which diverged from
traditional LDP policies. The LDP could maintain its majority position as a result of
Koizumi‟s reform policies and his personal popularity. The LDP cut back public works
expenditures and reduced fiscal transfers to rural areas, both actions a reflection of
Koizumi‟s vision. Clearly, the election of Koizumi as the LDP president and prime
minister showed that urban interests had become significant in Japanese politics. The
defeats in the 1998 and 2000 elections motivated the LDP to move away from its
traditional policies. Koizumi facilitated those changes. After launching his reforms, the
111
LDP gained support from urban voters. From the perspective of urban residents who had
received no benefits from the LDP, the LDP‟s old policies were a waste of their tax
money which had poured mostly into rural areas. In the 1990s, urban voters became a
strong political force (Kabashima and Sugawara, 2005). While the LDP‟s defeat in the
1998 and 2000 election demonstrated that urban voters‟ dissatisfaction began to threaten
the LDP‟s survival, the 2001 House of Councilors election and the 2005 House of
Representatives election showed that reform policies were welcomed by the urban, non-
affiliated voters and acceptable to some rural voters. This chapter demonstrates that the
increasing electoral power of urban, non-affiliated voters transformed the LDP‟s rural-
oriented policies into urban-oriented ones in order to secure electoral victories.
Some observers argue that it is premature to conclude that the LDP‟s policy-
making had fundamentally shifted. They point to the failure of certain Koizumi‟s policies
(McElwain and Reed, 2009). After the 2005 election, Hiroshi Hirano, Professor of
Gakushūin University, pointed out the instability of the Koizumi reform and argued that
it was not clear whether the LDP was becoming an urban-based, neoliberal party
(Yomiuri Shinbun, 14 September 2005). Nonetheless, electoral politics in the 1990s
clearly showed that urban, non-affiliated votes had become a key factor for winning an
election. Consequently, Koizumi‟s reforms and urban-oriented policies were effective
tools for the LDP‟s victories.

112
Chapter IV. Regional Development Policies and Public Works Projects
Since the 1960s, regional equality and balanced development have been major
national goals under the LDP governments. The government has carried out various
regional development policies and public works projects in favor of rural areas to achieve
these goals. However, the effectiveness and efficiency of these policies were challenged
during the 1990s, when the budget deficit increased rapidly as a result of large public
investment to stimulate economic growth. The government tried to reduce public works
expenditure, but reforms of public works were not executed due to the vested interest of
bureaucrats, politicians, and construction businesses. In particular, a decline in public
works projects meant a political risk to the LDP politicians, removing the benefits of pork
barrel politics that had helped to sustain their power. In the 1990s, urban taxpayers‟
dissatisfaction with public works projects in rural areas increased. From their perspective,
rural-centered public works were an unfair distribution practice of the government.
Meanwhile, the public‟s criticism of public works intensified due to politicians‟
corruption scandals and environmental devastation caused by a large scale construction.
From the late 1990s, even beneficiaries of the public works projects, rural residents,
began to oppose projects such as dam construction. Above all, a rapid increase of the
budget deficit by the central and local governments was a central source of concern about
ineffective and inefficient public works projects.
The increase in public works expenditures was halted with the election of
Junichiro Koizumi as prime minister. In 2001, he launched drastic reforms, including
privatization, deregulation, and budget cuts. Prime Minister Koizumi continuously
113
attempted reforms of public works, but resistance from anti-reform forces such as the
policy tribe (zoku politicians) and bureaucrats of public works-related ministries was
strong. Despite his reform efforts, there were skeptical views on the effectiveness of his
reforms.
34
For instance, some politicians and scholars argued that the budget cuts in
public works were not as large as Koizumi publicly declared them to be. But public
works spending was consistently reduced during the early 2000s.
Historically, public works projects in rural areas played an important role in
reducing regional disparity. However, the increase or decrease of public works spending
does not coincide with either upward or downward trends in regional equality. Although
there is a positive correlation between the reduction of public works and the increase of
regional disparity, a conclusion that a mere reduction of public works directly results in
the growth of regional disparity is inadequate to fully understand Japan‟s regional
disparity. This chapter shows that regional disparity was caused by changes in the
previous national regional development policies and the redirection of public works
projects toward urban centers to revitalize the economy. From the early 2000s, the
government abolished or revised previous regional development policies that prevented
the over-concentration of development in metropolitan areas. Instead, the government
enacted new laws to facilitate urban (metropolitan) redevelopment. In particular, Koizumi
reduced public works projects in rural areas and redirected the projects toward urban
areas, focusing on the renovation of urban centers and the construction of international
airports and harbors. It was a response to a decline in national economic performance

34
About lingered reforms of the Japanese political economy, see studies by Aurelia George Mulgan (2002),
Leonard J. Schoppa (2006), Steven K. Vogel (2006), and Ulrike Schaede (2004).

114
under globalization. Unlike the traditional balanced-development oriented policies, the
government implemented urban-centered policies to promote international
competitiveness. A result was the increase of regional disparity.
1. Regional Development Policies and Public Works Projects
The government‟s concern over regional disparity dates back to laws for regional
districts, such as the Tohoku Development Act (1957) and the Capital Region
Maintenance Act (1959), which aimed at restraining overpopulation and preventing the
overconcentration of industries in metropolitan areas. Since 1962, more tangible policies
that targeted balanced regional development have been embodied in the Comprehensive
National Development Plans (Zensō; CNDP). According to these plans, the government
adopted regional development policies and implemented public works projects, such as
road and dam construction in rural areas. The emphasis on public works became one of
the most enduring and significant characteristics of Japan‟s post-war political economy.
Japan spent five times as much on public works as other OECD countries (OECD,
1997b).
Table 4.1: Comparison of Public Works Spending in 1996
(Unit: billion dollars, percentage)
Public works spending Percentage within GDP
U.S. 129.3 1.7
France 47.0 3.1
Germany 51.7 2.2
Japan 402.1 8.7
Source: Seikai (Ogawa, 2004). p. 130
115
The Comprehensive National Development Plans were basically devised to
reduce regional disparity between metropolitan areas and nonmetropolitan areas. After
establishing the “National Income Doubling Plan” in 1960, the government adopted the
Pacific Belt scheme based on the development of industries in Tokyo, Nagoya, Osaka
and Northern-Kyushu area. However, the concentration of development in the Pacific
Belt Zone raised criticism from less developed areas. In response, the first CNDP (1962)
was introduced to develop infrastructure for industries in non-metropolitan areas. The
New Industrial City Construction Promotion Act (1962) and the Act for the Promotion of
Development of Special Areas for Industrial Consolidation (1964) were enacted to
achieve this goal. In spite of the efforts, the concentration of industries and population in
metropolitan areas accelerated. The second CNDP (1969) proposed nation-wide networks
of industrial cores, stressing transportation and communication links. Shinkansen (bullet
train) and highway networks were proposed. Following these plans, the government
allocated a large amount of public investment and public works projects for rural areas.
For example, from 1965 to 1975, two-thirds of the budget for roads was spent in less
populated areas with low transport demand (Ogura and Yoshino, 1988).
The third CNDP (1977) emphasized the improvement of the living environment
by dispersing the population and industries away from metropolitan areas. The
Technopolis Act (1983), which aimed at facilitating high-tech industrial cities, was
passed in the planned period. Meanwhile, the rapid growth of the Japanese economy
began to slow down in the 1970s and the economy became more opened and
internationalized in the 1980s. Increases in welfare, public spending, and international
competition during the period induced concern over the budget deficit and the
116
inefficiency of the public works sector and brought about the government‟s reform
movement. Although public investment in regional development policies (mainly
relocation of manufacturing functions to prefectures) and public works projects for rural
areas reduced regional disparities to some extent, the excessive growth of Tokyo and the
so-called “overconcentration” problem occurred in the 1980s (Kitayama, 1995;
McCormack, 2001). While population and industries had been concentrated in the Tokyo
Metropolitan Area, unemployment issues arose in many non-metropolitan areas.
Regional development policies and public works support for rural areas continued to
lessen these problems. The forth CNDP also prescribed policies for balanced
development. In 1988, the Multi-polar Pattern National Land Formation Act, which
promoted relocation of the national government bodies and development of business core
cities, was enacted. In 1992, the Act for the Promotion of the Development of Local Core
Areas and the Relocation of Facilities for Industrial Business was also passed. Meanwhile,
criticism of those policies and public works became stronger by the 1980s, when the
export-oriented competitive sectors, which had subsidized the less competitive sectors in
rural areas, started to have difficulty bearing the burden. Nevertheless, public works
spending increased consistently between the 1980s and 1990s, disproportionately in rural
areas (Figure 4.1).

117
Figure 4.1: Public Investment per Capita (Real Value)
(Unit: thousand yen)

Source: Ministry of Finance (2002)
This was due to the LDP‟s pork barrel practices and strong opposition from
vested interests against reforms surrounding public works. LDP politicians experienced a
decline in electoral support during the period and sought to regain support by spending
more government money on their client sectors and constituencies (Calder, 1988; Cargill
and Sakamoto, 2008). In addition, the 1990 agreement over the Structural Impediments
Initiative with the U.S. promoted domestic demand through 430 trillion yen of public
investment in public works projects for 10 years (Basic Plan for Public Investment). In
1998, rural residents of the Shimane Prefecture still received 3.6 times more public
investment than urban residents in the Kanagawa Prefecture (Katz, p. 288).
The burst of the bubble economy in the early 1990s and the subsequent economic
recession led the government to carry out a further series of economic stimulus packages
Metropolitan areas
Nonmetropolitan areas
118
and to increase public works spending. Government expenditures were allocated to the
LDP‟s client sectors such as construction, small business, farmers and rural areas.
Between 1992 and 2001, the economic stimulus packages amounted to 141.3 trillion yen
(approximately 1.2 trillion dollars) and fifty-three percent of the total amount was spent
on public investment, mostly in public works (Cargill and Sakamoto, p. 185). Above all,
the public investment of the 1990s was expected to function as a measure to redistribute
income and to stimulate the economy (Ihori, 2001). However, criticism against the
practices of public works became stronger, as the effects of stimulus packages and
subsequent public works on boosting the recessed economy were not great as was
expected.
2. Increasing Criticism against Public Works
The emphasis on public works was one of the most enduring and significant
characteristics of the Japanese political economy compared to other advanced
industrialized countries. Due to the heavy investment in public works and the
consequently overgrown construction sector, Japan is referred as a construction state
(doken kokka). However, a group of reformers who advocated reforms of public works
practices emerged and negative views on public works began to spread among the public
in the 1990s, as maladies of public works were revealed.
2.1. Political Corruption and Environmental Devastation
A series of corruption sandals, including the Recruit (1988) and Sagawa Kyūbin
(1992) cases, which involved Prime Minister Noboru Takeshita and a powerful LDP
politician Shin Kanemaru respectively, provoked public resentment and requests for
119
changes to public works bidding practices and the back-scratching alliance of politicians,
bureaucrats, and construction companies. The extensive involvement of bureaucrats in
public works corruption scandals in the 1990s also challenged the public‟s trust and
raised criticism of amakudari (decent from heaven) - reemployment of top level
bureaucrats in high level positions in private and public corporations. In fact, construction
companies contributed massive amounts of money to the LDP and its politicians for
continuous public works projects. From the late 1970s, the construction industry became
the number one donor of political funds to the LDP. At the local level, local construction
contractors were among the most beneficent donors and active members in the personal
support groups (kōenkai) of LDP candidates (Woodall, 1996). But repeated corruption
scandals related to political funds provoked requests for reform of these political funding
and public works practices.
Meanwhile, local residents‟ opposition to large scale public works began to
increase from the mid-1990s due to their concern over environmental devastation
resulting from excessive development (Hein and Philippe, 2006; Feldhoff, 2002). The
increasing opposition of local residents to public works policy was well expressed in
local referenda. The first project to be rejected by a local referendum was the
construction of a nuclear power plant in the town of Maki, Niigata Prefecture (one of the
biggest beneficiaries of public works) in 1996 (Hasegawa, 2002). Opposition to public
works projects resulted in local referenda in several areas, such as that of the Tokushima
City, Tokushima Prefecture regarding dam construction in 2000. Local referenda (jūmin
tohyo) on large-scale public works projects became a new trend in the landscape of local
politics, symbolizing the growing opposition of local residents to the public works policy
120
of the time (Jain, 2000). In his analysis of the 2000 House of Representatives election,
Kabashima (2000) also observed signs of growing complaints among urban residents
about the waste of taxpayer‟s money on pubic works projects in rural areas and about
corruption surrounding the public works spending. Opposition by local citizens‟
organizations to public works took place surrounding dam constructions such as the
Kawabegawa Dam in the Kumamoto Prefecture,
35
the Tokuyama Dam in the Gifu
Prefecture, and the Tomata Dam in the Okayama Prefecture. As of 2006, construction of
11 major dams had been halted as a result of citizens‟ opposition and changes in the
attitudes of local politicians (Hein and Philippe, p. 170).
The local residents‟ grudges against public works were also reflected in several
gubernatorial elections. Governors of Akita, Chiba, Nagano, Tochigi, and Tokushima, all
elected in the early 2000s, had expressed their opposition to dam construction, paving
over wetlands, and unnecessary road construction during their electoral campaigning. For
instance, a platform of open government and “no more dams” was the driving force for
the independent candidate Tanaka Yasuo‟s victory in 2000 Nagano gubernatorial election
(Kingston, 2004).
36
Electoral success of those governors against the LDP candidates gave
opposition parties an insight into future electoral competition (Reed 2003). In fact, local
governments‟ spending on unnecessary public works projects increased concerns over
local budget deficits.

35
On September 17, 2009, Prime Minister Hatoyama and the Minister of Land, Infrastructure and
Transport Maehara announced disruption of the Kawabegawa Dam construction (Yomiuri Shimbun,
September 21, 2009).

36
His anti-dam, anti-public works position led him to a political crisis. In July 2002, the conservative
assembly men passed no-confidence motion, forcing him out of office. However, in ensuing gubernatorial
election, he was voted back into power with overwhelming popular support.

121
2.2. Growth of the Budget Deficit and Inefficiency of Public Works
Above all, the rapidly increasing budget deficit and the declining effectiveness
and efficiency of public works caused the rise in criticisms of public works practices.
While the government‟s expenditures rapidly expanded from the 1970s with the increase
of social welfare, public works, and education spending, the increase in tax revenue
became sluggish with a slowing economic growth, causing a rapid increase in the
national debt. Responding to the growing fiscal deficit, the government implemented
policies to reduce expenditures and achieve a balanced budget in the mid-1980s.
However, the fiscal deficit problem reemerged in the 1990s with the collapse of the
bubble economy. Tax revenue decreased due to the reduction of asset prices and to
recession from the early 1990s, but the government had executed a series of stimulus
packages including tax cuts and public works spending to overcome the economic
stagnation. As a result, the government debt rose precipitously in the 1990s.
Faced with a rapid increase in debt, the government made an attempt to reduce the
budget deficit. In November 1997, the Hashimoto government launched an aggressive
campaign to reduce the deficit and passed the Fiscal Structural Reform Act, which
stipulated that the ratio of annual fiscal deficit (excluding social security) to GDP should
be under 3% or less by fiscal year (FY) 2003 and that the government should terminate
the issuance of special deficit-financing bonds by FY 2003. The law also included a 7.7%
cut to the public works budget in FY 1998 and continuous cuts up to 2001 (Wright, p.
425). However, the law was suspended and the planned cuts abandoned due to the
deteriorated economy in the late 1990s. Instead of fiscal austerity, the Hashimoto
administration implemented a 16 trillion yen stimulus package in 1998. The succeeding
122
Obuchi administration continued with two large stimulus packages to the amount of 38
trillion yen in 1998 and 1999 (Cargill and Sakamoto, p. 192). This led to a huge rise in
the government debt (Table 4.2).
Table 4.2: Long-Term Debt of National and Local Government
(Unit: Trillion Yen)
Year 1991 1992 1999 2000
National Government 209 325 451 484
Local Government 70 139 179 184
Total (% of GDP) 58.6 87.2 118.3 125.0
Source: Kōkyō Tōshi 2001-2010 (Public Investment 2001-2010), 2002.
The rapidly increasing national debt during the 1990s became an urgent policy
issue for the government and politicians. More problematic was the ineffectiveness of
public works projects in promoting the economy. Economic analyses have explored the
impact of public spending in rural areas, illustrating that regional public investment was
used as a policy tool to reduce income inequality rather than to improve the marginal
productivity of the public investment, at the expense of national GDP growth (Kamada et
al., 1998; Kataoka, 2005). But this does not mean that the public works projects in rural
areas were inefficient. It is widely acknowledged that large public investment supported
the rapid economic growth of postwar Japan. Although the effectiveness of social
overhead capital (infrastructure) to industrial productivity is large in urban areas, it also
increased the productivity of industries in rural areas. The estimation of the contribution
of long term public investment (1975-1998) to productivity shows that the increase of
social overhead capital has improved the productivity of industries, but the effectiveness
has decreased in the 1990s, down to half in 1998 (MOF, 2002).
123
The Ministry of Finance (2002) reported that the government‟s goals of
increasing the productivity of the private sector and reducing economic disparities among
regions were attained with the increase in public investment. However, criticism against a
low level of effectiveness and efficiency of public works increased, although its
contribution to the Japanese economy was not denied. For example, in Kunihisa and
Kaiyama‟s (1998) estimation of the marginal productivity of highway construction in the
U.K, Germany and Japan over the period from 1975 to 1990, the decrease in productivity
was most pronounced in Japan. DeWit and Steinmo (2002) indicate that the effectiveness
of public investment has declined significantly over the past two decades, particularly in
rural areas. The OECD (2000) points out that further extension of road construction in
rural areas is unlikely to be efficient. Instead, it recommends an extension of belt
highways around the Tokyo area, which would be more efficient in terms of
transportation infrastructure investment. Criticism against inefficiency of public works
investment, especially for rural areas, became stronger in a recessed economy.
3. Public Works for Reviving the Japanese Economy
As seen in the above discussion, demand for reforms of regional development
policies and subsequent public investment, especially public works projects, grew in the
1990s. But reform efforts in the period were not successful due to economic difficulties
and resistance from bureaucrats and politicians. Meanwhile, the policy profile of regional
development policies and public works began to change, emphasizing efficiency and
international competitiveness.

124
3.1. A New Direction for National Regional Development
A signal of the changes in public works came out in the fifth Comprehensive
National Development Plan (CNDP) announced in March 1998. The plan was entitled
“Grand Design for the 21
st
Century – promotion of regional independence and creation of
beautiful national land –,” unlike the numerical titles in previous plans. This plan was
different in that it de-emphasized concerns over over-concentration in metropolitan areas.
It assumed a decline of the population and focused on sustainable development and
improving quality of life (Table 4.3). Above all, it emphasized the renovation of urban
areas and independent development of each region by facilitating decentralization. It
hoped that the renovation of metropolitan areas would contribute to solving problems
related to overpopulation in these areas including Tokyo. The plan also projected
establishment of “major core city areas,” including the three metropolitan areas, regional
hub cities, and prefectural hub cities. Another difference from other previous plans was
that it did not specify the investment amount and focused only on geographic
“concentration” and “efficiency”.
37

37
The second CNDP projected public investment of 130 trillion yen to 170 trillion yen, and the third CNDP
schemed that of 370 trillion. On the other hand, the third CNDP planned total 1,000 trillion yen of public
and private investment.
125
Table 4.3: Objectives and Strategies of the Grand Design for the 21
st
Century
Basic Objectives
Create regions that
are independent and
that residents can
take pride in
Make Japan a safe
and comfortable
place to live
Enjoy and nourish
sound nature‟s
blessing
Build a vigorous
society
 Promoting
independence under
decentralization.
 Improving safety
measures against
natural disasters
including large-scale
earthquakes.
 Conserving and
restoring attractive
rural areas.
 Increasing global
competitiveness
through promoting
deregulation and
improving
commodity
distribution systems.
Strategies Specific tasks
Build nature-rich
residential areas
Renovate
metropolitan areas
Form regional
cooperation
corridors.
Metropolitan
functions and
problems related to
Tokyo
 Regional
cooperation between
nature-rich
residential areas and
larger cities.
 Relief of traffic
congestion and
promotion of new
businesses and
enterprises.
 vulnerability to
disasters (large-scale
earthquakes), traffic
congestion.
Source: MLIT, 1998.
A recommendation report (1999) submitted to Prime Minister Keizo Obuchi and
his Cabinet pointed out that Japan‟s equality-oriented social system has generated a
bloated public sector and inefficient resource allocation (Economic Strategy Council).
Although the Obuchi administration did not attract much attention in terms of “reform,”
the recommendations suggested in the report can be considered a blueprint for future
reforms, reflecting the “Grand Design for the 21
st
Century.” The report consisted of five
chapters. The last chapter described its vision of future public works under the title of
“Strategic Infrastructure Investment Toward the 21
st
Century and Revival of Local
Economies.”
126
The report contained several important ideals for reforms of public works system.
First, a strategic infrastructure investment should be decided based on wide-range
regional areas, instead of prefectures or municipalities, to project intensive and
concentrated investments, considering international competitiveness. Second, the
improvement of urban lives and of the global competiveness of Japanese cities should be
worked out as national projects. The government‟s urban development policies need to be
changed from “restraining urbanization” to building attractive and competitive cities in a
global context. Third, transparency and efficiency of public works should be improved.
For these goals, the sectionalized public works system should be distributed among
ministries and the government should introduce private sector dynamism such as the
Private Finance Initiative (Economic Strategy Council, pp. 70-77). The report also
mentioned more tangible projects to achieve those ideals. For example, it emphasized
intensive and concentrated investments in airports and harbors for international
competitiveness and indicated strategic investment fields including urban development,
housing, information, and international logistics. Inefficient public works practices, such
as Uwauke, were strongly criticized.
38

3.2. Public Works for International Competitiveness
The change in public works policy was inspired by a decline in the economic
growth rate and in Japan‟s status in the international arena. The average annual economic
growth rate fell into an average rate of 1.4 % in the 1990s, from an average rate of 4% in

38
Uwauke is a public works bidding practice in which “small and medium-sized companies receive an
order and place the order to large companies” (Economic Strategy Council, p. 74). The practice resulted
from the government‟ protection policy for small and medium-sized construction companies. The
government divided a large scale public works projects into small pieces to make small and medium-sized
companies‟ participation in bidding possible.

127
the 1980s. With the declining economy, several issues, such as the “co-hosting” of the
2002 Korea-Japan World Cup and the International Olympic Committee‟s criticisms of
Japan‟s performance in the 1998 Nagano Winter Olympic Games, provoked concerns
over Japan‟s international status (Pempel, 1998). A comparison of the number of
international conferences and foreign visitors with competitor countries also revealed the
decline in Japan‟s competitiveness. In 1999, only 220 international conferences were held
in Japan, while the numbers of those in the U.S. (1,202), France (633), the U.K (608),
Germany (620), and Italy (384) were much higher. Even in a comparison of Tokyo with
Seoul, the number of international conferences held in Tokyo (63) was smaller than that
of Seoul (65). In addition, the number of foreign visitors to Japan (4.44 million) was
much smaller than neighboring countries such as China (8.43 million), Singapore (6.96
million), and South Korea (4.66 million) in the same year.
39
Continuous drops in Japan‟s
rankings in a comparison of international competitiveness also galvanized the Japanese
bureaucrats and politicians (see Table 2.11). For example, the first report of “Middle-
range Prospects of Structural Reform and Fiscal Economy” submitted by the Council on
Economic and Fiscal Policy under the Cabinet affirmed that international competitiveness
had declined with the low birth rate, increase of the aged, and growth of developing
countries such as China, suggesting urgent reform measures (July 2002).
40

Under these conditions, strengthening international competitiveness became an
urgent task. Public works began to be carried out for the renovation of big cities and their

39
Referred by an LDP Lower House member Kosuke Itō in the meeting of Committee on Construction
(November 8, 2000).

40
Council on Economic and Fiscal Policy. http://www.keizai-shimon.go.jp.

128
transportation systems, especially international airports and harbors. The notion of
international competitiveness through improvement of transportation systems was
facilitated by the request of business organizations, such as Keidanren. Following Prime
Minister Obuchi‟s request, Keidanren (1999) submitted a report on strategic policies
entitled “Second Proposal for the Competitiveness of Japanese Industry.” The proposal
suggested a reduction of distribution costs, emphasizing a philosophy of “selection and
concentration.” Keidanren proposed improvements to transportation and distribution
infrastructure as a way to strengthen productivity and competitiveness, especially that of
the three metropolitan areas. Specific projects, such as the construction of belt highways
and cubic crossings in metropolitan areas as well as the renovation of international
airports and harbors, were suggested.
Following the fifth CNDP and various policy proposals, the Diet‟s Committee on
Construction and Committee on Transport supported new development policies and
public works projects. Main topics of the transport committee in 1999 and 2000 were the
renovation of airports and harbors, and of train and subway systems in big cities.
Preparation for the 2002 Korea-Japan World Cup was an important reason for improving
transportation networks in major core city areas. International airports and harbors with
neighboring Asian countries like China, Korea, and Singapore also provoked large
investment in major airports and harbors. In 2000, sixty percent of the budget for airport
renovation went to big cities, especially international hub (kyoten) airports in the Tokyo
Metropolitan Area (Narita airport), the Osaka Metropolitan Area (Kansai airport), and the
Nagoya Metropolitan Area (Chubu airport). In addition, seventy percent of the budget for
harbor renovation went to international hub harbors. The need to strengthen international
129
competitiveness was continuously affirmed by bureaucrats and politicians. In the first
meeting of Committee on Land, Infrastructure and Transport held in February 2001, the
new Minister of Land, Infrastructure and Transport, Chikage Oogi addressed that priority
in public works projects was given to improving international competitiveness of the
distribution sector through the renovation of transportation systems.
41
She claimed that
intensive investment is inevitable under the reduction of investment for social overhead
capital and that concentrated investment to strengthen international competitiveness
would have a ripple effect.
42
The policy-orientation of public works toward international
competitiveness was consistently reflected in the budgets of the Ministry of Land,
Infrastructure and Transport (MLIT). Minister Oogi and Vice Minister Sato confirmed
that most of the public works budget in 2002 was invested in renovating cities,
facilitating tourism, and strengthening international competitiveness. In fact,
“international competitiveness” was a major discussion topic of the committee sessions in
2002. A Kōmeitō member Kazuyoshi Akaba showed strong support for renovating
international hub airports (i.e., Narita and Kansai) and harbors (i.e., Yokohama and
Kobe). He claimed that the “negative legacies” of public works in high growth era were a
lack of policy measures for disaster prevention and a decline of international
competitiveness. The plan also dated back to 1996. The renovation of international hub
airports had been planned already in the Seventh Five-year Plan of Airports Maintenance
starting in 1996. The plan was projected to renovate hub airports in metropolitan areas

41
She served as a minister of construction just before the merger of ministries and became the first Minister
of Land, Infrastructure and Transport in 2001.

42
House of Representatives, the 154
th
committee session on June 2002.

130
such as the Narita Airport and local hub airports that could function as international
airports for short-distance flights.
43
The Eighth Five-year Plan, started in 2003, affirmed
intensive investment in airports in big cities, while restricting new investment for local
airports in relatively small cities as a part of public works reforms. The 2003 budget for
public works decreased 3% from 2002, but the budget for hub airports in big cities
increased 35% while airport-related spending in the budget increased five percent. The
Director-General of Civil Aviation Bureau of the MILT, Hayao Hora, stated that over 75
percent of 2003 budget for renovation and maintenance of airports went to hub-airports in
big cities (especially three major hub-airports), following the notion of the international
competitiveness and concentration of investment.
44

Table 4.4: Public Works Budget for Maintenance of Airports and Harbors
(Unit: millions yen)
Total amount Change from
previous year
(%)
Hub airports in
big cities
Change from
previous year
(%)
2004 164,380 +7.1 87,947 +30.3
2005 165,669 +0.8 89,884 +2.2
2006 167,011 +0.8 115,766 +28.8
Total amount Change from
previous year
(%)
International
hub harbors
Change from
previous year
(%)
2004 277,087 -5.9 64,445 +3.0
2005 258,128 -6.8 66,659 +3.4
2006 242,084 -6.2 69,247 +3.9
Source: Ministry of Finance, Fainansu (Finance).

43
White Paper of the Ministry of Transport. 1996. http://www.mlit.go.jp.

44
House of Representatives, the 156
th
committee session on May 16, 2003.

131
Investments to improve international competitiveness were welcomed by
opposition parties. For example, DPJ member Tetsundo Iwakuni emphasized of the need
for renovation or construction of an international airport in Tokyo. He stated that “Now,
Tokyo is referred as a huge countryside city (inaka toshi) in Asia. The reason is that it has
only large population but has no front door…….the most necessary thing in the
globalization era is a front door in the sky, that is international airports……does a visitor
come to Tokyo without international airport?......visitors may not come……that‟s why
the number of employees in Tokyo declined……therefore, Tokyo is referred as a
countryside city.”
45

3.3. Urban Development to Revitalize the Economy
Prime Minister Obuchi announced the year 1999 as the first year of economic
recovery and increased the budget for public investment. But unlike in the previous era,
many public works projects were designated to urban areas. The emphasis on urban
development was emphasized in the “Grand Design for the 21
st
Century,” and the
implementation of policies projected in the plan began to be discussed in the committee
on construction. The committee intensively discussed the promotion of urban housing
conditions, preventive measures for possible disasters in heavily populated urban areas,
and the reduction of traffic congestion. The renovation of cities was referred as a tool of
recovering economy, increasing domestic demand and creating new jobs.
A. Public Works for 21
st
Century
Public works projects between the late 1990s and the mid-2000s concentrated on
the development of urban areas, while many previous public works projects had been

45
House of Representatives, the 154
th
committee session on March 12, 2003. Translation by author.

132
carried out to ensure balanced regional development supporting rural areas. Changes in
the development plans for the Capital Region showed a new policy direction (Table 4.5).

Table 4.5: Evolution of Long-Term Development Plan for the Capital Region
1
st
Basic Plan
(1959)
2
nd
Basic Plan
(1968)
3
rd
Basic Plan
(1976)
4
th
Basic Plan
(1986)
5
th
Basic Plan
(1999)
Background Concentration
of population
and industry
in Tokyo.
High growth
economy.
Failure of
Green Belt
concept.
Turning point
at the 1
st
Oil
Crisis.
Moderate
inflow of
population.
Globalization,
aging, IT.
Transition
from period
of growth to
mature
society.
Policy targets Green Belt
(control of
expansion)
with satellite
cities.
Development
in periphery
(50 km from
the center and
further).
Multi-polar
structure.
Multi-polar
structure with
self-sufficient
“business core
cities”.
Distributed
network
structure.
Challenges Halting over
expansion of
urban areas
and mitigation
of regional
disparities.
Allocation of
functions in
the region.
Correction of
uni-polar
structure.
Self-
supported
areas in
periphery.
Correction of
uni-polar
structure.
Promotion of
urban-rural
interaction
and region‟s
independence.
Allocation of
functions and
interaction
with other
areas.
Related policy
issues
Restriction on
the
construction
of factories
and
universities in
central
Tokyo.
Large-scale
infrastructure
projects.
Increased
restriction, on
the
construction
of factories
and
universities
and
promotion of
decentralizati
on.
Deconcentrati
on of national
administrative
bodies.
Abolition of
the restriction
on
construction
in central
Tokyo.
Source: OECD, 2005b.
Since the first long-term development plan for the Capital Region was formulated
in 1959, the Capital Region development plans aimed to restrict both over-concentration
of administrative and industrial functions and the population in the Capital Region. In the
late 1990s, the GDP and the population of the Tokyo, Osaka, and Nagoya Metropolitan
Areas constituted around 60% and 50% of the national totals, respectively. Nevertheless,
133
the government‟s development plans put a high priority on major urban centers instead of
rural areas. It referred to urban areas as the “engines” of the national economy. The fifth
basic plan for the capital region in 1999 illustrated that the policy-orientation for the
metropolitan areas had begun to change.
As the capital region development plan forecast, the renovation of urban areas
became a new target of the national public works policies. In a meeting of the committee
on construction, Keio University professor Shigeru Itō stated that the notion of
“renovation of big cities” included in the Fifth CNDP reflected lessons from the Kobe
(Hanshin-Awaji) earthquake in 1995. He argued that the “renovation of big cities”
became an essential feature of national policy (kokuze).
47
In addition, the committee
discussed a law to promote private sector investment as a way of facilitating the private
sector‟s participation in urban development. The Act for Promotion of Public Facilities
Maintenance using Private Funds (Private Finance Initiative, PFI) was passed on June 4,
1999 and enacted in July 1999. The PFI law is aimed at facilitating participation of the
private sector to use private funds and know-how in order to increase the efficiency and
effectiveness of public works and to improve the government bidding procedure for the
construction of public facilities. Most committee members agreed with the PFI bill, while
JCP members opposed it, arguing that only large construction companies (genecon)
would benefit from the law.
48

47
House of Representatives, the 145
th
committee session on May 7, 1999. He defined big city as a city
having population around a million.

48
House of Representatives, the 145
th
committee session on June 4, 1999.

134
In the first meeting of the Committee on Land, Infrastructure and Transport in
February 2001, Minister Chikage Oogi announced the new ministry‟s policy position.
She enumerated the evaluation of public works projects, the renovation of cities, the
barrier-free society, the maintenance of the environment, the renovation of transportation
networks, and the promotion of tourism as new tasks for the ministry in the 21
st
century.
49

The 2001 budget for public works was planned with a focus on the renovation of
international hub airports and harbors, the construction of belt highways in three
metropolitan areas, and the relief of traffic congestion problems in cities. Vice Minister
Ichiro Takahashi also emphasized that the principles of the 2001 pubic works budget
were based on selection and concentration as well as efficiency and effectiveness. The
budget plan was criticized by several opposition party members, such as DPJ‟s Maehara
and JCP‟s Seko, on the grounds that the cutback of the public works budget was slight,
which was expected despite the merger of public works-related ministries. However, the
principles of public works and projected public works plans were supported by most
committee members. The renovations of urban areas and transportation systems for
international competitiveness became major topics in the Committee on Land,
Infrastructure and Transport. Subsequent public works projects have been designed to
reflect the recommendations of the fifth CNDP.
B. Renovation of Big Cities
Public works for urban areas were accelerated under the Koizumi administration.
Most LDP and DPJ members strongly supported the new policy-orientation, especially

49
House of Representatives, the 151
st
committee session. “Barrier-free society” refers to policies for
providing easy and convenient access to public facilities such as railway stations, responding to the rapid
increase of the aged.

135
the renovation of the international hub airports and harbors as a part of building a “global
city” to promote business and tourism. Reacting to a concern about the government‟s
concentration on city renovation and its neglect of developing rural areas, Minister
Chikage Oogi replied that balanced development was not a goal of the city renovation
strategy, although some projects were located small cities in rural areas. He claimed that
balanced development was a goal of the 20
th
century while the goal of the 21
st
century
was to build distinctive characteristics of each city.
50
Director-General of the City and
Regional Development Bureau of the MLIT, Eiichi Sawai added out that the liquidation
of “negative legacies” from previous era – heavy traffic congestion, a high level of
vulnerability to disaster, and deteriorated residential conditions – was an urgent task of
public works.
The Urban Renaissance Headquarters (Toshi Saisei Honbu) was established
within the cabinet on May 2001, after the “Urgent Economic Measures” decided in the
Ministerial Council on Economic Measures on April 6, 2001.
51
Its goal was to carry out
comprehensive policy measures for city renovation projects for the 21
st
century, while
considering the environment, disaster prevention and globalization. The committee
promoted the private sector‟s investment in city development and the participation of
local governments and nonprofit organizations. When the headquarters was launched,
Prime Minister Koizumi asserted that enhancing the charms and international
competitiveness of cities is an important part of structural economic reform. Bureaucrats

50
House of Representatives, the 154
th
committee session on February 27, 2002.

51
Literally, it is translated as “city renovation” headquarters, but the government used “urban renaissance”
as an official English translation.

136
and politicians presumed that Tokyo was losing vitality and charm as a global city.
52
In
fact, the allocation of the ministry‟s 2002 public works budget continued to focus on the
construction of belt highways for three metropolitan areas, the renovation of international
hub airports and harbors in big cities, and the relief of traffic congestion. In addition,
Minister Oogi announced a plan for constructing one million houses in three metropolitan
areas until 2005. The LDP member Hirohisa Kurihara criticized the budget on the
grounds that most of the public works cutbacks were from rural areas. The budget saw a
10% reduction – from 9.5 trillion yen in 2001 to 8.5 trillion yen in 2002.
53

Table 4.6: Annual Change Ratio of Budget for Maintenance of Road
2004 2005 2006 2007
Total budget for road maintenance -5.8 -5.8 -5.2 -3.9
Belt highways for metropolitan
area
+8.5 +13.9 +22.0 +9.7
Source: Ministry of Finance, Fainansu (Finance).

In sum, the renovation of cities (in fact, big cities) became a strategic policy target
for public works in the 2000s. Under these conditions, several bills for city renovation
were passed by the committee, including the Act of Revising City Redevelopment Law
and the Special Measure Act for Urban Renaissance.

52
House of Representatives, the 154
th
committee session on March 15, 2002.

53
House of Representatives, the 155
th
committee session on November 6, 2002.

137
4. Revision of Regional Development Laws and Urban Renaissance Program
From the early 2000s, the MLIT and the Committee on Land, Infrastructure and
Transport facilitated policies for developing urban areas. They revised previous laws that
had supported balanced regional development, and they enacted new laws for urban areas
that emphasized efficiency and effectiveness of public works projects.
4.1. Changes of Laws Supporting Balanced Regional Development
The national policy profile for regional development began to change with the
abolishment of laws that had supported a balanced development, the changes reflecting a
view of public works in rural areas as less efficient and not urgent projects. On March 9,
2001, the committee passed a bill abolishing the New Industrial City Construction
Promotion Law. The law was enacted in 1962 to achieve balanced national development
and to reduce regional disparity. The new bill was passed with limited concern for its
negative impact on rural areas. Consequently, the New Industrial City Promotion Law
was abolished while the Law for Promoting Special Regions of Manufacturing
Maintenance was promulgated on March 30, 2001.
A revision of the existing urban area-related laws focused on disaster prevention
in crowed urban areas and the improvement of traffic congestion problems in big cities.
In March 2001, the committee revised the Railway Crossing Renovation Promotion Law.
The revision was designed to relieve traffic congestion by addressing railway crossing
trouble. Beneficiaries of this revision were big cities in metropolitan areas, such as Tokyo
(35%), Osaka (20%), and Kanagawa (15%), containing the most bottleneck railway
crossings. On April 24, 2002, a bill to revise the Capital Region Maintenance Act
(including Tokyo Metropolitan Area) and the Kinki Region Maintenance Act (Osaka
138
Metropolitan Area) was passed in the committee. The original laws were enacted in 1959
and 1964 respectively to restrict overpopulation and overconcentration in urban areas.
They regulated the construction of factories and universities in the regions. The revised
law deleted provisions that had restricted factory building in those areas. These revisions
were necessary in order to respond to socioeconomic changes, such as the increase of the
aged population and the decline in manufacturing sector employment in urban areas. As a
result, the number of newly constructed factories was higher in these three metropolitan
areas than in other areas. While the share of newly constructed factories in the three
metropolitan areas versus other regions was 20.4 to 79.6 in 1997, it became 25.5 to 74.5
in 2001 and 30.5 to 69.5 in 2005. The rise is due mainly to the more rapid growth of the
number of new factory buildings in the three metropolitan areas (MLIT 2007, p. 9).
Although there was concern over the negative impact on rural areas, these laws
for urban areas were passed without any explicit opposition. A former Minister of
Transport, Toshihiko Nikai, expressed caution about the trend of urban-centered public
works. He warned that “balanced regional development has been an essence of national
policy and a basis of national management. Since when have the policies transformed? If
not done yet, is the policy being transformed?”
54
Revisions of laws for urban area
development were consistently enacted from the early 2000s (see Table 4.7).

54
Spoken in the 151
st
committee session, House of Representatives (May 16, 2001). Translation by author.

139
Table 4.7: Revision of Laws for the Development of Urban Areas
Law Date
passed
Main points Criticism
Act of Revising the
Railway Crossing
Renovation
Promotion Law
March 9,
2001
Relief of traffic congestion
in big cities – railway
crossing problem.
Financial burden
on local
governments.
Act of Revising
City Redevelopment
Law
March 15,
2002
Using private sector‟s
vitality. Facilitating
construction of tall
buildings.
Beneficial to large
construction
companies in big
cities.
Act of Revising PFI
Law
April 24,
2002
Promotion of private sector
participation.

Act of Revising the
Capital Region
Maintenance Law
and the Kinki
Region
Maintenance Law
April 24,
2002
Erase restrictions to build
factories in both
metropolitan areas.

Act of Revising the
Harbor Law
March 8,
2003
Global city, international
competitiveness.

Act of Revising the
Law for Promoting
the Maintenance of
the Disaster
Prevention District
in Crowed Cities
May 27,
2003
Big cities and densely
populated urban center areas.
Exclusion of rural
areas.
Act of Revising
Comprehensive
National
Development Law
June 10,
2005
Review of CNDP
considering low birth rate,
increase of the aged.
Change title of the plan from
national “development
(kaihatsu)” to national
“formation (keisei)”
Overcome previous
development-oriented plan
Establishment of regional
district level development
plan.
Not reflecting
regional disparity
within a regional
district.
No detailed
guideline for
selection and
concentration of
pubic works.
Still focusing on
large public
works projects.

Among the revisions of regional development related laws, the act of revising the
comprehensive national development law is very notable in terms of the changes of
policy profile for public works in the 2000s. Minister of Land, Infrastructure and
140
Transport Kazuo Kitagawa stated that regional development policy-making would be
carried out based on units of broad regions (10 regional blocs) under the new law, unlike
previous prefecture-and-municipality-based decisions.
55
This implied that public works
projects would be executed in a smaller number of areas than before under the notion of
“selection and concentration.” In other words, the replacement of the title signaled a
transformation of previous development policies into maintenance and renovation
policies. At this point, concerns over the increase of disparity within a regional bloc were
raised.
4.2. Urban Renaissance Program
The Urban Renaissance Headquarters, which was established on May 2001 within
the cabinet, defined urban areas as a “Japan‟s source of vitality” and its goals as
strengthening the attractiveness and international competitiveness of cities. The
headquarters claimed that the negative legacy of the 20
th
century imposed an excessive
burden on urban life, such as the existence of hazardous districts in case of earthquakes
and chronic traffic congestion. It hoped to end this legacy.
56
In March 2002, the cabinet
submitted the Special Measure Act for Urban Renaissance to the Committee on Land,
Infrastructure and Transport. The law went into force on June 1, 2002. The prime
minister acted as the head of the Urban Renaissance Headquarters and selected “prompt
renovation areas” for the implementation of development projects. With the Special
Measure Act for Urban Renaissance, the Urban Renaissance Headquarters took follow-up

55
House of Representatives, the 162
nd
committee session on May 2005.

56
Urban Renaissance Headquarters, “Basic Policies for Urban Renaissance.” July 19, 2002.
www.kantei.go.jp/foreign/policy/tosi/kettei/020719kihon_e.html.

141
measures, choosing “prompt renovation area.” The first target zones, decided in July
2002, were located mainly in the Tokyo and Osaka prefectures. At this time, several
committee members expressed concern over rural areas, requesting consideration of
development in rural areas. Reacting to their concerns, Minister Oogi argued that the
program is not designated specifically for big cities. Yet the law mentioned big cities and
core cities of each prefecture as main target areas. At the same time, she maintained that
small cities in rural areas could also be selected.
57
In fact, almost all prompt renovation
areas selected were located in metropolitan areas. In October 2002, the second target
zones were selected. The ordinance-designated cities (seirei shitei toshi) included cities
such as Sapporo, Saitama, Chiba and Fukuoka City.
58

On May 14, 2003, the committee passed the Urban Renaissance Agency Act to
facilitate urban renovation projects. During the Diet‟s deliberation, a definition of big
cities was questioned by a DPJ member Tetsundo Iwakuni. Another DPJ member,
Yasuhiko Wakai, also pointed out that the Special Measure Act for Urban Renaissance
barely mentioned cities in non-metropolitan areas, and specifically mentioned big cities.
Regarding the definition, an MLIT director answered that the big cities mentioned in the
law include cities of over a half million people in the four metropolitan areas (the Capital
region, the Kinki region, the Chubu region, and the Kitakyushu region). Core cities of
non-metropolitan areas include cities of over a hundred thousand that function as centers
of regions. Nevertheless, most of the prompt renovation areas were assigned to big cities

57
House of Representatives, the 154
th
committee session on March 15, 2002.

58
A city has a population over a half million and has a relatively high level of local autonomy. As of 2009,
18 cities were selected as the ordinance-designated city.

142
in the metropolitan areas. Although the third decision of target zones on July 2003 and
the fourth decision on May 2004 included a few relatively big cities in non-metropolitan
prefectures, such as Gifu City of the Gifu Prefecture and Takamatsu City of the Kagawa
Prefecture, even capital cities of the most rural prefectures were not selected. Until the
sixth decision on February 2007, no city of rural prefectures in Tohoku region (except for
one big city, the ordinance-designated Sendai city of the Miyagi Prefecture, which is not
categorized as a rural prefecture) was selected, whereas all prefectures in the Tokyo
Metropolitan Area had several designated “prompt renovation areas.” The designated
areas were centered on big cities such as Saitama City of the Saitama Prefecture and
Yokohama City of the Kanagawa Prefecture. Moreover, the designated areas were mostly
urban centers of each city. In the case of the Chiba Prefecture, three areas were
designated in Chiba City and one in Kashiwa City. As of February 2007, a total of 65
areas had been designated.
59

59
Urban Renaissance Headquarters. http://www.toshisaisei.go.jp/04toushi/01.html.

143
Table 4.8: Designated Areas of Prompt Renovation, 2002-2007
Region Prefecture Number of city Number of area
Tokyo
Metropolitan Area
Saitama 2 2
Chiba 2 4
Tokyo * 8
Kanagawa 5 11
Total 9 25
Tohoku Region Aomori
Iwate
Miyagi 1 2
Akita
Yamagata
Fukushima
Total 1 2
Source: Urban Renaissance Headquarters, 2009. * Designated areas in Tokyo were
located in wards (ku), not cities.
As mentioned above, government spending for public works projects declined
during the 2000s, while the government investment was centered on urban areas. The
trend is reflected in the changes in the number of construction orders from governments.
Public works projects by governments were reduced further in rural areas than in urban
areas. Consequently, reduction of the construction workforce was rapid in rural areas
(Table 4.9 and Table 4.10).
Table 4.9: Construction Orders from Governments (2001-2004)
(Unit: Billions of Yen)
Fukushima (rural prefecture) Chiba (urban prefecture)
Nation Prefecture Municipalitie
s
Nation Prefecture Municipaliti
es
2001 38 146 122 47 93 141
2002 51 117 83 49 88 128
2003 38 96 108 54 76 125
2004 25 68 59 45 61 110
Source: Japan Statistical Yearbook (MIAC)
144
Table 4.10: Number of Employees in Construction Industry (over 15 years)
2000 2005 Change (%)
Fukushima Prefecture 125,426 101,545 -19.04
Chiba Prefecture 279,979 249,928 -10.71
Source: Fukushima Ken Tōkei Nenkan (Statistical Yearbook of the Fukushima
Prefecture), Chiba Ken Tōkei Nenkan (Statistical Yearbook of the Chiba Prefecture)
The Urban Renaissance Program emphasized the role of private investment,
market forces, and local initiatives, encouraging economic vitality through the renovation
of urban areas. In particular, the role of private sector initiatives and deregulation was
emphasized in promoting the competitiveness of urban areas. This was a main goal of the
enactment of the PFI law in 1999. However, the law was criticized by the government
and committee members on the grounds that the law yielded no productive results. The
JCP‟s Yukiko Seko further claimed that not only could the law be abused by local
governments to carry out large scale public works projects despite their financial
difficulties and but also that it provided benefits only to large construction companies.
60

To facilitate the participation of the private sector, a revision to the PFI law was passed
on April 2002. The PFI law defined its targets as public facilities, such as schools or
recreation centers. In 2005, the committee revised the Special Measure Act for Urban
Renaissance to introduce the PFI into the renovation of urban center areas. The total of
construction investment by private companies within the prompt renovation areas was
valued at approximately 7 trillion yen (OECD 2005b, p. 87). The number of public works

60
House of Representatives, the 153
rd
committee session on November 27, 2001.

145
projects launched by the PFI reached 352 (a total of public works projects by the central
government, local governments, and public corporations) in 2009.
61

In the meantime, a few LDP members criticized the PFI and the urban renaissance
program on the grounds that they had little impact on small and medium-sized companies
in rural areas, where the economic vitality of the private sector was insufficient and
economic recovery was retarded. Confronting criticism over its neglect of rural areas, the
committee passed a law on March 23, 2004, establishing the government community
renovation grant (machizukuri kōbukin) through a revision of the Special Measure Act for
Urban Renaissance. Director-General of the City and Regional Development Bureau of
the MLIT Makoto Taketoshi indicated that the Urban Renaissance Program concentrated
on big city areas, such as Sendai City and Hiroshima City, to boost private sector
economy. There was little impact on small and medium-sized cities in rural areas. He
pointed out that the proposal of a new subsidy, in the form of a community renovation
grant, supported small cities in rural areas that had insufficient private sector vitality.
However, Minister of Land, Infrastructure and Transport Nobuteru Ishihara argued that
the Community Renovation Grant would be given based on evaluation, rather than on
universal distribution rules.
62
It was a slight change of urban policy-making in that the
Urban Renaissance Program began to transform urban development projects, which were
focused on metropolitan areas, into a nationwide initiative. However, budget spending for
the Community Renovation Grant showed that most projects of the Urban Renaissance
Program were still carried out in big cities located in metropolitan areas. As Director-

61
PFI Promotion Office, Cabinet Office. http://www8.cao.go.jp/pfi/e/home.html.

62
House of Representatives, the 159
th
committee meeting on March 23, 2004.

146
General Taketoshi stated, accumulated budget expenditure of the MLIT for the
renovation of cities and regions was around 3.5 or 3.6 trillion yen between 2002 and 2004.
However, the relatively small number of community renovation grants illustrated that
investment in the urban renaissance projects was heavily concentrated in metropolitan
areas. Among the MLIT‟s public works budget, 1.054 trillion yen were distributed to the
renovation projects in 2005. The amount of the Community Renovation Grant in 2005
was only 193 billion yen, an increase from 133 billion yen in 2004.
63

4.3. New Laws for Developing Urban Areas
Most bills for strengthening international competitiveness and developing urban
areas were passed with support from members of the DPJ, the LDP and LDP-coalition
partners. As principles of public works projects, efficiency and effectiveness through
cost-benefit analysis and reevaluation of proceeding projects were widely accepted by
most committee members.

63
House of Representatives, the 162
nd
committee session on April 26, 2005.

147
Table 4.11: New Laws for the Development of Urban Areas
Law Date
passed
Main points Criticism
Urban
Infrastructure
Maintenance
Public Corporation
Act
May 14,
1999
Public corporation for new
housing and redevelopment
of cities.

Special Measure
Act for Urban
Renaissance
March 19,
2002
Prime Minister becomes the
chief of the organization.
Selection of prompt
renovation areas and
implementation of
development projects in the
areas.
Concentration on
big cities such as
ordinance-
designated cities.
Exclusion of small
cities especially
which have a
population of fifty
thousands or less.
Priority Plan Act
for Social
Infrastructure
Development
March 14,
2003
Large and important public
works projects need to be
approved by the Cabinet.

Bureaucrats-
centered decision-
making.
Discouraging
decentralization.
Beneficial only to
large construction
companies and
developers.
Urban Renaissance
Agency Act
May 14,
2003
Public corporation for
renovating big cities and
regional core cities.
Exclusion of small
cities.

Act for Prevention
of River
Inundation in
Specific Cities
June 4,
2003
Big cities.
Special Measure
Act for Smooth
Operation of
Urgent
Maintenance in
Tokyo
International
Airport
March 16,
2004
Renovation of Haneda
airport.

Act for Promoting
the Use of City
Railways
March 30,
2005
Three metropolitan areas and
big city areas (ordinance
designated cities).

148
However, controversies over the Priority Plan Act for Social Infrastructure
Development submitted by the Cabinet, and the Basic Act for Public Works by the DPJ
and several independent representatives showed a difference in position between the LDP
coalition government and opposition parties. The social infrastructure development bill
by the cabinet included a provision requiring the cabinet‟s permission for social
infrastructure public works projects submitted by the MLIT and the MAFF. The bill also
emphasized private sector participation. In contrast, the DPJ‟s public works bill
emphasized politicians‟ involvement in the public works decision-making process. This
bill included a provision requiring the Diet‟s permission for a public works project
costing over 10 billion yen. The DPJ‟s bill also included provisions for promoting
decentralization and abolishing specific road maintenance revenues.
64
The DPJ members
opposed the social infrastructure bill, arguing that the bill allowed bureaucrats‟ a
monopoly in public works decision-making and restricted flexible and locally-driven
decisions on public works projects. JCP‟s Takeshi Oomori also objected to the bill,
pointing out that the bill did not include any provision restricting bureaucrat-centered
decision making and inefficient large scale public works.
65
He claimed that the priority
plan for social infrastructure development, which emphasized enhancement of
international competitiveness, would give benefits only to large companies. However, he
showed his support for the DPJ‟s public works bill in that the bill included both a
reevaluation of dam construction and airports renovation and cutbacks in public works
spending. Ultimately, the DPJ‟s public works bill was rejected in the committee, whereas

64
House of Representatives, the 156
th
committee session in 2003.

65
House of Representatives, the 156
th
committee session on March 14, 2003.

149
the cabinet-submitted social infrastructure law was passed on March 14, 2003. As
mentioned above, public works related bills for strengthening international
competitiveness and urban development received continuous support from most
committee members regardless their party membership, except for several JCP members.
The new policy-orientation was confirmed again by the new minister of the MLIT
in the 159
th
committee session. Minister Nobuteru Ishihara argued that public works
projects would focus on the improvement of international competitiveness, the renovation
of hub airports and harbors in big cities, and the construction of belt highways in
metropolitan areas. He also mentioned that the promotion of private sector participation
through the PFI and of citizen participation was a major policy target of 2004.
66
The
construction of belt highways in the capital region, the access to Tokyo from Narita
Airport, the construction of “newtown” in Funabashi City of Chiba Prefecture as a
bedtown of Tokyo, and the privatization of public road corporation were issues discussed
in the 159
th
committee session from February to June in 2004. The DPJ members
proposed the elimination of highway tolls in order to support the local economy and the
revision of special road revenues system for restricting unnecessary road constructions.
However, government officials and ruling coalition members rejected those proposals.
Minister of Land, Infrastructure and Transport Kazuo Kitagawa‟s 2005 policy
briefing on public works indicated that the previous policy-orientation would continue.
He reaffirmed that the ministry would focus on five strategic policy areas: the promotion
of the PFI and the privatization of public corporations to reduce costs in public works, the
renovation of cities and local areas, the promotion of tourism, the renovation of airports

66
House of Representatives, the 159
th
committee session on February 18, 2004.

150
and harbors for enhancing international competitiveness, and the creation of a barrier-free
society.
67
He declared that public works would be implemented for international
competitiveness as a national strategy under the limited budget conditions. He also
claimed that renovation of urban areas would result in economic revitalization and
expand to neighboring rural areas through a ripple effect.
68
In addition, the promotion of
tourism became an important strategic policy goal of the MLIT in 2005 under the notion
of “kankō rikkoku (to build nation through tourism).”
69
The promotion of tourism
provided a reason to improve the transportation system, especially the international
airports, and the Urban Renaissance Program. In the rural areas, developments that
highlighted distinctive characteristics of each region were emphasized. Tourism Policy
Commissioner Kosuke Shibata referred to those projects for strengthening international
competitiveness of Japan‟s tourism as “Tourism Renaissance Programs.” In the 164
th

committee meeting on February 24, 2006, Minister Kitagawa pointed out that reforms
would be facilitated further through the PFI. He added that projects for social
infrastructure would concentrate on the enhancement of international competitiveness
and the Urban and Regional Renaissance Programs. Moreover, he emphasized the
renovation of international hub airports in big cities, the construction of belt highways in
metropolitan areas, and the improvement of distribution networks for strengthening
international competitiveness.

67
House of Representatives, the 162
nd
committee session on February 16, 2005.

68
House of Representatives, the 162
nd
committee session on March 30, 2005.

69
House of Representatives, the 163
rd
committee session on October 14, 2005.

151
5. Conclusion
This chapter has demonstrated that traditional regional development policies and
public works, which had sought balanced regional development and the reduction of
regional disparity, changed in response to domestic and international challenges to the
Japanese political economy. Criticism against and concern over the traditional regional
development policies and public works practices increased due to corruption scandals,
cost overruns, and ineffectiveness throughout the 1990s. Reforms of those policies and
public works began in earnest with the election of Koizumi as prime minister. The
Koizumi administration redirected public works projects toward big cities and urban
centers for the construction of international airports and harbors, as part of its attempt to
revitalize the economy. I argue that the increasing demand to improve the environment
for international competitiveness under globalization was a main cause of the change,
which ultimately resulted in an increase in regional disparity.
From the late 1990s, the renovation of metropolitan areas became a policy
concern for the government‟s regional development policy. The government emphasized
the development of hub cities or core cities to improve urban functions and to strengthen
international competitiveness. To build attractive and competitive cities in a global
context became a major goal of national urban development policies. To achieve this goal,
the government abolished or revised the regional development policies that previously
had restricted the overgrowth of metropolitan areas. Above all, the redirecting of public
works projects was a big shift away from the traditional public works policies. Despite
the overall decline in public works spending, public works expenditure for hub airports
and harbors in big cities consistently increased from the early 2000s. Projects for
152
renovating urban centers were also concentrated in big cities in metropolitan areas with
few inclusions of large cities in rural areas.
153
Chapter V. Fiscal Decentralization and Local Finance
The government had carried out equality-oriented policies for the Japanese people
since the 1960s. The goal of the local finance policy was to provide standardized public
services and to allow equal access to public goods for all citizens. This was realized in
support for rural areas through financial transfers, such as national subsidies and
allocation taxes. In fact, the redistributive effect of financial transfers from urban areas to
rural areas was much higher in Japan compared to other advanced countries (MOF, 2001).
The financial transfers from the central government also facilitated local public works
projects, providing job opportunities and additional incomes to rural residents. But these
practices became a large fiscal burden to the central and local governments during the
1990s, when the national budget deficit increased rapidly. Meanwhile, some politicians
and bureaucrats argued that decentralization reform was necessary because the
overburdened centralized administrative system was insufficient to deal with global
challenges. In particular, they perceived decentralization as a solution to problems that
Japan faced under globalization, the aging society, and depopulation in rural areas. They
considered decentralization as a part of the “Third Reform” necessary for Japan‟s
future.
70

From the mid-1990s, the government launched decentralization to improve
political accountability and administrative responsiveness. It was centered on the
allotment of administrative functions and responsibilities between the central and local

70
Some politicians and bureaucrats claimed that the Third Reform is necessary to deal with new
international and domestic circumstances. They referred to reforms after the Meiji Restoration as the First
Reform and those after World War II as the Second Reform.

154
governments. While the decentralization programs included several plans for local
finance, such as a review of public works projects and a rationalization of national
subsidies, fiscal decentralization, including the transfer of revenue sources to local
governments, was delayed until the 2000s. In the early 2000s, the government
implemented fiscal decentralization. It claimed that fiscal decentralization would increase
the autonomy, self-reliance, and vitality of local economies through competition and
diverse administrative services based on local demands. For example, the governments
emphasized the principle of “local optimum,” under which different levels of public
services by each government are acceptable. This principle differed from the pre-existing
“national minimum” which had emphasized standardized services to all citizens.
What was not expected, however, was the widening gaps in local fiscal capacity
between governments in urban and rural areas. In fact, a goal of the fiscal
decentralization was to reform local finance systems in order to reduce the central and
local governments‟ budget deficits by decreasing inefficient budget spending for
provisions of standardized services, reducing ineffective local public works projects, and
improving lax management of local budgets. This increased local governments‟ reliance
on their own revenue sources, while reducing their dependence on financial transfers
from the central government. The fiscal condition of local governments in rural areas
worsened with the reduction of financial transfers and the lowered fiscal capacity affected
by demographic changes – the increase of the aged population and depopulation by
migration for jobs. In 2003, the government launched the so-called “Trinity Reform,” in
the national disbursements, allocation taxes (grant), and the transfer of revenue sources.
The Trinity Reform facilitated the increase of regional disparity, instead of the
155
improvement of local autonomy and the revitalization of local economies. The reform
damaged the fiscal conditions of rural prefectures and small villages, which had low
fiscal capacity, while providing advantages to urban prefectures and big cities. This
chapter explores the decentralization process from the mid-1990s and examines the
impact of decentralization on regional disparity.
1. Background of Decentralization in Japan
After the decentralization movements of Europe in the late 1970s,
decentralization reform became a worldwide phenomenon, referred to as a solution to
various kinds of problems (Manor, 1999; Rodríguez-Pose and Gill, 2003). For most
countries of East Asia, decentralization reform gained momentum in the 1990s (White
and Smoke, 2005).
71
In Japan, like many other countries, decentralization became a
popular policy prescription for curing problems Japan confronted (Koike and Wright,
1998). From the mid-1990s, the government launched decentralization reforms. These
reforms aimed to increase political accountability and administrative responsiveness.
They were perceived as policy measures to cope with globalization, the aging society,
and rural depopulation. Decentralization reform in the 1990s was centered on the re-

71
The concept of decentralization refers to various aspects of relations between the central and local
governments. Jun and Wright (1996) categorized decentralization as political and administrative, and
classified conceptual differences of decentralization into four types: deconcentration of administrative
functions, devolution of decision-making authority, localized program innovation, and citizen participation
in the policy making process. Extending those concepts, Turner (1999) suggested six different types of
decentralization based on territorial and functional delegations, presenting that territorial delegation results
in one of three forms of decentralization: devolution (political decentralization), deconcentration
(administrative decentralization), or privatization (deregulation). The concept of decentralization can also
be distinguished as three different types: administrative decentralization; fiscal decentralization; and
political decentralization (e.g., Falleti, 2005; Manor, 1999). Falleti stated that “fiscal decentralization refers
to the set of policies designed to increase the revenues or fiscal autonomy of subnational governments
(2005, p. 329).”

156
allotment of government functions and responsibilities to local governments. In the early
2000s, the government focused on fiscal decentralization as a measure to promote the
self-reliance and autonomy of local governments.
1.1. The Decentralization Movement in Japan
Although it was not a major goal of administrative reforms in the 1980s, a partial
decentralization had been carried out under the slogans “from national to local public
sector” and “from public to private sector” since the Nakasone era. Responding to Prime
Minister Takeshita‟s request, the second Provisional Administrative Reform Promotion
Council (PARPC) submitted a report entitled “A Report Regarding the Relationship
between Central and Local Governments” in December 1989. Based on that report, the
Kaifu administration adopted the “Outline on Promotion of Reform of Central and Local
Government Relations” (Masujima, 2006). In addition, the third PARPC‟s study on
administrative reform focused on the reform of the financial system, deregulation, and
decentralization. A transfer of administrative functions from the central to local
governments took place. For example, in the late 1980s, reform of the social welfare
system was executed to provide adequate services to the increasing numbers of elderly.
This reform transferred several welfare services of the central government to local
governments. However, the equivalent transfer of revenues was not implemented (Morita,
1996; Schebath, 2006).
From the early 1990s, decentralization became a major reform agenda. Takao
(1998) argues that the Japanese expectations about decentralization were varied by
different perspectives: supporters of political reformism aimed at eradicating “money
politics” through reform of centralized transfer payments such as the grants-in-aid system,
157
some LDP politicians and business leaders considered decentralization a measure for
promoting “small government” from an economic rationalism perspective, and heads of
local authorities saw decentralization from a liberal autonomy perspective. In the 1992
House of Councilors election, the Japan New Party (JNP), led by a LDP defector,
Morihiro Hosokawa advocated decentralization reforms as its platform. The JNP won
four seats and was considered a success. This illustrated that „decentralization‟ was an
effective platform to attract the electorate (Furukawa, 2003). In fact, Hosokawa himself
was a strong advocate of decentralization based on his own experience as a former
member of the PCPAR and governor of the Kumamoto Prefecture. After becoming prime
minister on August 1993, he launched decentralization reforms.
73

Although the Hosokawa government stepped down soon after taking office, the
decentralization movement continued under the Murayama government – a coalition with
the LDP, the Social Democratic Party of Japan (SDPJ), and the New Party Sakigake.
Whereas the LDP members were not enthusiastic about decentralization, the SDPJ and
the Sakigake were supportive of the reforms. Despite many LDP politicians‟ reluctance,
the coalition government created favorable conditions for decentralization reforms
(Furukawa, 2003; Nakano, 1998). Furukawa also argues that several important political
figures of each party, such as Prime Minister Tomiichi Murayama (a former member of
the Oita City and the Oita Prefectural Assembly), the head of Sakigake Masayoshi
Takemura (a former Yōkaichi City mayor and governor of the Shiga Prefecture), and
LDP leader and Minister of Home Affairs Hiromu Nonaka (a former Kyoto Prefectural

73
A former Director-General of the Administrative Management between 1990 and 1993, Toshiyuki
Masujima (1999) claimed that decentralization and reorganization of the central government was launched
in earnest under the Hosokawa coalition government.

158
Diet member and Vice-Governor of Kyoto), played an important role in the
decentralization reforms. Nakano (1998) points out that the Sakigake played a significant
role in agenda-setting for decentralization, through his emphasis on democratic
accountability. But the goal of increasing accountability in decentralization reform was
distorted by opposition from the bureaucrats and the LDP. On December 1994, the
Cabinet approved “The General Principles and Policies Concerning the Promotion of
Decentralization,” which led to the enactment of the 1995 Decentralization Promotion
Law. Based on this law, the Committee for Decentralization Promotion (chihō bunken
suishin iinkai, CDP) was established within the Cabinet Office. Ken Moroi, a former
Vice-President of the Japan Federation of Employer‟s Association (Nikkeiren) became its
head.
1.2. Decentralization in the Hashimoto Administration
After becoming prime minister, Hashimoto highlighted decentralization and
deregulation as parts of administrative reform. In December 1997, the Administrative
Reform Council (gyōsei kaikaku kaigi), active during the Hashimoto administration,
submitted its final report.
74
The council recommended reform measures to reinforce
cabinet functions, shift powers of the central government to local governments, and
strengthen decision-making powers of politicians relative to bureaucrats. It also hoped to
enhance the leadership of the prime minister and to reorganize the cabinet structure. To
this end, it proposed the expansion of the directing and supervising authority of the prime
minister and a reduction in the number of ministries. In addition, it suggested the
establishment of advisory councils, such as the Council on Economic and Fiscal Policy.

74
http://www.kantei.go.jp/foreign/971228finalreport.html.

159
In fact, reforms under Hashimoto centered more on the government‟s organizations rather
than on decentralization.
The Basic Law for Reorganization of the Central Government Ministries and
Agencies came into effect in June 1998. The existing 22 ministries and agencies were
reorganized into 13 ministries and agencies. However, the appearance of “super-
ministries” caused concerns for its potential negative effects on transparency in the
administrative process and for its concentration of bureaucratic power (Masujima, 2005
and 2006). In this respect, decentralization, especially the deconcentration of government
functions, became a necessary reform measure to solve the problems caused by
reorganization of ministries.
2. Administrative Decentralization during the 1990s
The main goals of the 1995 Decentralization Promotion Law were to clarify the
roles of the central and local governments, to increase the independence and self-reliance
of local governments, and to bring about regional societies filled with abundant
characteristics and vitality.
75
In the first deliberation meeting of the CDP, Prime Minister
Murayama argued that decentralization would help to solve the Tokyo overconcentration
problem, facilitating balanced regional development. Secretary of Management and
Coordination Agency Tsuruo Yamaguchi and the chairperson of the CDP, Ken Moroi,
pointed out that decentralization reform was necessary for coping with changes to the
international and domestic circumstances as a part of “the Third Reform” – the first

75
Since the idea is addressed by then Prime Minister Murayama in the first deliberation meeting of the
CDP (July 4, 1995), it was repeatedly affirmed by the committee members.

160
during the Meiji Restoration and the second after World War II.
76
The committee
members began to deal with decentralization related issues such as the deconcentration of
government functions and the reform of the national treasury disbursements. The
committee members emphasized the principle of self-responsibility and the need for
decentralization under the conditions of globalization, the aging society, and rural
depopulation.
77
The committee submitted the Interim Report in 1996 and four
recommendation reports between 1996 and 1997.
2.1. The Recommendation Reports of the CDP
The Interim Report on March 29, 1996 presented basic reasons for
decentralization reform as a part of the Third Reform (Table 5.1). In addition, the report
suggested reviews of the allotment of government functions, of the transfer of authority,
and of central-local fiscal relations, in order to establish new relations between the central
and local governments. It argued that the centralized administrative system was not
appropriate to cope with the international and domestic changes.

Table 5.1: The Rationale for Decentralization

76
The first deliberation meeting of the CDP on July 4, 1995.

77
The 5
th
deliberation meeting of the CDP (September 8, 1995) and the 8
th
deliberation meeting of the CDP
(September 27, 1995).

161
Fatigue of centralized
administration system
Centralized administration system has contributed to
modernization and economic development, but it
undermined the economic basis of local community and
local vitality. The system is no more appropriate to new
circumstances.
Response to changing
international society
With the end of the Cold War, economic activities became
opened and internationalized rapidly. New international
order put too much administrative burdens to the central
government.
Correction of
overconcentration in
Tokyo
While overconcentration continues in the Tokyo
Metropolitan Area, rural areas suffered from depopulation.
Formation of multi-polar nation is necessary.
Formation of
characteristic-rich local
community
Whereas the goal of providing “national minimum” was
achieved considerably, the centralized system did not reflect
diverse requests of administrative services from the citizens.
Although the central government should care regional
disparity, services beyond national minimum should be
accepted as a regional characteristic difference, not as a
regional disparity.
Response to the aging
society and depopulation
Increase of the aged and low birth rate requires more
services by local governments through cooperation with
NPOs, and volunteers.
Source: Committee for the Decentralization Promotion (Interim Report), 1996.
Following the interim report, the CDP submitted a series of recommendations for
decentralization reform. Table 5.2 provides the major points of those reports.
The committee suggested schemes for decentralization, focusing on the deconcentration
and devolution of the government functions and authorities. On May 29, 1998, the
cabinet approved the Decentralization Promotion Plan, which suggested the abolition of
agency-delegated functions and new rules concerning the central government‟s
involvement in local governments. Subsequently, a bill for the Package Law of
Decentralization (Chihō Bunken Ikkatsu Hō) was framed based on the plan.
78

Table 5.2: Recommendations of the Committee for Decentralization Promotion

78
The Opinion (iken) report submitted by the Committee on August 8, 2002.

162
Major suggestions
First Recommendation
(December 20, 1996)
New relations between the central and local
governments.
Abolition of agency-delegated functions.
Devolution in the administration system.
Second Recommendation
(July 8, 1997)
New allotment of roles of the central and local
governments.
Establishment of new rules for relations between the
central and local governments.
Rationalization of national treasury disbursement
(subsidies) and securing enough local revenue sources.
Rearrangement of functions of prefectural government
and municipalities.
Merger of municipalities and the revitalization of local
assemblies and citizen participation.
Third Recommendation
(September 2, 1997)
Review of chihou jimukan system (the central
government officers delegated to prefectural
governments for specific administrative services).
Review of usage and expropriation of land and workers
for stationary forces.
Fourth Recommendation
(October 9, 1997)
Abolishment of agency-delegated functions.
Establishment of dispute processing organization.
Devolution based on the size of municipalities.
Fifth Recommendation
(November 14, 1998)
Review of public works: direct projects (chiyokkatsu
jigyō) and subsidized projects (hojo jigyō).
Rationalization of national subsidies, especially for
agriculture, education and small and medium-sized
companies.
Review of national development and renovation
projects.
Source: Committee for the Decentralization Promotion, 1996-1998.
In November 1998, the CDP submitted the fifth recommendation, which
concentrated on a review of public works related administrative functions and
organizations. Most importantly, it suggested a review of public works related subsidies.
In addition, the report proposed a review of the comprehensive national development
plan, the metropolitan area renovation plan, and the rural area development plan under
the conditions of depopulation and the increase of the aged. On March 26, 1999, the
cabinet approved the Second Decentralization Promotion Plan, centered on public works.
163
2.2. The Package Law of Decentralization
On July 8, 1999, the Obuchi Cabinet passed a bill for decentralization to the Diet
and the Package Law of Decentralization, which contains 475 amendments. In 1999, the
Special Committee on Administrative Reform dealt with the bill of the Package Law of
Decentralization in the 145
th
session of the House of Representatives. The local revenue
system was a major issue in the decentralization reform bill. Ken Moroi, the Chairperson
of the CDP, remarked that the national treasury disbursements have shaped master and
servant relations between the central and local governments. Therefore, reforming the
local revenue system was necessary to form equal partnerships between the central and
local governments.
79
At the same time, the transfer of revenue sources to local
governments raised a concern over the regional disparity of public services caused by the
increasing gaps in fiscal capacity among local governments. In this respect, cabinet
members such as Minister of Home Affairs Takeshi Noda and Minister of Labour Akira
Amari defended the principle that all Japanese people should receive equal (basic) public
services regardless of regions.
80
Moreover, there was a controversy among the council
members regarding the imbalance between tax payments and the level of public
services.
81
A Diet member from the Shimane Prefecture, Hiroyuki Hosoda, claimed that
the sacrifice of Tokyo taxpayers portrayed by the media exaggerated the benefit of rural

79
Special Committee on Administrative Reform in the 145
th
meeting of the House of Representatives on
May 28, 1999.

80
Special Committee on Administrative Reform in the 145
th
meeting of the House of Representatives on
May 25, 1999.

81
Discussion in the meeting of the Special Committee on Administrative Reform of the 145
th
House of
Representatives meeting on May 26, 1999.

164
residents, as seen in the case of the national consumption tax.
82
Minister of Home Affairs
Noda agreed with him. Noda mentioned that the prefectural GDP of Tokyo is just 17.1%,
while the enterprise taxes paid by Tokyo are 41% of the total. Yet a Diet member from
the Tokyo Prefecture, Taiichirō Nishikawa, claimed that over three million people flow
into Tokyo per day and freely use its public services. Prime Minister Obuchi affirmed the
principle of “equal public services” and warned that the establishment of a self-reliant
local revenue system could lead to regional fiscal disparities.
83
He claimed that the local
allocation tax should play a significant role in reducing gaps in regional fiscal capacity,
as it did before, to ensure enough revenue sources in the decentralization process.
84

However, CDP Chairperson Ken Moroi pointed out that the Package Law of
Decentralization did not include concrete measures for transfer of local revenue sources.
Many Diet members, such as the LDP member Yamaguchi, the DPJ members Itō and
Iwakuni, and the Kōmeitō member Masuya, criticized the bill. For example, the DPJ
members Mamoru Kobayashi and Hirofumi Hirano argued that while the bill contained
provisions for the transfer of functions and authorities, it scarcely dealt with the transfer
of revenue sources to local governments.
85
Responding to the Diet members‟ concern

82
Hosoda described that even locally consumed goods are reported to Tokyo headquarters, and the Tokyo
headquarters pay taxes based on nation-wide sale. That is, indirectly levied taxes from locals are considered
as the tax of Tokyo.

83
Special Committee on Administrative Reform in the 145
th
meeting of the House of Representatives on
May 26, 1999.

84
Special Committee on Administrative Reform in the 145
th
meeting of the House of Representatives on
June 10, 1999.

85
Special Committee on Administrative Reform in the 145
th
meeting of the House of Representatives on
May 26 and 27, 1999, respectively.

165
over the local revenue system, Minister of Home Affairs Noda replied that ensuring local
revenue sources would be the next step of decentralization.
86

Table 5.3: Overview of the Package Law of Decentralization
Main points
Clarification of the respective
roles of central and local
government
The central government should assume responsibility
primarily for international affairs and functions that
require nation-wide unified services.
Abolition of the agency-
delegated functions
Building of equal and cooperative relationship
between the central and local governments.
Abolition of the agency-delegated functions.
Restructuring of local government functions into self-
governing functions and statutory entrusted functions.
Review of the central
government‟s involvement
Stipulating rules of the central government‟s
involvement.
Promotion of devolution Transfer of the central government‟s authority to local
governments.
Curbing regulatory obligations Promotion of rational and effective administration.
Reinventing administrative
system of local government
Merger of municipalities and revitalization of local
assemblies.
Source: Council of Local Authorities for International Relations, 2000.
The main contents of the law were the abolition of agent-delegated functions, the
re-allotment of the central and local governments‟ functions, the stipulation of rules about
the central government‟s authority over local governments, and the devolution of power
to local governments. The law briefly mentioned the rationalization of national subsidies
and financial transfers, and it included a provision that ordained the transfer of revenue
sources for local governments under a new decentralized system. Concrete measures for
local revenues, however, were not defined. In fact, the law elucidated rules for the
transfer of government functions and authorities, but did not provide specific provisions

86
Special Committee on Administrative Reform in the 145
th
meeting of the House of Representatives on
June 10, 1999.

166
for ensuring local revenue sources (Numao, 2003). The CDP itself noted that the Package
Law of Decentralization enhanced local autonomy through the abolition and the
reduction of the central government‟s involvement in local governments, especially
through the abolition of agent-delegated functions. But it left the ensuring enough
revenues for local governments‟ finances as a next step (Final Report, 2001).

167
Table 5.4: A Chronology of Decentralization, 1989-2000
Cabinet Date Event
Kaifu Cabinet Dec. 1989 Report of the second PARPC: report on central
and local government relations.
Miyazawa Cabinet June 1993 Diet resolution for the promotion of
decentralization.
Hosokawa Cabinet Oct. 1993 Report of the third PARPC (final report).
April 1994 Establishment of the twenty fourth local
government system research council (LGSRC).
Murayama Cabinet Nov. 1994 Report of the LGSRC: report on the promotion of
decentralization, report on the promotion of
merger of cities, villages and towns.
May 1995 Enactment of the Decentralization Promotion
Law.
July 1995 Establishment of the Committee for the
Decentralization Promotion (CDP).
Hashimoto Cabinet June 1996 Establishment of the twenty fifth LGSRC.
(second term) Dec. 1996 The first report of the CDP.
July 1997 The second report of the CDP.
Sep. 1997 The third report of the CDP.
Oct. 1997 The fourth report of the CDP.
April 1998 Report of the LGSRC: report on the merger of
cities, villages and towns.
May 1998 Cabinet resolution of the decentralization
promotion plan.
Obuchi Cabinet Nov. 1998 The fifth report of the CDP.
March 1999 The second cabinet resolution of decentralization
promotion plan
July 1999 Establishment of the Package Law of
Decentralization.
Mori Cabinet April 2000 Enforcement of the Package Law of
Decentralization.
(second term) Aug. 2000 Opinion of the CDP.
Oct. 2000 Reports of the LGSRC: direction for the local
autonomy system and securing measures for local
revenue sources.
Source: Cabinet Office, 2009.
87

3. Fiscal Decentralization in the 2000s
After the fifth recommendation report, the Committee for Decentralization
Promotion began to focus on the transfer of local revenue sources. The CDP submitted its

87
http://www.cao.go.jp/bunken-kaikaku/ayumi.pdf.

168
final report in June 2001, completing its six-year mission. In the report, the committee
confirmed that decentralization was the most important national task because the
centralized administrative system could not respond appropriately to globalization, the
aging society, and depopulation. The committee acknowledged that the reduction of
national subsidies, based on the cabinet resolution calling for the fiscal structure reform
in 1997, was not implemented well and that the transfer of revenue sources was not
carried out in the previous decentralization reform. In this respect, recommendations for
the second decentralization reform were centered on local finance. These suggestions
were proposed to ensure enough revenue sources for local governments, to reduce gaps
between local expenditures and local revenues, and to provide suitable public services
proportionate to the level of burden borne by local residents. It also stated that the new
fiscal relationship between the central and local governments was necessary from the
perspective of distributing whole “national resources” under the conditions of national
and local fiscal difficulties that resulted from the decline of economic growth, the aging
society, and rural depopulation.
88
In addition, the report proposed reforms of the national
treasury disbursements (kokko hojō hutan kin) and of the local allocation tax (chihō kōhu
zei)

with a careful review of the national minimum of public services.
89

88
According to the report, long-term debt of the central and local governments was expected to be around
666 trillion yen at the end of 2001.

89
The Japanese government categorizes the national treasury disburse funds into three types:
“disbursements for local authorities which perform national projects due to the efficiency and economies of
scale, obligatory share of the central government based on shared responsibility between the central and
local governments, and grants-in-aid (MIAC 2008a, p. 40).” On the other hand, Minister of Internal Affairs
and Communication distinguished the national treasury disbursements (kokko hojō hutan kin ) into two:
hutan kin (spending paid by both the national and local governments. Large amount of hutan kin is spent

169
Table 5.5: Recommendation Reports of the CDP
Opinion (August 8, 2000)

National treasury
disbursement and local
revenue sources
Clarification of distinction of national treasury
disbursements
Review of the national treasury disbursement and its
operation.
Introduction of a new corporation tax system.
Delegation of administrative
functions
Stipulation of rules to clarify functions and authorities
of the central and local governments.

Opinion about the merger of cities, towns and villages (November 27, 2000)
Necessity of the merger Decentralization responding to the aging society and
low birth rates.
Expansion of target areas for administrative services.
Responding to fiscal difficulties of municipalities.
Merits and Demerits Regardless of many advantages, there are concerns
over regional disparity between core and periphery
areas after the merger. In addition, the level of public
services could be lowered and burdens on residents
could be increased.
Fiscal difficulties of the
central and local governments
This report also suggested consideration of slimming
and rationalizing local allocation tax system.

Final Report (June 20, 2001)
Ideals and goals of the
decentralization reform
Reconfirmation of the rationale for the decentralization
described in the interim report of 1996.
Achievement of the
decentralization reform
Reduction of the intervention of the central
government in local governments, especially abolition
of agency-delegated functions.
Stipulation of rules for the central and local
governments‟ functions.
Unfinished decentralization
reform
The second decentralization reform should consider
ensuring enough local revenue sources.
Reduction of gaps between local governments‟
expenditures and revenues.

for education, social security, and public works) and hojō kin (promoting subsidies - fund for promoting
projects which are schemed by the national government‟s need (the CEFP‟s 7
th
meeting of 2003 on April
1). The local allocation tax is not a tax, but a grant.

170
Table 5.5, Continued
Appeal to local government
officials and residents
Principle of self-decision and self-responsibility.
Recognition of the fiscal crisis of the central and local
governments.
Participation of citizens and NPOs.
Toward the second
decentralization reform
Ensuring local revenue sources without increasing
taxation rate.
New fiscal relations between the central and local
governments in terms of “national resource”
distribution.
Reform of the national treasury disbursement and local
allocation tax grant.
Source: Committee for the Decentralization Promotion.
3.1. The Council for Decentralization Reform and Fiscal Decentralization
With the dissolution of the CDP, the Council for Decentralization Reform (chihō
bunken kaikaku suishin kaigi, CDR) was established within the Cabinet Office in July
2001 to promote further decentralization. Taizō Nishimuro, CEO of Toshiba, was
appointed as the head of the council. In July 2004, the council submitted three Opinion
Reports concerning decentralization. In January 2001, the Council on Economic and
Fiscal Policy (Keizai Zaisei Shimon Kaigi, CEFP) was established under the Prime
Minister‟s Office. Its establishment was a result of the law for the reorganization of the
central government ministries passed in the Hashimoto administration. The council
played a major role in the reform policy-making under the Koizumi administration. In
fact, the CEFP was at the center of agenda-setting and policy-making in the Koizumi
administration (Cargill and Sakamoto, 2008). Specifically, the CEFP discussed the issue
of local revenue sources in depth under the agenda of “the National and Local Relations
(kuni to chihō no kankei ni tsuite).” Unlike the decentralization reform in the 1990s,
decentralization during the 2000s was centered on fiscal issues, such as the transfer of
171
revenue sources. Members of the CEFP regarded decentralization as a means of lessening
national and local fiscal burdens (Kanai, 2007).
A. Local Fiscal Deficit and Demographic Change
After the burst of the bubble economy, the deficit of local finance increased and a
fiscal crisis for the local governments became evident in the 1990s. The newspapers and
televisions described the financial conditions of local public sectors as being in a state of
crisis at the end of the 1990s (Schebath, 2006). In fact, the local governments‟ debt and
the national debt rapidly increased during the 1990s and continued to increase in the early
2000s.
Table 5.6: Outstanding Borrowing of Local Finance
91

(Unit: trillion yen)
Year 1992 1997 1998 1999 2000 2001 2002 2003
Amount 79.1 149.9 162.8 173.8 181.4 187.7 193.1 198.3
Source: MIAC, 2004 and 2009. Net total of the local revenue was 91.4 trillion yen in
1992 and was 97.2 trillion yen in 2002.
Several factors caused the increase of local fiscal deficits. Numao (2003)
identifies three factors that caused the fiscal crisis of local governments: the increase of
social welfare expenditure with the growing aged population, the decrease of revenues by
the government tax cuts to overcome economic recession, and the lax management of
national treasury disbursements. With previous administrative reforms, some functions of
and authority for social welfare services were transferred to prefectures and

91
Outstanding borrowing of local finance includes outstanding local government bonds, outstanding public
enterprise bonds, and outstanding borrowing of special account for local allocation tax, but excludes
special fund public works bonds and special fund public investment bonds.
172
municipalities, but adequate transfers of finances and responsibilities were not carried out.
In addition, tax policies in the 1990s, such as resident and enterprise taxes, reduced local
governments‟ revenues (Numao, 2003; Schebath, 2006). The Chairperson of the Tax
Commission, Hiromitsu Ishi, noted that tax cuts (mostly income tax and enterprise tax)
after the collapse of bubble economy caused severe fiscal deficits, yet they had limited
effect in boosting the economy.
92
The increase of public works projects also contributed
to the deterioration of local fiscal conditions. Local independent (public investment
without national funds) projects began to increase during the bubble period.
93
In addition,
the central government encouraged local independent projects by simplifying the
issuance of local bonds to boost the recessed economy during the 1990s (Jinno, 1999).
However, the impact on the economy of the increased local government public works
spending was limited (OECD, 2005e). Meanwhile, local governments issued more local
bonds in order to cope with the decline of local revenues from the early 1990s. As a result,
the share of local revenues represented by local bonds increased from 8 percent in 1990
to 17 percent in 1995. Although it declined to 11 percent in 2000, it rose again to 14
percent in 2002 (Schebath 2006, p. 83).
Meanwhile, the rapid growth of the aged population and the low birth rate in the
1990s became a serious issue for Japanese society. For local governments, the aging
society and rural depopulation led to greater social security costs along with decreasing
tax revenues. Concerns about the lack of funds for pensions and increasing needs for

92
The CEFP‟s 6
th
meeting of 2002 on March 8.

93
Strictly speaking, independent projects are indirectly supported by the central government through the
allocation tax or other disbursements.

173
health care were expressed in the CEFP meetings (e.g, Minister of Finance Siokawa,
Minister of Internal Affairs and Communications Katayama, and Minister of Health,
Labour, and Welfare Sakaguchi in the 14
th
meeting of 2002, on May 30, 2002). Local
government expenditures for public welfare increased from 11.8% of the total
expenditure in 1994 to 13.0% in 1997, and to 14.8% in 1999 (Sakakibara 2003, p. 121).
The welfare expenditure rate became 15.1% in 2002 (MIAC, 2004). According to a
survey of 3,122 heads of municipalities in December 2002, over 80% of them replied that
the bad fiscal condition would be worse. The respondents also pointed out that costs of
health care, nursing care, and social welfare were the heaviest financial burdens on local
finances (37%), followed by the repayment of local public bonds (31%) (Asahi Shinbun,
25 January 2003). The increase of the aged and the depopulation phenomenon were more
serious in rural areas than urban areas.
Table 5.7: Increase of the Aged in Rural and Urban Prefectures (age over 65)
94

(Unit: percentage)
1991 1993 1996 1999 2002
Tohoku Region
Aomori 13.5 14.8 16.6 18.6 20.8
Iwate 15.2 16.6 18.7 20.7 22.8
Akita 16.4 18.0 20.4 22.7 25.0
Yamagata 17.0 18.5 20.5 22.3 24.1
Fukushima 15.0 16.2 18.0 19.7 21.3
Tokyo Metropolitan
Saitama 8.6 9.3 10.6 12.0 14.2
Chiba 9.6 10.4 11.8 13.3 15.6
Tokyo 11.0 12.0 13.6 15.3 17.1
Kanagawa 9.3 10.1 11.6 13.2 15.1
National Average 11.6 13.6 15.1 16.7 18.5

94
Miyagi prefecture in Tohoku region is excluded because the prefecture is not categorized as a rural
prefecture.

174
Source: Statistical Observation of Prefectures (MIAC), various years.
Table 5.7 illustrates that the percentage of the aged population was higher in rural
areas than urban areas, while the growth of the aged population was common in both
rural and urban areas. But depopulation since the 1990s has been found only in rural
areas (Table 5.8). It was expected that the aging society would change demands for local
public services and increase pressures on local spending, since healthcare and other
welfare programs are largely the responsibility of local governments, raising concerns
over fiscal sustainability (OECD, 2005e). The national population growth rate declined,
reflecting the low birth phenomenon. Despite the overall low birth rate, the population of
metropolitan areas consistently increased.
The depopulation of rural areas also raised concern about the efficiency of public
services, given limited administrative and financial resources. For example, surveys of
heads of municipalities in the Chiba and the Saitama Prefecture demonstrated that they
perceived that the merger of municipalities would improve the efficiency of
administrative services and local financial conditions (Asahi Shinbun, 3 February 2003
and 24 February 2003).
95

Table 5.8: Annual Population Growth Rate of Prefectures, Selected Years
(Unit: percentage)
1991 1993 1996 1999 2002
Tohoku Region
Aomori -0.43 -0.13 0.07 -0.18 -0.35
Iwate -0.14 0.04 0.01 -0.17 -0.42

95
By the merger of municipalities in the 2000s, the number of municipalities decreased from 3,232 in 1999
to 1,820 in 2006 (Kohara, 2007). Minister Aso remarked that 3,600 administrative positions (top three
positions including mayor) and 17,600 local assembly positions were abolished, and 120 billion yen of
salaries was saved as a result of the merger (The CEFP‟s 7
th
meeting of 2005 on April 7).

175
Akita -0.40 -0.25 -0.31 -0.41 -0.64
Yamagata -0.14 -0.13 -0.09 -0.24 -0.43
Fukushima 0.21 0.31 0.12 -0.07 -0.25
Table 5.8, Continued
Tokyo Metropolitan
Saitama 1.21 1.08 0.74 0.51 0.33
Chiba 1.05 0.85 0.45 0.57 0.44
Tokyo 0.27 -0.37 -0.01 0.06 0.06
Kanagawa 0.80 0.55 0.44 0.61 0.65
National Average 0.35 0.25 0.23 0.16 0.11
Source: Statistical Observation of Prefectures (MIAC), various years.
B. Reports of the Council for Decentralization Reform
On December 21, 2001, the CDR submitted its interim report. The council
suggested the principle of subsidiarity, according to which local decisions are respected,
and the sustainability of local finance. It requested a review of the role of the central and
local governments in public works, based on a principle of “structural reform without
sanctuary” declared by Prime Minister Koizumi. The council also proposed a review of
public works and regional industrial policies to strengthen international competitiveness.
In the section “Ensuring Enough Local Revenue Sources,” the report noted that the 2002
budget for local finance centered on a cutting down of local government personnel, a
reduction of administrative costs, and a cutback of local independent (public investment)
projects, noting also that local expenditures have depended much on redemptions from
the local allocation tax and issues of local bonds. The CDR warned that the amount of
local borrowing would be around 189 trillion yen at the end of fiscal year 2001. It
suggested a reduction of the national treasury disbursements and further review of local
fiscal operations, given the severe conditions of the fiscal deficit.
176
Based on the interim report, the Opinion Report in October 2002 presented
schemes for clarifying the functions and projects of local governments. The CDR
emphasized a new principle of “local optimum” instead of national minimum, arguing
that the growth of local autonomy and self-reliance had been limited due to the central
government‟s policy of providing a “national minimum” in all regions. Chairperson
Nishimuro emphasized the shift in principle for the social insurance system and public
services from national minimum to local optimum. He maintained that different levels of
social security services in each local government are acceptable.
96
The council also
proposed a reform of the central and local governments‟ organizations and functions for
social security, education, and public works. Meanwhile, the council indicated that
decentralization reform was under the realm of the Council for Economic and Fiscal
Policy. Therefore, details of the abolition and the reduction of national treasury
disbursements would be discussed by the CEFP (CDP, 2002).
Table 5.9: Reports of the Council for Decentralization Reform
Reports Date Main points
Interim Arrangement
of Points at Issue
(Chuukan Ronten
Seiri)
Dec. 12,
2001
Clarifying roles of the central and local
governments.
Responding to local needs.
Establishing sustainable local finance
for self-sustaining local government‟s
financial management.
Strengthening diversity of public
services and local autonomy.
 Issues in five major fields of local
administration: social welfare,
education, public works, industrial
policy, police and security.

96
The CEFP‟s 10
th
meeting of 2003 on May 8.

177

Table 5.9, Continued

Opinion for Stand of
Functions and Projects
(Jimu• Jigyō no
Arikata ni Kansuru
Iken)
Oct. 30,
2002
Principle of “subsidiarity”: from
national minimum to local optimum.
Comprehensive administration by local
governments.
Formation of self-sustaining local
finance system.
Participation of local governments into
the national policy-making process.
 Policy suggestion for the five major
fields of local administration.
Opinion for the Trinity
Reform (Sanmi Ittai no
Kaikaku ni tsuite no
Iken)
June 6, 2003 Redistribution of revenue sources
between the central and local
governments: national subsidies,
allocation tax grants, and transfer of
revenue sources.
Opinion for
reinvention of
administrative system
to promote
administrative and
fiscal reform of local
governments
May 12,
2004
Expansion of local autonomy.
Reform of administrative and fiscal
management.
Reinvention of local administrative
system.

3.2. Trinity Reform
Reform measures for the second decentralization were materialized in the Trinity
Reform. This included the simultaneous reform of the national subsidies (hojōkin), the
local allocation tax (chihō kōhukin), and the transfer of revenue sources (local tax
system).
97
Since 2001, the CEFP had written out reform measures in the Basic Policy for
Economic and Fiscal Management and Structural Reform (keizai zaisei unei to kōzō

97
Hojōkin (national subsidies) is also translated as national government disbursement (e.g., Doi, 2004) or
ear-marked grants (e.g., Mochida, 2008).

178
kaikakuni kansuru kihon hōshin, Basic Policy).
98
The council stressed the need for an
economy based on autonomy and self-reliance through structural reform. Regarding local
affairs, it suggested a switch from the traditional approach of uniform, balanced regional
development to new one that emphasized the characteristics of each region and that
revitalized the regions by fostering competition among them (Numao 2003). In fact, the
Basic Policy Plans issued by the council were closely related to decentralization reform
in terms of fiscal decentralization (CDR, 2002). Minister of Internal Affairs and
Communications Taro Aso defined the goal of Trinity Reform as small government and
decentralization.
99

A. Basic Motives of the Trinity Reform
The CEFP members reiterated the necessity of economic and fiscal reform to cope
with international and domestic challenges to the international competitiveness of the
Japanese economy. The council member Hiroshi Okuda, CEO of Toyota, emphasized
that reform of the tax system and of local fiscal administration was essential to revitalize
the economy under the conditions of globalization, the aging society, and rural
depopulation.
100
The chairperson of the CDR, Taizō Nishimura, in his essay commenting
on the council‟s activities, described the urgent problem of the accumulation of long-term
debt by the national and local governments as the shortfall of tax revenues with the rising
aged population and decreasing youth population (May 12, 2004).

98
The plan is also called as staunch policy (honebuto no hōshin). Prime Minister Koizumi used the term as
a catchphrase for structural reform.

99
The CEFP‟s 20
th
meeting of 2004 on August 24.

100
The CEFP‟s 13
th
meeting of 2002 on May 21.

179
Fiscal reform measures were discussed with the decentralization reform. In the
first meeting of the CEFP, Minster of Finance Kiichi Miyazawa stated that the discussion
of restructuring finance should include simultaneous reviews of the tax system and the
social security system and a rearrangement of fiscal and administrative functions between
the central and local governments.
101
Minister of Internal Affairs and Communications
Toranosuke Katayama also stated that the Trinity Reform is closely related to
decentralization reform based on Prime Minister Koizumi‟s idea of “what is possible for
locals should go to locals (chihō ni dekiru koto wa chihō ni).”
102
He argued that
simultaneous reforms of annual expenditures and tax were important in the Koizumi
fiscal reform.
103
That is, decentralization under the Koizumi administration was centered
on financial aspects of the relationship between the central and local governments.
The Council for Economic and Fiscal Policy identified two principles of
decentralization reform: self-reliance of local governments and competition among
regions. The Director-General of Economic and Fiscal Policy, Kobayashi, suggested that
the basic ideal for regions should be transformed from balanced development to an
economic revitalization through competition among regions.
104
Minister of State for
Economic and Fiscal Policy Heizō Takenaka determined the essence of Koizumi reforms
to include self-reliance of governments, suitable benefits of public services proportionate

101
The CEFP‟s 1
st
meeting of 2001 on January 6.

102
The CEFP‟s 7
th
meeting of 2003 on April 1.

103
The CEFP‟s 16
th
meeting of 2002 on June 7.

104
The CEFP‟s 9
th
meeting of 2001 on May 31.

180
to tax burdens, and simplicity of administration.
105
He also demanded a review of local
tax and revenue systems focusing on the local allocation tax.
106
The chairperson of the
CDR, Nishimuro, addressed in the council meeting that decentralization should be based
on the principle of congruence between benefits of pubic services and burdens of taxes in
redistributing local revenue sources.
107
Minister Katayama emphasized the principle of
suitable public services proportionate to burdens. He insisted that the provision of public
services which exceeded tax burdens increased the chronic deficit of the national and
local revenues.
108

B. The Opinion for the Trinity Reform and the Basic Policy
From the 2002 Basic Policy, the council reported its scheme for the Trinity
Reform, which consisted of the reform of national subsidies, the transfer of revenue
sources, and the reform of allocation tax grants (kōhukin). The establishment of a
sustainable fiscal structure and social security system through tax reform was proposed in
the 2002 Basic Policy. To strengthen rural regions, the council proposed deregulation and
the development of regional characteristics. In the 2003 Basic Policy, the council began
to make detailed plans for the Trinity Reform (trinity reform package), such as a transfer
of revenue sources and a cutback of the national subsidies. The transfer of revenue
sources to local governments, which amounted to three trillion yen, was projected in the
2004 plan.

105
The CEFP‟s 8
th
meeting of 2001 on May 18.

106
The CEFP‟s 8
th
meeting of 2001 on May 18.

107
The CEFP‟s 6
th
meeting of 2002 on March 8.

108
The CEFP‟s 6
th
meeting of 2002 on March 8.

181
Table 5.10: Major Suggestions in the Basic Policy Related to Trinity Reform
Main points
2002 The
central
and local
relations
Increase of local autonomy and responsibility.
Abolition and reduction of projects supported by
the national treasury disbursements.
Facilitating merger of municipalities.
Distribution of revenue sources: consideration for
trinity reform.
2003 Trinity
reform
Reform of the central and local governments‟
finance: Trinity reform
- ensuring enough local taxes.
- restraint of social security related costs.
- restraint of dependence on national subsidies.
- reduction and rationalization of annual
expenditures.
2004 Trinity
reform
Transfer of revenue sources amounting to 3 trillion
yen until 2006 with the reform of the national
treasury disbursement system.
Transfer of revenue sources from income tax to
individual resident tax until 2006.
Restraint of local expenditures.

Meanwhile, the Council for Decentralization Reform also submitted the Opinion
for Trinity Reform (2003). The report emphasized a structural reform of local
expenditures in order to cope with the local financial crisis. The council pointed out that
the rapid increase of the aged population along with low birth rates would deteriorate
financial conditions of local governments, due to increasing social welfare costs. It
projected that the long-term debt of the central and local governments would be 686
trillion yen at the end of 2003. But the gap in fiscal capacity among municipalities was
one of the council‟s concerns for further reform. The fiscal capacity index of small towns
and villages was considerably lower than that of big cities. In cities with a population
over a hundred thousand, the number of cities rated over 0.8 was around 60% of the total.
182
In contrast, the percentage of cities with the same index (over 0.8) was about 14% in
cities with a population of less than a hundred thousand. The fiscal capacity index was
much lower in the case of towns and villages. While only about 4% of towns and villages
with a population of less than ten thousand were rated over 0.8, eighty percent of the
towns and villages with a population of less than ten thousand were rated less than 0.3
(CDR, 2003).
Several members of the CEFP noted a possible increase in regional disparity. The
Vice-Minister of the MIAC, Takehiko Endo, reported in the CEFP meeting that a cutback
of the local allocation tax would generated fiscal difficulties for local governments .
109

Minister Katayama also acknowledged that the disparity in revenues among local
governments would increase with the reform of the local allocation tax and the transfer of
revenue sources, arguing that the tax revenue of big cities would increase while the
national subsidies for rural areas would decrease. He emphasized the role of the local
allocation tax in reducing regional gaps and advocated for the continued distribution of
allocation tax (grants) for local governments.
110
In fact, the level of financial reliance on
the central government was much higher for small municipalities than large ones.

109
The CEFP‟s 9
th
meeting of 2001 on May 31.

110
The CEFP‟s 13
th
meeting of 2002 on May 21.

183
Table 5.11: Ratio of General Revenue Sources to Total Revenue for Municipalities
111

(Unit: percentage)
Fiscal Year 2002
(Total Revenue =
100)
Local taxes Local
allocation
tax
Special local
grants
Local
transfer tax,
etc.
Large city 46.9 8.9 1.8 4.6
Small city 33.9 21.1 1.1 4.3
Large town or
village
28.7 27.9 1.0 4.6
Small town or
village
12.8 41.2 0.4 3.0
Source: White Paper on Local Public Finance 2004, MIAC.
Table 5.12 illustrates that the local allocation tax was a major revenue source for
towns and villages, while local taxes were a much smaller proportion of their own
revenue source than cities. Criticism of the local finance system became stronger among
council members.
C. Criticism against Local Fiscal Management
A fundamental problem of the local fiscal deficit was the fact that a large portion
of the local debt had been redeemed by the national treasury disbursements. For a given
central government-subsidized public works project, while 50% of the cost is supposed to
be paid by the local government, the central government actually pays 88.75% of the total
cost through national subsidies (Sakakibara 2003, p. 119). Moreover, a part of the cost of
independent projects was also paid by subsidies from the central government. While the
total cost of local independent projects is expected to be covered by local governments,

111
A large city refers to a city with population over 100,000; a small city refers to a city with a population
of less than 100,000; a large town or village refers to a town or village with a population over 10,000; a
small town or village refers to a town or village with a population of less than 10,000 (MIAC, 2004).

184
the central government supports 43.75% of the total amount (Sakakibara 2003, p. 122).
These practices motivated local governments to launch unnecessary public works projects.
Above all, the distribution method of the local allocation tax was considered the
most problematic factor causing a moral hazard for local governments. Minister
Katayama pointed out that due to the local allocation tax, there was no incentive for local
governments to secure more revenues.
112
The local allocation tax was devised to
guarantee more stable and reliable revenues, enabling local governments to provide equal
levels of public services. Yet, the local allocation tax system provided no incentive for
local governments to improve the efficiency of their fiscal management because it was
distributed by a standardized formula (Nagata, 1996; Ihori, 2001). In the given formula, a
local government may not try to increase its own tax bases nor improve administrative
efficiency because the increase of own revenues and budget savings means a reduction of
tax allocation. That is, local governments had little incentive to implement growth-
oriented policies (OECD, 2005e).
Minister of Finance Sadakazu Tanigaki noted that the increase in local annual
expenditure was proportional to the increase in local allocation tax, presenting a
comparison of the average expenditure with the average local allocation tax in two
periods (between 1994 and 1998, and between 1999 and 2003). While the average
expenditure increased 3.5 trillion yen, the average of local allocation tax increased 3.4
trillion yen in the same period. He also claimed that local governments had no reason to
enhance self-reliance due to the revenue ensuring system of national subsidies, bringing

112
The CEFP‟s 8
th
meeting of 2001 on May 18.

185
about overgrown local annual expenditures.
113
In this respect, Minister Toranosuke
Katayama asserted that ceasing the disbursement of national subsidies to local
governments was essential to fiscal reform.
114
Prime Minister Koizumi emphasized the
importance of the abolition or reduction of national treasury disbursements for local fiscal
and administrative reform.
115

In addition to the systemic problem of disbursement by the national government,
there was a profound distrust of local governments‟ management of finances.
116
Over-
appropriated local governments‟ budgets were criticized by the CEFP members, such as
Minister Sadakazu Tanigaki and Professor Masaaki Honma. Minister Tanigaki asserted
that that the over-secured local revenue system by the national government resulted in a
moral hazard for local government officers, as illustrated in over-appropriated local
governments‟ budgets, such as for salaries and general administration costs, suggesting a
cutback of seven or eight trillion yen from the (over-appropriated) local budgets until

113
The CEFP‟s 22
nd
meeting of 2004 on August 31.

114
The CEFP‟s 13
th
meeting of 2002 on May 21.

115
The CEFP‟s 16
th
meeting of 2002 on June 7.

116
Distrust against local governments also revealed in the process of projecting reforms. For example, six
associations of local governments submitted their own proposal for the reform of the national treasury
disbursements to Prime Minister on August 24, 2004. As their representative, Hiromu Kajiwara, President
of National Governor‟s Association argued that the proposal is a sincere response to Prime Minister
Koizumi‟s effort to change the nation, although the trinity reform has negative aspects to local
governments (the CEFP‟s 20
th
meeting of 2004 on August 24). However, professor Honma blamed the
local government associations, asserting that the “reform proposal for the national treasury disbursements”
preferred status quo rather than reform (the CEFP‟s 22
nd
meeting of 2004 on August 31).

186
2006.
117
He raised the moral hazard problem repeatedly, suggesting a reduction of
personnel costs and independent projects.
118

Table 5.12: A Chronology of Decentralization, 2001-2007
Cabinet Date Event
Koizumi June 2001 Final report of the Committee for the
Decentralization Promotion.
July 2001 Establishment of the Council for Decentralization
Reform (CDR).
Oct. 2002 Opinion of the CDR: regarding tasks and
projects.
June 2003 Opinion of the CDR: regarding Trinity Reform.
(second term) May 2004 Opinion of the CDR: regarding administrative
and fiscal reform of local governments.
May 2004 Enactment of three laws related to the merger of
municipalities.
(third term) Dec. 2005 Report of the Local Government System
Research Council: report for the local autonomy
system.
Abe Dec. 2006 Enactment of the law for promotion of
decentralization reform.
April 2007 Establishment of the Committee for Promotion of
Decentralization Reform.
Source: Cabinet Office, 2009.
4. Trinity Reform and Its Impact on Local Finance
A series of Koizumi reforms had a substantial influence on local finance. Koizumi
considered local fiscal reform to be an important step toward decentralization, as shown
in his statement in a Diet meeting. Koizumi reported that the transfer of revenue sources
(3 trillion yen), the reform of national subsidies (over 5 trillion yen), and the reform of

117
The CEFP‟s 26
th
meeting of 2004 on October 22.

118
The CEFP‟s 11
th
meeting of 2005 on May 18.

187
allocation taxes (4 trillion yen) were achieved as a part of decentralization reform.
119
But
the regional fiscal disparity among local governments had expanded with those measures.
A DPJ Diet member, Naoto Kan, referred to the negative legacy of the Koizumi
administration as the cause of increases in disparity and the abandonment of rural
areas.
120
In fact, changes in local finance since the Trinity Reform demonstrate that gaps
in local fiscal capacity among prefectures and municipalities in urban and rural areas
have increased.
4.1. Trinity Reform and Local Finance
Above all, the transfer of revenue sources for local governments was not
sufficiently implemented in the Trinity Reform. For example, in 2003, the amount of the
transfer of revenue sources to local governments was just 650 billion yen, whereas the
cutback of national subsidies was 1 trillion yen, and that of allocation taxes was 3 trillion
yen (Asahi Shinbun, 16 June 2004). In the meetings of the CEFP about the Trinity
Reform, representatives of local governments began to criticize the inadequate transfer of
revenue sources. President of the Japan Association of City Mayors Tamotsu Yamade
insisted that the transfer of revenue sources was highly insufficient while national
subsidies and the local allocation tax were largely reduced. He asserted that the
insufficient transfer of revenue sources destroyed local governments‟ trust in the national
government.
121
Yamade gave an example of insufficient revenue transfer in the case of

119
Special Committee on Administrative Reform in the 164
th
meeting of the House of Representatives on
April 19, 2006.

120
Special Committee on Administrative Reform in the 164
th
meeting of the House of Representatives on
April 3, 2006.

121
The CEFP‟s 20
th
meeting of 2004 on August24.

188
the Ministry of Health, Labour, and Welfare, saying that only 100 billion yen of revenue
sources was transferred to local governments while a reform plan of the association had
requested a transfer of 950 billion yen for national health insurance and livelihood
protection.
122
Minister of Internal Affairs and Communication Taro Aso stated that the
process of transferring revenue sources would certainly increase regional disparities in
terms of fiscal capacity, arguing that allocation taxes are the only way to alleviate the
disparity. But amount of the local allocation tax for local governments consistently
decreased. He reported that, since the launch of Koizumi administration in 2001, the
annual expenditure of the nation decreased by 1.1 trillion yen from 48.7 trillion yen to
47.6 trillion yen, while the annual expenditure of the local governments decreased by 3.4
trillion yen from 73.6 trillion yen to 68.1 trillion yen. In the meantime, the local
allocation tax was decreased by 3.4 trillion yen from 20.3 trillion yen to 16.9 trillion
yen.
123

President of the National Association of Towns and Villages Fumio Yamamoto
argued that towns and villages suffered more severely than prefectures and cities.
124
In
fact, reductions in the annual expenditure of general accounts were larger in small towns
and villages compared to mid-sized cities. While the average expenditure of cities with a
population of ten thousand decreased only 7% between 1999 and 2005, that of small
towns and villages with a population of five thousand decreased 24.9% in the same

122
The CEFP‟s 20
th
meeting of 2005 on October 4.

123
The CEFP‟s 22
nd
meeting of 2004 on August 31.

124
The CEFP‟s 20
th
meeting of 2004 on August24.

189
period (Asahi Shinbun, 1 May 2008).
125
Comparison of the amount of transferred
revenues (between fiscal year 2003 and 2007) and of national subsidy cuts (between
fiscal year 2002 to 2006) demonstrated that revenues of rural prefectures (Tohoku region)
decreased due to a large cut in the national subsidies, but those of urban prefectures
(Tokyo Metropolitan Areas) increased by the transfer of revenue sources despite the large
subsidy cuts (Table 5.13.).
Table 5.13: Transfer of Revenue Sources and National Subsidies
(Unit: billions of yen)
Increased revenues
from transferred
tax sources
Decreased amount
of national
subsidies
Net Balance
Aomori 26.0 42.2 -16.2
Iwate 26.3 39.3 -12.9
Miyagi 51.2 55.9 -4.7
Akita 20.5 31.1 -10.6
Yamagata 24.4 31.1 -6.8
Fukushima 42.7 53.8 -11.2
Saitama 189.8 134.0 55.8
Chiba 160.3 120.6 39.7
Tokyo 318.4 235.5 82.8
Kanagawa 248.6 161.4 87.1
National Total 3000.0 3010.0 -10.0
Source: Asahi Shinbun (26 October 2007).
As a result of the Trinity Reform, the net balance of local revenues increased in
12, mostly urban, prefectures, but decreased in the other 35 of 47 prefectures.
126
This

125
In fact, calculation is based on the data of 29 cities with a population of ninety to a hundred ten
thousands, the data of 69 cities with a population of forty to sixty thousands, and the data of 109 towns and
villages with a population of four to six thousands.

126
Interestingly, the net balance did not increase in all urban prefectures. While the net balance of the
prefectures in the Tokyo and the Nagoya Metropolitan Area increased, that of all prefectures in the Osaka
Metropolitan Areas decreased although the reduced amounts were relatively small.

190
means that the financial resources of local governments in rural areas were reduced but
those of local governments in urban areas increased. A breakdown of local revenue
sources yields a similar result. The reduction of the local allocation tax in rural
prefectures was much larger than the increase of local tax between 2002 and 2005. In
contrast, increases in local taxes in urban prefectures were higher than the decrease of the
local allocation tax (Table 5.14). In fact, the impact of these changes on local finance
differed in urban and rural areas. While reductions in revenues and expenditures were
large in rural prefectures, reductions were relatively small in urban prefectures, and
revenues and expenditures even increased in some urban prefectures (Table 5.15).

Table 5.14: Changes of the Local Tax and the Local Allocation Tax (2002-2005)
(Unit: billions of yen)
Prefecture Local tax Local allocation
tax
Tohoku Region Aomori 9.8 -26.8
Iwate 2.2 -34.9
Akita 2.6 -35.2
Yamagata 4.4 -31.4
Fukushima 11.8 -27.4
Tokyo
Metropolitan
Saitama 63.0 -70.6
Chiba 76.6 -47.4
Tokyo 527.3 N/A
Kanagawa 115.3 -25.0
National Total 1581.1 -1596.1
Source: Todōbuken Ketsan Jōkyōchō (MIAC), 2004 and 2007.
Table 5.15: Change of Local Revenues and Expenditures (2002-2005)
(Unit: percentage)
Prefecture Revenue Expenditure
Tohoku Region Aomori -17.15 -16.84
Iwate -20.58 -20.50
Akita -11.43 -10.63
Yamagata -8.4 -8.00
191
Fukushima -10.99 -10.95
Tokyo
Metropolitan
Saitama -10.23 -10.12
Chiba -5.77 -6.16
Tokyo 3.75 3.41
Kanagawa 0.97 0.84
National Average -5.68 -5.2
Source: Todōbuken Ketsan Jōkyōchō (MIAC), 2004 and 2007.
Annual changes in revenues and expenditures in big cities and small towns also
demonstrated the growing gaps between urban and rural areas. Table 5.16 and Table 5.17
show that decreases in revenues and expenditures, especially after 2003, were much
higher in small villages and towns than big cities.
Table 5.16: Annual Changes of Revenues and Expenditures in the Chiba Prefecture
129

(Unit: percentage)
2002 2003 2004 2005
City Chiba Revenue -1.43 3.27 0.65 3.22
Expenditure -1.24 3.37 -0.27 3.45
Funabashi Revenue 2.53 -1.71 -0.31 0.83
Expenditure 3.08 -3.02 1.27 0.82

Towns Inba Revenue 0.90 0.13 -15.39 -12.85
And Expenditure 5.34 -2.38 -14.5 -12.5
Villages Tako Revenue -7.93 6.51 -12.66 11.88
Expenditure -7.18 4.16 -13.4 10.64
Table 5.16, Continued

Tōnoshō Revenue 29.32 -0.26 -8.86 -20.21
Expenditure 34.42 -8.15 1.11 -20.68
Shirako Revenue -1.46 2.31 -7.75 -3.82
Expenditure -2.44 3.55 -9.09 -4.18
Kyonan Revenue 0.72 7.97 -15.89 -8.18
Expenditure 1.12 -6.21 -4.38 -8.00

129
The City of Chiba is an ordinance-designated city and the City of Funabashi is the second largest city in
the Chiba Prefecture in terms of population. Both cities have a population over 500,000 as of 2000. Small
towns and villages (machi, mura) are selected based on population (between 10,000 and 30,000) and the
proportion of primary sector workforce (more than 15%) in 2000. Several towns and villages under the
category were excluded because of the merger of municipalities.

192
Source: Chiba Ken Tōkei Nenkan (Statistical Yearbook of the Chiba Prefecture
Table 5.17: Annual Changes of Revenues and Expenditures in the Fukushima
Prefecture
130

(Unit: percentage)
2003 2004 2005
City Koriyama Revenue -1.96 -0.13 2.18
Expenditure -1.75 -0.81 2.40
Iwaki Revenue -3.86 1.64 -1.54
Expenditure -4.52 1.49 -1.54

Towns and
Villages
Nishiaizu Revenue -1.60 -2.23 -2.53
Expenditure -1.29 -3.14 -2.61
Yamatsuri Revenue -20.56 5.60 -12.47
Expenditure -21.17 5.23 -13.47
Tamakawa Revenue 3.82 -22.89 1.71
Expenditure 3.73 -23.93 2.55
Hirata Revenue 0.13 -2.00 -13.48
Expenditure 0.71 -2.22 -13.36
Source: Fukushima Ken Tōkei Nenkan (Statistical Yearbook of the Fukushima
Prefecture)
4.2. Decentralization after Koizumi
The Koizumi reform persisted in the Abe administration. Prime Minister Shinzo
Abe confirmed that the Koizumi reform would continue in his administration.
131
The
CEFP discussed continuous reform based on expert members‟ proposals such as “Seven
Areas of Drastic Reform for Innovative Growth” and “On Drastic Decentralization
Reform.” Those proposals dealt with a new bill for the Promotion of Decentralization
Reform similar to the Package Law of Decentralization in 1995. In the proposals, the

130
The City of Koriyama and the City of Iwaki are designated “core city” and the first and second largest
cities with a population over 300,000 as of 2000. Small towns and villages are selected based on population
(between 5,000 and 10,000) and the proportion of primary sector workforce (more than 20%) in 2000.
Several towns and villages under the category were excluded because of the merger of municipalities.

131
The CEFP‟s 25
th
meeting of 2006 on November 10, and the 26
th
meeting of 2006 on November 24.

193
council members requested further decentralization reform of the roles of the central and
local governments, local finances, private sector-led revitalization of regions, and merger
of municipalities.

Reform of the local revenue system, including the introduction of a new
allocation tax system, and the soundness of local finance was highlighted by the example
of the bankruptcy of the municipal government of Yūbari City in the Hokkaido
Prefecture.
132
Specifically, a review of a new framework for the regional government
system (dōshū sei) was suggested.
133

The increase of regional fiscal disparity was identified by the council members.
Minister of Finance Kōji Omi described the impact of the 3 trillion yen transfer of
revenue sources (Trinity Reform) on the financial condition of municipalities. With the
Trinity Reform, by which a decrease of income tax and an increase of resident tax was
carried out, tax revenues of the Tokyo Prefecture increased because of the increase of the
individual resident tax and the corporate resident tax with a large population of taxpayers.
On the other hand, the tax revenues of towns and villages in the countryside sharply
declined due to the lack of tax-payable individuals and corporations. He reported that
allocation taxes from the central government after trinity reform were not sufficient to
compensate for the shortage of national subsidies.
134
In December 2006, the Diet enacted
the Law for the Promotion of Decentralization Reform (chihō bunken kaikaku suishin hō)
to facilitate further decentralization reform.

132
The CEFP‟s 23
rd
meeting of 2006 on October 24 (Minister of Internal Affairs and Communications,
Yoshihide Suga).

133
For example, six prefectures of Tohoku region will build up an integrated regional government under
the dōshū sei system.

134
The CEFP‟s 23
rd
meeting of 2006 on October 24.

194
5. Conclusion
Starting in the mid-1990s, the Japanese government launched decentralization to
increase political accountability and to cure problems caused by the centralized
government system. Decentralization was perceived as a remedy for the problems
brought on by the conditions of globalization, an aging society, and budget deficits that
began in the 1980s. Local governments in rural areas suffered these problems more
severely than those in urban areas. With the demographic change, local budget deficits
rapidly grew due to increasing welfare costs. On the other hand, inefficient and
ineffective budget spending of local governments, including local public works projects
and lax budget management, worsened local fiscal conditions during the 1990s.
Following administrative decentralization reform during the 1990s, the
government implemented fiscal decentralization under Koizumi‟s premiership. The
government reformed the local finance system as part of fiscal decentralization to
increase the autonomy, self-reliance, and fiscal sustainability of local governments. In
particular, the Koizumi administration projected the Trinity Reform, which included
reform of the national disbursements, reform of local allocation taxes (grant), and the
transfer of revenue sources. The Trinity Reform transformed the previous local fiscal
system. This resulted in a higher reliance by each local government on its own revenue
sources. Yet, the transfer of revenue sources to local governments was not sufficient to
fund local governments in rural areas, compared to the reduction in financial transfers
from the central governments. Investigating the reform process and its impact on local
finance, this chapter has shown that gaps in local fiscal capacity between urban and rural
195
prefectures and between big cities and small villages became wider in the process of
fiscal decentralization.
196
Chapter VI. Conclusion
The goal of this study is to explore the reason why regional disparities in Japan
widened in the 2000s. While other studies on the increasing disparities in Japan were
based on economic and sociological perspectives, I have approached the issue from the
political and policy perspective. In my investigation, I have traced changes in major
policies that contributed to the reduction of regional disparities between urban and rural
areas. I have found that there was a policy shift in public works and financial transfers
from the central government, which have historically played an important role in
reducing regional disparity. Public works projects and financial transfers had been
concentrated in rural areas. But in the 2000s, overall public works expenditure decreased
and public works projects were redirected toward urban centers for the construction of
international airports and harbors. In addition, fiscal decentralization during the Koizumi
administration, which aimed at fiscal reconstruction, resulted in a greater reliance on
local revenue sources while reducing national subsides and the local allocation tax for
local governments. Moreover, the regional disparity widened further with the rapid
increase of the aged and with depopulation in rural areas.
In response to international and domestic challenges, the LDP‟s traditional
policies, which had favored rural areas, had to change. Since the 1980s, Japan has
confronted stiff international competition with the rise of economic globalization, while
the increase in the budget deficit with economic recessions and demographic changes
caused concern for its future. Meanwhile, criticism of the LDP‟s pork barrel politics
increased calls for a reform of the MMD electoral system. The government has carried
197
out various reforms from the 1980s to overcome these problems, but a substantial change
to the 1955 System was delayed. The LDP‟s defeat in the 1993 election and its step down
from a ruling position facilitated the electoral reform of 1994. Throughout the 1990s, the
LDP‟s pork barrel politics and rural-oriented policies faced strong criticisms from the
growing numbers of urban, non-affiliated voters.
1. The Politics and Policy Approach to the Regional Disparity in Japan
Economists have provided generalized explanations for regional inequality or
regional disparity focusing on industrial structure, factor mobility, and market openness.
Similarly, many studies have applied economic perspectives to explain Japan‟s regional
disparity during the 2000s. For example, Shinohara (2007) claims that industrial structure
was a main reason for regional disparity among prefectures. According to him,
prefectures that had a large portion of exported-oriented manufacturing grew faster in the
economic recovery stage. Meanwhile, socio-demographic studies have noted regional
disparity in terms of population and labor market conditions. Since the 1980s, the aged
population has rapidly increased in rural areas and a considerable number of workers in
rural areas have migrated to urban areas for jobs, resulting in an increase in welfare costs
and a decline in tax revenues. But both perspectives overlook politics and policy factors.
The high level of regional equality in the 1970s and the 1980s was a result of the political
considerations of the LDP and the government‟s policies supporting rural areas. In this
respect, this study focuses on the politics and policy mechanisms of the increasing
regional disparity.

198
1.1. Regional Equality under the 1955 System
While economic and cultural factors contributed to the reduction of regional
disparity, politics and policies were major causes in reducing regional disparities. Studies
of Japanese egalitarianism have shown that the ideal of socioeconomic equality and
stability was shared by politicians, bureaucrats and policy experts, resulting in various
protective and redistributive policies toward rural areas. These policies included regional
industrial development policies, public works projects and financial transfers for poor,
rural areas. Electoral considerations of the LDP and its politicians facilitated the rural-
oriented policies. These policies turned into strong electoral support from rural areas,
making the LDP‟s long-term dominance possible.
A. Electoral Politics under the 1955 System
In the 1950s, LDP politicians worried about the expansion of socialist or
communist political forces under the increasing socioeconomic inequalities. Moreover,
election of progressive governors and mayors in the 1960s raised their concern over the
growth of inequalities. Under this situation, the LDP‟s policies to achieve socioeconomic
equality were carried out based on specific groups and regions, such as farmers and rural
areas, instead of individuals or classes. As a result, the LDP gained strong electoral
support from rural districts, while support from urban districts was relatively weak. In
particular, support from rural constituents was facilitated by the pork barrel politics
practiced by the LDP politicians. However, electoral politics under the 1955 System was
criticized for encouraging personal network-based politics, corruption, and faction
politics, which were believed to be caused by the MMD electoral system. In addition, the
overrepresentation of rural constituents was an important problem for the system. The
199
rural-based electoral politics of the LDP prolonged the LDP‟s traditional policies, which
were beneficial to rural electorate at the cost of urban taxpayers. On the other hand, even
opposition parties supported the LDP‟s redistributive policies for rural areas while no
party represented interests of urban residents.
B. Policies for Reducing Regional Disparity
The LDP government implemented regional industrial policies for balanced
development and carried out various public works projects for developing rural areas. In
particular, public works projects provided rural residents with public facilities and
plentiful job opportunities through the construction sector. As a result, the average
farmer‟s household income became even higher than that of the average urban worker. In
addition, agricultural subsidies such as the rice subsidy worked as a financial support for
the farmers‟ incomes. Financial transfers from the central government also played an
important role in reducing regional disparity. For instance, the per capita revenue of rural
residents after financial transfers was larger than that of urban dwellers, while per capita
tax payments by rural residents was much smaller than those of urban dwellers. Fiscal
equalization among local governments was implemented through the national treasury
disbursements such as the local allocation tax.
1.2. Challenges to the Japanese Political Economy
The 1955 System, under which the LDP had provided favorable policies and
financial support to rural residents, was sustained by a high level of economic growth.
But from the 1980s, slow economic growth and growing international competition made
it difficult for Japan to maintain its dual economy structure with the increasing
inefficiency of less productive sectors such as agriculture and construction. Meanwhile,
200
demands from export-oriented big businesses and foreign pressures to open the Japanese
market intensified. In the early 1990s, the burst of the bubble economy and a series of
corruption scandals involving LDP politicians led to the LDP‟s defeat in the 1993 general
election. From the mid-1990s, reform became a dominant theme of Japanese politics,
while the public‟s demand for reforms increased. As a result, there were several reform
attempts to change the Japanese political economy system. But continued economic
recession and deep-rooted vested interests of politicians and bureaucrats prevented
structural reform of the 1955 System. At the same time, Japan‟s socioeconomic
demography had rapidly changed since the 1980s.
A. International and Domestic Challenges to the Japanese Economy
Throughout the 1980s, burdens on the Japanese economy increased through a
deep involvement in the global economy, while the government budget rapidly expanded
due to increasing expenditures on infrastructure and social welfare. In particular, less
productive domestic industrial sectors began to suffer from stiff international competition
under economic globalization after foreign pressures to open Japan‟s domestic market.
This raised demands for economic liberalization and structural reforms to promote
efficiency and competitiveness. The rapid increase of the budget deficit also led to
reforms of Japan‟s political system and to fiscal reconstruction. These difficulties
intensified in the 1990s. In fact, Japan‟s international competitiveness consistently
declined during the 1990s, as evident in the decline in Japan‟s ranking in various
international comparisons with other OECD countries. At the same time, tax revenues
stopped growing due to economic recessions. Tax cuts and public investment to boost the
stagnated economy increased the budget deficits of the central government and local
201
governments. The fiscal condition of both the central and local governments worsened
due to the rapid increase of the aged and welfare costs. To deal with these problems, there
were several reform attempts from the mid-1980s. However, reforms of traditional
policies were limited, and criticism of the LDP government‟s revenue allocation practices
and demands for structural reform of the fiscal and public sectors became stronger during
the 1990s.
B. Electoral Challenges to the LDP
The LDP implemented policies beneficial to rural districts in exchange for strong
support from the rural electorate. Although the increase of urbanization in previous
decades raised the need for shifting its traditional rural-oriented policies, the LDP‟s
policy continued due to electoral considerations. However, a series of corruption scandals
involving pork barrel politics and personal network-based electoral campaigns raised the
public‟s criticism. In particular, the electoral system (multi-member districts system with
single non-transferable vote) for the House of Representatives was to blame for causing
“money politics”. In the electoral reform of 1994, single member districts and a
proportional representation system were introduced. One significant result of the reform
was a reduction in the number of rural districts, reducing considerably the level of
overrepresentation of the rural constituents. Moreover, the new SMD system led to the
wide-range, issue-based electoral campaigns due to the increased number of votes needed
for winning an election.
Meanwhile, urbanization and a decrease of organized votes affected the LDP‟s
electoral strategy. From the mid-1990s, many LDP candidates in urban districts were
defeated in both Upper and Lower House elections due to an increased anti-LDP
202
sentiment in the part of urban, non-affiliated voters. Independent candidates were elected
in gubernatorial elections in urban prefectures, while the DPJ was growing as an
alternative governing party based on urban support. This change was a result of urban
dwellers‟ growing dissatisfaction with the LDP‟s unfair distribution of their taxes to
public works projects or financial transfers to rural areas. In particular, defeats in urban
districts in the 1998 House of Councilors election and the 2000 House of Representatives
election were perceived as serious events, bringing about the LDP politicians‟
reconsideration of the party‟s rural-oriented policies. Some LDP politicians began to
request policies beneficial to urban areas, in contrast to their traditional policy profile.
The interests of urban voters increased in significance in the 1990s, and the request for
policy changes in the LDP resulted in the election of reform-oriented Koizumi as the
party president and prime minister.
2. Response to the Challenges: the Political and Policy Approach
In this study, I offer my politics and policy perspective to understand the policy
mechanisms and political logic behind the increasing regional disparity in Japan. Similar
to the high level of regional equality in the 1970s and 1980s, the growing regional
disparity in the 2000s was a result of the politics and policy considerations of the LDP.
After 1994, policies for rural areas were changed in order to cope with international and
domestic challenges. Concern over international competition under economic
globalization and the rapid increase of the budget deficit led to reforms of government
policies from rural, equality-oriented policies to urban, efficiency-oriented ones. But
reform of the rural-oriented policies was not an easy task, due to the LDP‟s political
203
interests in rural districts. It broke away from the LDP‟s clientelistic politics and policies.
Meanwhile, the 1994 electoral reform and the increase of urban, non-affiliated voters
during the 1990s led to the LDP‟s reevaluation of its rural-oriented policies. The LDP
began to shift its traditional policies to ensure its long-term survival. In particular, Prime
Minister Koizumi launched drastic reforms of several rural-oriented policies. My
research traces these policy changes in public works and fiscal transfers, which have
historically played the most important role in reducing regional disparity in Japan.
To cope with Japan‟s economic decline under globalization and its increasing
budget deficit, the government decided to redistribute its invested national resources
more efficiently based on the principle of “selection and concentration.” The government
and the LDP politicians in the 2000s became champions of economic growth instead of
patrons of socioeconomic equality. The increase in regional disparity can be explained, in
part, by the decline in public works expenditures in rural areas. During the last decade,
the government redirected public works projects toward urban centers for the
construction of international airports and harbors. A main goal was to promote Japan‟s
international competitiveness under globalization. The increasing criticism of the
inefficiency of public works projects and the growth of budget deficit was another cause
of the changes in public works. From the mid-1990s, the Japanese government has
carried out decentralization reforms. Although the government advocated local autonomy
and self-reliance of local governments, a major goal of decentralization was to reform the
local finance system. Fiscal decentralization under the Koizumi administration resulted in
a higher reliance on local revenue sources, instead of on the central government‟s
financial transfers. While the policy shift imposed a great financial burden on local
204
governments in rural areas, the rapid increase of the aged population and depopulation in
those areas further deteriorated the financial situations of those local governments.

Table 6.1: Mechanism of the Increase of Regional Disparity
Sequence Contents
Challenge to the 1955
System
Decline of Economic Performance under:
• globalization
• budget deficit
• demographic change (aging society)
Pork Barrel Politics and Corruption
Response to the
challenge from the
1980s
Administrative Reforms (including economic
liberalization, privatization, and deregulation)
• limited reforms due to vested interests of
bureaucrats and politicians, and economic
difficulties
Electoral Reform of 1994
• single member district system and proportional
representation system
Motivation of Policy
Shift during the 1990s
Advent of Urban Interests
• increase of urban, non-affiliated voters and the
LDP‟s defeats in urban electoral districts
Decline of International Competitiveness
Increase of Budget Deficit
Policy Change in the
2000s
Policy shift in the LDP‟s traditional, rural-oriented
policies toward urban-oriented ones
Public Works
• urban renovation and
construction of
international airports
and harbors
Local Finance
• fiscal decentralization
and reliance on local
own revenue sources
Outcome Regional Disparity
• between urban and rural prefectures
• between big cities and small villages

205
3. The Politics and Policy Approach and Its Implication for the Study of
Regional Disparity
This study argues that politics and policies play important role in the increase or
decrease of regional disparity through a case study of Japan. Economic perspectives,
particularly convergence theories, have emphasized economic factors in shaping regional
(in)equality. They argue that regional disparity would ultimately converge. My study of
Japan, however, highlights the role of politics and policies.
First, this study demonstrates that institutional change (electoral reform) was an
important factor in policy changes, and it identifies the political impact of the increase of
urbanization and urban voters on party politics. While the need for structural reform of
the Japanese political economy system was identified in the mid-1980s, substantial
changes to the system occurred only after electoral circumstances became favorable with
the 1994 electoral reform. Despite the risk of losing traditional supporters, the LDP
changed its rural-oriented policies with the hope of expanding its electoral support bases
to include urban, non-affiliated voters. Such policy changes have been witnessed in many
European conservative parties. Relying on traditional rural support was no longer
sufficient to sustain political power. In many democratic countries, consideration of
urban voters‟ interests is becoming a major factor for political parties‟ policy-making
with the increase of urbanization or metropolitanization (Hoffmann-Marinot and Sellers,
2005).
Second, the Japanese case demonstrates that urban renovation was a common
strategic choice for most countries that are facing the issue of international
competitiveness under globalization. Neil Brenner‟s study (2000) showed that Germany
206
attempted to develop metropolitan areas as a driving force for economic growth through
the promotion of international competitiveness. In contrast to previous policies, which
emphasized interregional equalization, policies for promoting international
competitiveness and attracting capital investment into metropolitan areas became an
important national strategy among EU countries. This policy shift occurred during the
1990s in the context of increased globalization and European integration (Brenner, 2003).
Japans‟ redirection of public works projects toward urban areas and the construction of
international airports and harbors to improve the competitiveness of the metropolitan
areas can be understood in a similar context. Like other European countries, Japan
selected urban renovation as a national strategy to deal with a decline in its economic
performance under globalization, and the result was an increase in regional disparity. An
OECD study also shows that the promotion of the attractiveness of urban areas (cities)
became a worldwide policy idea for improving international competiveness under
globalization (Shimomura and Matsumoto, 2010). In this respect, regional disparity
between urban areas, particularly metropolitan cities, and rural areas would increase in
many countries. The impact of urban development policies for improving international
competitiveness on regional disparity is also evident in the case of South Korea. From the
mid-2000s, regional disparity between metropolitan areas, especially the Seoul
Metropolitan Area, and rural areas became wider. After the election of the Grand
National Party candidate Myung-Bak Lee, who supports neoliberal policies, as president,
the government facilitated development policies for metropolitan areas, particularly the
Seoul Metropolitan Area. The government officials claimed that improving the
international competitiveness of metropolitan cities was a most important national
207
strategy to promote national competitiveness. While the increase of regional disparities
was criticized by opposition parties, the notion of international competitiveness has toned
down the criticism.
Third, the impact of fiscal decentralization on regional disparity was a
controversial issue in estimating benefits and damages of the decentralization reforms.
But as seen in the widespread decentralization movements since the 1970s,
decentralization has been believed to be an important policy measures for improving
political accountability and administrative responsiveness. In addition, most scholars,
especially after Charles M. Tibeout‟s 1956 seminal work, advocated fiscal
decentralization as an important tool for promoting efficiency in public expenditure and
resource allocation. They expected fiscal decentralization to lead to the reduction of
regional disparity through self-reliance and sound fiscal management of local
governments. Empirical studies from the OECD countries have supported the idea,
suggesting a minimal or even negative impact of fiscal decentralization on regional
inequality.
135
However, several studies have maintained that fiscal decentralization
causes regional disparity, while the benefits of the decentralization, such as self-reliance
and local autonomy, are not clear or are limited. Prud‟homme (1995) argues that the
benefits of decentralization are not as obvious as the dominant fiscal federalism suggests,
and that decentralized systems make implementation of macroeconomic policies difficult.
He claims that a centralized public entity can provide balanced distribution by
transferring resources from rich areas to poor areas. In particular, studies of developing

135
For EU countries, see Ezcurra and Pascual (2008), Gil Canaleta et al. (2004), and Lessmann (2009). For
the U.S. case, see Akai and Sakata (2005).

208
countries demonstrate that fiscal decentralization increases regional inequality.
136
Based
on these studies, we can conclude that fiscal decentralization works in developed
countries positively, while it causes an increase of regional disparity in developing
countries (Rodríguez-Pose and Ezcurra, 2009). But studies of the U.S. (e.g., Rodríguez-
Pose and Gill, 2003) and my study of Japan show contradictory conclusions. We can
assume that the impact of decentralization is not deterministic, as claimed by its
supporters or opponents. How do we explain these anomalies? First, a study of the U.S.
case provides a hint of the explanation. Rodríguez-Pose and Gill (2003) point out that,
from 1980 to 1999, fiscal and administrative decentralization in the U.S. coincided with
the increase of the regional inequality. They argue that decentralization gives rich states a
disproportionately strong negotiating power with the central government, because support
from those states is more important for the government. Rodríguez-Pose and Gill also
claim that richer regions already had comparative advantages based on plentiful resources,
skilled workers, and robust infrastructures. Therefore, less-developed regions should put
more resources than rich regions to attract investors. It disadvantages poor states from the
beginning. Second, the goals and intentions of fiscal decentralization should be noted.
Although the Japanese government advocated decentralization in terms of self-reliance
and autonomy of local governments, a main goal of fiscal decentralization under Koizumi
was the reform of local finance and the reduction of the budget deficit. Regional disparity
in terms of local finance was a result of intentional policy to reduce inefficient and
ineffective budget spending by local governments in poor, rural areas.

136
For China case, see Tsui (1996). Also see Bonet (2006) for Colombia case, and Rodríguez-Pose and Gill
(2003) for comparative study of the U.S., Mexico, India, China, Spain, and Brazil.

209
However, it is too early to conclude that fiscal decentralization increased ultimate
regional disparity in Japan. It may be that the regional disparity is only a temporary
phenomenon. We need more time to judge the impact of fiscal decentralization on
regional disparity and local economic growth.
While my politics and policy approach is applicable to understand a country‟s
increasing regional disparity, it has some limitations. First, this study of Japan illustrated
that institutional change (electoral reform) was an important factor in the party‟s policy
changes. The electoral reform strengthened political power of urban voters in case of
Japan. But this phenomenon can be attributed to socio-economic changes (urbanization)
in a society, instead of an institutional change. In some countries, policy changes toward
urban-oriented ones, which led to regional disparity, occurred without an electoral reform
and majority voters‟ request. At the same time, we are witnessing growing regional
disparities in many developing countries or authoritarian countries, in which ruling
parties are based on support from the rural electorate such as farmers.
Second, regional disparity in Japan was caused by a shift in its traditional policies.
We found that the high level of regional equality was a result of government policies
supporting rural areas. But the increase of regional disparities can to be observed in
countries which have implemented few policies for reducing regional gaps. We can
assume that regional disparity is intensifying in countries without the government‟s
policy shift. Also we can imagine a country that has a high level of regional equality
without balanced development-oriented policies. Applicability of this politics and policy
perspective would be limited in such countries.
210
In addition, since this study adopts a top-down approach, it does not address the
question whether a bottom-up approach, such as a local policy initiative perspective,
could explain causes of regional disparity. For example, differences in local
governments‟ policy responses may result in regional disparities. Leadership and
development strategy can be important factors affecting a municipality‟s growth. Also
there is a possibility that the level of local autonomy influences regional economic
growth. While a high level of authority was granted to governments of big cities by
special laws, the level of policy autonomy in small villages and towns was limited.
Finally, this study does not pay much attention to important actors, such as big businesses
and the construction sector, in the process of the LDP‟s policy change.
4. Prospect for Regional Disparity in Japan
Electoral politics was a contributing factor which made the LDP‟s policy shift
possible. Urbanization, electoral reforms and the increasing power of urban, non-
affiliated voters brought about requests for an urban-oriented policy within the LDP. By
the end of 1990s, LDP politicians began to perceive the importance of urban voters for
their party‟s future. The shift induced the election of Koizumi as prime minister. His
reforms could be carried out with the LDP‟s good performance in elections under his
premiership. The LDP politicians recognized that the party could no longer rely on its
traditional rural support to sustain its political power. However, Koizumi‟s reform
policies undermined traditional sources of the party‟s strength (Park and Vogel, 2007).

211
4.1. Politics after Koizumi
Prime Minister Shinzo Abe, Koizumi‟s successor, announced that he would
continue Koizumi‟s reforms. He emphasized the growth of labor productivity, the
improvement of international competitiveness, and the reduction of the budget deficit
(Govella and Vogel, 2008). However, he retained his position for only one year. One
major reason for his sudden resignation was the LDP‟s huge defeat in the House of
Councilors election in July 2007. The election demonstrated the rural electorate‟s
discontent over the increasing regional disparity. The disparity gave the DPJ an
opportunity to entice traditional LDP supporters, such as farmers and small businesses.
The DPJ promised an income compensation plan for farm households and support-
measures for the agricultural sector. The then DPJ leader, Ichiro Ozawa, argued that
“consolidating the safety net in order to eliminate inequalities is the most important
challenge for DPJ politics.”
137
Interestingly, an analysis of the 2007 election revealed that
there was a shift of primary-industry and construction workers‟ support from the LDP to
the DPJ (Ryōsuke and Kabashima, 2008). These people suffered the most under Koizumi
and Abe‟s structural reforms. After the election, there were strong demands within the
LDP to return to its traditional policy of providing benefits to rural areas.
In September 2007, Yasuo Fukuda became prime minister. He tried to increase
revenues, to cut social welfare expenditures, and to continue economic deregulation and
liberalization. But the global financial market crisis of 2008 halted these fiscal reform.
Instead, Fukuda proposed an economic stimulus package (Arase, 2009). He also served

137
My Basic Philosophy: “Sensible Politics” for a Normal Nation. September 11, 2006.
http:www.dpj.or.jp/english/policy/mybasic1.html.

212
for only one year before Taro Aso succeeded him in September 2008. Under the
economic crisis, the Aso administration implemented stimulus packages instead of fiscal
reconstruction. That is, the LDP‟s reform agenda since Koizumi became blunt under his
successors‟ premiership. Meanwhile, the DPJ proposed a child care subsidy, income
support for farmers, and incentives for small businesses. It was preparing for the 2009
House of Representatives election. The DPJ won an unprecedented victory in the 2009
election. It promised to reduce pork-barrel public works spending in order to finance new
social welfare programs.
4.2. The DPJ Government and Regional Disparity
The DPJ‟s president Yukio Hatoyama became prime minister in September 2009.
In a published article he penned before taking office, Hatoyama suggests the idea of
fraternity (yūai) as his political principle, and he emphasizes the improvement of the
social safety net and local autonomy.
138
He criticizes economic globalization and
neoliberal market-oriented reforms. In this respect, the DPJ‟s policies seem different
from the LDP‟s pro-growth, neoliberal policies. But the DPJ had supported policies for
improving the productivity and competitiveness of Japanese companies, emphasizing
deregulation and privatization of public corporations.
139
In fact, the DPJ is a strong
supporter of reforms of public works policies and decentralization, targeting urban,
middle class voters who are opposed to vested interests protected by the LDP (Miura et al.
2005). Since the 2007 election, the DPJ has sought to increase social welfare benefits and

138
http://www.hatoyama.gr.jp/masscomm/090810.html. Originally printed in the monthly magazine, Voice,
in September 2009.

139
On the DPJ‟s “New Strategy for Industrial Revitalization.”
http://www.dpj.or.jp/english/policy/strategy.html.

213
to reduce economic inequalities. But the impact of the expansion of welfare spending on
regional disparity will be limited. The DPJ‟s welfare policies would provide universal
benefits to the public, unlike the traditional LDP policies. Except for direct income
support to farmers, the DPJ‟s policies will not provide favored benefits to rural areas. The
party strongly supports both the elimination of inefficient public works projects and
decentralization reform to boost local autonomy. Moreover, many policy experts cast
doubt on the realization of the DPJ‟s new policy proposals due to the government‟s
continuing budget deficit.
5. Conclusion
Japan is believed to have an egalitarian society. During the 1990s, however, the
notion of an equal society faded away with intensified socioeconomic inequalities.
Regional disparity also increased between urban and rural prefectures and between big
cities and small villages. This was unusual because the LDP government had historically
supported rural areas, thereby narrowing regional gaps with urban areas. In this study, I
have explored the causes of this regional disparity from a political and policy perspective.
While economists have suggested several explanations for this regional disparity, few
political and policy studies have attempted to explain it. By tracing the shifts in policy
concerning public works and financial transfers, this study outlines the policy
mechanisms of the growth in regional disparity and the political logic behind it. I argue
that the regional disparity developed in the process of reforming the 1955 System to deal
with international and domestic challenges. Burdens on the 1955 System intensified with
economic globalization and a decline of the Japanese economy. Improving international
214
competitiveness and reducing the budget deficit became urgent tasks for Japan to recover
from economic recessions. While reforms had been attempted since the mid-1980s, a
substantial reform of the system was only possible after the changes in electoral politics
during the 1990s. The LDP shifted its traditional, rural-oriented policies toward urban-
oriented ones. The government reduced public works projects in rural areas, redirecting
them toward urban areas. Fiscal decentralization for self-reliance and efficiency of local
finance resulted in a high reliance on local revenue sources, while reducing financial
transfers from the central government. These policy shifts led to the increase of regional
disparity during the 2000s.
Industrialized OECD countries commonly faced the increase of economic
globalization since the 1980s. In the 2000s, many industrialized countries began to suffer
from budget deficits. The case of Japan illustrates that the government decided to take an
urban-centered development strategy, in contrast to the previous notion of regional
equality, to promote international competitiveness of the nation. Regional equalization is
no longer a national goal of Japan. As globalization deepens, the increase in regional
disparity will surely be a widespread issue among other industrialized countries. Contrary
to common belief, the Japanese case clearly illustrates that fiscal decentralization has
resulted in the increase of regional disparity instead of the improvement of self-reliance
and local autonomy. This study highlights the importance of electoral politics in policy-
making, showing that the policy shift was facilitated by politicians‟ choices in their
search for an electoral strategy. It proves that politics and polices were important factors
of regional disparity.

215
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Abstract (if available)

Abstract Japan maintained a high level of regional equality from the 1970s through the 1990s. The LDP’s policies, especially regional industrial development policies, public works, national subsidies, and financial transfers to local governments, played important role in reducing regional disparity between urban and rural areas, resulting in strong support from the rural electorate. This made the LDP’s long-term dominance possible. In the 2000s, however, regional disparities between urban and rural areas began to increase. This dissertation explores the causes of the regional disparity from a politics and policy perspective.

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Asset Metadata

Creator Han, Euisuok (author)

Core Title The politics of the growth of regional disparity in Japan

School College of Letters, Arts and Sciences

Degree Doctor of Philosophy

Degree Program Politics

Publication Date 08/08/2010

Defense Date 06/07/2010

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag Japan,OAI-PMH Harvest,regional disparity

Place Name Japan (countries)

Language English

Contributor Electronically uploaded by the author (provenance)

Advisor Shipper, Apichai W. (committee chair), Katada, Saori N. (committee member), Sellers, Jefferey M. (committee member)

Creator Email euisuokh@usc.edu,niccolo@naver.com

Permanent Link (DOI) https://doi.org/10.25549/usctheses-m3342

Unique identifier UC167299

Identifier etd-Han-3980 (filename),usctheses-m40 (legacy collection record id),usctheses-c127-379926 (legacy record id),usctheses-m3342 (legacy record id)

Legacy Identifier etd-Han-3980.pdf

Dmrecord 379926

Document Type Dissertation

Rights Han, Euisuok

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Repository Name Libraries, University of Southern California

Repository Location Los Angeles, California

Repository Email cisadmin@lib.usc.edu