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Meiji Journal of Governance Studies Meiji Journal of Governance Studies 2014 Vol.2 Meiji University Graduate School of Governance Studies Meiji University
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Page 1: Meiji Journal of Governance Studies...Meiji Journal of Governance Studies Meiji Journal of Governance Studies Vol.2 2014 Vol.2 Meiji Journal of Governance Studies Vol.2 2014 Meiji

Meiji Journal of Governance Studies

Meiji Jo

urn

al of G

overn

ance S

tud

ies Vo

l.2

2014

Vol.2

Meiji Journal of Governance Studies Vol.2

2014

Meiji UniversityGraduate School of

Governance Studies

Meiji U

niversity

Grad

uate S

cho

ol o

f Go

vernan

ce Stu

dies

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MeijiJournalofGovernanceStudiesVol.2,2014

MeijiUniversityGraduateSchool

ofGovernanceStudies

Tokyo,JAPAN

March2015

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MeijiJournalofGovernanceStudies

Vol.2,2014

EditorialNote�����������������������������������������������������������������������������������������������IchikawaHiroo i

ResearchPapers

Policy-MakingProcessandRelationships

betweenPoliticiansandBureaucratsinJapan:

ComparisonandVerificationofThreeModels���������������������TanakaHideaki 1

DisabilityandEmployment:

TheSocialCooperativeasaSustainableSocialBusinessModel�������������������������������������������������������������������������LarattaRosario 31

InstitutionalDimensionsinRussia・s

NaturalGasPolicyinNortheastAsia:

Someanalyticalobservations����������������������������������������������������������ShadrinaElena 43

RiskManagementPoliciesforMega-Cities:

LessonsfromTokyoonMarch11,2011������������������������������������KuboTakayuki 69

AStudyofManagementStyleof

・Japan・sSmall-MediumSizedEnterprises・:

FromtheViewof・FixedAccountingSystem・������������������������IshiiHiromune 85

*Allmanuscriptsinthisjournalhavebeenpeerreviewed

andapprovedofbytheeditorialboardforpublication.

* * * * *

ListofContributors����������������������������������������������������������������������������������������������������������������������� 105

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EditorialNote

MeijiUniversitystartedanumberofprofessionalgraduateschoolsin2004.

TheyincludedtheschoolsofGovernanceStudies,GlobalBusinessandAccountancy,

inadditiontotheLawSchool.Thesebecameaddendum tobutseparatefrom the

existingacademicandthesisorientedcoursesintheGraduateSchoolofMeijiUni-

versity.ThenewschoolsofferMasterofPublicPolicy,MasterofBusinessAdmini-

stration,andMasterofProfessionalAccountancyforthequalifiedstudents.Of

thesenewprofessionalschools,theGovernanceStudiesiscateredprimarilyforlocal

electiveofficialsandregionalgovernmentstaffmembers.TheSchoolprovidespro-

fessionalandpragmatictrainingsinpublicadministrationandmanagementfor

theseseasonedstudents.OriginallythesizeoftheGovernanceStudieswassetatthe

totalof50Japanesestudentsperannum.However,overtheyears,theSchoolhas

beguntoacceptmanytraineesfromvarioustransitionalcountries.Alargenumber

ofofficialsfromMalaysiahavealreadybeenexposedtoJapanesemethodsofgov-

ernmentmanagementatMeijiUniversity.Currently,foreigntraineesintheSchool

includethestudentsfrom Bangladesh,CongoRepubli�e,Indonesia,Kyrgyz,Laos,

Malaysia,Myanmar,Philippines,Vietnam,andLaos.From 2014,aplanhasbeen

madetoestablishtheGraduateSchoolofGlobalGovernancewhichisaDoctoral

ProgramintheGovernanceStudiesarea.

TheGovernanceStudieshasaJapanesequarterlyjournal.Facultymembers

andaselectednumberofstudentshavecontributedmanuscriptsonvariousissues

relatedtogovernmentandgovernancetothequarterly.InadditiontotheJapanese

version,theGovernanceStudieshasdecidedtolaunchanEnglisheditionofthe

journal.Itislabeledas・MeijiJournalofGovernanceStudies.・Thepresentvolume

becomesaninauguraledition,whilethiswillsubsequentlybefollowedbyaregular

annualvolume.Inthisinauguralpublication,theGovernanceStudiesishighly

honoredtohaveacontributionfromProfessorJonPierreofGothenburgUniversity,

Sweden.ProfessorPierreisoneofthemostrenownedacademicsintheglobeinthe

areaofpublicadministrationandgovernmentmanagement.Hiscontributiontothis

initialvolumehascertainlyhelpedenhancethequalityaswellasreputationofthe

journal.TheSchoolishighlygratefulforhisworkandperseverance,sincethe

scheduleofthepublicationwasdelayedduetomanyon-campusimpediments.

InadditiontoProfessorJonPierre,thecurrenteditionincludestheworksofa

numberofthefacultymembersfrom overseas.Oneofthem isfrom theUnited

Kingdom,whileothersarefromItalyandRussia.Theyhavebeenteachingcommu-

nityaffairs,environmentalissues,・localbranding,・etc.inEnglish.Theirlectures

oftenprovideinternationalperspectivesandstimulateforeigntrainees.Theinterac-

tionsbetweentheseforeignprofessorsandforeigntraineesseem toepitomizethe

degreeofglobalizationatMeijiUniversityingeneralandtheGovernanceStudiesin

i

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particular.Astheeditorinchiefofthisjournal,Iwouldliketoexpressmysincere

appreciationtoProfessorEmeritusAkiraNakamuraforhiseditorialhelpandthe

ProfessionalGraduateSchoolOfficefortheirlogisticsupport.TheGovernance

Studieshopesthatnotonlywouldthisneweditionhelpenlargeinterestsamong

academicsandpractitionersinJapanesepublicmanagement,buttheinauguralvol-

umewouldpreparenew dimensionstoanalyzethepublicsectormanagementin

variouscountries.

EditorinChief

HirooIchikawaDean,ProfessionalGraduateSchool

Professor,MeijiUniversity

EditorialNoteii

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1 Introduction

TheDemocraticPartyofJapan(DPJ)tookupthereinsofgovernmentineupho-

riainSeptember2009,butitendedinDecember2012.Itlastedforjustthreeyears

andthreemonths.Duringthatperiod,theprimeministerchangedeveryyear.This

symbolizesthefailureoftheDPJ・s・politician-ledgovernment・tofunctionasex-

pected.Moreover,thetransitionfromtheKanAdministrationtotheNodaAdmini-

strationhaswitnessedthevirtualrevivalofsuchtraditionalinstitutionsasthe

administrativetopofficials・meetingconsistingofsecretary-generalofallministries

andthepracticeofpriorreviewbytherulingparty.Inasense,politicshasreturned

totheoldmodelthatdominatedduringthelongyearsofLiberal-DemocraticParty

(LDP)rule.AstheDPJ・sconceptofapolitician-ledgovernmenthasbeenexten-

sivelydiscussed(Ito[2011],SasakiandShimizu[2011],Takayasu[2011],Nihon

KeizaiShimbun[2010]andothers),thispaperwillfocusonthepolicy-makingproc-

esswithspecialattentiontotheroleofpoliticiansandbureaucrats.Whilethe

changeingovernmentexposedabitterreality,theexperimentwithpolitician-led

governmentdidservethepurposeofclarifyingthevariousproblemsthatexistin

Japan・spolicy-makingprocess.TheKasumigasekiDistrictwheregovernmentmin-

istriescongregatehaslongbeencriticizedasabastionofbureaucrat-ledgovern-

ment.Leavingthedetailsofthedefinitionaside,therecentgovernmentchangedid

provehoweasyitwastobreakfreefromthegraspofbureaucrat-ledgovernment

(Nakano,2010).Ontheotherhand,theexperimentalsoprovedthatagovernment

cannotfunctionproperlyintheabsenceofbureaucratsorundertheleadershipof

the・ministerialtroika・(comprisedofminister,viceministerandparliamentary

secretaryofgovernmentministries).

Policy-makingranksamongthemostimportanttasksofgovernment,andthe

studyofthepolicy-makingprocessisdirectlylinkedtotheissueofpolitics.Inorder

toestablishthecharacteristicsanddeterminantsofthepolicy-makingprocess,such

studiesanalyzetheinter-relationsbetweensystemsandinstitutions,theexternal

environmentandtheactors.Discussionsofwhichissuperior― bureaucratsor

1

Policy-MakingProcessandRelationships

betweenPoliticiansandBureaucratsinJapanComparisonandVerificationofThreeModels

HideakiTanaka,Ph.D.

NationalGraduateInstituteforPolicyStudies

MeijiUniversity

Tokyo

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politicians― maybeusefulinanalyzingthebehaviorandinfluenceoftheactorsin

policy-making,buttherealanswerliesintheresults.Carryingthelogictothe

extreme,itcanbesaidthataslongastheresultsaregoodanddemocraticproce-

dureshavebeenfollowed,themeansandprocesscanbejustified.Conventional,

policyresearchhasfocusedprimarilyonthebehavioroftheactors,andnotmuch

attentionhasbeenpaidtotheoutcomeofthepolicy-makingprocessandthecontent

ofpolicies.1 Thisisbecausesuchevaluationsinvariablyrequirecertainvaluejudg-

ments.Ontheotherhand,itispossibletoevaluatepoliciesfromtheperspectiveof

thecharacteristicsandproceduresfollowedintheprocessofdeliberatingonpolices,

andthestabilityandeffectivenessofpolicies.

Apolicyisthetranslationofthegovernment・spoliticalprioritiesandprinciples

intoprogramsandcoursesofactiontodeliverdesiredchanges(NAO2001,1).Inthis

context,thepolicy-makingprocessconsistsoftheprocessofdiscussing,approving

andimplementingpublicpolicy(SteinandTommasi2008,6),ortheprocessby

whichgovernmentstranslatetheirpoliticalvisionintoprogrammesandactionsto

deliver・outcomes・― desiredchangesintherealworld(UKPrimeMinisterandthe

MinisteroftheCabinetOffice1999:15).Ourprincipalinterestinthispaperisto

investigatethefactorsthatdeterminethecapacitytodesign,approveandimple-

menteffectivemeasures.TheWorldBank(2010,3)makesthefollowingpoint:

・Thescopeandquality ofthepolicy processarehighly dependenton each

country・sidiosyncraticbridgebetweenpoliticsandadministrationortheparticular

nationalbalancebetweenpoliticalcalculusandtechnicalassessment.・Thus,the

questionis:Whatkindofbalanceisconducivetoformulatingbetterpolicy?

ThepurposeofthispaperistoidentifyproblemsinJapan・spolicyprocessfrom

theperspectiveofthecharacteristicsoftheprocessandtheeffectivenessofthe

resultingpolicies.Thisisundertakenthroughacomparisonofthefollowingthree

models:theconventionalLDPmodel(・RulingPartyandBureaucracyModel・),the

・CouncilonEconomicandFiscalPolicyModel・(CEFPModel)asitfunctioned

undertheKoizumiAdministration,andtheDPJ・s・MinisterialTroikaModel.・Jump-

ingimmediatelytotheconclusion,itcanbesaidthatthegreatestproblem in

Japan・spolicyprocessisthatthepolicyprocesslacks・contestability.・Ithasbeen

arguedthatoneoftheproblemsinJapan・spolicyprocessisthattherulingparty

functionsasaplayerinvestedwithvetopower,buttheactualproblemisthatsuffi-

cientanalysisanddeliberationisnotundertakentoenablecoordinationandconsen-

susbuilding.TheLDPgovernmentcamebackattheendof2012followingthe

dissatisfactiontowardDPJ,andJapanisreturningtoitsconventionalmodel,al-

thoughthepolicy-makingprocessoftheAbeAdministrationmaydifferfrom it.

Thepolicy-makingprocessinJapanhasbeenbackandforth,buttherealquestion

thatmustbeaskedis:Whatincentivesandwhattasksshouldbegiventobureau-

cratstobetterresults?

Therestofthispaperisstructuredasfollows.Section2givesaliteraturereview

andoutlinestheanalyticalframework.Section3focusesonsocialsecuritypolicies

andexaminestherespectivepolicyprocessesofthethreeabovementionedmodels.

Section4presentsacross-sectionalcomparisonofthepolicyprocessesofthethree

Policy-MakingProcessandRelationshipsbetweenPoliticiansandBureaucratsinJapan2

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modelsandanalyzestheirproblems.Finally,Section5presentstheconclusionsof

thisstudy.

2 LiteratureReviewandAnalyticalFramework

Whilepolicycanbedefinedinvariousways,alldefinitionshaveacertainpoint

incommon.Thisisfoundinthegovernment・sperspectiveanditsattemptstoinflu-

encesocietyandtheeconomyandtoachievecertaingoals.2 ・Policyprocess・refers

totheprocessofmakingandimplementingsuchpolicies.Thisprocessincludes

suchactorsaspoliticians,bureaucrats,interestgroupsandscholars.3 Duringthe

1950s,Lasswellformulateda・processmodel・foranalyzingthepolicyprocessby

dividingitintoanumberofstages(Lasswell1956).WhileLasswelladoptedseven

stagesofintelligence,promotion,prescription,invocation,application,termination

andappraisal,othershavedevelopedprocessmodelswithdifferingnumbersof

stages.4

Ineachprocess,actorstakeactionandmakepolicies.Generally,thepolicy

processisaprocessoftransactionandnegotiationbetweenpoliticalactors.The

behaviorofpoliticalactorsinthepolicy-makingprocess― asshapedbytheirroles,

incentives,andconstraints―willdepend,inturn,ontheworkingsofpoliticalinsti-

tutionsandonmorebasicinstitutionalrulesthatdeterminetherolesofeachofthe

players,aswellastherulesofengagementamongstthemselves(SteinandTommasi

2008,13).Furthermore,thestructural,social,politicalandeconomicenvironments

influencepoliticalandpolicymakingactivities(Birkland2005,202).Recentyears

haveseenthedevelopmentofthe・coreexecutivetheory・(RhodesandDunleavy

1995,Ito2008),whichexplainsthecentralgovernment・spolicycoordinationprocess

intermsofmutualrelationsamongsuchactorsastheprimeminister,thecabinet,

ministersandbureaucratsandtheexchangeofresourcesamongtheseactors.

Evenassumingthatrelationsamongactorsareimportantinthepolicyprocess,

itwouldbeprematuretogeneralizetheinfluenceofaspecificactorforallstagesof

thepolicyprocesssincethepolicyprocesshasmultiplestages.Aberbacketal.

(1981)interviewedgovernmentadministratorsinmajoradvancedcountriesand

developedafour-partmodelfortherelationshipbetweenpoliticiansandbureau-

crats.Thesecoverthefourstagesofpolicyimplementation,formation,coordination

andconcept.ImageIVinAberbacketal.(1981)showsthat,withtheexceptionof

theimplementationstage,politiciansandbureaucratssharecommonroles,andthat

governmentadministratorsengageinthepoliticalprocess.InanalyzingImageIVin

Aberbacketal.(1981),Campbell(1988)concludesthatthetypeofpoliticalengage-

mentbyseniorofficialsdiffersbetweencentralagencies,suchastheCabinetOffice

andMinistryofFinance,andothergovernmentministries.Furthermore,relations

amongactorsalsodifferaccordingtodifferencesinthepolicyprocessandthetype

andcontentofpolicies.5Inotherwords,therelationbetweenpoliticiansandbureau-

cratsandtheroleofbureaucratscannotbeexplainedintermsofasimplepolicy-

administrationdichotomy.

InJapan,discussionsofpoliticalandpolicyprocesseshavebeenalmostexclu-

Policy-MakingProcessandRelationshipsbetweenPoliticiansandBureaucratsinJapan 3

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sivelyfocusedontheactors.Buttheimportantissueistoidentifyprocessescapable

ofgeneratinggoodpolicies.Anattempttodefinewhatconstitutes・goodpolicy・

callsforadiscussionofthetypesofsystemsandprocessescapableofgenerating

goodpolicies.IDB(2006)liststhefollowingattributesofpoliciesthatgiveriseto

goodresults:stability,adaptability,coherenceandcoordination,thequalityofimple-

mentationand enforcement,public-regardandefficiency.TheWorldBank(2010)

identifiesthefollowingattributesofgoodpolicies:consensus-builtamongkey

stakeholders,economicallysound,implementablepolitically,implementabletechni-

cally,sustainable,andstable.Finally,theCabinetOffice(1999)liststhefollowing

characteristicsofmodernisedpolicy:strategic,outcomefocused,joinedup,inclusive,

flexibleandinnovative,androbust.

Theanalyticalframeworkofthispaperisbasedontheaforementionedlitera-

ture.Wedefinethreedecision-makingmodelsbasedontherelationshipbetween

politiciansandbureaucrats.Thefirstmodelis・RulingPartyandBureaucracy

Model・,whichistheconventionalLDPmodel.Inthismodel,politiciansoutsidethe

governmentandbureaucratsco-operateeachotherinthepolicy-makingprocessand

theformeroftenexercisesvetopower.ThismodelisfoundinalmostLDPgovern-

mentsuntilaround2000,althoughthecharacteristicsofthemodeldiffermoreorless

betweenthem.Thesecondoneis・CouncilonEconomicandFiscalPolicyModel・

(CEFPModel),whichisfoundundertheKoizumiAdministrationfrom2002to2006.

Inthismodel,primeministerplaysanimportantroleinthedecision-makingprocess

togetherwithoutsideexpertsandacademics.CEFPModeldiffersfromRulingParty

andBureaucracyModelintermsoftheroleofprimeminister,althoughthepartner-

shipbetweenpoliticiansandbureaucratsintheformermodelisalmostthesameas

thatofthelattermodel.Thethirdoneis・MinisterialToroikaModel・undertheDPJ

administrationsfrom2009to2012.Inthismodel,rulingpartyisnotinvolvedinthe

decision-makingprocessasthemajorplayer,althoughthecharacteristicsofthis

modelchangeinthesecondhalfofDPJera.

Policy-processanddecision-makingmodelsdifferaccordingtothepoliciesand

thestageofthepolicyprocessthatthemodelsfocuson.Withthisinmind,itshould

benotedthatthispaperfocusesonsocialwelfarepolicies.Specifically,thefollowing

policiesareexaminedinthecontextofeachofthethreemodelstobecompared.

First,underthe・RulingPartyandBureaucracyModel,・the1999pensionreform

undertheLPDAdministrationisexamined.FortheCEFPModel,the2004pension

reformundertheKoizumiAdministrationisexamined.Lastly,forthe・Ministerial

TroikaModel,・theintroductionofthenewchildallowancesystem undertheDPJ

Administrationisexamined.6

Thepolicyprocessisexaminedinthreestages:definingpolicyobjectives,policy

formulationanddeliberation,andcoordinationanddecision-making.Thisformof

research haspreviously been undertaken by Nakamichi(2005). Specifically,

Nakamichifocusedonattemptstocategorizepoliciesandtocreatepolicy-process

models,whichhethenusedintheanalysisofthepolicyprocesstodeterminethe

dynamicsoftherelationsbetweenpoliticiansandbureaucratsinJapan.Nakamichi

statesthat,・Theimportanceofthemediaintheprocessofformulatingpolicyissues

Policy-MakingProcessandRelationshipsbetweenPoliticiansandBureaucratsinJapan4

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isgrowing;governmentadministratorsareplayingagreaterleadershiproleinfor-

mulatingpolicies;andtheimportanceofpoliticalpartiesandMembersofParliament

inpolicy-makingisgrowing.・(p.181)However,thepresentpaperisnotprimarily

concernedwiththerelativestrengthsofbureaucratsandpoliticalparties.Rather,

thispaperconcentratesonfactorsaffectingtheoutcomeandthecharacteristicsof

policies.Thus,theroleofbureaucratsisobservedfromtheperspectiveofmaking

・goodpolicies,・anddifferencesinthethreepolicyprocesses(institutionsandthe

behaviorofactors)areanalyzedtoidentifytheproblemsthatexistinJapan・spolicy

process.7 Whilegeneralizationsbasedontheanalysisofspecificpoliciesshouldbe

avoided,socialsecuritypoliciesrepresentanareainwhichthecoordinationofinter-

estsisdifficult,andtheyarethereforeconsideredtobeparticularlyusefulinidenti-

fyingtheproblemsinJapan・spolicyprocess.

Inlightofthepriorliterature,thispaperadoptsthefollowingcriteriaforpolicy

evaluation:(1)economicsoundnessandefficiency,(2)politicalandtechnicalfeasi-

bility,and(3)effectiveness,stabilityandsustainability.Similarly,thefollowing

criteriaareusedforevaluatingthepolicyprocess:(1)identificationanddefinition

ofneedsandproblems,(2)involvementofstakeholdersandcollectionofawide

rangeofviews,(3)presentationandanalysisofmultiplealternatives,(4)cross-

ministerialdeliberation,(5)consensusbuildingandcoordination.

3 CaseStudiesinPolicyProcess

(1) RulingPartyandBureaucracyModel:PensionReformof1999

Followingtheprocessofrevisingfiscalprojections,deliberationsleadingtothe

1999pensionreform beganinearnestinMay1997inthePensionCouncilwhich

consistedmainlyofexternalexperts.InDecember1997,thePensionCouncilreleased

its・PointsatIssue,・whichwasfollowedbythepublicationoftwodocumentson

pensionreform bytheMinistryofHealthandWelfare. Thesewereentitled

・PensionReform:FiveAlternatives・and・MethodsforBalancingBenefitsandCon-

tributions,andtheirImpactonInsurancePremiums,・bothofwhichpresentedthe

fiscalprojectionsoftheMinistryofHealthandWelfare.Next,the・WhitePaperon

Pensions・waspublishedinFebruary1998,anda・SurveyofExperts・wasconducted

inMarchbasedonapaperexplainingthe・Fivealternatives.・InOctober1998,the

PensionCouncilreleasedapositionpaperstatingthatincreasesininsurancepremi-

umsfortheEmployeesPensionSystemshouldbekeptundercontrol.Theposition

paperalsoarguedthatitwouldbedifficulttoincreasetheratioofsubsidytothe

BasicPensionandtoreviewtheexemptiongiventofull-timehousewivesonthe

paymentofBasicPensioninsurancepremiums.Respondingtothis,theMinistryof

HealthandWelfareinthesamemonthannounceditsproposedplansforpension

reform.Thiscomprisedthreeseparateproposals,allofwhichcalledforhigherinsur-

ancepremiumsandlowerpensionbenefitswhilemaintainingthecurrentinstitu-

tionalframework.Theproposalsalsocontainedsuchfeaturesasafreezeonwage

indexing,reductioninpensionbenefitforthoseagedabove65andhavingalsoearn-

ings,andintroductionofagrossremunerationsysteminplaceofmontlywage.

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AftertheproposalsoftheMinistryofHeathandWelfarewerereleased,differ-

encesofopinionquicklyemergedbetweenthegovernmentandtherulingpartyon

thequestionofwhetherornottoraiseinsurancepremiums.Addressingtheques-

tionofhigherinsurancepremiumsonOctober18,ActingChairmanYuyaNiwaof

theLDPPolicyResearchCouncilstated,・Forthetimebeing,afreezemustbeputin

place.・ItwasreportedthatCabinetSecretaryHiromuNonakaandDeputyChief

CabinetSecretaryTeijiroFurukawahadgiventheirconsenttothispolicydirection

andhadconveyedittotheprimeminister.8 SpeakingattheEconomicPoliciesMin-

isterialConferenceofOctober19,HealthandWelfareMinisterSoheiMiyashitare-

sistedthisdirectionbystating,・How cantherebeanydiscussionifthestarting

pointofthedebateisafreezeoninsurancepremiums?・9

InFebruary1999,theMinistryofHealthandWelfarefinalizedtheOutlinefor

PensionReform toreflecttheabovepolicydirection.Thereupon,thesceneofthe

debatemovedtothecoordinationprocessthattookplacewithinthecoalitionof

rulingparties.TheLDPapprovedapartiallyrevisedversionoftheOutlinefor

PensionReform(raisingthesubsidyratefortheBasicPensionSystemto50percent

andsimultaneouslyliftingthefreezeonraisinginsurancepremiums)inajointcon-

ferenceofitsPensionSystem ResearchCommissionandSocialPoliciesDivision.

However,consultationswithitscoalitionpartner,theLiberalParty,becamebogged

downwhentheLiberalPartyrejectedsomeoftheelementsoftheproposalput

forwardbytheMinistryofHealthandWelfareandtheLDP.Specifically,during

consultationsoftheMeetingofPolicyOfficers,theLiberalPartydemandedthatthe

5-percentcutinbenefitlevelsbedeletedandthattheBasicPensionbechangedtoa

100-percenttax-basedsystem.Inthenegotiationsandcoordinationthatfollowed,

bothpartiesfinallyagreedtoraisethesubsidyrateoftheBasicPensionto50per-

cent.Thereupon,provisionsconcerningnecessaryfiscalresourceswereaddedtothe

SupplementaryProvisionsofthePensionReformBill,andtheresultingrevisedbill

wassubmittedtotheDietinJuly1999.

(2) CEFPModel:PensionReformof2004

The1999pensionreformfailedtoaddressseveralissuesthatrequiredresolution,

themostimportantofwhichweretheearlyliftingofthefreezeoninsurancepremi-

umsandmeetingthefundingrequirementsforraisingthesubsidyratetotheBasic

Pensionto50percent(MinistryofHealth,LabourandWelfare,2004).Proceduresfor

the2004pensionreform werelaunchedwhenthePensionsSubcommitteeofthe

AdvisoryCouncilonSocialSecuritystarteditsdeliberationsinJanuary2002.In

December2002,thePensionBureaupublishedadocumententitled・Directionsand

IssuesConcerningtheFrameworkforPensionReform.・The2004pensionreform

processdifferedfromtheconventionalstyleofdeliberationduetothecreationofthe

CouncilonEconomicandFiscalPolicy(CEFP)thatfollowedadministrativereforms

ofthecentralgovernment.10 CEFPstarteditsdeliberationsonApril1,2003,basedon

・PointsatIssueConcerningPensionSystemReform,・whichhadbeendraftedbya

non-governmentmemberofCEFP.InthemeetingheldonApril16,Statementsof

OpinionweresubmittednotonlybytheMinisterofHealth,LabourandWelfarebut

Policy-MakingProcessandRelationshipsbetweenPoliticiansandBureaucratsinJapan6

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alsobytheMinisteroftheEconomy,TradeandIndustry,theMinisterofFinance

andbynon-governmentmembersofCEFP.Thereafter,thebasicprinciplesforpen-

sionreformwereincludedin・2003BasicPoliciesforEconomicandFiscalManage-

mentandStructuralReform・(approvedbytheCabinetinJune2003).InSeptember,

Health,LabourandWelfareMinisterChikaraSakaguchipresentedtheMinistry・s

simulationsandprojectionsforbenefitsandcontributions.Duringthesamemonth,

thePensionsSubcommitteefinalizedits・Viewsonthe2004PensionReform.・Fol-

lowingthelowerhouseelectionheldinNovember,theMinistryofHealth,Labour

andWelfarepresenteditsfinalproposalforpensionreformduringthesamemonth.

Thefundamentalpointofconflictinthe2004pensionreform derivedfrom differ-

encesbetweentheMinistryofHealth,LabourandWelfareandthenon-government

membersofCEFP.WhiletheMinistryemphasizedmaintainingcurrentbenefit

levels,non-governmentCEFPmemberswantedtokeeppensioncontributionlevels

fromrising.11

TheproposalwasthensubmittedfordiscussionbysuchorgansastheLDP

PensionSystem ResearchCommission,theJointCommitteeofRulingPartieson

PensionSystemReform,andtheJointMeetingoftheGovernmentandRulingPar-

ties.AdecisionwasreachedintheDecember162003meetingoftherulingparties

toraisethesubsidyratiototheBasicPensionto50percentbyfiscal2009.OnFebru-

ary4,2004,afinalresolutionwasreachedintheJointMeetingofRulingPartieson

PensionSystem Reform(thebillwassubmittedtotheDietinthesamemonth).

However,theMinistryproposalhadbeenalmosttotallyoverturnedintheinternal

discussionsoftheLDPandNewKomeito.Specifically,theproposedhigherinsur-

ancepremium ratesfortheNationalPensionSystem weredrasticallyreduced.In

theEmployees・PensionSystem,thecollectionofinsurancepremiumsfromactively

employedpersonsofage70andabovewaspostponed,aswaseligibilityforpart-time

workers.12 Itwasreportedthatthroughoutthisperiod,PrimeMinisterKoizumi

hardlycommentedonthesedevelopmentsandconfinedhimselftomerelyobserving

thenegotiationsthatweretakingplaceamongtherulingpartiesonthegrounds

thatpensionreform wasnotaconcernofthePrimeMinister・sOffice.13 Asinthe

previouscase,thissecondpensionreformavoidedandpostponeddifficultdecisions.

MasajuroShiokawa,whoseterm inofficeasFinanceMinisterextendedthrough

September2003,explainedthattheMinisterofHealth,LabourandWelfarehad

requestedthattemporarymeasuresbeacceptedpendingpassageofthebudgetfor

thefollowingfiscalyear,andthatforthisreasonthepensionreformbillwasfinal-

izedwithoutmakingmajorchangesinthepensionsystem.14

(3) MinisterialTroikaModel:ChildAllowances

TheDPJManifestoformulatedforthe2009lowerhouseelectioncontaineda

commitmenttoprovidenewchildallowancesof26,000yenpermonth(13,000yen

permonthduringfiscal2010)regardlessfamilyincomeregardlesstoallchildren

untiltheendofjuniorhighschool.Theobjectiveofthiscommitmentwasto・Re-

viewincometaxdeductionsfordependentsandspouse,andprovidethesupportof

societyasawholefortheupbringingofeveryoneofthechildrenwhowillsupport

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thesocietyofthefuture.・Tohonorthiscommitment,theHatoyamaAdministration,

whichhadcomeintoofficeinSeptember2009,launchedintonecessarydeliberations

andnegotiationsinthefiscalyear2010budgetcompilationprocess,itsfirstbudget

process.Unlikeintheconventionalapproach,however,nodeliberationswereunder-

takeninministerialcouncilsorbyCEFP.Instead,alldeliberationstookplacebehind

thescenes.Consequently,itwasnotuntilthefinalstagesofthebudgetcompilation

processthattheoutstandingissuesinthedebatebecameknown.15

Thereweretwokeyissuesinthedebateconcerningtheintroductionofchild

allowances:incomethresholdoneligibility,andthelevelofcontributionsbylocal

governments.Thegovernment・sstraitenedfiscalconditionsaddedurgencytothese

twoissues.Asaresult,debatesragedeverywhereintheDPJonhowtohandlethe

childallowanceissueasthebudgetcompilationprocessapproachedtheendof2009.

AproposalforincomethresholdwascontainedintheListofDemandssubmittedby

DPJSecretaryGeneralIchiroOzawatoPrimeMinisterYukioHatoyamaonDecem-

ber16.16 Itwasreportedthattheprimeministerrespondedtothedemandsofhis

partyasfollows.・Ratherthancallingthisthewilloftheparty,Iwouldcallitthe

willofthepeople.Iexpressmyappreciationforthis.・17Nevertheless,atthemeeting

withSecretaryGeneralOzawaattheprimeminister・sofficialresidenceintheeve-

ningofDecember21,PrimeMinisterHatoyamainformedOzawaofthedecisionnot

toadoptincomethreshold.18 Ontheissueoflocalgovernmentcontributionstonew

childallowances,anagreementwasreachedonDecember23indiscussionsinvolv-

ingVicePremierNaotoKan,FinanceMinisterHirohisaFujii,HomeAffairsMinister

KazuhiroHaraguchi,andHealth,LabourandWelfareMinisterAkiraNagatsuma.

Underthetermsoftheagreement,itwasdecidedthattheframeworkoftheChild

BenefitsSystemwouldberetained,andthenewChildAllowanceSystemwouldbe

superimposedontopoftheexistingstructure.19 However,nodecisionsweremade

onthestructureandmanagementofthesystemforfiscalyear2011andthereafter.

From theoutset,thisfailureloomedasamajorthreattothesustainabilityofthe

system.

TheintroductionofthenewChildAllowanceSystemwasfinalizedinjustover

fourmonthsfrom thestartofthenewDPJAdministration.However,throughout

thisperiod,thegovernmentdidnotpresentanyinformationonhowthesystemwas

tobefinanced,theneteffectoftheChildAllowanceSystem byincomeleveland

familystructurewhencombinedwiththeconcurrentabolitionofthetaxdeductions

fordependents,andthepercentageofhouseholdsthatwouldactuallyexperiencea

netincreaseinbenefits.Moreover,itremainedunclearwhathadbeendiscussedand

decidedbywhomandwhere.

Thisproblem cametoaheadwhentheDietbegandeliberatingontheChild

AllowanceBill.Forexample,intheFebruary24,2010sessionoftheHouseofRepre-

sentativesHealth,LabourandWelfareCommittee,Health,LabourandWelfareMin-

isterNagatsumasidesteppedthequestiononhowthegovernmenthadarrivedatthe

monthlyamountoftheChildAllowancebystating,・Weexaminedcasesfromother

countriesandtookvariousfactorsintoaccount.Thedecisionwasfinalizedbefore

theelection.・20TheLDPbroughtupthequestionofwhyforeignersresidinginJapan

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withchildrenlivingabroadwereeligibleforbenefits.Whilethegovernmentwas

awareoftheexistenceofthisproblemundertheChildBenefitsSystemwhichwas

previoussystem,itdidnothaveenoughtimetoredesignthesystem inorderto

fulfillitscampaignpromise.Hence,forfiscalyear2010,ithadnootheroptionbutto

utilizetheexistingframeworkoftheChildBenefitsSystem.21

ChildAllowancepaymentsstartedinJune2010.However,becausenodecisions

hadbeenmadeonthemanagementofthesystemforfiscalyear2011andbeyond,

therewasconsiderableconfusioninthegovernment・sinternaldiscussionsandin

discussionsbetweenthegovernmentandtherulingpartywhenthefiscalyear2011

budgetcompilationprocessgotunderway.Thesituationwasfurthercomplicated

bytheresultsofthe2010upperhouseelection.Underthe・dividedDiet・that

emergedfrom theelection,repeatedchangeshadtobemadeinthedesignofthe

system.Inthe2011OrdinarySessionoftheDiet,theKanCabinetwasforcedto

abandonthegoalofmakingfull-amountpaymentsinfiscalyear2011duetothe

shortageofgovernmentrevenues.Thereupon,abillforrevisionwassubmitted

callingforpaymentsof20,000yenpermonthonlyforchildrenyoungerthanthree.

However,negotiationsbetweentherulingandoppositionpartiesbrokedown,and

analternativebillwaspassedthatuniformlysetallpaymentsat13,000yenthrough

September2011.Later,theChildAllowanceSystemwassubmittedforjointreview

bytherulingandoppositionparties.Ultimately,thedecisionwasmadetocontinue

withtheChildAllowanceSystem throughMarch2012,andtoreturnthereafterto

thepreviousChildBenefitsSystem.

4 AnalysisandObservations

(1) IdentifyingPolicyIssues

Whatsocio-economicproblemsaretobeaddressed,andwhatpoliciesaretobe

adopted?Whilethesequestionsmarkthestartingpointofanypolicyprocess,the

choicesthatareactuallymadedependheavilyonthejudgmentofthoseinvolvedin

thepolicyprocess.Inmanyinstances,theprocessofselectionandeliminationat

thispointcanbehighlyarbitrary.22 Underthetraditional・RulingPartyandBu-

reaucracyModel,・althoughtherehavebeenexceptions(suchastheadministrative

reform ofthecentralministriescarriedoutbythelatePrimeMinisterRyutaro

Hashimoto),thetaskofidentifyingpolicyissuesisprimarilycarriedoutbybureau-

crats(Table1).23TheRulingPartyandBureaucracyModelwascreatedduringthe

periodofJapan・sacceleratedeconomicgrowth,andtheleadershiproleinpolicy-

makingwasgiventothebureaucracybecauseundertheprevailingconditions,

・policychoicesdidnothavetobemadeunderconditionsofseriousconflictover

distributionalissues,andthereforetheprocessdidnotcomeface-to-facewithpoli-

ticsinthetruesense.・(Takahashi2002,111)However,thesituationchangedwith

theendoftheperiodofacceleratedgrowth.TheCEFPModelemergedatatime

whenJapanwasconfrontedbyagrowingneedforstructuralreform.WhileCEFP

hasbeenthoroughlystudied(Ota2006,Shimizu2007,Shiroyama2006,Takenaka

2006),thecriticalpointofimportanceisthat,whereaspolicy-makinghadalways

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Policy-MakingProcessandRelationshipsbetweenPoliticiansandBureaucratsinJapan10

Table1 ComparisonofThreeModelsofPolicy-Making

Stage Actors

LDPAdministrationsRulingPartyandBureaucratsModel

LDPAdministrationsCEFPModel

DPJAdministrationsMinisterialTroika

Model

Identify

policy

issues

Politicians(primeminister,ministers,rulingparty)

△Rulingpartypoliticiansconveyrequeststobureaucrats

◎PrimeministerusesCEFPtoidentifypolicyissues(revisionofCabinetLawclarifiesprimeminister・srighttosubmitinitiatives)

◎Proposalsmadebytopthreeministryofficersbasedonelectionmanifesto

Bureaucrats ◎Identifyneedforreforminpresentsystems

○ConveyrequeststoCEFP △Awaitinstructionsfromtopthreeministryofficers

Advisorycouncils,etc.

△Conveyrequeststoministriesandrulingparty(frequentlyamouthpieceforministries)

◎CEFPclarifiestheissuesonhandwithsupportfromitsSecretariat

×Councilsviewedasstand-insforbureaucratsandnotutilized

Policy

formulationanddeliberation

Politicians(primeminister,ministers,rulingparty)

○Deliberationinrulingpartycommittees

○Deliberationinrulingpartycommittees

△RulingpartyDietmemberssubmitrequeststopolicycommitteesofministriesandagencies

◎AfterrevivalofPolicyResearchCommittee,deliberationinrulingpartycommittees

Bureaucrats ◎SubmitproposalspreparedbyministriesandagenciestoCouncils,andpreparedetailsoflegislativebills

◎Preparedetailsoflegislativebills

◎Preparedetailsoflegislativebills

Advisorycouncils,etc.

○Deliberationbasedonproposalsreceivedfromministriesandagencies

(necessarydataisprovidedbyministriesandagencies)

○Independentanalysisandexaminationofproposalsisinsufficient

◎CEFPdeliberatesonbasicdirections(transparencyhasimproved,butdeliberationsarenotnecessarilyindependent)

○Paralleldeliberationscarriedoutinthedeliberativecommitteesofministriesandagencies

×Councilsviewedasproxyforbureaucratsandnotutilized(insufficientdataandinformation,andnoindependentdeliberation)

Coordinationanddecisio

nmaking

Politicians(primeminister,ministers,rulingparty)

◎Priorinvestigationbyrulingpartycommittees(committeesholdvetopower)

◎Primeminister・sapprovalsignifiesfinaldecision

○Priorinvestigationbyrulingpartycommittees(diminishedvetopowerofcommittees)

○Adhoccoordinationbyministersandpowerfulrulingpartymembersbecauseministerialcommitteesdidnotfunction

Bureaucrats ◎Layinggroundworkwithingovernment,rulingparty,relatedindustries,etc.

○Layinggroundworkwithingovernment,rulingparty,relatedindustries,etc.

△Involvementinpriorcoordinationbeforesendingtheproposaltotheministeriallevelhasalsodeclined

Advisorycouncils,etc.

×Noroleaftersubmissionofrecommendations

△Follow-upbyCEFP ×Councilsviewedasproxyforbureaucratsandnotutilized

Notes:

1.Assessedbytheauthorbasedonanalysispresentedinthispaper.Symbolsindicatelevelsof

involvement(◎indicatingthestrongestlevelofinvolvement,×indicatingtheweakestleveland

△indicatingsomewherebetweenthem).

2.UnderDPJadministrations,advisorycouncilsweregenerallynotutilized.However,incertain

instancessuchastheSocialSecurityInvestigativeMeeting,meetingsandconferenceswerecreated

withministers,rulingpartypoliticiansandprivate-sectorexpertsasmembers.

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beenmonopolizedbythebureaucratsoftherespectiveministrieswithjurisdiction,

CEFPsucceededinmakingitswayintothepoliciesarenaasanagenda-settingactor.

TheDPJAdministrationborninSeptember2009immediatelybegantomake

changesinthepolicyprocessinanefforttorealizetheparty・sstatedgoalof・poli-

tician-ledgovernment.・TheDPJManifestoissuedatthetimeofthe2009lowerhouse

electioncontainedthefollowingthreepolicyprocess-relatedproposals:(1)establish-

mentofa・NationalStrategyUnit・underthedirectjurisdictionoftheprimeminis-

terandchargedwiththetasksofagenda-settingandformulatinganationalvision,

(2)policyformulation,coordinationanddecision-makingcenteredaroundthetop

threepoliticiansofindividualgovernmentministries,and(3)policycoordinationin

ministerialcommittees(abolitionoftheadministrativetopofficialsmeeting).The

coreprincipleintheDPJpolicyprocessistheunificationandintegrationofthe

governmentandtherulingparty,aprinciplethatwasclearlyspelledoutinthe

CabinetMeetingMemorandum entitled・OntheRelationbetweenPoliticsandthe

Bureaucracy,・whichwasissuedimmediatelyafterthelaunchoftheDPJAdmini-

stration(September16,2009).TheprinciplewasagaindelineatedintheMemoran-

dumentitled・Policy-MakinginanUnifiedFrameworkfortheGovernmentandthe

RulingParty,・whichwasissuedbyDPJSecretaryGeneralIchiroOzawaanddistrib-

utedtoallDPJDietmembers(September18).24Inthenewpolicyprocessenvisioned

bytheDPJ,thepolicycommitteesofindividualgovernmentministriesandagencies

(chairedbytheirrespectivevice-ministers)wouldreceivetheproposalsandviews

ofrulingpartymembers.Inthenextstep,teamsofministerswouldformulatepol-

icyproposalstobesubmittedtotheCabinetforapproval.However,intheprocess

ofcompilingthefiscalyear2010budget,SecretaryGeneralOzawahimselfcame

forwardtodirectlysubmitrequestspertainingtothebudgetandthetaxsystemto

thegovernment.Asevidencedbythiscase,theattempttocreateaunifiedand

integratedframeworkbegantowavershortlyafterthelaunchoftheDPJAdmini-

stration.

AkeyproblemintheMinisterialTroikaModelwasthattheprimeministerand

individualministerssoonbegantomakepersonalstatementsonpolicydirections

thathadnotbeenproperlythoughtthrough.PrimeMinisterKan・sadvocacyofthe

・abandonmentofnuclearpowergeneration・wasatypicalexampleofthistendency.

Itishardtoimaginewhyeventheprimeministerwouldbeallowedtoinitiatea

majorshiftinpolicywithoutpriorconsultationwithoramongcabinetministers.

Subsequently,theNodaAdministrationhadtorevisethecourseof・abandonmentof

nuclearpowergeneration,・resultinginevengreaterconfusioninJapan・snuclear

powerpolicies.AnothercriticalfailureoriginatedintheDPJManifestothatwas

servingasthetemplateforagendasetting.Theproblem wasthattheManifesto

itselflackedinternalconsistencyandhadnotbeensystematicallycompiled.Need-

lesstosay,policy-makingispredicatedonaccesstoawiderangeofinformationand

data.Butanoppositionpartysimplydoesnothaveaccesstosuchinformation

beforetakingoffice.Therefore,itwouldhavebeenverynaturalfortheDPJtore-

viewthecontentsoftheManifestoanditsorderofprioritiesshortlyaftertaking

office.However,theDPJlackedtherequisiteflexibility.25 Comingintoofficeinthe

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fallof2011,theNodaAdministrationcreatedtheCouncilonNationalStrategyand

Policytofunctionasa・commandpostoverseeingimportantpoliciesandasadriv-

ingforceinpolicypromotion.・Asitturnedout,however,thisnewlycreatedCoun-

cil26resembledtheearlierCEFPinappearanceonly.

(2) PolicyFormulationandExamination

Inthe・RulingPartyandBureaucracyModel,・bureaucratsplayedtheleading

roleinformulatingandexaminingpolicies.Astagefortheexerciseofthesefunc-

tionswasoftenprovidedbythegovernment・svariousadvisorycouncils.Inmore

recentyears,councilreportsandrecommendationshaveincertaincasesbeenwrit-

tenbycouncilmembers.However,membersgenerallydonothavethetimetodraft

reportsandprimarilyconcernthemselveswithexpressingtheirviewsorally.Asa

result,thewritingofreportsandrecommendationsislefttothecouncil・ssecretariat,

whichgoesaboutthistaskbasedonthelogicanddynamicsofthebureaucracy.The

reformofpensionsandothersocialsecuritysystemscaneasilyleadtoconfrontation

basedonthedifferinginterestsofthediscussants.Therefore,inboththe1999and

2004pensionreform,theMinistryofHealth,LabourandWelfaremadeaconscious

efforttodefusethetensionandgeneratediscussionbypublishingvariousalterna-

tivescenariosandtrialcomputations,byundertakinganumberofquestionnaire

surveys,andbyorganizingpublichearingsforparticipationbythegeneralpublic.

However,priortothis,issuesrelatedtothefundamentalstructureandfiscalre-

sourcesneededfortheBasicPensionProgram hadneverbeenfullyexamined,a

failurethatcanbetracedtothevestedinterestthatthebureaucracyhadinpreserv-

ingthesocialinsuranceapproach.27

IntheCEFPModel,atransitionwasmadefrom asystem inwhichministries

withjurisdictionmonopolizedthepolicyformulationandexaminationprocessesto

asystem ofcompetitionamongpoliciesproposedbyministrieswithjurisdiction.28

Ota(2006,148)commentsonCEFPasfollows:・Forthefirsttime,thesustainability

ofthesystem andthebalancebetweenbenefitsandcontributionswereearnestly

discussedbecauseaforumfordiscussionhadbeencreated.Thisrepresentsamajor

advancethatdifferentiatesthisprocessfrom otherearlierpensionreform ini-

tiatives.・WhileitistruethatCEFPdiscussedabroadrangeofissues,therewere

someclearlimitstoitsfunctionalityfrom theperspectiveofpolicy-making.For

instance,inthe2004pensionreform,legislativebillsweredraftedforraisingthe

subsidyratetotheBasicPensionto50percent.Butnoclearrationalewasgivenfor

whytherateshouldberaisedto50percent.29 Nevertheless,CEFPwasultimately

unabletoderailthecarefullycraftedpensionreform proposaloftheMinistryof

Health,LabourandWelfarethatwasaimedatrejectingtax-baseduniversalpen-

sionsandmaintainingthecurrentlyoperatingpensioninsurance(Shinkawa2004,

324).Thus,whilethepolicyprocesswasasuccessfromtheperspectiveofachieving

thepoliticalobjectivesoftheprimeminister,itwaslessthanperfectfromthestand-

pointofindependentanalysisanddeliberationandthesubmissionofindependently

derivedrecommendationstothegovernment.ItshouldbenotedthatinBritainand

othercountries,advisorycouncilsprovideaforum forindependentanalysisand

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deliberationbyoutsideexperts,andarenotstructuredforparticipationbycabinet

ministersandotherpoliticians.30

IntheMinisterialTroikaModel,theinitialideawastoeliminatebureaucrats

fromthepolicyprocessandtoassignthetaskofpolicyformulationtothetopthree

politicians(minister,viceministerandparliamentarysecretary).31 However,by

cuttingofftheirdependenceonbureaucrats,vice-ministersandparliamentarysecre-

tariesquicklybecamedrownedintheworkthathithertohadbeenperformedby

secretary-generalsanddirector-generals.Furthermore,byprohibitingbureaucrats

from engaginginnegotiationsamongthemselves,thefinelytunedcoordinating

networkthatcoveredtheKasumigasekiDistrictwasshredded.Meanwhile,the

centralbureaucracyunderwentacompletechangeincharacterandacquiescedtoits

newroleofwaitingforinstructionsfrom politicians(Shimizu2011,13).Viewing

advisorycouncilsassymbolsofbureaucrat-ledgovernment,theDPJadministrations

abolishedthesecouncilsorrenderedthemdormant.32 Aswasseenintheanalysisof

theprocessleadingtotheintroductionoftheChildAllowanceSystem,thisstyleof

・politician-ledgovernment・resultedinpolicyformulationthatsufferedseriously

frominsufficientanalysisandexamination.33 TheobjectivesoftheChildAllowance

Systemwerevague,itsexpectedpolicyoutcomewasneverclearlydefined,andthe

entiredeliberativeprocesslackedpropertransparency.34 Theseproblemswerecom-

montovariousotherpolicyissues,suchastheabolitionofhighwaytolls.Ithas

beenpointedoutthatinthetraditionalRulingPartyandBureaucracyModel,data

andreferencematerialssubmittedtoadvisorycouncilswereusedbybureaucratsto

manipulatethediscussions.Evenifthisweretrue,atleastabroadrangeofdata,

analysisandpolicyalternativeswerebeingpresentedtotheadvisorycouncils,and

acertainleveloftransparencywasbeingensured.Theleveloftransparencyinthe

MinisterialTroikaModelclearlyfellshortofthismark.

(3) CoordinationandDecisionMaking

UndertheRulingPartyandBureaucracyModel,thecoordinationfunctionwas

predicatedonadualstructurethatseparatedthegovernmentfromtherulingparty.

ThisdualstructureremainedinplacethroughouttheyearsofLDPrule.Inthis

context,coordinationconstitutedapolicyprocessthatwascarriedoutthrougha

collaborativeeffortofspecial-interestpoliticiansbelongingtoPolicyAffairsRe-

searchCouncilandbureaucratsfromrelatedministries.Thisarrangementhasbeen

variouslycriticizedas・ascrum formationofpoliticiansandbureaucrats,・(Mura-

matsu2010)・apartnershipofmultiplepolicynetworkscomprisingrulingparty

politicians(particularly,special-interestpoliticians),governmentministriesand

agencies,andinterestgroups,・(Ito2006)and・collusionforthejointdistributionof

rent.・(Ito2011)Inthisframework,bureaucratsfromvariousgovernmentministries

andagenciescameintocontactwithpowerfulmembersoftherulingpartyand

pulledthestringsfrombehindthescenestodirectthecoordinationprocess.35

CEFPchangedtheKasumigasekiDistrict・sinternalmethodofcoordination.

Previously,apolicyproposalhadbeenformallysubmittedtoameetingonlyafter

thoroughclosed-doorconsultationandcoordinationamongrelatedministriesand

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agencies.・However,theCouncilonEconomicandFiscalPolicydidawaywiththis

Kasumigasekipracticeofwhatmaybetermedthe・systemofunanimity.・Inthenew

modelofcoordinationthatitintroduced,topicswereopenlydebatedinformalmeet-

ings,andcoordinationwascarriedoutwhilelayingbaredifferencesinopinion.・

(Ota2006,7)WhileCEFPchangedthegovernment・sinternalmethodofcoordina-

tion,itdidnotmakeanyessentialchangestotheprocessofcoordinationbetween

thegovernmentandtherulingparty.ThisisbecausetheCEFPdidnothaveany

standinginthedebateoncethediscussionshadmovedtotheinternalmeetingsof

therulingparty(Ota2006,148).

Whatliesbehindthepartnershipbetweenpoliticiansandbureaucratsisthe

existenceofrulingpartypoliticianswithoutgovernmentpostswhoactasplayers

withvetopower.36 Whilethereisnoguaranteethatacabinetministerisalways

right,thesuperiorpositioncededtorulingpartymemberswithnoformalresponsi-

bilitieswouldseemtocontradicttheparliamentarycabinetsystem.Thisisnotto

saythatfactionswithintherulingpartyhavealwayshadvetopower.Inreality,a

levelofdisciplinehasalwaysbeenmaintained.AsKawato(1996)hasexplained,the

coordinatingfunctionwasmaintainedthroughappointmenttogovernmentposts

basedontherelativestrengthsoffactionsandseniority.Whileitcanbesaidthat

theprimeministerandthePrimeMinister・sOfficeexercisedgreaterpowerinpolicy

coordinationanddecision-makingundertheKoizumiAdministration,theduality

betweenthegovernmentandtherulingpartywaseffectivelypreserved.37

UndertheDPJ・sMinisterialTroikaModel,theinitialassumptionwasthatthe

coordinationanddecision-makingprocesseswouldbeundertakenasfollows:Minis-

terialpolicymeetingswouldberesponsibleforcoordinatingbetweenthegovern-

mentandtherulingparty,whilecommitteesofministerswouldtakechargeof

coordinatingwithinthegovernment.However,thisdidnotworkoutinpractice.In

boththefiscalyear2010budgetcompilationprocessandthetaxrevisionprocess,

confrontationanddisagreementpersistedbetweenministerscommittedtothe

party・sManifestoandtheMinisterofFinanceandothers,revealingthelackofcoor-

dinationwithintheadministration.38 Theruleforunifiedpolicy-makingwasnulli-

fied,andwhatresultedwasasituationinwhichitwasunclearhowpoliciesand

guidelineswerebeingdiscussedandfinalized,bywhom,andwhere.39 Inthecritical

stagesoftaxreformandthebudgetcompilationprocess,thedemandsoftheparty

conveyedbySecretaryGeneralOzawaexertedagreatdealofinfluence.Conse-

quently,theNationalStrategyUnitandministerialcommitteeswereunabletoper-

formtheexpectedcoordinationfunction.40 DPJ・sMinisterialTroikaModelstumbled

andstruggledsinceitsinception.Asimpleexplanationtothatistheywerelayman.

Inadditiontothat,wehavetoremindourselvesthattheyfacedunfortunateexter-

naleventssuchasGreatEastJapanEarthquake.Itmustbeanexcuse.However,I

dothinkthefundamentalproblemoftheirfailureisthatDJPcouldnotrevisethe

relationshipbetweenpoliticiansandbureaucratsintermsofachievingtheirgoalof

politician-ledgovernmentinpolicy-makingprocess.Inshort,theypaidlittleatten-

tiontotheroleofbureaucratswhocooperatewithpoliticians.

TheDPJexperimentin・politician-ledgovernment・madeitpainfullyclearthat

Policy-MakingProcessandRelationshipsbetweenPoliticiansandBureaucratsinJapan14

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coordinationrequirescertainstructuresandmechanisms,thefirstofwhichisad-

ministrativecoordinationprovidedbybureaucrats,andthesecondofwhichiscabi-

net-levelcoordination.Coordinationthroughministerialcommitteesisdesirable

fromtheperspectiveofachievingpolitician-ledproblemresolution.However,effec-

tivecoordinationontheministeriallevelrequiresthepriorexaminationofproblems

andalternatives,functionsthatshouldbeperformedbybureaucrats.Ensuringthe

presenceofhigh-levelcivilserviceexpertise,aswellasasmoothinterfacebetween

thetwogroups(politiciansandcivilservants),iscentraltoapolicyprocesswhich

isabletoaligngovernmentprioritiesandimplementation(WorldBank2010,17).

However,theDPJMinisterialTroikaModeleffectivelydestroyedsuchrelations.41 In

Westminstercountrieswherestrictpoliticalneutralityisrequiredforcivilservants,

civilservantsingeneralandseniorofficialsinparticularprovideacertaincoordinat-

ingmechanisminthepolicyprocess.42 TheDPJestablishedministerialcommittees

intendingforthemtoperformgovernment-widecoordinatingfunctions.However,

merelycreatingaframeworkdoesnotensurethatitwillfunction.First,ministers

andbureaucratsshouldhavebeeninformedthatallimportantmatterswouldhence-

forthbereferredtoministerialcommitteesforcoordination.Second,asteadyproc-

essofbuildingupexperienceandpositiveresultswasnecessary.

UndertheHatoyamaAdministration,therelationshipbetweenthegovernment

andtherulingparty・tookonacompletelydifferentformofseparationascompared

totheageofLDPrule.・(Nonaka2011,309)ButintheNodaAdministrationthat

followedtheKanAdministration,thesystembegantoreturntoatraditionalLDP

modelwheretherulingpartyholdsvetopower.Shortlyaftertakingoffice,Prime

MinisterYoshihikoNodastatedthat,inprinciple,・policydecisionswouldbesubject

totheapprovalofthechairmanoftheparty・sPolicyResearchCommittee.・Respond-

ingtothisguideline,thedocumententitled・OnMakingPolicy-RelatedParty

Decisions・(September12,2011)wasapprovedbytheDPJExecutiveBoardcontain-

ingprovisionsformakingpolicydecisionsinmeetingsbetweenthegovernmentand

theparty・stopthreeofficers,andfortheestablishmentofaPolicyResearchExecu-

tiveMeetingandSectionalMeetings(jointlychairedbyoneco-chaireachfromthe

governmentandtheparty).43Moreover,theadministrativetopofficialsmeetinghas

beeneffectivelyreinstated.44 Thus,decision-makingundertheNodaAdministration

isbasedona・unifiedmodelforgovernmentandtherulingparty.・Duringthelong

yearsofLDPrule,adualisticstructureprevailedbetweentherulingpartyandthe

cabinet.UndertheNodaAdministration,however,therulingpartyandthecabinet

havebeeneffectivelyunifiedthroughsuchmechanismsasthe・Governmentand

Top-ThreePartyExecutivesMeeting・andthe・GovernmentandRulingPartyMeet-

ingonBudgetCompilation.・Asaresult,ithasbecomedifficulttoclearlydetermine

who,underwhatauthorityandwhatresponsibility,isperformingthefunctionsof

coordinationanddecision-making.45

(4) Summary

Basedontheforegoinganalysis,thethreemodelsareevaluatedandfundamen-

talproblemsrelatedtoJapan・spolicyprocessareidentified.Table2summarizesthe

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resultsoftheevaluationofthethreemodelsbasedonthecriteriaoutlinedinSection

2.TheDPJinitiallyattemptedtoeliminatebureaucratsfrom thepolicyprocess.

WhilesomeeffortsweremadeundertheKanandNodaAdministrationstorectify

excesses,fromanoverallperspective,Japan・spolicyprocessdeterioratedunderthe

aegisof・politician-ledgovernment.・Politicianssimplycannottakechargeofallthe

detailsleadingtodecision-making,andtheprowessandcapabilitiesofthebureauc-

racyareindispensabletopolicymanagement.Theseincludethebureaucracy・sin-

formation-gatheringfunction,itsexpertknowledge,andtheadministrativeskills

requiredforformingandimplementingpolicies(Takayasu2011,137).Throughout

thetransitionfromtheCEFPModeltotheMinisterialTroikaModel,Japan・sbureau-

cratshavesuffereddeteriorationinexpertiseandspecializedknowledge,aproblem

thathasbeenpointedoutfrompreviousyears.However,inadditiontothis,recent

developmentshavediminishedtheautonomyofbureaucrats.

TheDPJAdministrationisconsideringreformingthecivilservicesysteminan

initiativethathasbeenoutlinedasfollows:・ThePrimeMinister・sOfficewoulddraw

upalistofallexecutive-levelcivilservantsforallministriesandagenciestoensure

controlofpersonnelaffairsbythePrimeMinister・sOffice.Demotionswouldalsobe

made.・(NihonKeizaiShimbun,January30,2010)Certainexecutive-levelappoint-

mentsofcivilservantsmadeaftertheDPJcametopowerhavealreadybeencriti-

cizedforbeingbasedonthearbitrarychoicesofministers.46 Speakingafterthe

ministers・conferenceofJanuary30,2010,PrimeMinisterHatoyamacommentedon

thepersonnelmanagementofexecutive-levelcivilservantssaying,・ThePrime

Policy-MakingProcessandRelationshipsbetweenPoliticiansandBureaucratsinJapan16

Table2 EvaluationofPolicyProcessinSocialSecurityPolicies

ProcessEvaluated

Criteria

1999

PensionReform

2004

PensionReform

2009

ChildAllowance

Policy

(1)Economicsoundness/

Efficiency2 3 1

(2)Feasibility 3 3 2

(3)Effectiveness/

Stability2 2 1

Process

(1)Identificationof

needs2 3 1

(2)Collectingwiderange

ofviews3 5 1

(3)Multiplealternatives

andanalysis3 4 1

(4)Cross-ministerial

deliberation2 3 1

(5)Consensusbuilding/

coordination3 4 1

Note:Five-stageevaluationwith・5・thehighestand・1・thelowest.

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Minister・sOfficewillplacethisinitsowngrasp.・47Speakingtothepressatthetime

ofhisappointmentonJanuary7,FinanceMinisterKanstated,・Theauthorityto

appointandtofirecivilservantslieswiththepeople.Therefore,itisnatural[forthe

primeministerastherepresentativeofthepeople]toexercisetherighttomanage

personnelaffairs.・48Inotherwords,controlofpersonnelaffairsisunderstoodtobe

anelementofpolitician-ledgovernment.Therearestrongconcernsthatappoint-

mentofexecutive-levelcivilservantsingovernmentministriesandagenciesbased

effectivelyonpoliticalchoicesmadebytheprimeministerorcabinetministers

wouldhavevariousundesirableresults,suchasarbitrarypersonnelmanagement

andoffice-seekingbehavior,developmentsthatwouldevenfurtherpoliticizecivil

servants(diminishtheirautonomy).49Thepoliticizationofcivilservantswouldturn

attentionawayfromfact-basedaccurateanalysisandexamination.IntheCompre-

hensiveReform ofSocialSecurityandTaxesundertakenbytheDPJadministra-

tions,problemsrelatedtopensionsandhealthcarewerenotrevealedbecause

ministersandrulingpartymemberswishingtoavoiddifficultreformsexercisedthe

prerogativesof・politician-ledgovernment.・

TheCEFPModelwassuccessfulbecausearelationof・contestability・existedin

thepolicyformulationprocessbetweenCEFPandrelatedgovernmentministries

andagencies.Whiletheimportanceofcontestabilityinthepolicyprocesshasbeen

widelyemphasizedinrecentyears(ANAO2008,Briggs2007,CabinetOffice1999,IDB

2006,StoeckelandFisher2008),inthecaseofJapan,sufficientreformshavenotbeen

implementedtorenderthecivilservantsworkingatgovernmentministriesand

agenciescontestable.SteinandTommasi(2008,64�65)identifythefollowingtwo

characteristicswhichexplaindifferentbureaucratictypes:(1)autonomy(theextent

towhicheffectiveguaranteesofprofessionalisminthecivilserviceareinplaceand

degreetowhichcivilserviceareprotectedfromarbitrarinessandpolitization),and

(2)technicalcapacitiesofbureaucrats(thedegreetowhichthebureaucracyhas

salarycompensationandevaluationsystems).SteinandTommasiarguethatthese

areimportantfactorsinachievingpolicyoutcomes.ItistruethatintheJapanese

system,ahighlevelofautonomyexistswithinindividualgroupsofbureaucrats

workingingovernmentministriesandagencies(Iio2011,379).Butthisautonomy

isareflectionofthe・politicization・ofbureaucratsforthepurposeofprotecting

theirowninterests.Bycontrast,intheJapanesesystem,lessimportancehasbeen

giventotheexpertiseofbureaucratsinpolicyformulationandassessment(Tanaka

2009).50 Theautonomyofcivilservantsiscertainlyimportant.Leftunattended,

however,thisautonomycreatesabureaucracythatpursuesitsowninterests.What

isneedediscompetitionthatcutsthroughallaspectsofthemeritsystem.51

TheautonomyofcivilserviceshasbeenfurtherunderminedafterLDP-Komei

coalitiongovernmentledbyprimeministerShinzoAbecamebackinDecember

2012.Abeadministrationisalittlebitdifferentfrom traditionalLDPpolitics,be-

causeprimeministerorPM officeplaysaleadingroleindecision-makingprocess,

andrulingpartysetsback.Thereareseveralreasonsforit.Firstly,LDPlearnedthe

failureofDPJgovernmentthattheycouldnotmanageconflictsbetweenruling

partyandgovernment.Secondly,thepopularityofAbeishighandhewonboth

Policy-MakingProcessandRelationshipsbetweenPoliticiansandBureaucratsinJapan 17

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lowerandupperhouseelections.Thirdly,seniorLDPpoliticianswhoareveto

playersindecision-makingprocessarealreadyretired.Wecanobservethatthedual

structureindecision-makingprocesswhichhasunderminedthestrengthofprime

ministerandcabinetisdisappearinginAbeadministration.Howeverstrongprime

ministercausesthelackofcheck-and-balancesystem.Civilservicesnowlooklike

tooobedienttopoliticians,andtheycannotprovideaccurateanalysisandalterna-

tivestopoliticians.ThatisanewphenomenoninJapanesepoliticsandadministra-

tion.

5 Conclusion

Japan・spoliticalandadministrativesystemswerelongcriticizedasbeingbu-

reaucrat-led,butthe2009changeingovernmenthasservedtorevealtheproblems

withpolitician-ledgovernment.Whilethechangeprovidedevidencethatdemo-

craticrulesarefunctioninginJapan,thepolitician-ledgovernmentunderDPJrule

hasfurtherdiminishedtheautonomyandexpertiseofbureaucratsandhasthereby

forcedthepolicyprocesstodeteriorate.Inreality,thishasonlyservedtoclearly

revealproblemsthathavealwaysexistedinthesystem.Internationalcomparisons

pointtothelowpolicycapabilitiesoftheJapanesegovernment.52 Thebiggestprob-

lem isthatcontestabilityislackingatvariouslevelsinthepolicyprocess.First,

competitivemechanismsdonotfunctionfullyintheappointmentofexecutive-level

civilservants,partlybecauseopenrecruitmentandcross-ministerialpostinggener-

allydoesnottakeplace.Second,advisorycouncilsandotherorgansdonotfunction

asforumsforindependentanalysisandassessmentbythirdparties,andthereforedo

notacttoverifythepolicyproposalsofgovernmentministriesandagencies.Third,

withinthegovernment,theCabinetSecretariatandothercentralorgansarenot

givensufficientpolicy-relatedfunctionstoconfronttheministriesandagencieswith

jurisdiction.53

UndertheNodaAdministration,someeffortshavebeenmadetocorrectthe

excessesofpolitician-ledgovernment.Giventherapidlyfallingbirthrateandaging

society,thecommitmenttocomprehensivereform ofsocialsecurityandtaxesis

certainlylaudable.Butthefactofthematteristhatlittleprogresshasbeenmadein

theprocessesofpolicyexaminationandcoordination.Australia・sexperiencewith

comprehensivereform presentsaninterestingcounterpointtoJapan・scomprehen-

sivereformofsocialsecurityandtaxes.InDecember2007,Australia・sLaborParty

returnedtopowerforthefirsttimeinelevenyears.InMay2008,theTreasurer

announcedthatacomprehensivereformoftaxesandsocialsecuritywouldbeun-

dertakenandappointedadeliberativepanelforthispurpose.54 InAugust,thegov-

ernmentpublishedadiscussionpaperoncurrentconditionsandproblemsrelatedto

taxationandincometransfer.Respondingtothis,thepanelspentthenext18

monthsholdinghearingsanddeliberations.Hearingswereheldthroughoutthe

countrytogathertheviewsofthepeopleandtoexchangeopinionswithexperts,

followedbyanalysisandexaminationofdata.Theprocessculminatedinthepres-

entationofrecommendationstothegovernmentonthedirectionofreforms.The

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differencewiththeprocessfollowedinJapanfortheintroductionoftheChildAl-

lowanceSystemisstarklyobvious.

Japanfindsitselfinasituationtodaywheredifficultstructuralreformsmustbe

implemented.Whilefairnessshouldcertainlybeaconsideration,coolheadedanaly-

sis,deliberationandcoordinationbasedonsoliddataareindispensable.Assuch,

Japanfacesanurgentneedtoreviewandrevampitspolicyprocessbecausethese

conditionscannotbeeasilymetifJapancontinuestoemploythesameprocessesas

inthepast.Thereareanumberofprerequisitesforgoodpolicyformulation,which

theWorldBank(2010,5)hasenumeratedasfollows:(1)politicalauthorityand

technicalexpertiseatthecenter-of-government,(2)anorganizationalsystem that

coordinatespolicymaking,(3)seniorpublicservantswhoprovideexpertpolicy

adviceandcoordinatebetweenpolicymakingandimplementation,(4)strongcapac-

ityofthelineministries,(5)strongcapacityofthelegislature,(6)activealternative

channelsofpolicyadvice.Sadly,inmostoftheseareas,theJapanesesystemcannot

besaidtobesufficientlydeveloped.

1 Otake(1990,269)states,・Theanalysisofpolicy-making,morethananythingelse,con-

sistsofexpertanalysisoftheprocess,andfindingsarenotdirectlyusefulforevaluating

orcriticizingthecontentofpolicies.・

2 AdolinoandBlake(2001,10)referto・intentionalcoursesofactiondesignedbygovern-

mentbodiesandofficialstoaccomplishaspecificgoalorobjective,・whileOECD(2007,

10)definesadeliberateactionofgovernmentthatinsomewayaltersorinfluencesthe

societyoreconomyoutsidethegovernment.Othersfocusondecision-making,suchas

Dye(2007,2),・anythingagovernmentchoosestodoornottodo,・andHowlettand

Ramesh(2003,8),・acomplexphenomenonconsistingofnumerousdecisionsmadeby

numerousindividualsandorganizationsingovernment.・

3 Ito,TanakaandMabuchi(2000,34)offerthefollowingdefinition.・Thepoliticalprocess

consistsofnegotiationsandtransactionsthatarebasedonactivitiesundertakenbysuch

actorsaspoliticians,politicalparties,bureaucrats,interestgroupsandcitizensinpursuit

ofrealizingtheirowninterests.Inthiscontext,policyprocessspecificallyreferstothe

processthroughwhichpoliciesaremadeandimplemented.・

4 Forinstance,Jones(1984)haselevenstages,Birkland(2005)andBreweranddeLeon

(1983)havesixstages,andAdolinoandBlakehavefivestages.Lundqvist(1980)posits

threestagesinpolicyselection.

5 Nakamura(1996)arguesthatpolicy-processpatternsandthetypeandbehavioralpat-

ternsofactorsinvolvedinpolicyprocessaredeterminedbythenature,characteristics

andtypeofpolicy.Nakamichi(2005)statesthattheexistenceandbehavioralpatterns

ofinfluentialactorsandtherelationsbetweenpoliticiansandbureaucratsalsodiffer

accordingtothetypeofpolicy.

6 Developmentsanddetailsoftherevisionsexaminedinthispaperareprimarilytaken

fromAnnualReportonHealth(Labour)andWelfare,andfromnewspaperarticles.For

detailsofpolicyprocessesrelatedtopensionreform,seeShinkawa(2004).

7 Referringto・comparativepolicy-processanalysis,・Otake(1990)statesthatthisap-

proachis・unlikeconventionalcomparativestudiesofpoliticalorganizationsandinstitu-

tions,suchaspoliticalpartiesandtheparliament,andisinsteadaform ofmacro

Policy-MakingProcessandRelationshipsbetweenPoliticiansandBureaucratsinJapan 19

Notes

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comparativeanalysisthat,whilefocusingonaspecificpolicyarea,attemptstoexamine

decision-makingstructuresandfurthermoretoidentifythegeneralcharacteristicsofthe

politicalsystem.・(p.162)Theanalyticalframeworkofthispaperresemblesthis.Intheir

policyprocessmodel,SpillerandTommasi(2003)considerthecausalmechanismsin

fundamentalinstitutionsandhistory,therulesofthegameinpolicyformation,the

balanceininteractionamongactors,thepolicy-makingprocess,andthecharacteristics

ofindividualpolicies.Thepresentpapertakesthesameapproach.

8 AsahiShimbun(AsahiNewsPaper),October19,1998

9 AsahiShimbun,October20,1998

10 Accordingto・AgendafortheEconomicandFiscalPolicyCouncilduring2003・(dated

January20,2003,anddraftedbyanon-governmentmemberofCEFP),pensionreform

wasincludedintheagendafor2003,andthesubjectwasdiscussedinmeetingsheldon

February20,April1and16,May28,June9,October3,andNovember18and28.For

detailsoftheinvolvementofCEFPinthe2004pensionreform,seeOta(2006).

11 TheMinistryofHealth,LabourandWelfarehadinitiallyproposedraisinginsurance

premiumsfrom thecurrent13.58% to20%.However,thismetwithstrongopposition

fromthebusinesscommunity,whicharguedthat20%wastoohigh.Withinthegovern-

mentandrulingcoalition,therewasaclashofopinionbetweenthePrimeMinister・s

Office,whichfavoredan18%ceiling,andtheMinistryandtheNewKomeito,whichwere

unwillingtogobelow18.5%inordertopreservethe50%benefitlevel.Followingheated

negotiations,acompromisewasreachedtosettheceilingat18.35%(Shinkawa2004,

323).

12 NihonKeizaiShimbun(NihonKeizaiNewsPaper),January31,2004

13 AsahiShimbun,February5,2004

14 NihonKeizaiShimbun,February21,2004

15 AnexceptiontothiswastheGovernment・sTaxSystemResearchCouncilwhosemem-

bershiphadundergonesomechanges.Regardingthereviewofincometaxexemptions

fordependents,somedataweresubmittedtotheCouncilontheexpectedincreaseintax

revenuesresultingfrom theabolitionofincometaxdeductionsfordependents.How-

ever,theonlyreferencetochildallowanceswascontainedinadocumententitled

・PersonalIncomeTaxation(OutstandingIssues),・whichwasdistributedattheCoun-

cil・s8thmeetingforfiscalyear2009(November17).Thedocumentmerelynotedthat,

・Inlightofongoingdiscussionsontheintroductionofchildallowances,thoughtisbeing

giventoabolishingdeductionsfordependentsinthefiscalyear2010revision.How

shouldthisbeapproached?・

16 TheDPJproposalinitiallydraftedbyChiefDeputySecretaryGeneralTamimitsu

Takashima(SecretaryGeneralofDPJCaucusoftheHouseofCouncilors)madenomen-

tionofincomecapsforchildallowanceeligibility.However,IchiroOzawainstructedhis

aidestogatherthenecessaryinformationandindependentlycalculatedhowmuchthe

systemwouldcostifincomecapswereintroduced.Basedontheresults,Ozawadecided

toadvocatetheintroductionofanincomecap(YomiuriShimbun(YomiuriNews

Paper),December20,2009).

17 AsahiShimbun,December17,2009

18 NihonKeizaiShimbun,December22,2009

19 Thiswasa・desperatemeasuretakenformaintainingthelevelofcontributionsbylocal

governments.・(MainichiShimbun(MainichiNewsPaper),December27,2009)Negotia-

tionsinvolvingthethreehighest-rankingofficersoftheMinistryofFinance,Ministryof

Health,LabourandWelfare,andtheMinistryofHomeAffairshadfailedtoreacha

conclusion.Itwasreportedthatbureaucratsfromthethreeministriesthenhammered

Policy-MakingProcessandRelationshipsbetweenPoliticiansandBureaucratsinJapan20

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togetheracompromiseandconvincedthepoliticianstogoalongwiththeirproposed

solution,whichkepttheexistingChildBenefitsSystemaspartofthenewChildAllow-

anceSystemandrequiredlocalgovernmentsandemployeestobearpartoftheburden

ofthesystem.

20 DevelopmentsprecedingtheintroductionoftheChildAllowanceSystembytheDPJare

asfollows.In1999,alegislativebillwassubmittedbyDietmembersfortheintroduction

ofachildallowancesystem(witha12million-yenincomecap)combinedwiththeabo-

litionoftaxdeductionsfordependentchildren.In2006,abillwassubmittedbyDiet

membersforasystemfeaturingnoincomecap,andfullytax-basedmonthlypayments

of16,000yenperchilduntiltheendofjuniorhighschool.Thisproposalrequiredno

additionalfiscaloutlaysasthemonthlypaymentsof16,000yenweretobefinanced

throughtheabolitionoftaxdeductionsforspouses,etc.However,intheJanuary2007

Dietquestionandanswersessionbypartyrepresentatives,DPJRepresentativeIchiro

Ozawastatedthata6-trillion-yenchildallowanceprogramwastobecreated.Dividing

thisamountbythenumberofchildrennationwideyieldedthemonthlyamountof26,000

yen.Thatistosay,thefigureof26,000yenpermonthwasnotbasedondiscussionsand

consensusarrivedatwithintheDPJ,butwasinstead・anunprincipled10,000yenadd-on

resultingfromatop-downdirective.・(MainichiShimbun,February28,2010)

21 YomiuriShimbun,March27,2010

22 TheNationalInstituteforResearchAdvancement(1998,34)statesthat,・Policyissues

arecreatedthroughtheprocessofdefinition...andareartificialconstructs.Itisforthis

reasonthatpolicyissuesareeasilyusedforpoliticalpurposes.・

23 Forexample,theNationalPersonnelAuthority(1999)statesthefollowing:・Civilser-

vantsoftheresponsibleadministrativedepartmentdraftapolicyproposal,whiletaking

intoaccountsuchfactorsasnecessity,levelofpriorityandimplementability.Thedraft

isthensubmittedforbasicapprovalwithintherelevantministry,includingapprovalby

theminister.Inthenextstep,thedraftundergoesadjustmentinconsultationsheldwith

relatedgovernmentministriesandagenciesandinterestedparties.Atthesametime,

approvalforthedraftisobtainedwithinthegovernmentandtherulingpartybeforeit

isfinalizedasapolicyproposal.Inthefinalstage,formalproceduresarecompleted

withintheexecutivebranch,includingapprovalbytherelevantministerandbythe

Cabinet.Becausethisrepresentsthemostcommonlyseenpolicy-makingprocessin

Japan,itleadstotheargumentthatpolicy-makinginJapanisledbythebureaucracy.・

24 Adocumententitled・BasicGuidelines・wasalsoissuedwhentheHatoyamaCabinetwas

firstformed(September16,2009),andcontainedthefollowingpoints.・Thetraditional

practiceofpriorreviewbytherulingpartyshallbeabolished,andthedualdecision-

makingstructureseparatingthegovernmentfromtherulingpartyshallbereplacedby

anintegrateddecision-makingframework.Thisshallbedonetopreventthecreationof

Dietmembersbeholdentospecialinterests.・・TheAdministrativeVice-MinistersMeet-

ingandotherinstitutionsthathaveexisteduntilnow shallbeabolished.Hereafter,

governmentdecisionsshallnotbedelegatedtopriorcoordinationbyadministrative

vice-ministersandotherbureaucrats.・

25 InBritain,toavoidbeingboundbypledges,manifestosarenotnecessarilydetailedor

specific(Blair2010).UndertheBlairCabinet,PublicServicesAgreementsspecifying

policyprioritiesandgoalsfortheforthcomingthreeyearswereformulated.Thistype

ofapproachshouldhavebeenconsideredinJapan.ForcontentsofPublicServices

Agreement,seeTanaka(2005).Thedocumententitled・ReformingtheBudgetCompila-

tionProcess・(approvedbytheCabinetonOctober23,2009),whichsummarizesthe

outcomeofdiscussionsledbytheNationalStrategyBureau,statesthata・system for

Policy-MakingProcessandRelationshipsbetweenPoliticiansandBureaucratsinJapan 21

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disclosureoftheachievementofpolicyobjectives・wouldbeadopted.However,sucha

systemisyettobeintroduced.

26 TheCouncilonNationalStrategyandPolicyischairedbytheprimeminister.Thechief

cabinetsecretaryandstateministerinchargeofnationalstrategyserveasitsvice-

chairmen.Othermembersconsistoffourministers(MinistriesofHomeAffairs,Foreign

Affairs,Finance,andEconomy,TradeandIndustry),governoroftheBankofJapan,and

fivenon-governmentmembersfromtheprivatesector.TheCouncilwascreatedbased

onacabinetdecision.CEFPcontainedvariousarrangementsandmechanismstohelpit

functionasthecommandpostforpromotingreform.Theseweretheleadershipofthe

primeminister,thesettingoftheagendafordiscussionsbasedonpaperspreparedby

non-governmentmembers,andtheresult-orientedmanagementofmeetings.TheCoun-

cilonNationalStrategyandPolicylacksallofthesefunctionsandcannotbesaidtobe

a・commandpost・initspresentform.

27 TheMinistryofHealth,LabourandWelfarehasexplainedthattheBasicPensionSys-

tem isa・universalnationalpensionprogram.・However,auniversalpensionprogram

cannotbe implementedbyasocialinsuranceapproachbasedontheprincipleof

・contributions.・InCanadaandothercountriesthathaveadopteduniversalpension

programs,costsarenecessarilybornebythegeneraltaxes.Fordetails,seeTanaka

(2011).

28 Ito(2007,33�34)statesthefollowing:・Informationandknowledgeconstitutepowerful

resourcesforthebureaucracy.Capitalizingontheasymmetricalaccesstoinformation

thatexistsbetweenthebureaucracyandthePrimeMinister・sOffice,thebureaucrats

expand thescopeoftheirdiscretionary powers. Responding tothis,thePrime

Minister・sOfficeusestheinformationandknowledgeavailabletoitsstafforganizations

anddeliberativecouncilstoreducethisasymmetryininformation.・

29 ChikaraSakaguchi,thethenMinisterofHealth,LabourandWelfare,isquotedasfol-

lows:・SubscriberstotheNationalPensionSystem werebearingaheavyburdenbut

receivingrelativelylittle.So,thedecisionwasmadethatthegovernmentwouldcontrib-

utehalf.Thishadtobedonebecauseotherwisethesituationwouldhavebeenunfair

comparedtopeoplebelongingtotheEmployees・PensionSystemandMutualAidAsso-

ciationPensionSchemes.Discussionsofpensionreformwerepredicatedonraisingthe

Treasury・scontributionrateto50%.・(NihonKeizaiShimbun,December15,2011)・Sub-

sidy・isnotbornebythegovernmentbutispaidforbythepeople.Theburdenonthe

peopledoesnotchange,whetherthemoneycomesfrom socialinsurancepremiumsor

fromtaxes.Thus,itcanbesaidthatraisingthesubsidyrateto50% actuallybenefits

relativelywealthierindividualscoveredbytheEmployees・PensionSystem.

30 SomeOECDcountriesappointindependentcommissionsonfiscalmatterschargedwith

conductingindependentanalysisandassessmentofsuchfactorsasfiscalsustainability

andinter-generationalfairness,andsubmittingrecommendationstothegovernment.

SuchfunctionscouldhavebeenassignedtoCEFP.

31 Casesof・eliminationofbureaucrats・aretoonumeroustoenumerate.Meetingsofthe

topthreeministryofficersareheldbehindcloseddoors,andbureaucratsarenotallowed

tobepresent,withtheexceptionoftheMinistryoftheEconomy,TradeandIndustry

(NihonKeizaiShimbun,November3,2009).IntheMinistryofHealth,LabourandWel-

fare,bureaucratsrequestingmeetingswithMinisterAkiraNagatsumatobebriefedon

policiesarefrequentlyforcedtowaitonetotwoweeks(NihonKeizaiShimbun2010,

306).WhentheHatoyamaAdministrationorganizeda・policygrandprix,・anonlinecall

forpolicyrecommendations,responseswerereceivedfrom evenbureaudirectorsand

assistantvice-ministers.・Thefactthatbureaudirectors,whopresumablyaremeeting

Policy-MakingProcessandRelationshipsbetweenPoliticiansandBureaucratsinJapan22

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theministeronaregularbasis,chosetomailtheirproposalsinsteadofconveyingthem

directlytotheministerissymbolicofthepresentrelationsbetweenpoliticiansand

bureaucrats.・(YomiuriShimbun,April19,2010)ParliamentarySecretaryKeisuke

Tsumura(CabinetOffice)statedpubliclythat,・Iwilltakeoveralltheworkofthead-

ministrativevice-minister.・AsParliamentarySecretaryTsumurafiredoffhisinstruc-

tions,AdministrativeVice-MinisterJunjiHamano,whostoodtohisright,foundno

opportunitytospeak(AsahiShimbun,January15,2010).

32 IntheupperhousequestionandanswersessionbypartyrepresentativesheldonOcto-

ber30,2009,PrimeMinisterHatoyamagavethefollowinganswertoaquestion.・Ibelieve

thatinmostcases,membersofdeliberativecouncilswereinfactbeingselectedbythe

secretariatoftheministryincharge.Thus,bureaucratswereselectingindividuals

whomtheyfoundtobeconvenient,andthebureaucracywasplayingaleadingrolein

makingpolicydecisions.Deliberativecouncilssupportedandpromotedthissystem...

From hereonward...thethreeprincipalministerialofficersshallbeheldaccountable,

andpoliticianswillplayaleadingroleintheselectionofcouncilmembers.Weintendto

reviewnotonlytheissueofthechoiceofmembersbutalsootheraspectsthatrelate

directlytotheoperationofcouncils.・

33 ItcanbesaidthatDPJpoliticiansunderestimatedtheimportanceofanalysisandexami-

nationinthepolicyprocess.Forexample,NaotoKanwasquotedasfollowsbeforethe

DPJcametopower.・Highwaytollsshouldbeabolishedrightaway.Thatisveryeasyto

understand.Ittakestenyearstobuildahighway,butyouneedonlythreemonthsof

preparationtoabolishhighwaytolls.・(AsahiShimbun,April8,2009)

34 TheInstituteforResearchonHouseholdEconomicsinvestigatedhowchildallowances

werebeingusedandconcludedthat,asobservedoverashort-termperiodofoneyear,

childallowanceshadnotresultedinincreased(additional)expenditureonchildren.The

NationalStrategyBureaustatedthatithadnotkeptrecordsandotheradministrative

documentsfrom hearingsithadconductedwiththeMinistryofHealth,Labourand

Welfareduringtheyear-endbudgetcompilationprocess(MainichiShimbun,March22,

2010).

35 Concerningthesepractices,theLDPitselfhasengagedinthefollowingself-criticism.

・InthemanagementofLDPadministrations,thetopthreeministerialofficersfrequently

delegatedtheirresponsibilityforpolicycoordinationbetweentherulingpartyandthe

governmenttothebureaucracy.Asaresult,bureaucratswerepermittedtoeffectively

interveneinpolicy-makingbyusingtheirclosetiestoso-called・special-interestDiet

members,・givingrisetoasituationthatcouldnotbeavoidbeingcriticizedasbeing

・bureaucrat-ledgovernment.・(Liberal-DemocraticPartyPolicyResearchCouncil2010,

2)

36 AnexampleisthecollisionbetweenAgriculture,ForestryandFisheriesMinister

ShigeruIshibaandLDPDietmemberswithspecialinterestsinagricultureundertheAso

Administration.WhenMinisterIshibaproposedtheintroductionofan・optionalsys-

tem・permittingindividualfarminghouseholdstochoosewhethertheywouldpartici-

pateintheadjustmentschemeforriceproduction,LDPspecialinterestDietmembersfor

whomproductionadjustmentconstitutedafundamentalcommitmentobjectedvocifer-

ously.Consequently,theIshibaproposalfailedtobecomepolicy.Inameetingofthe

executivecouncilofLDPDietmemberswithspecialinterestsinagricultureheldon

March12,2009,ChairmanKoyaNishikawaoftheCommitteeonBasicAgriculturalPoli-

ciesstatedthatthe・Dietisthehighestorganofstatepower,・indicatingthatheintended

toignorethegovernment・sposition.Othermembersarereportedtohavesignaledtheir

approval(SankeiShimbun,March13,2009).

Policy-MakingProcessandRelationshipsbetweenPoliticiansandBureaucratsinJapan 23

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37 FunctioningunderthedirectjurisdictionofthePrimeMinister・sOfficeunderPrime

MinisterJunichiroKoizumi,theNationalVisionCommitteeoftheLDPNationalStrat-

egyHeadquartersputtogetheraproposalforreformingthepolicy-makingsystem in

March2002.Atthecoreoftheproposalwerethe・threeKoizumiprinciples,・which

containedsuchprovisionsaseliminatingpriorpartyapprovalasaprecondition,and

policycoordinationinMinisterialMeetings.TheproposalwasnotapprovedbytheLDP

andmostofitsproposalswerenotadopted.KaoruYosanomadethefollowingcomment

inanewspaperinterview givenafterhisappointmentasstateministerinchargeof

economicandfiscalpolicyinNovember2005,indicatingthatnochangehadbeenmade

intheconventionalcoordinationmodel.・Mypersonalpositionisthatpolicycontents

andtimingofdecision-makingshouldbeundertakenjointlyandsimultaneouslywith

therulingparty.Ifoneprecedestheother,thecoordinationprocesstakesmoretime,and

ultimatelythetotalcostishigher.Itisnaturalfortheretobedifferencesinposition

betweenthegovernmentandrulingparty.Whatisimportantistomaketheeffortto

unify(coordinate)thesepositions.・(NihonKeizaiShimbun,December2,2005)

38 ExamplesincludetheconfrontationbetweenLand,InfrastructureandTransportMinis-

terSeijiMaeharaandStateMinisterYoshitoSengokuforNationalStrategyoverthe

ceilingontollsfortheHonshu-ShikokuHighway;theconfrontationbetweenEducation

MinisterTatsuoKawabataandStateMinisterYukioEdanoforGovernmentRevitaliza-

tionoverthereformofindependentadministrativecorporations;and,theconfrontation

betweenHealth,LabourandWelfareMinisterAkiraNagatsumaandHomeAffairsMin-

isterKazuhiroHaraguchioverfull-amountpaymentofchildallowances.

39 Ultimately,thisisaproblem ofpartydiscipline.・Ifpartydisciplineisweak,interest

groupswillhaveamuchbetterchanceofinfluencingthevotersofmembersofthe

legislature.・(AdolinoandBlake2001,48)

40 AccordingtoAsahiShimbun(February25,2010),atotalof30meetingwereheldduring

2009foreightministerialcommittees(including11onbasicpoliciesandsevenonbudget

compilation).During2010,onlythreemeetingswereheld,allinJanuary.Machidori

(2008,54)states,・Itistruethenewinstitutionalframeworkhadgreatpoliticalandpolicy

potential,asprovenbytheKoizumiAdministration.Butrealizingthispotentialrequires

acertaincontextaswellasstrategiesandtacticsonthepartofactors.・Inpractice,the

DPJAdministrationlackedthestrategiesandtacticstomakethesystemwork.

41 FormerDeputyChiefCabinetSecretaryTeijiroFurukawaidentifiesthefunctionsof

AdministrativeVice-MinistersMeetingstobethefollowing:(1)confirmingthatanissue

hasbeensufficientlycoordinatedbeforesubmissiontothecabinet,(2)conveyingthe

primeminister・sinstructionstothetopadministrativeofficersingovernmentministries

andagencies,and(3)sharingandconveyingofinformation(NihonKeizaiShimbun

Shuppansha2010,494).UndertheDPJadministrations,becausetheagendawascon-

trolledbythetopthreepoliticiansofgovernmentministriesandagencies,theadminis-

trativevice-ministerswerenotinformedofthedetailsandthereforecouldnotactin

liaisonandcoordinatingcapacities.

42 Forinstance,analyzingthebehaviorofCanada・sdeputyministerswhoareadministra-

tivetopofficials,Schacter(1999)pointsoutthatdeputyministershavetherequisite

skillstoworkacrossthegovernment,gatherinformationtosupporttheminister・sgoal,

andengageincoordinationonthedeputy-ministerleveltoensurethattheminister・s

initiativereachesotherministers.

43 ThemeetingofthegovernmentandtopthreeDPJofficerscomprisesthefollowingsix

members:PrimeMinister,ChiefCabinetSecretary,DPJSecretaryGeneral,Chairmanof

thePolicyResearchCommittee,ChairmanoftheDietAffairsCommittee,andActing

Policy-MakingProcessandRelationshipsbetweenPoliticiansandBureaucratsinJapan24

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SecretaryGeneral.Accordingtothismaterial,thepurposeofthisdecision-making

methodistobringthecabinetandtherulingpartytogetherinpromotingpolicies.The

materialalsostatesthatthisdoesnotcontradicttheprincipleofunifyingthepolicy-

makingprocessunderthegovernment,andthatthismethodisdifferentfrom the

methodofpriorexaminationandconsultationpracticedunderLDPadministrations.

44 ThestatusoftheAdministrativeVice-MinistersMeetingchangedundertheKanAd-

ministration.IntheMinisterialMeetingheldonDecember28,2010,ChiefCabinetSecre-

taryYoshitoSengokumadethefollowingrequestconcerningmeetingsofthetopthree

politiciansofgovernmentministries.・Wewantthegovernmentandbureaucracyto

workwithinaunifiedframework.Therefore,whereverpossible,werequestthatyou

allowadministrativevice-ministers,thedirectoroftheminister・ssecretariatandother

membersofthebureaucracytobepresentinyourmeetings.・(MainichiShimbun,De-

cember29,2010)OnJanuary21,2011,PrimeMinisterNaotoKaninvitedalladministra-

tivevice-ministerstothePrimeMinister・sOfficialResidenceandadmittedthat,with

respecttopolicycoordination,politician-ledgovernmenthadincertainareasgonetoo

faraftertheDPJhadcometopower.PrimeMinisterKanthenexplainedthatthefunc-

tionofpolicycoordinationwouldnolongerberestrictedtothetopthreepoliticians,and

thattheparticipationofadministrativevice-ministersandbureauchiefswouldhence-

forthbeallowed(YomiuriShimbun,January22,2011).

45 DeliberativecouncilsunderDPJadministrationshavefacedthesameproblem.For

instance,membershipoftheCouncilonIntensiveDeliberationonSocialSecurityReform

comprisesthefollowing.First,theCouncilhassevenexecutivemembersconsistingof

theprimeministerandrelatedcabinetministers.From theDPJ,ChairmanYoshito

SengokuoftheDPJResearchCouncilonFundamentalReform ofSocialSecurityand

Taxationisamember.From thePeople・sNew Party,ChairmanAkikoKameiof

People・sNewPartyPolicyResearchCouncilisamember.Expertmembersincludetwo

personsfromthebusinesscommunity,onepersonfromlaborunions,threescholars,and

fourotherexperts.Itisdifficulttodeterminewhatpowersandresponsibilitiesarevest-

edinacouncilconsistingofcabinetministers,rulingpartymembersandprivateindi-

viduals.

46 ExamplesincludeappointmentsoftheCommissioneroftheJapanTourism Agency,

Vice-MinisterforInternalAffairsandCommunicationsandSectionChiefs,andexecu-

tiveofficersofindependentadministrativecorporations.OnDecember25,2009,Land,

InfrastructureandTransportMinisterSeijiMaeharaannouncedthedismissalofthe

JapanTourismAgencyCommissionerYoshiakiHonpoandtheappointmentofHiroshi

Mizohata(aged49),aformerbureaucratoftheMinistryofInternalAffairsandCommu-

nications(NihonKeizaiShimbun,January8,2010).ItissaidthatMinisterMaehara

basedthisappointmentonpersonalfriendship.IntheappointmentofthePresidentof

theWelfareandMedicalServiceAgency,anindependentadministrativecorporation,the

SelectionCommitteeexamined56applicationsreceivedforthepostandnominated

ChikafusaAoyagi,aformercareerbureaucratoftheMinistryofHealth,Labourand

Welfare.However,thenominationwasrejectedbyHealth,LabourandWelfareMinister

AkiraNagatsuma,andanewrecruitmentcyclewasstarted.TheSelectionCommittee

onceagainnominatedChikafusaAoyagiasitssolecandidate.MinisterNagatsuma

againrejectedthenominationonthegroundsthat・Mr.Aoyagihasahistoryofclashing

withtheMinisterofHealth,LabourandWelfareontheissueofpensions.・(Yomiuri

Shimbun,April16,2010)

47 NihonKeizaiShimbun,January30,2010

48 AsahiShimbun,January8,2010

Policy-MakingProcessandRelationshipsbetweenPoliticiansandBureaucratsinJapan 25

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49 InBritainandotherWestminstercountries,theprimeministerandcabinetministers

basicallydonothaveauthorityoverpersonnelmanagementofcivilservants.Thepre-

sentauthordoesnotopposeallformsofpoliticalappointmentofcivilservants.For

instance,advisorsandstaffstoministersshouldbemadeaspoliticalappointmentsto

directlyreflectthewishesoftheminister.

50 Muramatsu(2010)conductedinterviewsurveysofbureaucratsandothersbetweenthe

mid-1970sand2003.Posingthequestion,・Whataretheconditionsforgoodpolicy-mak-

ing?・Muramatsuofferedrespondentsthefollowingfourchoices:(1)clearinstructions

fromlegislativebranch,(2)discretionaryauthorityofadministrativeofficerswithinthe

boundsofcertainguidelines,(3)gatheringtheviewsofvariousorganizations,(4)expert

analysis.Inthesecondandthirdsurveys,veryfewrespondentschoseresponses(3)and

(4),whilemorethan80% choseeither(1)or(2)(Muramatsu2010,75).Partlyinself-

admonition,NobuharuOkamitsu,formeradministrativevice-ministeroftheMinistryof

HealthandWelfare,haswrittenasfollows:・Intheexistingcareersystem,moreimpor-

tancetendstobeassignedtofrontlineskills(includinglobbyingtopreparetheground-

workandthe・politicsofgive-and-take・).Thishashadadeterminingeffectparticularly

onthebehaviorofbureaucratswhoparticipateinpolicyformulation.Asaresult,there

hasbeenatendencytopaylessattentiontoensuringanddevelopingthehighlevelsof

expertiseneededinproblemsolving.・(Okamitsu2002,254)

51 Tanaka(2007)hassuggestedtheintroductionofseniorexecutiveservicetoencourage

competitionamongexecutive-levelcivilservants.

52 Toconductinternationalcomparisonsofthestrategiccapabilitiesoftheexecutive

branchofgovernment,BertelsmannStiftung(2009)developedtheSustainableGovern-

anceIndicators(SGI)basedonaStatusIndex(SI),whichevaluatesthestatusofdemoc-

racyandeconomicandpolicy-specificperformanceofacountry,andtheManagement

Index(MI),whichevaluatesexecutivecapacityandexecutiveaccountability.Criteria

forMIconsistsof(1)steeringcapability(cabinetcomposition,strategiccapacity,inter-

ministerialcoordination,regulatoryimpactanalysis,societalcooperation,policycom-

municationofgovernmentpolicies),(2)resourceefficiency(legislativeefficiency,an-

ticipationofvetoplayers,effectiveimplementation),(3)internationalcooperation

(domesticadaptability,externaladaptability),(4)institutionallearning(organizational

reform capacity).Japanscores5.50onMI,whichplacesitin21stplaceamongthe30

OECDmembercountries.Norwayscoresthehighest(8.48),whileGreecescoresthe

lowest(3.33).IntermsofSI,Japanisranked22nd.

53 Amongforeigncountries,Britain・sStrategyUnitfunctionstosupporttheprimeminis-

terandthecabinet.Foracomparativeanalysisofsuchorganizations,seeWorldBank

(2010).

54 ThepanelwaschairedbyDr.KenHenry(SecretarytotheDepartmentoftheTreasury).

OtherpanelistswereDr.JeffHarmer(SecretarytotheDepartmentofFamilies,Housing,

CommunityServicesandIndigenousAffairs);ProfessorJohnPiggott(theUniversityof

NewSouthWales);Ms.HeatherRidout(theAustralianIndustryGroup);andProfessor

GregSmith(theAustralianCatholicUniversity).ItshouldbenotedthattheAustralian

systemdiffersfromtheJapanese.InAustralia,strictpoliticalneutralityisdemandedof

allcivilservantsrisingallthewayuptodepartmentsecretaries.Civilservantsarealso

expectedtofunctionasexperts.

Iio,Jun(2011).・Naikakukanryosei― tochinoryokunokojotowareru・(Cabinetand

Policy-MakingProcessandRelationshipsbetweenPoliticiansandBureaucratsinJapan26

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1.Introduction

AccordingtotheWHO(2008),thegroupofseriousmentalillnessesclassedas

schizophrenicdisordersrepresentthethirdmostprevalentdiseaseforpeopleaged

from15to44.Evenso,thefieldofpsychiatryhasyettodiscoveracureforthiskind

ofillness,andtreatmentsthatcurrentlyexistareextremelylimited(Davidsonetal.,

2010).Consequently,thetraditionalideaof・communityintegration・,basedonthe

assumptionthatpeoplewhobenefitfromcareandrecoverwillre-entercommunity

life,doesnotapplytothosewithseriousmentalillness.Thisconsiderationisleading

31

Abstract

Formorethantwentyyears,socialcooperativeshaverepresentedasustainable

socialbusinessmodelofworkingwithdisadvantagedworkers,includingthemen-

tallydisabled.Intheseorganizations,whichencourageworkerstobecomemembers

andco-owners,astress-freeworkenvironmentisfosteredinwhicheveryonecan

developcreativesolutionstoproblems,makedecisionsaffectingthewellbeingof

others,anddealwithemotions.Sinceinception,theyhavecreatedthousandsofjobs

andcareerpathsfordisadvantagedworkersandgiventhemthechancetofeelfully

apartofthecommunity.Thecontentionthatisarguedinthispaperisthatthereare

threemajorfactorswhichaccountforthesustainabilityandgrowthofthismodel:

goodregulation;asupportivesystemofinfrastructures;anddemocraticoperational

governance.Thesemakethesocialcooperativeaninspiringexampleoftheoutcomes

thatarepossiblewhendisadvantagedworkersareproperlytrainedinasupportive

environment;itisamodelwhichcouldwellprovesimilarlysuccessfulifcopiedin

otherpartsoftheworld.

Thescopeofthisstudywastoexploreorganizationalgoalsandrepertoiresas

wellassupportstructuresandnetworksofsocialcooperativesinordertoidentifythe

majorfactorswhichmakethisbusinessmodelsosuccessful.Theauthordrawsonhis

recentworkonsocialcooperativesandpresentssecondarydataonB-typesocial

cooperatives,includingacasestudy.

Keywords:socialcooperatives,disadvantagedworkers,organizationalgoals&reper-

toires,supportstructure&network,Italy

DisabilityandEmploymentTheSocialCooperative

asaSustainableSocialBusinessModel

RosarioLaratta,Ph.D.

AssociateProfessor

GraduateSchoolofGovernance

MeijiUniversity,[email protected]

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toanewvisionof・recovery・withinthesocialpsychiatryandmentalhealthcommu-

nity,ashiftawayfrom communityintegrationtothemorepromisingideaof

・communityinclusion・,whichisnowacceptedglobally.Thisnewparadigmargues

thatpeoplewithlong-termpsychiatricdisabilityshouldbeacceptedandwelcomed

bytheircommunitieswithwhateverconditiontheymayhave,withouthavingtobe

cured,fixed,orotherwisemadetoconform toselectedsocietalnormsfirst.This

paradigm alsogeneratesanewunderstandingoftheconceptof・recovery・as・be-

inginrecovery・,whichmeansleadingadignifiedandfulfilledlifeinthefaceofan

ongoingmentalillness(asopposedtothemoretraditional/medicalideaof・re-

coveryfromdisorder・).

However,thisposesthequestionofhowtofostercommunityinclusionforpeo-

pleinrecovery.Onepossibleanswerhasbeenexploredwithinthelasthalfcentury,

however,largelywithinWesternEuropeancountriesandbeginning,atleastby

someaccounts,withtheworkofthehusbandandwifeteamofFrancoandFranca

Basaglia,innovatorsinthetreatmentofmentalhealthdisorders,andtheDemocratic

Psychiatrymovement(DP)theyhelpedtofoundinItalyinthe1960s(ibid).

TheinhumantreatmentofpsychiatricpatientsinmanypartsofItalyhadpro-

vokedmuchpublicdisquiet,asituationthatnodoubthelpedthemostradicalre-

form withinpsychiatrythatWesternEuropehadeverexperienced.Indeed,the

squalid,inhumanconditionsinasylumslikeGoriziabecamevaluabletoolsfor

FrancoBasagliawhenhewasdevelopingDPandgavecredencetohisstridentasser-

tionthatpsychiatristshadtobecomepoliticianswithinthesystem.Thepsychiatric

patients・realproblem wasnottheirmentalillnessbutratherthewaytheywere

treatedandhowtheywereviewed;inparticulartheirbeingtreatedasmiscreants

ratherthanpatients,leadingtotheirincarcerationandexclusionfrom therestof

community.Onceisolated,thepatientwouldalmostinevitablybecomesubjectedto

themostdehumanizingandhumiliatingregimewhere,asBasagliadisturbingly

describedit,・medicalideology[became]analibiforthelegislationofviolence・

(Basaglia,1964).

DPwasamainlyleftwingpoliticalorganizationofmentalhealthworkerswho,

by1978,werealreadyinvolvedindismantlingasylums,suchasthoseinParmaand

Trieste.Itsfundamentalprincipleswere:firstly,tocontinuethefightagainstsocial

exclusionthroughoutpsychiatry,bothintheworkplaceandinthewayinsanityis

representedandperceivedculturally;secondly,tocondemntheasylumitselfasthe

mostobviousandviolentparadigm ofexclusion;thirdly,topreventthereproduc-

tionofinstitutionalmechanismsinthecommunity;andfinally,toestablishaclear

linkbetweenhealthcareandmentalhealthcare,especiallythroughthereform of

theItalianmentalhealthcaresystem(S-Hughes&Lovell,1986).

In1977,DPassistedtheRadicalParty,amovementprimarilyconcernedwiththe

defenseofhumanrights,tocollecttogetherthree-quartersofamillionsignatureson

apetitiontoreformthementalhealthlegislationandtherebytobanadmissionto

mentalhospitals.UnderItalianlaw,suchapetitioncouldhaveforcedanational

referendumontheissuepossiblyprecipitatingacollapseofgovernment.Toavoid

suchadisaster,thegovernmentintroducedLaw 180inMay1978andthereby

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initiatedthedismantlingoftheasylum.

Recentlyvacatedpartsofasylumswereputtootherusesandthisbecameakey

strategyforcommunityinclusionaswellasasteptowardrespectingtherightsof

theresidents.TheBasagliasterminatedthe・worktherapy・programthroughwhich

residentshadperformedmenialdomestictasksinexchangefortokensand,instead

ofpromotinganartificial・tokeneconomy・,institutedaprogramtoencourageresi-

dentswhowereableandinterestedtotakeonjobsinreturnforalevelofpaythey

wouldhavereceivedforsimilarworkinthecommunity.Thistransformationof

passiveorindenturedresidentsintocompetitiveworkersyieldedanenormousop-

portunityforemploymentinarangeofindustriesbeyondthedomesticandfood

services,withapproximatelyhalfoftheresidentpopulationexpressinganinterest

inworking.From thismodestbeginning,andconsistentwiththeprinciplethat

citizenshavetherighttoadecentwagefortheirmeaningfullabor,themodelof

socialcooperativeswasborn.

Today,socialcooperativesemployamixedworkforce,somewithdisabilities

andothersnot.Theseenterprisesareabletoremuneratetheiremployeesatalevel

comparabletotherestofthebusinesssectordrawingeitherongovernmentsubsi-

diesusedtocompensateforreducedproductivityor,whenpossible,ontheirown

self-sustainingproductivity.BeginningwiththeirinceptionintheTriesteasylum,

socialcooperativeshavesincebecomehighlyvisibleacrossthelocalbusinesssector,

atonepointaccountingfor45differentareasofoperation.Itis,infact,difficultto

spendanyamountoftimeinTriesteandnotcomeintocontactwithsomekindof

socialcooperative.Thismodelhassincebeenreplicatedinvariousformsinnumer-

ousEuropeancountriesandelsewhere.

Thisstudywillexploreorganizationalgoalsandrepertoiresaswellassupport

structureandnetworksofthesecooperativesinordertoidentifythemajorfactors

whichmakethissustainablebusinessmodelsosuccessful.

2.TheDevelopmentofSocialCooperativesinItaly

WiththeenactmentofLaw180in1978,nowcalledtheBasagliaLaw,itwas

decreedthatallasylumsandpsychiatrichospitalshadtobeclosedandtheirpsychi-

atricpatientstransferredtoalternativementalhealthservicesavailable,ortobe

madeavailable,inthecommunity.TheLawalsorequiredgeneralhospitalsserving

apopulationof200,000peopletoestablish15�bedunits,laterknowasDiagnosisand

Cureunits,forpsychiatricpatients.Ifaseriouslyillpersonrefusedtreatment,com-

pulsoryadmissionfornolongerthansevendayswaspermittedonlywiththeap-

provalatleasttwodoctorsandthecitymayor,withthelatteractingaschieflocal

healthofficerratherthaninanylegalcapacity,andtheirapprovalhadtobere-

viewedbyajudgeaftertwodays.Finally,inadditiontoprotectingexistingstaff

fromredundancy,Law180statedthatnonewasylums/mentalhospitalsweretobe

built,norexistingonesusedasannexes,bythegeneralhospitals.

TheperiodwhichimmediatelyfollowedtheenactmentofthenewLawwasnot

aneasyoneforlesswell-equippedhospitals.Somepsychiatricpatientsrelapsed

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becauseofthesuddentransitionintocommunitiesorfamiliesthatwerenotreadyto

welcomethem.Oneofthefirstobjectives,therefore,wastointroduceapsychosocial

processdirectedatre-integrationthroughwork,whichwasseenasoneofthemost

suitabletoolstoassistpsychiatricpatientstore-establishrelationshipswiththem-

selvesandtheworld.

Afirststepinthisstrategywastocreate・integratedcooperatives・atcommunity

level.Thesewerenonprofitbusinessesinwhichpsychiatricpatientsandotherdis-

advantagedpeople(suchastheunemployed,homeless,andimmigrants)would

workandtakeonco-ownershipunderprofessionalguidance.Thisguidancecould

comefrom ex-asylum staffwho,althoughre-employedingeneralhospitalsasre-

quiredbylaw,werelookingtoboosttheirsalaries,orfromdoctorswhohadprevi-

ouslyknowntheworkersaspatients.

Theworkersbecameregisteredunionmembersandreceivedasalaryinaccor-

dancewithstandardunioncontractsforeachcategoryofwork.Althoughthepro-

fessionalmentorspropagatedakindofhierarchicalsystemwithinthecooperatives,

theyprovidedmanymarginalizedpeoplewithworkopportunitiesthatwouldother-

wisehavebeendifficulttofindthroughconventionalmeans.Indeed,someworkers

madeapermanenttransitionfrom awelfareenvironmenttoaproductiveone

throughtheirparticipationinacooperative.Inthe1980s,integratedcooperatives

playedadecisiveroleindrivingthegrowthoftheItalianThirdSectoreventhough

theirdevelopmentwasforalongtimeonlypartiallysupportedwithinalegalframe-

work.

Itwasnotuntil1991,withtheintroductionofLaw no.381,thatthistypeof

co-operativewasrecognizedandgiventhenameof・socialcooperative・.TheLaw

createdadistinctionbetween:a)cooperativesdeliveringsocial,healthandeduca-

tionalservices,whichweredesignatedA�typeandconsistedmainlyofsocialor

healthworkersandprofessionals;andb)cooperativesproducinggoodsandsupply-

ingagricultural,industrial,commercialorotherservicesforprivatecustomersorfor

publicagencies,withtheobjectiveofachievingtheintegrationintoworkofdisad-

vantagedpeople.TheLaw381defines・disadvantagedpeople・asbarelyemployable

workerscomprisingpeoplewithseveredisabilities,peoplewithmentalillness,drug

addictsorpeopleinstateprisons,andspecifiesthattheymakeupamandatory

minimumof30%oftheworkers/membersofanyB�typesocialcooperative(Laratta

etal.,2010a).

Itmustbenotedthatwhiletheconceptofthesocialcooperativewasprobably

themostinnovativestrategyeveradoptedatcommunitylevelinItalianmental

healthcare,thisisnottosaythatotherinnovationsstemmingfromthegovernment

reformsof1994and1998werenotimportant.However,theyarenotwithinthescope

ofthispaperandsowillhavetobeexploredseparately.ThedistinctionbetweenA

�typeandB�typesocialcooperativeswasclearlynecessarybecauseLaw381pro-

videdfora33% exemptionfrom socialsecuritycontributionsforeachdisadvan-

tagedB�typeworkeremployed.

AnothersignificantfeatureofLaw 381wasthatitclearlydefinedthesocial

co-operativeasaworker-ownedorganization ofwhich participants(including

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managersanddisadvantagedworkers),clients(peoplewhobenefitfrom services

providedbythecooperative),volunteers(whobylawcannotcomprisemorethan

50% ofthetotalworkforce),publicinstitutionsandfinancialbodies,canbecome

membersandmayshareinthedistributionofupto80% ofthetotalprofits.A

nationalsurveyonasampleof320socialcooperatives(ICSI2007)1showedthat,

whilsttheytendnaturallytoincludetheirmembersindecision-makingprocesses,

theclients,eventhoughlessinvolved,arealsooftenbroughtintotheprocessinfor-

mally.Ofthesocialcooperativessurveyed,98% includedworkers/volunteersin

theirmembership,and91% hadthem ontheirboardofdirectors;only9.4% could

countclientsasmembersoftheirorganization.Nevertheless,ononehand,having

volunteersinthemembershipandontheboardofdirectorscanbeconsideredasa

safeguardofclients・needs,sincesocialservicessectorvolunteersarefrequently

consideredas・substitute・clients.Ontheotherhand,halfofallsocialcooperatives

saytheyinvolvetheirclientsinstrategicdecisionmaking,whilenearlyallofthem

adviseandinvolvethem throughinformalcommunications.Characteristically,

Italiansocialcooperativeshaveahighlevelofmulti-stakeholdermembership.Just

underhalf(49.6%)ofthecooperativesstudiedincludediversestakeholdertypolo-

giesbothintheirmembershipandintheirboardofdirectors,andapproximatelya

third(32.2%)haveamulti-membership,withasingle-stakeholderboardofdirectors.

Inrecentyears,socialcooperativeshavebeenthemainengineforthesupplyof

socialservices.Theyhaveansweredthelimitedcapacityofpublicorganizations

andcompaniestomeettheneedsofspecificgroupsofpeople.Followingthere-

orientationofthepublicwelfaresysteminthe90s,withreformsintheprovisionof

socialservicesandthedevolutionofcontroltolocalauthorities,bothcentraland

localpublicauthorities,aswellastheiragencies,progressivelyoutsourcedthedeliv-

eryofservicestosocialcooperatives.In2005,almosthalfofthesocialspendingof

mediumandlarge-sizedItaliantownswasmanagedbysocialcooperativesandthey

wereawardedapproximately80% ofalllocalauthoritycontracts,ofwhicharound

70%resultedfromnegotiatedagreementsbetweenthetwosectors.Onlytheremain-

ing30% camefrom opencompetitivetenders(Larattaetal.,2010b).Thisatleast

partiallyexplainstheproliferationofsocialcooperatives,whichincreasedinnumber

fromalittleover1,000beforeregulationtonearly3,900in1996andreachednearly

12,000in2009(ibid).

3.B�typeSocialCooperatives:OrganizationalGoals&Repertoires

andSupportStructure&Networks

B�typesocialcooperativesspreadrapidlyoveraperiodofyearsthroughout

Italyandabroad.Theyalsounderwentamarkedevolutionintermsofbothorgan-

izationalgoalsandrepertoiresaswellasintheirsupportstructureandnetworks.

Asmentionedabove,socialcooperativesevolvedfrom whatwereknownas

・integratedcooperatives・whosepurposewasthestableintegrationofpsychiatric

patientsandotherdisadvantagedgroupswithinthecommunity.Thisgoalhas

gradually shiftedtowardthatofinclusion ofthedisadvantaged(which still

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comprisesmentallyillpeopleinthemain)inthecommunity.Infact,B�typesocial

cooperativesarenowaimingatincreasingemploymentopportunitiesfordisadvan-

tagedworkersoutsideoftheorganizationthroughinnovativeandcreativeactivities

andon-the-jobtrainingtohelpthem leadafullanddignifiedlife.Thischangeof

goalhadalsoalteredthetypeofmarketcontractswhichB�typesocialcooperatives

embrace.Whenthegoalwasthatofintegrationofthedisadvantagedworkerwithin

thecooperative,open-endedcontractswerethenorm but,withtheircurrentgoal,

theyaremakingmuchmoreuseoftemporarycontracts.However,thecooperatives

canonlyenterintocontractsthatconform toaspecificframework,namelythe

・nationalcontractforsocialcooperatives・(NCSC),whichregulatesworkingrela-

tionsandconstitutesacommonbasefordebateswiththepublicadministration,a

crucialfeatureforsuchenterprises.Infact,attimes,publicadministrationscan

drawonpowerswhichgobeyondtheregulationsimposedbyLaw381.Forexample,

onequiteimportantarticleoftheLawestablishesthatpublicadministrationscan

assigncontractstoB�typesocialcooperatives,eventhoughthisisnormallynot

permittedundercontractlaw.Furthermore,theyareallowedtointroduceintothe

conditionsofcontractaso-called・socialclause・,whichimposesacontractualobliga-

tiontoemployaspecifiednumberofdisadvantagedpeople(Larattaetal.,2011).

ThispartlyexplainswhyLaw381,asmentionedinthepreviousparagraph,provided

forpublicinstitutionstobecomemembersofsocialcooperatives.Theideaisthat,if

publicinstitutionsholdbothmemberandstakeholderstatus,theywilltakepartin

theconstructionofthebudgetandassumegreaterresponsibilityforattainingthe

resultssetoutbytheorganization.Thishastheeffectofcreatingafullytransparent

anddemocraticallygovernedorganization.

B�typesocialcooperativeshavealsoevolvedintermsoforganizationalreper-

toire,whichClemens(1999:62)describesasmodelswhich・comprisebothtemplates

forarrangingrelationshipswithinanorganizationandscriptsforactionculturally

associatedwiththattypeoforganization;theycarryculturalexpectationsabout

whocanorganizeandforwhatpurposes・.Whenintegratedcooperativeswerefirst

created,manyofthem weredominatedbyaprofessional-psychiatricapproach.

Disadvantagedworkerswereseenintermsoftheirneedsandcondition,andthese

usuallyprovidedthebasisforprofessionalschemasandemploymentplans;the

disadvantagedwereessentiallydependentandhadlittleopportunitytocontribute

tothecooperative;theyweresimplyviewedasadifferenttypeofworkercompared

tootheremployeesandvolunteers.Therelationshipbetweentheprofessionaland

thedisadvantagedwaseffectivelycontractual,withtheformerbeingexpectedto

followethicalstandardsofprofessionalpractice,eventhoughthesewereoftencon-

strainedbyfundinglimitationsorotheraccountabilityissues.However,afterthe

enactmentofLaw381in1991,theirnewlyacquiredlegalstatusencouragedB�type

socialcooperativestoinitiateaquitedifferentapproach.Forexample,itbecame

expectedthatrelationshipswouldbeegalitarianandfoundedinpersonaldignity,

ratherthanhierarchical;empowering,ratherthandiminishingandfocusingon

workers・strengths,ratherthanontheirpathologyordiagnosis.Anyonecouldbea

member,co-owningthecooperative,participatinginthemanagementofitand

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partakinginallitsdecision-makingprocesses.Recentresearchconductedamong

membersofoneB�typesocialcooperativefoundthateventhoughtheirmonthly

salarieswerelowerthanthosepaidtoemployeesofotherenterprises,theirlevelof

jobsatisfactionwasmuchhigher(GaleraandBorzaga,2009).Whatisclearfrom

thisstudyisthatoneofthereasonsforsuchasenseoffulfillmentwasthecollabo-

rativenatureoftheorganizationinthatthememberswithanentrepreneurialinter-

estandthoseconcernedwithday-to-dayactivitiesaresubstantiallythesamegroup.

Thiscreatesastress-freeworkenvironmentinwhicheveryonecandevelopcreative

solutionstoproblems,makedecisionsaffectingthewellbeingofothers,anddeal

withemotions.Finally,B�typesocialcooperativeshavebeenabletoevolveby

creatingaroundthemastrongsupportiveenvironmentthroughconsortiaandfund-

ingschemeswhichfocusontheirspecificrequirements.Manyofthefirstintegrated

cooperativeswereunabletosurvivethestrongcompetitionforfundingalongwith

thepressureofaccountabilityfrompublicadministrationsandfoundations.B�type

socialcooperativeshaveovercomethisobstaclebynetworkingamongthemselves,

beinginformallyinvolvedinprojects,andfinallyestablishingtheirownconsortia

whichactasumbrellaorganizationsforthem.These,forexample,provideservices

suchasthepreparationofjointtenders,fundraisingforbiggerprojects,andpayroll

administration.Fromtimetotime,municipalcontractsaregivendirectlytoconsor-

tiawhichthensub-contractthemtotheirsocialcooperativeaffiliatesandmonitor

theactivitiesoftheirmembersthroughauditprocesses.Thisalsofacilitatesabetter

distributionoffundsandfewerfundingpressures.Cooperativescanalsoborrow

frombanksatlowerratesofinterestwhenarrangementsarenegotiatedandloans

guaranteedbytheconsortia.Theseareusuallyestablishedatregionallevelbut

coordinatedbyafewnationalconsortiaworkingclosetocentralgovernment.This

systemofconsortiaisthenassociatedwithseveralgrantschemeswhichhavebeen

putinplacespecificallytosupportB�typesocialcooperatives.Oneexampleofthis

istheMarconiFund,whichconsistsinsocialcooperativesinvesting3% oftheir

annualincomeforthepurposeoffinancingnewsocialcooperatives.Fundingfor

socialcooperativesortheirconsortiaalsocomesfrom ・cooperativebanks・,which

differfromthenorminthatthemaintargetoftheirinvestmentsissocialcoopera-

tives(ForadetaileddescriptionofcooperativebanksinItaly,pleaseseeGoglioand

Alexopoulos,2012).Inadditiontoconsortiaandfundingschemes,socialcoopera-

tivesalsoenjoyagoodrelationshipwithlocalindustryasaresultoftheenactment

ofLaw68in1999.ThisLawregulatestheemploymentrightsofthedisabledand

requireslocalfirmstohiredisadvantagedpeopleortosub-contractcertainservices

toB�typesocialcooperativesinsteadtherebyfosteringnumerouslong-termpartner-

ships.

4.ACasestudy:IlTetto

IlTetto(pseudonym)isaB�typesocialcooperativelocatedinthenorthern

ItaliancityofTurinandispartofaregionalconsortium.Itoriginatedin1989

throughtheeffortsofparentsandfriendsofmentallydisabledpeopleasaninte-

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gratedcooperativewiththeobjectofcreatingjobopportunitiesforlocaldisabled

peopleandrananumberofday-timeemploymentcentersplusaresidentialarea.In

1992,IlTettoregisteredasaB�typesocialcooperativebecauseitrealizedthatLaw

381offeredanopportunitytodevelopand,inthesameyear,enteredacontractwith

thelocalhealthandcareunittoexpanditsscopetoassistothertypesofdisadvan-

tagedpeople.Nowitemploys96people,comparedwith9whenitstarted,andhas

aturnoverof�2.4million.Alltheworkersarealsomembers,including48mentally

disabledpeopleand20formerdrugaddictsandpeopleondayreleasefromprison.

IlTettocurrentlyprovideson-the-jobtrainingfordisadvantagedworkersand

employsthem inkeysectors:landscapegardening,cleaning,wastedisposaland

recycling.BeforejoiningIlTettopeopleneedtobeproperlyassessedtodetermine

whattaskstheycansafelyundertake.Thisprocessstartswithanevaluationofhow

compatibletheapplicant・sabilitiesarewiththeworkofthecooperativeandthen

developsintoapersonally-tailoredemploymenttrainingprogram.Asapartofthis

training,members・individualgoalsareidentifiedthroughone-to-oneinterviews

withotherworkers.Thesegoalsarethenbrokendownintoeasilymanageablesteps

andthetrainee・sprogressreviewedonaregularbasis.Thefinalgoalistocreate

careerpathsfordisadvantagedworkerstomovebeyondtheentryleveljobs.This

allowstheworkertogainalevelofself-respectandequalitywithothersinthe

workplaceandsoexperienceasenseofinclusioninthecommunity.Everyday

membersworkside-by-sidewithoutassistancefrom eitherprofessionalornon-

professionalworkers.Everyonehelpsandencourageseachotherandthishas

provedtobemoreeffectivethanreceivingsupportfrom・professionals・.Thecentral

taskofformermembersistoengagenewmembersinrealandmeaningfulworkand

tofacilitatepeersupportbetweenthem,whichistheglueofthesocialcooperative.

Itisalmostimpossiblewhenvisitingthiscooperativeorseeingmembersworking

outsidetodistinguishthedisadvantagedworkersfromtheothers.Indeed,asthey

allundertakeveryusefulandnecessaryactivitiesforthecity,evenlocalresidentsin

Turinareunlikelytorealizethatthepersonwhocleansthecitysquareeverymorn-

ing,forexample,isamentallydisabledpersonoraformerdrugaddict.

AsaB�typesocialcooperative,IlTettorecognizestheimportanceofcollabora-

tionwiththelocalpublicauthority.Turin・slocalauthorityhashadacloseworking

relationshipwithIlTetto,contractingouttothecooperativemorethan60% ofits

manualworktasks.Thispartnershipisalsokeptalivebythefactthatoneofthe

articlesofLaw381statesthatsocialcooperativescanonlycharge4% VAT,com-

paredtothe20% standardratechargedbyfor-profitenterprises.Thecooperative

couldalsonotsurvivewithoutthesupportofaregionalconsortium.IlTetto,infact,

hasbeenusingthelocalconsortium asaforum tofurtheritsinterestsandinthe

promotionofitsownbrandidentity.Theconsortiumimposesalimitonthenumber

ofemployeesandcontractsthatitsaffiliatesocialcooperatives,likeIlTetto,may

have.Themainreasonforthisistoensurethatallaffiliatesdevelopalongequal

lines,therebyavoidingthepossibilitythatonemightexpandtothedetrimentof

another.Till1999,IlTettohadonlyonefor-profitpartnerbut,followingtheenact-

mentofthenewlawonemploymentrightsfordisabledworkers,Law68/1999,the

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numberroseto22which,inturn,contributedtothecooperative・sdramaticincrease

inturnover,andprovidedconsistentlypositivebalances.Asaresult,IlTettoisalso

abletomakeanuntaxedannualcontributiontotheMarconiFundwhichhelpsto

financetheestablishmentofnewB�typesocialcooperativesinotherpartsofthe

country.

OneactivityinparticularshowshowIlTetto,thelocalauthorityandanumber

ofprivatefirmsinTurinareformingakindofco-productionpartnershipwhichis

equallybeneficialtoallpartners,andthisistherecyclingofpaper.Thelocalauthor-

ityasksIlTettotocollectitswastepaperforrecyclingbecausethecooperativecan

offerthisserviceatareducedcostduetothelowerVATcharge;alocalfirmwork-

ingexclusivelyinpaperrecyclingasksIlTettotodeliverthepapertheyhavebeen

collectingeverydaybecauseitischeaperthancollectingitthemselves.Thesocial

cooperativebenefitsinthissituationfromtwocontracts― onepublicandonepri-

vate― andthethreesectorshavebeenworkinginsuccessfulpartnershipformany

years.Whatismore,therecyclingfirm onlyneedtoturntoIlTettoiftheyare

lookingforstaffandtheyhaveaselectionofready-trainedpeopletochoosefrom.

Thisworkswellforboth;therecyclerssavethecostoftraininganewemployee,and

thesocialcooperativecanmoveaworkerbeyondentrylevelandtakeonsomeone

else.Atthebeginningof2010,theprojectforanew,biggerandmorefunctional

locationforthecooperativewasstarted.Theprojectwasself-fundedatatotalof

�200,000withasmallpartofthecostbeingpaidbythelocalauthority.Otheractivi-

tiescontinuetoariseandthecooperativeiscurrentlyplanningtostartaninternal

trainingandexternalcommunicationprogram throughabi-monthlypublication

withacirculationofaround3,000andtosetupaninternationalcollaborationproject

withanArgentinianpartner.

5.Conclusion

Formorethantwentyyears,B�typesocialcooperativeshaverepresenteda

sustainablesocialbusinessmodelofworkingwithdisadvantagedworkers,including

thementallydisabled,andreunitingthemwiththecommunity.Thecooperatives

havecreatedthousandsofjobsandcareerpathsforpeopleforwhom movingbe-

yondentry-leveljobswouldhavebeensimplyunthinkableinpreviousdecades.

Throughcarefulconsiderationofsuitableandinnovativeeconomicactivitiesde-

signedtofittheworkers・abilities,thecooperativeshavebeenabletoaddressthe

stigmaassociatedwithmanydisadvantagedgroups.

However,beyondthissuccess,amodelofpublicserviceco-productionhas

emerged.Bybuildingoneachother・sassets,experiencesandexpertise,socialcoop-

eratives,publicadministrationandfor-profitenterpriseshaveshownthatlocalserv-

icescanbedeliveredmoreefficiently,withtheby-productthatdisadvantaged

workersarebeingemployed,regainingself-respectandfeelingpartofthecommu-

nityagain.Thisco-productionmodelissupportedbythreefactors:a)effectiveregu-

lationbylawswhichsustainco-producedservicesanddisadvantagedworkersof

socialcooperatives;b)asupportsystemofinfrastructuressuchasconsortia,coopera-

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tivebanksandfundschemeswhich:promotetheactivitiesofsocialcooperatives;

monitortheiractivitiesbyplacingaccountabilitydemandsonthem;andprevent

overexpansion;c)atotallydemocraticoperationalgovernancewheretransparency

amongstakeholdersandpeer-supportbetweenmembersgivecohesiontoitseffec-

tiveperformance.

ItalianLaw381/1991onsocialcooperativeswasthefirstpieceoflegislaturein

Europetorecognizetheimportanceofsocialbusinesses.Inthelast10yearsthere

hasbeenwidespreadrecognitionofthismodelelsewhereinEuropewhichhas

promptedtheintroductionofsimilarregulations,anexamplebeingthoseoftheUK

officeofRegulatorofCommunityInterestCompanies,broughtinundertheCompanies

Actof2004.Underlyingthisrecognitionisadeepawarenessbyadministrationsthat

thissocialbusinessmodelnotonlyhelpstoprovidelocalservicesinamorecost-

effectiveway― someNobelPrizewinnersforEconomicshavepredictedthatthe

richestItalianmunicipalitieswouldenteraperiodofdefaultifsocialcooperatives

ceaseddeliveringtheirservices― butalsoprovidesthesolutiontothequestionof

howtoincludedisadvantagedgroupsofpeople,suchasthementallydisabled,into

thecommunitysothattheybecomeproductivemembers.Thecurrentpolicyin

manycountriesistoprovideexpensivetherapyforpeoplewithmentalhealthchal-

lenges,whilethesocialcooperativemodelembedsrehabilitationintothephilosophy

ofsufferersactuallysupportingoneanotheronthepathtorecoverythroughwork

integration.Certainly,thisisnottheonlymodelworkingtowardsuchanoutcome,

butitissurelytheonewiththelongesthistoryandsocialandeconomicimpact.

Socialcooperativeshavebecomeanimportantandthrivingsectorofonenational

economyandwouldbeworthintroducingintootherpartsoftheworld.

1 ICSI2007(IndaginesulleCooperativeSocialiItaliane)investigatedbothA�andB�type

cooperatives,andusedacomplexprocessofsamplingdesignedtorepresentthetotalby

typology,region(North-East,North-West,Central,andSouthItaly),andsize(fewer

than15,15�50,andmorethan50employees).Someoftheresultsoftheinvestigation

werepresentedinBorzagaandDepedri(2007)andLarattaetal.,(2010a).

Basaglia,F.(1964)Ladistruzionedell・ospedalepsichiatricocomeluogodiistituzionali-

zzazione[Thedestructionofthementalhospitalasaplaceofinstitutionalization].

Retrieved 04/03/12from http://www.triestesalutementale.it/letteratura/testi/35distr.

htm

Borzaga,C.andDepedri,S.(2007).Quandolerisorseumanefannoladifferenza.Unnuovo

modellodirelazioniindustrialiperl・impresasociale[Whenhumanresourcesmakea

difference.Anewmodelofindustrialrelationsforsocialenterprises].ImpresaSociale,

76(3):82�114.

Clemens,E.(1999).Organizationalrepertoiresandinstitutionalchange.InSkocpol,T.and

Fiorina,M.(Eds.).CivilEngagementinAmericanDemocracy.DC:BrookingsInstitutions

Press.

DisabilityandEmployment40

Note

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referencetolocalsocialenterprisesinItaly.TaiwaneseJournalofSocialWelfare,9(1):

139�163.

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DisabilityandEmployment42

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1.Introduction

Russiaistheworld-wideknownproducerandexporterofoilandgas.The

country・soilandgassectorsemploylessthan3percentofitsworkingpopulation,3

buttheycontributeover50percentofRussia・sbudgetaryrevenue,makeupover30

percentofGDP,accountformorethan40percentofinvestmentand75percentof

merchandiseexports.4 Yet,Russiaisnotoriousforitscontinuedfailuretoputin

placeadequatenaturalresourcegovernance.TheRevenueWatchInstitutegrants

Russiaascoreof56(outof100)andranksit22nd(outof58countries)intheevalua-

tionofResourceGovernanceIndex(RGI).5 Accordingtothe2013RGI,Russia・s

highestevaluationforSafeguardsandQualityControlswasstillthe24thrank(outof

58)withscore62(outof100)withparticularlyproblematicareasbeingcheckson

licensingprocessandmanagementofnaturalresourcefunds.Thelowestrank

(26th/58)andscore(39/100)wasonEnablingEnvironmentoverRussia・spoor

43

Abstract

ThearticleexaminessomeoftheinstitutionalaspectsofRussia・scontemporary

gaspolicytowardsNortheastAsia(NEA).Backinthe1990s,developmentofnatural

gasdepositsintheRussianFarEastwasmadepossibleundertheschemeofproduc-

tionsharingagreements.CompletionofLNGplantinSakhalinin2009helpedRussia

entertheNEAs・gasmarkets.In2013,Russiahaseffectivelyestablishedatwo-pattern

policyforgasexport,wherebytheEU-orientedpipelinegasexportremainsmono-

polisedbyGazprom,whilethePacificRim-orientedLNGexport(currentlyoperated

byaconsortium ofinternationalcompaniesunderGazprom・scontrol)ispartially

liberalised.RussiangaspolicytowardsNEAisexploredthroughtheprismofdomes-

tic(bothinnationalandregionalscopes)andexternalfactors.Specificattentionis

paidtoshowhowtheregion-specificpatternofenergypolicyisutilisedintheRus-

siangovernmentcommunicationoftherationaleandthegoalsforitsAsia-oriented

gaspolicy.

Keywords:gaspolicy,Russia,EasternSiberiaandFarEast(ESFE1),NortheastAsia

(NEA2)

InstitutionalDimensions

inRussia・sNaturalGasPolicyinNortheastAsia:Someanalyticalobservations

ElenaShadrina

AssociateProfessor

GraduateSchoolofGovernanceStudies

MeijiUniversity

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performanceonmeasurementsofcorruptioncontrol,democraticaccountabilityand

theruleoflaw.Russiareceivedascoreof60(andthe20thrank)forReportingPrac-

tices,whichreflectsalackofcontracttransparencyandincompletegovernment

reportingonmostaspectsoftheextractivesector.TheMinistryofFinance,the

MinistryofNaturalResourcesandEcology,theFederalSubsoilResourcesManage-

mentAgency,theCentralBankandtheFederalStatisticalAgencyarenamedfor

theirunacceptablypoorlyorganizedandincompleteannualreportsprovidinginsuf-

ficientinformationabouttheextractiveactivities,exportprices,taxation,etc.

Russia・sInstitutionalandLegalSettingwasfoundineffectiveresultinginarankof38

andscoreof57.Legalframeworksareevaluatedasbeingoftenambiguous,out-

dated,andmarredbymultipleamendments,whichleavesroomforarbitrarydeci-

sion-makinginthelicensingprocessinfavourofstate-ownedcompanies(SOCs).

Environmentalimpactassessmentsaresaidtobeeasilypoliticizedandoftenwith-

heldfromthepublic.Russia・slegislativeprovisionsforstatesecretsarefoundtobe

over-appliedtoinformationrelatedtotheoilandgasindustries.

Forafairlylongtime,Russianenergywasheavily(andratherunjustly)politi-

cized.Russia・sexternalenergytieswerestudiedfornootherreasonbuttofinda

sourceofirreconcilableconflictandanillustrationofhowpowerpoliticsdecidesthe

outcomeofRussia・senergyrelations(Balmaceda2008;Goldman2008;Klare2008;

Rangsimaporn2009;Wenger,Orttung,andPerovic2009;PascualandElkind2010;

Baev2010;Chowetal.2010).Afreshstreamofliteratureswhichcanbegenerally

classifiedwiththeareaofpoliticaleconomy(foritsmajorfeaturetoemphasise

cooperativenatureofenergyandinvolvedwithitinterplayofeconomicsandpoli-

tics)hasbeengrowingrecentlycontributedbystudiesbyFinonandLocatelli

(2007),Bayulgen(2010),Bhattacharya(2011),etc.Oneofthemostvividlythriving

areasofcontemporaryenergystudiesdevelopsuponthebackdropofconceptsof

governancestudies:FloriniandSovacool2009;GoldthauandWitte2009;Goldthau

2011;BoussenaandLocatelli2013,etc.Adjacenttothefamilyofgovernancestudies,

butyetdeservingaspecialplaceintheirownright,isenergyresearchemploying

theconceptsofinstitutionalism,wheretheideasandnormsplaycentralroleinthe

processofenergy policy paradigm change(Helm 2005;Andrews-Speed 2010;

Kuzemko2011,2014).Ampleresearchonlimitedaccessorder,vestedinterests,etc.

alsoapproachenergypolicyissuesthroughtheprism ofinstitutionalism(Opdahl

2013,Zudin2013).Lately,NewInstitutionalEconomics(NIE6)isgainingprominence

asacredibleanalyticalframework.Makholm(2012),forinstance,appliesthelenses

ofNIEtopipelinestudiesseekingtoexplainthemarkets,marketbehavior,regula-

tionandcompetitiveentry.LuongandWeinthal(2010)conductcomparativestudy

onthepost-Sovietpracticesofownershipstructuresandinstitutionsinmineral

resourcemanagement.

WhatwastypicallyoverlookedintheliteraturesonRussianenergyistheun-

derstandingthatRussia・senergypolicyisnotmonolith.Shadrina(2010ab)hasbeen

attemptingtobridgethisgap.ArguingthatRussia・senergypolicydifferentiates

acrossspace,theauthoranalysedEuropean,CentralEurasianandNortheastAsian

patternsinRussia・senergypolicy.HavingsetfocusonRussia・sactivatedenergy

InstitutionalDimensionsinRussia・sNaturalGasPolicyinNortheastAsia44

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tieswithAsia,Shadrina(2013ab)hasbeenapplyinganalyticalframeworkofstate

capitalismtostudyRussia・sregion-specific(asregardstheRussianFarEast)policy.

Thenotionof・region・isindeedanimportantunitintheanalysisofRussianenergy

policy.Frompoliticalscienceperspective,Dusseault(2010)presentedperhapsone

ofthemostcomprehensivestudiesintothe・center-periphery・problem inRussia・s

energypolicy.

ThisarticleincorporatestheNIE・sconcepts.Ithoweveromitstheoreticaldis-

coursesforthereasonofspace.Essentialexplanationsaresubstitutedbyreferences

andnotestotherelevantsources.Thekeyelementsemployedinthisworkcanbe

briefedasfollows.Institutions,7asdefinedbyNorth(1990),havethreedimensions:

formalrules,informalrulesandtheeffectivenessoftheirenforcement.8 Ifoneofthe

threehasproblems,theentiresystem failstoperform efficiently.Although,as

Northnotes,themainroleofinstitutions・...istoreduceuncertaintybyestablishing

astable(butnotnecessarilyefficient)structuretohumaninteraction・(1990:5),

institutionsdefineefficiencyoftheeconomy・...bytheireffectonthecostsofex-

changeandproduction.Togetherwiththetechnologyemployed,theydetermine

thetransactionandtransformation(production)costs・(1990:6).Inefficientinstitu-

tionsarereasonablyattemptedtobeimprovedoraltogetherchanged.Regardlessof

thescaleofsuchatransformation,theprocessofinstitutionalchangeisincremental

(North,1990:6).Distinguishingbetweenformal(publicrules)andinformal(private

rules9)institutionshelpsexplaindifferentialsindepth,scopeanddynamicsofinsti-

tutionaltransformations.Indeed,evenifformalinstitutionsundergodramatical-

terationovernight(say,juridicalsystemchanges),informalinstitutions,whichare

morestaticintheirnature,tendtomodifygraduallytherebyaffectingtheprogress

ofinstitutionaltransformation.Averycomplexprocessofeconomicchangestirred

bythetransformationofinstitutionsNorth(2005)schematicallydepictsasacycle

whereperceivedreality(informs)→ beliefs(whichshape)→ institutions(which

compose)→ policies(whichbringaboutsomechangesandresultin)→ altered

perceivedreality(whichisreflectedin)→ alteredbeliefsandonandon.

ThearticlescrutinizesRussia・scontemporary(throughoutthe2000s)gaspolicy

towardsNEA.AstheRussiangovernmentincreasinglyfrequentlyreiteratesthe

taskfortheRussianeasternterritoriesdevelopment,itatthesametimelinksthe

successindoingsowithaspecificrolethattheFarEastshouldplayinRussia・s

Asia-orientedenergypolicy.ThestudydiscernstherationaleforRussia・senergy

policychangeandRussia・sgasexportpolicygoalsandobjectivesinNEAupona

comprehensiveapproach,whichembracesnational,regionalandexternalperspec-

tives.Theworkseekstoanswerthefollowingprincipalquestions:1)Whatis/are

therationale(s)fortheAsianVectorinRussianenergypolicy?(Didit/theychange

overtime?Ifso,why?);2)Whatarethegoals/objectivesofRussianenergypolicy

inAsia?(Didtheyevolveovertime?Again,ifso,why?);and3)WhatRussiacan

potentiallygainfromthiseastwardshiftinitsenergypolicy?

Whilethesubsequentsectionspresentmoredetailedanalysis,itcanbebriefed

herethatrationalefortheeastwardshiftinRussia・senergypolicyoriginatesinthe

Russiangovernment・sattemptstomoderatenegativeexternalities10ofthecountry・s

InstitutionalDimensionsinRussia・sNaturalGasPolicyinNortheastAsia 45

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tooprofounddependencyontheEuropeangasmarkets.Thelatterbearssuchhaz-

ardsasvulnerabilityofpublicbudgetoverthevolatilityofexportrevenuesfromthe

dominantexternalmarket.Ofnolessimportance,owingtothekeyrolethatthe

energyplaysinRussianeconomy,thesector・sconcentrationinRussia・swestbe-

reavesthecountry・sscarcelypopulatedandunderdevelopedeasternterritoriesof

economicdynamism.ItisagainsttheseconcernsthatRussiaproclaimedenergy

exportexpansiontoAsiain2003.Inadditiontomarketfailures,policyorgovernment

failures,11suchasissueswithensuringpropertyrights,unintendedsideeffectsin-

volvedwithsuchenergypolicymeasuresastenders,licensing,subsidiesandtaxa-

tion,etc.,spectrum ofprincipal-agentproblems,issuesassociatedwithregulatory

risk(interestgroups,tent-seeking,lobbying,corruption,etc.)andregulatorycapture

(suchasliberalisation,privatisationandregulation),etc.canbeequallynamedas

factorsexplainingRussia・s(under)performanceinenergygovernance.

Thearticleconcernssomeoftheinstitutionalaspectsintherealm ofRussia・s

gaspolicyvis-�a-visNEA.Insodoing,thestudydemonstratesthatRussiahassuc-

ceededinenteringtheNEAcountriesgasmarkets,butRussia・sprospectsinNEAare

challengedbyarangeofdomesticandexternalfactors.Developingtheseargu-

ments,thearticleshowsthatRussia・sshifteastwardisapragmatictwo-goalpursu-

ingchoice.Thelatterexemplifiesareactivepolicycourse,because:first,through

diversificationawayfrom theEU marketswithincreasinglyincompatiblewith

Russia・sownenergygovernanceinstitutions,Russiaattemptstosecuregasexport

revenues;andsecond,gasexportstotheNEAmarketsareperceivedasoneofthe

mostexpedientmeanstorevivethevastandresourcerichbutshrinkingeconomi-

callyFarEast.Itisarguedthatifconcernedaboutthelong-termprospectsinthe

NEAgasmarkets,Russianeedstoemploymorecomprehensivedomesticandfor-

eigngaspolicy.

2.MaterialsandMethods

Agreatvarietyofaccountshasbeenemployedtodevelopthiswork.Materials

ongaspolicyandrelevantstatisticshavebeenretrievedfromtheofficialweb-sites

ofrespectivegovernmentinstitutionsinchargeofenergypolicymakingandcollect-

inganddisseminatingstatisticsinRussiaandthreeothercountriesunderstudy

(China,JapanandKorea).PrincipalprogrammedocumentsintheareaofRussia・s

energypolicy12wereexamineduponthemethodofcontentanalysis.

TheIEA,EIAandBPdatahelpedevaluatingthedynamicsandtrendsingas

supply-demandandtradeinNEA.Inordertokeepmeasuresrelatedtoquantities

andvaluesofgasuniform,thispaperadherestotheconventionsemployedbyBP

StatisticalReviewofWorldEnergy(BPAnnual).13 Also,primarydataaboutthe

fourcountries・majornationaloilcompanies(NOCs)andstate-ownedcompanies

(SOCs)werecollectedfrom theirrespectivewebpages,suchasGazprom,Rosneft

andTransneftinRussia,JOGMECinJapan,KogasinKorea,CNPC,Sinopecand

CNOOCinChina.

Secondarydatahavebeenobtainedfrom thepublishedresearchbythethink

InstitutionalDimensionsinRussia・sNaturalGasPolicyinNortheastAsia46

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tanksconductingenergystudies(suchastheInstituteofEnergyStrategyand

SkolkovoEnergyCentreinRussia,InstituteofEnergyEconomicsinJapan(IEEJ),

EnergyResearchInstituteinChina(ERI),KoreaEnergyEconomicsInstitute

(KEEI)inKorea,etc.),butalsothroughdailyreadingofdiversesourcesofindustry

newsavailableinthreelanguages(Russian,EnglishandJapanese).

SincethearticlediscernsregionasaunitforRussia・senergypolicyanalysis,

relevantmaterialsanddatawerecollectedfromtheweb-sitesoftheMinistryforthe

DevelopmentoftheRussianFarEastandthoseofEastSiberianandFarEastern

localgovernments.PublicationsoftheInstituteofOilandGasGeologicalExplora-

tionofSiberianBranchofRussianAcademyofSciences(RAS)inNovosibirskand

theEconomicResearchInstituteFarEasternBranchofRASinKhabarovskwereof

helpingraspingtheup-to-datesituationonthestudiedquestions.

Russia・senergypolicytowardsNEAisanalysedasbeingshapedbythedomes-

ticfactorsofnationalandregionalscope,aswellasexternaldeterminants(Figure

1).

Finally,abroadnetworkofprofessionalcontactswithinbothacademiaandoil

andgasindustriesrealmsinRussia,AsiaandEurope,aswellaspersonalcommuni-

cationswiththeindustrypractitioners,businessesandexpertsatagreatnumberof

conferencesandevents,ofwhichthe2013OilandGasConferenceinSakhalinwas

certainlyoneofthemostremarkableexperienceoftheauthor,theseall,inoneway

oranother,contributedtothiswork.

3.TheEastwardShift

3.1.WhyShift?

AccordingtoE.Onestimatesfortheyear2013,Russiangasoccupies29.5percent

intheEUimportsand23percentintheEUgasconsumption.HistoryofRussia�EU

energyrelationsknowsexamplesbothofcooperationandconflicts.Thelatterhave

becomeespeciallyfrequentinthepastseveralyears,involvingabroadgamutof

actorsandresultinginstate-state,state-businessandbusiness-businessconflicts.

TheRussianactorsarefrequentlyaccusedofnotobeyingtheEUrulesandattimes

evenpenalizedforviolatingthem.Themosttellingexampleofthiskindisthe

InstitutionalDimensionsinRussia・sNaturalGasPolicyinNortheastAsia 47

Figure1 RegionalEnergyPolicyinRussia・sEnergyPolicy

Source:composedbyauthor.

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EuropeanCommission(EC)antitrustinvestigationagainstGazprom14whichmay

resultinapenaltyofsome$15b.WhileGazpromhasbeendemonstratingitswillto

settlesomeoftheissues,thecompanycouldnotagreetotheECrequirementsto

reviseGazprom・spricingpolicybylinkinggaspricestothespotmarket.15

WhiledealingwiththeEUmemberstates,RussiaisexposedtotheEUsuprana-

tionalregulatoryprovisions.Russia�EUgasdiscoursecanbeunderstoodthrough

thedevelopmentsintwomaindimensions:1)wideningdiscrepancybetweentheEU

andRussia・senergygovernanceinstitutions;and2)majorstructuralshiftsinthe

globalisinggasmarket.Kuzemko(2014)providesanexcellentanalysisoftheidea-

tionaldiscrepancies(liberalmarketintheEU vshands-onapproachinRussia)

presentingtheessenceofRussia― EUconflictintherealm ofenergyrelations.

Conceptsofinstitutionalismcanalsobeemployedtoexplainthedivergencesoccur-

ringbecauseofstructuraltransformations.Sketchedintheopeningpartofthis

articlelogicalframework(perceivedrealities-beliefs-institutions-policies,etc.)al-

lowstoseethecoreofRussia�EUdifferences.

Whilethepartnerspursueaseeminglyidenticalultimategoal/objectiveof

energysecurity,theyhavedifferentinterpretationofsuchsimplybecauseonesideis

aproducerandanexporter,whileanotherisaconsumerandanimporter.Itisonly

naturalthatalargeconsumerofimportedenergyresourcesisconcernedaboutsecu-

rityofsupply,whilealargeproducer,whosesocio-economicandpoliticalstabilityis

endangeredbyitsprofounddependencyonenergyexportrevenues,isworriedover

securityofdemand.Inlargelyabstractbutyetquiteadequateform,energysecurity

ofasupplieraswellasaconsumercanbeperceivedthroughthecategoriesofprice,

volumeandmarketstructure.Table1presentsthecaseofgassecurityasperceived

InstitutionalDimensionsinRussia・sNaturalGasPolicyinNortheastAsia48

Table1 PerceptionofGasSecurity:Russiavs.EU

Russia:SecurityofDemand* EU:SecurityofSupply

gasexportsrevenuemaximization� statecon-

trolovernationalgassector&outwardexpan-

sion(accesstoEU・smid-&downstream)

efficiency ofgasmarket� liberalisation of

intra-EU gasmarket& accesstoRussia・sgas

valuechain

falling/fluctuatingprice unfair/fluctuatingprice

externalcompetition(downwardpressureon

exportprice;shifttowardslessattractivepric-

ing;etc.);

shrinkingvolumedemanded

theEU・seconomicsituation;climatepolicy;in-

creasingG2Gcompetition;etc.;

deterioratingaccesstothemarket

theEU・stermsofownershipunbundling,the

・thirdcountryclause・,etc.;

pricediscrimination;rigidpricing(TOPprovi-

sioninGazprom・scontracts);etc.;

unguaranteedvolume

Russia・sinsufficientinvestmentingasdevelop-

ment;untowardforeigninvestmentregulation;

gasexportdiversification;etc.;

supplier・smarketpower

traditionalperspectives(transit,・gasOPEC・,

etc.)andnewdimensions(Russia・seastwardex-

pansion,G2Gcompetition);etc.

Source:composedbyauthor.

Note:*incorporatesideasoftheDraftofRussia・sDoctrineofEnergySecurity(ConceptualTheses);canbe

accessedat�www.labenin.z4.ru/Docs/en_bezop_project.doc�.

policyprimeobjective

perceivedthreats

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byRussiaandtheEU.NationalinstitutionsforenergygovernanceinRussiaandthe

EUareestablishedinordertoaddresstheirrespectiveconcernsintherealmofen-

ergysecurity.

RussiaandtheEUarelockedintoadeepsymmetricaldependency,buttheirgas

relationsarenotsmooth.Oneoftheprincipalreasonshereisthemultidirectional/

asymmetricalcharacteroftheinstitutionalchangesthatareunfoldinginRussiaand

theEU.WhileRussiahasbeendepartingawayfrominitiallydesignedplanforthe

deregulationofthedomesticgassectortowardsthenormsofstatecapitalism,the

EUhasbeenmethodicallyproceedingtheharmonizationofthememberstatesen-

ergypoliciesprogressingtowardsfurtherliberalizationoftheEUcommonenergy

market(Box1).Consequently,thepartnersfindthemselvesincreasinglyuncom-

fortablewithinonceappropriatesetting.Nodoubt,theeffortstoestablishtheap-

propriateinstitutionsforfosteringthebilateralcooperationarecontinued.Seeking

toembracenewdimensions,RussiaandtheEUhaveestablishedanumberofnew

frameworks,suchasthePartnershipforModernization,theRoadmapEU�Russia

EnergyCooperation2050,etc.)(Box2).Atthesametime,RussiaandtheEUare

simultaneouslyoptingforthediversificationoftheirgastiesasoneofthekeypolicy

choicesensuringtheattainmentoftheirrespectivegoalsintherealmofgassecurity.

InstitutionalDimensionsinRussia・sNaturalGasPolicyinNortheastAsia 49

Box1 PrincipalDevelopmentstowardsEuropeanSingleGasMarket

Year Document Significance

1991 GasTransitDirective

(1991/296/EEC)

Memberstatesagreedonthird-partyaccess(TPA)totrans-

missionpipelines

1998 FirstEUGasDirective

(1998/30/EC)

Memberstateschoosebetweenregulatedandnegotiated

TPAtotransmission

2003 SecondEUGas

Directive(2003/55/EC)

Eliminationofnotionoftransitandintroductionofaniden-

ticaltreatmenttoallgasflowsinsidetheEU,irrespectiveof

whethertheywerecross-border;mandatedregulatedTPAto

alltransmissiononthebasisoftariffs(ormethodologies)

approvedbynationalregulatoryauthorities(NRAs)

2004 CouncilDirective

(2004/67/EC)

Concernsmeasurestosafeguardsecurityofgassupply

2005 Regulation(1775/2005)Conditionsforaccesstothenaturalgastransmissionnet-

works

2009 ThirdEnergyPackage

(2009/73/EC)

Unbundlingoftransmissionassetsintheformofeitherown-

ershipunbundling(OU),orindependentsystem operator

(ISO),orindependenttransmissionoperator(ITO);certifica-

tionoftransmissionsystem operators(TSO)meetingthe

unbundlingrequirements;entry-exit(EE)organisationof

accesstotransmissionsystem networks;developmentof

pan-EuropeanNetworkCodes(NCs)oncross-borderissues

Source:composedbasedon�http://faolex.fao.org�andYafimava,K.,2013.TheThirdEUPackageforGas

andtheGasTargetModel:majorcontentiousissuesinsideandoutsidetheEU.TheOxfordInsti-

tuteforEnergyStudies.NG75,April.

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3.2.Rationale:WhyNortheastAsia?

Geopolitically,NEAisoneofthemostcomplexregions.Boggeddowninterrito-

rialdisputes,dividedbynumerousunresolvedhistoricalissuesandpreoccupied

withthetraditionalsecurityconcernsthatlingerovertheregion,theNEAstatesare

showingfewsignsofjointactionontheenergyfront.Intheabsenceofacommon

setofrules,havingalmostnoenergyresourcesoftheirownandbeingtherefore

criticallydependentonenergyimports,theNEAstateshaveinsteadresortedto

implementingavarietyofpolicies.Theseconsistofmeasuresofexternalpolicy,

suchasresourcediplomacy,anddomesticstrategies,suchasrenewableenergy,

energyconservationandthelike,withtheimperativegoalbeingyetagaintoensure

nationalenergysecurity.

Nottodisregardthespecificsofthenationalapproachesinplace,energypolicies

ofNEAscanbebroadlydescribedbyso-called・3E・concept(termoriginallycoined

byJapan),whichunderpinscommonforlargeenergyconsumersandimporters

concernsabouttheaffordabilityofenergy(price,economicsofenergy),themaximi-

zationofefficiencyofenergyresourceutilizationandtheminimizationoftheenvi-

ronmentalfootprint.

Inasense,Russia・sroletowardstheNEAsandtheNEAs・roletowardsRussia

arereminiscentofthoseintheRussia�EUcontext;itisthesame・supplier-consum-

er・mode,butthereisnodiscernibletensioninRussia・senergytieswiththeNEAs.

Itisworthasking:IsthereakindofinstitutionalconsistencyobservedinRussia�

InstitutionalDimensionsinRussia・sNaturalGasPolicyinNortheastAsia50

・...Russia・sreorientationtowardthePacificOceanandthedynamicdevelopmentinalloureasternterritories

willnotonlyopenupneweconomicopportunitiesandnewhorizons,butalsoprovideadditionalinstrumentsforanactiveforeignpolicy.・16

Box2 Russia― EUEnergyDialogue

Source:composedbyauthor.

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NEA�3energyrelations?Overall,itappearstobeaccurateenoughtolikentheen-

ergypoliciesofthestatesconcernedfortheirpursuitofapragmaticcourse(Table

2).It,however,becomesclearataveryfirstglancethatthisisthecaseofdifferent

typesofpragmatism.

Economicandenvironmentalconsiderationsareamongthemostprincipalfac-

torsdefiningcontemporaryenergypolicyofastate.InNEAcontext,twoshifts

deservespecialattention.ForJapan,energypricehasbecomebyfarmoredecisive

aspectofpolicymaking,whileenvironmentaldimensionisturningintoaserious

denominatorofChina・senergypolicy.

ToRussia,NEA・sgrowinggasdemandandexpandinginNEAsgasdeficit

emergesasablessing.Since2009theregionbecametheprimaryimporterof

Russia・sLNG(Table3).

InstitutionalDimensionsinRussia・sNaturalGasPolicyinNortheastAsia 51

Table2 NEA・sEnergyPolicies:CompatibilityinPragmatism

Russia― pragmatism ofalargepro-

ducer& export-dependenteconomy;pro-

ductionofincreasingvolumesandexport

worldwideatbestpossibleprice;depletion

intraditionalproducingprovinces,worse

geology&economicsofgreenfiields,inten-

sifyingexternalcompetitionfrom uncon-

ventionals,etc.narrowdownpolicychoi-

ces

China― pragmatism ofalargeconsumer&

netimporterandadevelopmentalstate(secure

supply⇒ sustainableeconomicdevelopment);

enhanced development of indigenous gas

(unconventionals:CBM,shale&SNG);transi-

tiontoalowcarboneconomy,by2020non-fuels

inprimaryenergyconsumption15%;renew-

ables& nuclear(18NPPsoperating,1.7% of

electricity;~30reactorsofcapacity 34GW

underconstruction;>50reactorsintheplan-

ningstage;totalcapacityby2015~40GW)

Korea― pragmatismofa100% oil&gas-

import-dependenteconomycompetingfor

supply with two neighbours;geopoliti-

callyproblematiclocation;paradigm2030―

renewables(4.3% by2015;11% by2030)&

nuclear(currently12NPPs,23reactors(6

offline),about30% ofelectricity→ BUT

Fukushima&domesticissuespressurefor

revisionoftheinitialplanfor+10reactors

and,41% ofelectricityby2030to29% of

electricityby203517)

Japan― pragmatism ofamature&stagnat-

ing~100% oil& gas-import-dependentecon-

omyforcedtooverhaulenergypolicyafterthe

2011nucleardisaster;now allremaining50(4

destroyedbythe2011disaster)reactorsare

offline,decisionontherestartsisawaited;by

2030:nuclear-energyfree(?),renewables20%;

macroeconomicsaccentuatescost-efficientsolu-

tions;climate change policy toughens the

choices

Source:composedbyauthor.

Note:NPPstandsfornuclearpowerplant.

Table3 NEA�3SharesinRussia・sLNGExports,%

Country 2009 2010 2011 2012

China 3.78 3.81 2.29 3.54

Japan 55.82 61.42 67.82 76.45

Korea 20.42 29.10 26.96 19.88

NEAs・total 80.02 94.33 97.07 99.87

Source:calculatedbyauthorbasedonBPdata.

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WhatmakestheregionparticularlyattractivetoRussiaisthattheNEArepre-

sentsoneofthemostlucrativemarketsforitstraditionallyhigherthaninanyother

marketpriceandsignificantimportvolumes.Indeed,theworld・slargest(Japanand

Korea)andthefastestgrowing(China)gasmarketsareinNEA(Table4).Inaddi-

tion,NEAisnotconsolidatedbyanyintraregionalinstitutions.

3.3.Russia・sEasternGasPolicy

Fromtheveryoutset,thedevelopmentofgasreservesinRussia・seasthasbeen

attemptedinaspecificform.TheinceptionoftheSakhalinprojectshastakenplace

intheearly1990samidstaprofounddevastationoftheRussianeconomy.Seeking

thewaystoincreasesomuchneededforthepublicbudgetexportrevenuesandkeep

afloatRussia・svasteasternlands,thegovernmentrealisedthatdevelopmentof

energysectormaybethat(nearlyonlyoneavailable)expedientwaytoaddress

bothchallenges.However,thegovernmentalsorealisedthatthedevelopmentofthe

FarEasterngreenfieldswouldbeimpossiblewithoutforeigncapitalandtheexper-

tise.Undersuchcircumstances,theRussiangovernmentendorsedtwoproduction

sharingagreements(PSA):theSakhalinIIin1994andtheSakhalinIin199618,which

lateronwereseverelycriticisedasnotprotectingwellenoughRussia・sown(most

ofallcommercial)interests.Up-to-date,theLNGplantinPrigorodnoe,whichcom-

mencedLNGexportsin2009undertheSakhalinIIproject,remainsRussia・sonlygas

linkwiththeNEAmarkets.NotonlydidtheLNGexportstoNEAprovetobe

commerciallyattractivetoRussia,theyalsorevealedthebenefitsofgas-to-gas(LNG

vs.pipeline)andregion-to-region(NEAvs.theEU)diversification.Inbrief,the

AsianVectorprovedtobechosencorrectly.

Throughoutthepost-Sovietperiod,Russiangassectorhasundergonecertain

transformations,buttheirscalewassomewhatsmallerthanintheoilindustry.

GazpromisasadirectsuccessortotheformerMinistryofGasIndustryoftheSoviet

Union.AlthoughGazprom waspartiallyprivatizedandreorganizedintoaJoint

StockCompany(JSC)in1993,statecontroloverGazpromwasre-establishedinthe

2000sandstatecurrentlyowns50.002percentofthecompany・sshares(Shadrinaand

Bradshaw2013).Themajorreasonforaverycautiousapproachtowardsthederegu-

lationofthegasindustryisthatgasplaysanimportantroleinthedomesticenergy

mix,thereforegaspolicyunavoidablyinfluencesotherkeypoliciesaffectingthe

socialandeconomicsituationinRussia.

Perhaps,thetimewhenthePSAswereconcludedwastheperiodofthemost

InstitutionalDimensionsinRussia・sNaturalGasPolicyinNortheastAsia52

Table4 NEAs・LNGImportsGrowthRates,%,y/o/y

Country 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

China ― ― ― (*) 287 14.73 72.07 67.54 29.84 21.90

Japan 6.92 1.05 -0.82 7.26 8.50 3.73 -6.76 8.82 14.41 12.67

Korea 9.02 13.95 1.87 12.12 0.73 6.29 -6.07 29.45 10.94 2.68

Source:calculatedbyauthorbasedonBPdata.

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liberalpolicyinRussia・sSovietandpost-Soviethistoryofgas.Followingthe2006

Gazprom・sentrytoSakhalinII19 andgasexportstransferredunderGazprom・s

rein20,RussiangassectorwasshutuptightlyfortheIOCs,unlesstheywerereadyto

acceptsomeinsignificantroleinaprojectledbytheRussianSOCs.Thus,Russia・s

gaspolicytransformedfrom beingrelativelyliberal(atleastwelcomingforeign

investment)intowhatiscommonlyevaluatedasrigidheavilycontrolledbythe

governmentsystemof・manual・(hands-on)resourcemanagement.

Russia・scontemporarygaspolicytowardsNEAisenforcedbytwosetsofpoli-

cies. Onecouldbenamedregion-specific(asregardstheESFE)pattern of

Russia・sgaspolicyenactedthroughanumberofincentivestoactivatethedevelop-

mentofonshoreandoffshoregasprojectsintheeasternpartofRussia.Another

couldbereferredtoassector-specifictwo-pattern(asregardsLNGandpipelinegas)

policy.ThelatterhaseventuallymaterialisedDecember1,201321asaresultofheated

debatesattheinstitutionsinchargeofpolicymakingandintensifiedrivalryamong

Gazpromandotherdomesticgasproducers(Novatek,Rosneft,etc.)strivingtoseize

achanceforabigbusiness.

3.3.1.GoalsandObjectivesofRussia・sEasternGasPolicy

ThethesisabouttheimportanceoftheFarEastforRussia・spolitical/geopoliti-

cal/economicwell-beinghasalwaysbeenoneofthemostexploited・politically

correct・statementswhichtheRussiangovernmentusedtosendaformalsignalof

concerntoRussia・svasteasternterritoriesabouttheirfate.23 Thesignalwashardly

reachingoutto4percentofRussianpopulationscatteredacrossthelandsoccupying

3/5ofRussia・sterritory.Fromtheveryoutsetofhisthirdpresidentialterm,Putin

madetheESFEtolooklikeitsdevelopmentisindeedthegovernment・sutmost

urgentandprimarytask(Box3).

Infact,theemphasisontheregionofESFEinRussia・senergypolicyisnota

novelty.Russia・senergystrategiestraditionallycontainregionalcomponent(Table

5).

Comparingthreedocuments― twoStrategiestill2020andtill2030andthe

Drafttill2035― fortheiroverallgoalsandobjectivesforenergypolicyinESFE

(regionalpolicy)andtowardAsia(externalpolicy),itiseasytonoticethatthe

prominenceoftheESFEandAsiaagendashavebeengrowingconstantlyandthe

wordingofrelevanttaskshasbeengainingincreasinglyurgenttone.

Forthefirsttime,numericaltargetsfortheAsianmarketsinRussia・senergy

policyweresetin2003.24 IntheEnergyStrategy(ES)till2020,theRussiangovern-

mentenvisionedthatasmuchas30percentofRussia・soiland15percentofgas

wouldbeexportedtoChina,KoreaandJapan.Thetaskofdiversificationof

InstitutionalDimensionsinRussia・sNaturalGasPolicyinNortheastAsia 53

・...[G]overnmentandprivatesectorresourcesshouldgotowarddevelopmentandachievingstrategicobjectives.Forexample,letus

lookatsuchobjectivesasdevelopingSiberiaandtheFarEast.Thisisournationalpriorityfortheentire21stcentury.

Thechallengeswewillneedtotackleareunprecedentedintheirscale,whichmeanswemusttakeunconventionalapproaches.・22

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Russia・senergytieswasre-emphasisedin2009,andtheEnergyStrategy2030targets

forthethreecountries・totalsharesweresetas22�25percentforoiland19�20per-

centforgas(Table6).25

Russia・smajorSOC― Gazprom26― hasalsoprojectedthetargetsfortheESFE

gasproductionandAsia-orientedexports.ComparingtheES2030targetswiththose

inGazprom・sEasternGasProgram,thelatterlookmoreambitious(Table7).

FacingdifficultiesindevelopingnewgasdepositsinESFE(fordifferentrea-

sons,amongwhichtherearebothdomestic,suchasaverylimitedregionalgas

demand,andexternal,suchasvarioussetbacksinenteringtheAsiangasmarkets),

InstitutionalDimensionsinRussia・sNaturalGasPolicyinNortheastAsia54

Box3 InstitutionsfortheDevelopmentoftheFarEast:AttemptedandSucceeded

December2006:KamilIskhakov,presidentialplenipotentiary(PP)totheFarEastern

FederalDistrict(FEFD),proposedcreationofaministryforthedevelopmentoftheRussian

FarEast.Theideawasnotsupported.

November2011:thethenPresidentDmitriMedvedevandthegovernmentproposedto

establishaRUR500m($16m)JSCFundforDevelopmentoftheFarEastandtheBaikal

region(theFund)affiliatedwithVneshekonombank(BankofForeignEconomicActivity).

In2012,theFund・scapitalwasincreasedtoRUR15b($0.5b).

January21,2012:SergeiShoigu,MinisterofEmergencySituations,proposedthecreation

ofastatecorporationforthedevelopmentofEasternSiberiaandtheFarEast(theCorpora-

tion).ItwasseenastobesubordinatetothePresidentandreceivebroadauthorities,includ-

ingtheauthoritiesinlicensingnaturalresources.Projectwasrejectedbythegovernment;

MinistryofFinancewasparticularlyagainst.

May21,2012:theFederalMinistryfortheDevelopmentoftheFarEast(MDFE)was

createdbythepresidentialdecree.ViktorIshayev,PPintheFEFD,requestedtheunprece-

dentedpowers,includingthoseoverthefederalpropertyintheregion,whichwerenot

granted.

March2013:MinistryofEconomyproposedtheestablishmentofanautonomousnon-

profitorganizationtofinanceprojectsintheFEFD.TheideawassupportedbyViktor

Ishayev,butafterhisresignationinAugust2013,theprojectwasshelved.

August31,2013:YuriTrutnevsucceededViktorIshayevasthepresidentialenvoytothe

FEFD,butalsoretainedhispostofDeputyPrimeMinister.InOctober2013,Trutnevman-

agedtoexpandtheMDFE・sauthoritiesoverthesubsidies,managementofspecialeconomic

zones,selectionandimplementationofinvestmentprojects,etc.

October,2013:AlexanderGalushka,MinisterforDevelopmentoftheFarEastproposed

tocreateanetworkofterritoriesforadvancedexport-orienteddevelopmentandfortheircoordi-

nation― fourdevelopmentinstitutionstobesupervisedbytheMDFE.Theinitiativewas

notsupportedbythegovernment.

February5,2014:DeputyPrimeMinisterYuriTrutnevpresentedtheideaofcreationof

theterritoriesforadvanceddevelopment(TAD)withpreferentialtaxation(payroll,property,

etc.)intheFEFD.TheestablishmentofanewJSCDevelopmentoftheFarEastwithcapital

ofRUR69b($2b),additionalfundingofRUR100b($3b)fortheFundanditsautonomy

fromVneshekonombank,twospecialisedautonomousorganisationsforthedevelopmentof

theFarEast,registrationofSOCsoperatingintheFEFDintheregion,etc.arenamedamong

theconsideredmeasures.AdditionalRUR170b($5.2b)fortheJSCfinancingarerequested

fromthegovernment.ThesepropositionsarereminiscentofthosemadebySergeiShoigu

(theCorporation)in2012andAlexanderGalushkain2013,whichatthetimewererejected

bytheMinistryofFinanceandtheMinistryofEconomy.Thenew proposalsaretobe

detailedbyMarch2014.

Source:compiledbasedonpublicationsbyKommersant�http://kommersant.ru�.

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InstitutionalDimensionsinRussia・sNaturalGasPolicyinNortheastAsia 55

Table5 ComparisonofRussia・sEnergyStrategies

ES2020 ES2030 DraftES2035*

Primary

goal

maximisedefficiencyin

energy resource ex-

ploitationandintheuse

of fuel-energy com-

plex・spotentialforthe

purpose of economic

growth and improve-

mentofqualityofliv-

ingstandards

2020 (+sustainable

economic growth)

creationofinnovative

and efficient energy

sector meeting the

needsofgrowingecon-

omyandallowingRus-

sia to strengthen its

foreign economic

status

2030+developmentofdomestic

energyinfrastructure(overcom-

ingimbalanceinfavourofexport

infrastructure);

improving theavailability and

qualityofenergyproductsand

services;

supremacyofprinciplesofsus-

tainabledevelopmentinenergy

governanceatcorporateandna-

tionallevels

Regional

policy

(RP),with

focuson

ESFE

creationofasingleen-

ergyspacethroughthe

development ofinter-

regionalmarkets and

infrastructure, optimi-

zation ofregionalen-

ergy demand-supply

structure;

development of new

large gas producing

centresinESFE;devel-

opment of(domesti-

cally oriented) gas

infrastructureinESFE

2020+coordinationbe-

tween federalenergy

programmes and re-

gionalprogrammesfor

socio-economic devel-

opment;

implementationofin-

novativeandcapital-

intensive(export-ori-

ented) energy pro-

jectsinESFE;

2030+developmentofsystem of

indicatorsformonitoringare-

gion・senergysecurity(RES)**

andanalysisofRES;

prioritiseddevelopmentofen-

ergy infrastructure in ESFE

withmoreaccentuatedfocuson

domestic/regionalneeds;

Foreign

energy

policy

(FEP)

strengthening position

in the globalenergy

markets,mostefficient

utilisation ofFEC ex-

portpotential,increas-

ingcompetitiveness;

utilisationofAsiaPa-

cificmarketspotential

(share in export by

2020:30%(from 3% in

2003),gas― 15%)

main challenge ―

price volatility in

globalenergymarkets;

strengtheningRussia・s

positioninglobalen-

ergymarketsthrough

improvedcompetitive-

ness;geographic and

productdiversification

ofexports;

furtherpromotion of

commonEurasianen-

ergymarket;

increasing role of

AsiaPacificmarkets

(26�27% ofenergyex-

portsin2030)

main challenge ― increasing

globalcompetition;

2030+adaptationofFEPtonew

trendsindevelopment;

strengthening position in LNG

globalmarket;

stableenergyrelationshipsand

developmentofdialogueswith

traditionalpartners;

adaptationtostructuralandinsti-

tutionalchangesintheEuropean

markets;

rapidentrytotheAsia-Pacific

markets(region・sshareinoilex-

ports― 32%,gas― 31%,totalen-

ergy― 28% in2035);

enhancedenergydialoguewith

Asianpartners;

finalisinggasnegotiationswith

China

Notes:

* ThecompleteversionoftheDraftofEnergyStrategy2035wasnotavailableatthetimeofwriting

(February2014).ThecomparisonisbasedupontheDraftEnergyStrategyoftheRussianFedera-

tionto2035�http://minenergo.gov.ru/documents/razrabotka/17481.html�(inRussian)

** ConceptualprovisionsoftheDraftoftheEnergySecurityDoctrineoftheRussianFederationare

availableat�www.labenin.z4.ru/Docs/en_bezop_project.doc�(inRussian)

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GazpromhasbeenregularlyrevisingitsEasternProgramtargets.WhileLNGpro-

ductionandexport― forwhichGazprom・sCEOMilleralwaysverywillingly(but

unjustly)creditshiscompany― progresses,othergoalsremainunattainedlargely

duetoGazprom・sfailuretofinalisethepipelinedealwithChina.

3.3.2.Institutions

NEAhasnoinstitutionsofanycomparablewiththoseintheEUscope.InNEA,

Russia・sgaslinksaresupportedbybilateralframeworksmainlyofadhocformat.

WhatappearstobeimportantisthattheRussiangovernmentencountersnopercep-

tibleinconsistencyattheinstitutionallevelwiththeNEA states.Weakintra-

regionalcooperationintheenergyrealm ― resultoftheoverallrathercomplex

geopoliticalenvironmentintheregion― istoacertaindegreebeneficialtoRussia,

whichtakesadvantageofexistingspaceforamanoeuvrewhennegotiatingthe

dealswitheachcountryseparately.AnotherspecificcomponentofRussia・senergy

policytowardsNEAisthatinordertoimplementtheAsian(orEastern)Vectorand

InstitutionalDimensionsinRussia・sNaturalGasPolicyinNortheastAsia56

Table6 ExcerptsfromES2030onGasProductioninEasternSiberiaandRussianFarEast

Phase1:

2013�2015

Phase2:

2016�2020/22

Phase3:

2021/23�2030

totalgasproduction,bcmincluding: 685�745 803�837 885�940

EasternSiberia(ES) 9�13 26�55 45�65

RussianFarEast(RFE)including: 34�40 65�67 85�87

Sakhalin 31�36 36�37 50�51

gasproductioninESandRFE,% tototal 7�8% 12�14% 15%

totalgasexport,bcm 270�294 332�341 349�368

shareofAsiaPacificintotalexport,% 11�12% 16�17% 19�20%

LNGexport,% tototalexport 6�7% 10�11% 14�15%

Source:composedbyauthorbasedondatafrompp.102and111.

Table7 ExcerptsfromGazprom・sEasternProgram,272007

2010 2015 2020 2030

totalgasproductioninESFE,bcmincluding: 27 85 150 162

EasternSiberia 5 50 55 57

FarEast 22 35 95 105

gasconsumptioninESFE,bcm 13 18 41 46

export,bcm 14 23 71 78

pipelineexport,bcm ― 9 50 50

LNGexport,bcm 14 14 21 28

Source:composedbyauthorbasedondatafromoriginaldocument.

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facilitategasdevelopmentinEasternSiberiaandtheFarEast(ESFE),whichis

extremelychallengedbyavarietyofnaturalfactors(climatic,geographical,geologi-

cal,etc.)translatingintohighcostsofgasproduction,thegovernmentintroduceda

system ofregion-specificincentives(suchastaxbreaks,exportdutyexemptions,

etc.).Thisisperceivedasanessentialpolicyprovisionaimedtoinitialisehydrocar-

bonproductionintheESFE.

WhataretheinstitutionsservingthepurposeofRussia・senergycooperation

withtheNEAcountriesandhowmuchcoherenceattheinstitutionallevelisbeing

indeedobserved?Ingeneral,itisthenationalinstitutionsthatRussiaandtheNEAs

areemployingtofostertheirenergyties.Nonetheless,severalspecificaspectsseem

tobeofimportancehere.

First,owingtotheirownratherrecentdevelopmentexperiences,28theNEAs

demonstratemoretoleranceaboutstate・sdirectinterventioninacertainindustryor

theeconomyasawhole.ThisperfectlymatchesRussia・scontemporaryapproach

toenergygovernance,whichcanbebestdescribedinthecategoriesofstate

capitalism.29 TheRussianandtheNEAs・governmentshavealwaysplayedacrucial

roleinlayingoutthegroundworkforenergycooperation,aswellasinsortingout

themattersofargumentintheirbilateralenergyties.IntheNEAcontext,itisa

normalpracticethatthegovernmentsworkincloseconnectionwiththebusinesses

andtheireffortstendtointensifywhenacontroversialquestionarises.Therewere

variousillustrationsofthelatter,tonameafew,suchasthe2006Gazprom・sentryto

theSakhalin�II,thedisputebetweenGazpromandSakhalin�IoperatorExxonMobil

withregardtotheIOCsandRosneft・sChina-orientedgasexportplans,thecaseofoil

pricedisputeintheESPO�IDaqingSpurtoChina,theRosneft― TNK�BPdeal,

Gazprom― CNPCnegotiationsontheroutingofgaspipelineandthetermsofsup-

ply,etc.Theofficialbilateralframeworkswereindispensableinallthosecasesand

wererepeatedlyactivatedtofosterthesebusinesstobusinessagreementsorsettle

thedisputes.

AlthoughthedecisionmakinginRussia・senergysectorformallylieswithsuch

agenciesastheMinistryofEnergy,MinistryofNaturalResourcesandEcology,

FederalAgencyforSubsoilUse,etc.anumberofindirectorevensomewhatinfor-

malarrangementsprovetobemoreinfluentialinreality.Thereisanintensecompe-

titionamongtheagenciesinvolvedwiththeenergypolicymakinginRussia.That

istosay,thepowersoftheGovernmentalCommissionontheFuelandEnergyCom-

plexandRegenerationoftheMineralandRawMaterialsBaseestablishedin200530

arebeingchallengedbythePresidentialCommissionforStrategicDevelopmentof

theFuelandEnergySectorandEnvironmentalSecuritysinceitwascreatedinJune

2012.31 ChairedbyPresidentVladimirPutinwithRosneft・sCEOIgorSechinacting

asanexecutivesecretary,thePresidentialCommissionhasanextensivemandate

embracingtariff,taxandpricepolicyforpetrochemicals,gasandelectricityand

investment,allofwhichisofbindingpowerforotherauthorities.Inturn,theGov-

ernmentalCommission(currently chaired by Deputy PrimeMinisterArkady

Dvorkovich)haseffectivelybecomeabodyforrunningmainlycoordinatingactivi-

ties.ThePresidentialCommissionandtheGovernmentCommissionoftenconfront

InstitutionalDimensionsinRussia・sNaturalGasPolicyinNortheastAsia 57

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eachotheronthemostprincipalissuesofthenationalfuelenergycomplexdevelop-

ment.

Longtimedebateaboutthenecessityofthefuelenergysector・sprivatization

andthegovernment・swithdrawalfromtheBoDsintheSOEs32hassofarnotresulted

inanyconcretestepstowardsthat.WhilePrimeMinisterDmitryMedvedev,who

fatheredtheideaatthetimeofhispresidency,refereedto2016astheyearbywhich

privatisation ofthe SOCs and streamlining ofdecision-making may start

materialising,thislooksincreasinglyunrealistic.TheCEOsofmajorSOCs,suchas

Gazprom,RosneftandTransneft,remaincloselyinvolvedwiththeenergypolicy

makinginRussia.Frequently,itisperformedintheformofthedirectpetitionsto

thePresidentorlobbyinginthefederalgovernmententities(MinistryofEnergy,

MinistryofFinance,etc.)foramorefavourableregulationtobeextendedtothe

SOCsconcerned.TheSOCscustomarilygroundtheirreasoningforanexceptional

treatment(liketaxbreaks,simplifiedprocedureoflicensingfornewdeposits,etc.)

tobegrantedupontheircomplaintsaboutprohibitivelyhighcostsofthedevelop-

mentofthegreenfieldsinRussia・sNorthandEastbothinlandandoffshore.33 Ex-

pectedly,suchlobbyingoftenleadstoaconflictofinterestsof,say,theentities

assignedwithconductingthepoliciesdirectedatoilandgasproductiongrowth(the

MinistryofEnergy)andtheentitiesassignedwiththefiscalfunctions(theMinistry

ofFinance).Tobeobjective,intherecentyears,therehavebeengrowingconsolida-

tionamongtheindustrialiststhemselves(e.g.,undertheUnionofOilandGasPro-

ducersofRussia)andstrengtheningcoordinationoftheirattemptstopresentthe

governmentwiththeirinsightsintothesector・smostacuteproblemsandtheirvi-

sionsabouttheappropriatewaystocurethesector・s,bymanyestimates,critical

situation.34

Second,Russia・senergypolicytowardsNEA embracesanumberofspecific

arrangementsenactedintheFarEastforthepurposeofrapiddevelopmentofoil

andgasresourceslocatedintheregion(Figure2).This,infact,allowsdistinguish-

ingaregion-specificpatterninRussia・scontemporaryenergypolicy(Shadrina

2013a).Theregionalcomponentnonethelessneedstobeunderstoodcorrectly:there

isnodelegationofauthoritytotheregionallevel.Likewise,therearenodiscretions

opentotheregionalgovernmentsoverthemattersinvolvingthedevelopmentofthe

resourceslocatedintheRFE.Theregion-specificpatternwithinRussianenergy

policyisdeliberatelyestablishedandstrictlycontrolledbythecentralgovernment

throughthesystemoffiscal,licensing,tariff,foreigninvestment,etc.regulationand

implementedthroughthegovernment・srelianceontheSOCs:Gazpromingassector,

RosneftinoilindustryandTransneftinoilexporttransportation.Inasense,the

RFEisamererecipientofthetransplantedpolicymodewithverylimitedcapabili-

tiestoparticipateinenergypolicyformulationanditsimplementation,despiteit

directlyrelatestheregion・snaturalresources.

Addressingthebilateralframeworksintheareaofoilandgascooperation,

RussiahasestablishedenergydialogueswitheachofNEA�3.Also,asFigurepre-

sents,therearevariousbilateralagreementsonclosereconomiccooperationbe-

tweenRussiaandtheNEAcountriesforthedevelopmentoftheESFE,includingits

InstitutionalDimensionsinRussia・sNaturalGasPolicyinNortheastAsia58

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oilandgassectors.Whilethelatteraddressmorepracticalissues,twootherframe-

worksconcerngascooperationinall-NEAformatandattemptcontributingtogas

policy-makingintheregion.UndertheUNauspices,forinstance,theIntergovern-

mentalCollaborativeMechanism on Energy Cooperation in North-EastAsia

(ICMECNEA)wasestablishedin2005.35 OneofthedeficienciesoftheICMECNEAis

thatJapan,asignificantgasconsumerandimporter,isnotitsmember.Anotherrare

exampleofall-NEAframeworkforgascooperationistheNortheastAsianGasand

PipelineForum(NAGPF),36anon-profitorganizationconsistingoffivemember

countriesincludingRussia(representedbyAsianPipelineResearchSocietyofthe

RussianFederation),China(AsiaGasandPipelineCooperationResearchCenterof

China(AGPRCC),Korea(KoreaPan-AsianNaturalGasandPipelineAssociation),

Mongolia(PetroleumAuthorityofMongolia)andJapan(NortheastAsianGasand

PipelineForumofJapan).Sinceitsfoundationin1997,theNAGPFhasbeenpromot-

ingnaturalgasdevelopmentintheNEAsthroughtheinternationalconferencesand

jointresearchprojects.Japanhasbeenactivelyutilizingthisplatforminarticula-

tionofitsinterestinregionalpipelinelinks.

Onthewhole,themultilateralframeworksplayaverylimitedroleinthedevel-

opmentofenergycooperationinNEA.Thebilateralschemesareofmoreuse,asin

ratherdisintegratedcontextofNEAtheyprovetobemoreexpedientmechanismin

facilitatingtheprojectsandsolvingtheissueswheneversucharise.TheNEAs

assessratherpositivelytheRussianstate・sprofoundinvolvementwiththegassec-

tordevelopmentintheRFE.Moreover,thisisperceivedasacertainlevelof

InstitutionalDimensionsinRussia・sNaturalGasPolicyinNortheastAsia 59

Figure2 ComponentsofRegion-SpecificEnergyPolicy:theRFE

Source:composedbyauthor.

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guaranteewhichtheRussiangovernmentensurestoitsAsianpartners.Within

Russiaitself,however,thismodelofenergygovernanceintheRFEiscriticizedas

disadvantageousforthenationaleconomy(thisaspectisaddressedintheconclud-

ingpartofthearticle).

4.Discussion:HowMuchConsistencydoesAsiaOffer?

Russia・sgaspolicytowardsNEAisinfluencedbyarangeoffactors.Certainly,

geopoliticalenvironmentdefinesthedynamicsofRussia・sgaslinkswithNEA.

Particularly,averyslowprogressinpipelineprojectsoriginatesprimarilyfromthis

sortofconcerns.ButtherearealsootheraspectsthatRussianeedstobeespecially

attentivewhilemasteringitsgastieswiththeNEAs.Amongthosemajortrends

therearetheongoingstructuraltransformationsinthegasmarketstriggeredbythe

increasingunconventionalgasproductioninNorthAmerica,theshiftsinNEAs・

nationalgasstrategiestowardsfurtherdiversificationoftheirsupplies,theNEAs・

growingambitionstoexpandtheshareofindigenousgasthroughunconventional

gasproduction(CBM,SNGandshalegasinChina)oredge-cuttingtechnologies

(methanehydrateandcleancoaltechnologiesinJapanandKorea).

Therearealsoclearlyspeltprioritiesfortheliberalisationofdomesticgasmar-

kets.SpeakingofChina・sgaspricingreform,37itmakestheprospectsforthefuture

importssomewhatambivalent:itmaysignifytheopportunitiesforadditionalvol-

umesofmoreexpensivesupplies,butitmayalsoresultinlargerdomesticproduc-

tion,becausetheChineseproducerswillbemoremotivatedtoexpandtheirgas

production,therebylesseningtheneedforimports.UnderthetenetsofAbenomics,

Japanlooksincreasinglyresolutetointroducemorecompetitionintothedomestic

electricitymarket,38whichinturnwouldresultinagreaternumberofLNGimport-

ers.ThiscouldbeapositivechangefortheRussianexporters,whichnow deal

almostexclusivelywithJapan・stenlargeelectricityutilities.Also,intheFukushima

aftermaththedemandforLNGimportsgrows.Asof2012,LNG,whichsubstitutes

forthehaltednuclearreactors,occupiesasignificant48percentshareinelectricity

generation(from29percentin2010).39 Byallmeasures,JapaneseLNGdemand(al-

readytheworld・slargest)standstoincreasefurther.Theworld・ssecondlargest

LNGimporter― Korea― mayalsobeseenasofferingmoreopportunitiesforthe

LNGexporters,sincethegovernmentlowereditstargetsfornuclearpowergenera-

tion(Table2).

Nonetheless,itisoverallbecomingincreasinglyapparentthatitisnotonly

China,butKoreaandJapan,whichareseriouslyconcernedaboutthepriceofthe

futuresupplies.ItisthereforeaprincipalmatterforRussiawhilecompetinginone

ofthelargestregionalsegmentsoftheglobalisingLNGbusinessandobserving

self-benefittoproffercommerciallyattractiveofferstotheNEAgasbuyers.

Russia・sgascooperationwithNEAswouldinevitablyrequiretheJapaneseand

KoreanNOCs・andotherIOCs・investments.TheChinese-RussianNOCs・loan-for-

gasschemeswouldbeasimportantasthoseintheareaofbilateraloilties(Shadrina

2013b).Overall,theChinesecompaniesdemonstratetheirsheerinteresttoRus-

InstitutionalDimensionsinRussia・sNaturalGasPolicyinNortheastAsia60

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sia・sequitygas.GiventhespecificsoftheNEAstates・energydiplomacies(whichin

mostgeneralformcanbedescribedbytheChinese・goingout― bringingin・ver-

sion),Russiacannolongerneglecttheirinterestingasequities.Seekingthestate-

of-the-arttechnicalcapacitiestodevelopgeologicallychallenginggasdepositsinthe

ESFEandtechnologicalcapabilitiestoproducehighvalue-addedpetrochemical

productsintheESFE,Russiahasnorealisticalternativebuttoadoptamoreforeign

investmentfriendlylegislationandallowtheIOCs・andNOCs・entrytotheRussian

gasvaluechain.

SpeakingofNEA・sinstitutionalsetting,sofartheinternationalcooperation

(tradeandinvestment,forinstance)ingassectorhasbeenrunexclusivelyuponthe

bilateralagreements.However,therearesomerecentattemptstointroducemulti-

lateralarrangementsfortheAsiangasmarkets.AmongthosearetheIEA-ledjoint

studyontheestablishmentofnaturalgastradinghubinAsia,Japan― Indiastudy

grouponpricingofLNGintheAsiaPacificmarket,Japan・sinitiativetolisttheU.S.

dollar-denominatedLNGfuturesattheTokyoCommodityExchangeandestablish

apricebenchmarkforLNGbyMarch2015,etc.Thesesundrymovesdemonstrate

thattheAsiangasmarketshavestartedevolvingtowardsbeingmoreefficiently

structuredandbettercoordinatedbytheregionalgasbuyers.Thelatter,asis

known,haveallalongbeenespeciallydiscontentwiththeAsianpremiumresulting

inLNGpricesinAsiabeingtimesabovetheHenryHub(HH)benchmark.Asfaras

suchfeaturesasadestinationclauseandtheoverallpredominanceoflong-term

contractsoverspottrade(whichregionalLNGimportersconsiderasthedisadvan-

tagesoftheAsianLNGmarkets)areconcerned,Russiahasbeenshowingsome

flexibility40andthereforemanagedtoestablishcrediblereputationwiththeNEA

buyers.Becauseitisunlikelythatconcernedaboutsecurityoftheirgassupply100

percentimport-dependentJapanandKoreaand30percentimport-dependentChina

wouldoptforimportbasedsolelyonspottrade,Russiamaybehavearoom for

manoeuvrewithinabalancedportfoliooflong-termandspotgascontractswiththe

NEAs.

5.ConclusionandPolicyRecommendations:OrorAnd?

Russiahascertainlyprogressedtowardsitsgoalofgasexportsdiversification

(Table8).However,thisresultisentirelyduetotheSakhalinII・sLNGplantopera-

tion,whichremainstheonlygasprojectRussiamanagedtoimplementintheRFE.

Inthiscase,participationofforeigncapitalunderthePSA schemeneedstobe

recognisedascriticallyimportant.

SpeakingofRussia・sfutureplansintheAsiangasmarkets,thereisagreat

numberofprojectsRussiaaimstolaunch(Table9).ProvidedRussiaissuccessful

intheirimplementation,thecountrystandstosignificantlystrengthenitsprofile,

growingfromthecurrentnicheofjustunder5percentoftheglobalLNGproduction

toabout10percentby2020.41

Whataretheconditionstosucceed?Themostgenericonescanbeformulated

astothinkstrategicallyandactsharply.Meanwhile,recentlyrevealeddraftofthe

InstitutionalDimensionsinRussia・sNaturalGasPolicyinNortheastAsia 61

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ES2035gavedomesticenergyexperts44plentyofreasonstoassessthedocumentas

theoneprovingthatstrategicthinkinginRussia・senergypolicyisyetlargelylack-

ing.

WhatappearstobeabsolutelyessentialforRussiaistothinkaboutthewaysof

energypolicyoptimization.Russia・spolicytowardsNEAneedstoincorporatethe

long-term visionandadoptamorecomprehensiveapproach.Thedimensionsfor

policyoptimizationembracethedomesticandexternalscopes.Domestically,there

isagreatnumberofcriticalissueswhichareinterconnectedandneedtobe

InstitutionalDimensionsinRussia・sNaturalGasPolicyinNortheastAsia62

Table8 Russia・sGasExportsDistribution:ActualandProjectedintheEnergyStrategy2030,%

Region 2005 2008 2012 1ph. 2ph. 3ph. 2030against2008*

Europe 62.5 64 69.9/63.0** 57.8 56.9 56.1 - 8

CIS 37.5 36 30.1/27.1** 31.6 26.6 23.7 -12

AsiaPacific 0 0 -/9.9** 10.6 16.3 20.2 +20

Source:developedbytheauthorbasedontheStrategy2030,BPStatistics2013andShadrina(2010b).

Notes:

dataforeachphaseareaveragesbasedontheEnergyStrategy2030・sscenarios;

columnmarkedwith*presentstheoverallchange(・-・decrease;・+・increase)ingeographicalstruc-

tureofgasexportsby2030against2008;

datafor2005,2008and2012arefactualandserveforthe・target-achievement・comparison;

two-dataset(**)reflectsshareofaregioninRussia・sexportofpipelinegas/shareofaregionin

Russia・stotalgasexportswithLNGincluded.

Table9 Russia・sActualandProjectedGasExportstoNEA,bcm/y

Projects 2012 2017 2019 2030

SakhalinIILNGplant(GazpromSakhalinHoldingsB.V.

50%+1;ShellSakhalinHoldingsB.V.

14.99 15 15 15

YamalLNG(16.5Mt,Novatek 60% & Total20% &

Sinopec20%)

4.14 4.14+・X・4.14+・X・

VladivostokLNG(Gazprom&JapanFarEastGasCo.42) 13.8/20.7 13.8/20.7

SakhalinIILNGplant3rdtrain 6.9 6.9

RNLNGplantinSakhalin(SakhalinIII,plantconstruc-

tionRosneft&ExxonMobil&GeneralElectric;Sakhalin

I,long-termsalescontractsbtwnRosneft&Marubeniand

Rosneft&SODECO43)

20.7 20.7

PowerofSiberiapipeline,akaEasternRoute(SilaSibiri,

PowerofSiberia)[Irkutsk-]Yakutiya― SKV)

38 61

Altaipipeline*,akaWesternRoute 30

Total 15 1999/105+

・X・

152/158+

・X・

Source:composedbyauthorbasedonvarioussources.

Note:

・X・denotesunknown/undecidedquantitiesofgassupplytoNEAs.

*RussianGovernmentOrdinanceonTheRoadmapofTerritorialPlanningintheRussianFederation

intheAreaofFederalTransport(inthePartofPipelineTransport)(Schematerritorialjnogo

planirovaniyaRossiiskoiFederatsiivoblastifederaljnogotransporta(vchastitruboprovodnogo

transporta)No.1416-r,August13,2013.

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addressedsystematically.Tonamebutafewpossibledirections,Russiacould:

―revisittheregion-specificsub-patternwithinRussianenergypolicytowardsa

broaderapproach(e.g.,liberalisationofforeigninvestment;incentivesforsmall-and

midsizedoilandgasproducers;etc.).Thisappearstobeespeciallyimportantforthe

developmentofnew gasdeposits,becausecommercialtermsinbothschemes―

pipelinegasandLNGexports― arelikelytobedeterminedbytheformatofNEA

capitalparticipation(loansvs.investment)inRussia・sESFEgasprojects;

―accentuatepolicyincentivesongeologicalprospectingandadvancedtech-

nologiesimplementation;

―implement(fiscal)reformsenforcingeconomicallyrational(cost-reducing)

behaviourofSOCs.EconomicperformanceofGazprom(heavilyindebted,thecom-

panylost2/3ofitscapitalisationin2012alone)demandsthegovernment・sattention

andaction.Rosneft・sfinancialresultsalsoincreasinglyconcerntheanalysts45;

―morefullyutiliserapidlymultiplyingopportunitiesinNEA.Russianeedsto

bewell-equippedtorespondtoquicklymaturingmarketsofNEAs(e.g.,growing

competitionamonggassuppliers(NorthAmericanshalegas,EastAfrican―Kenya,

Tanzania,Mozambique― LNG);Japan・sinitiativeforLNGfuturesandLNGprice

benchmark;progressingatanunprecedentedpacedevelopmentofrenewableen-

ergy;etc.);etc.

Thereisarangeofareas,suchasenvironment,technologiesandinnovations,

wherecooperationwithNEAsiscriticallyimportanttoRussia.Asarecognized

geopoliticalactorinNEA,Russiaisresponsibleforlivinguptotheexpectationsof

thestatesintheregioninthemattersoftheDPRKstalemate.Energycooperation,

astheauthorarguedinherdoctoralthesis,46issuchawaytowardscloserintegration

intheregion.Settlingthebilateraldisputes,developingintra-regionalframeworks

forenergycooperationandexpandingthemtoconnectwithothernationsinAsia

(toembracetheASEAN+3format,forinstance),thisisthestrategyRussianeedsto

follow.Inshort,Russiashouldmake・EuropeANDAsia・,asopposedto・EuropeOR

Asia・,apivotalprincipleofitsnationalenergypolicy.

1 EasternSiberiaincludessuchregionsasBuryatRepublic,IrkutskOblast・,Krasnoyarsk

Krai,RepublicofKhakassiya,TuvaRepublicandZabaikalje(Trans-Baikal)Krai.An-

otherabbreviationusedthroughoutthisworkisRFE,whichstandsfortheRussianFar

East,aregionconsistingofnineterritories:AmurOblast・,ChukotkaAutonomousOkrug,

JewishAutonomousOblast・,KamchatkaKrai,KhabarovskKrai,MagadanOblast・,

PrimorskyKrai,SakhaRepublic,SakhalinOblast・.

2 ThegeographicalboundariesofNEAremainlooseandareofteninterpretedvariously

dependingonapurposeofaspecificinquiry.ThisstudycentresonNEAasbeingin-

formedbytheRussianFederation,Japan,thePeople・sRepublicofChina(China)andthe

RepublicofKorea(Korea).ThelatterthreearefrequentlyreferredtoasNEA�3.

3 BasedontheWorldBank・sdataonoilandgasrevenues.

4 ThesesofMinisterofEnergyNovakA.V.Speech・PrioritiesoftheRussianenergypoli-

cy・atBrookings,USA,December6,2013andDraftEnergyStrategyoftheRussian

InstitutionalDimensionsinRussia・sNaturalGasPolicyinNortheastAsia 63

Notes

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Federationto2035�http://minenergo.gov.ru/documents/razrabotka/17481.html�

5 FordetailsonmethodologyofcomposingtheResourceGovernanceIndexvisitweb-site

oftheRevenueWatchInstitute�http://www.revenuewatch.org/rgi/methodology�.

6 NIEisrelativelyyoung,butincreasinglypopularwiththescholarsareaofknowledge.

Formoreseeweb-pageoftheInternationalSocietyforNew InstitutionalEconomics

�http://www.isnie.org/�

7 Thetermisfrequentlymisunderstood;・institutions・areofteninterpretedasonlyformal

arrangementsorevenmoremistakenlyastheorganisationsorframeworks(example

couldbefoundinHarris,2008).

8 Formoredetaileddiscussiononrelevantterminology(institutions,rules,transaction

costs,propertyrights,etc.)referto:Chapter19・IntroductoryObservations・,pp.381�422;

Ostrom,E.,1986.AnAgendafortheStudyofInstitutions.Chapter21,pp.429�451;

MenardC.,Chapter25・MarketsasInstitutionsversusOrganisationsasMarkets?Disen-

tanglingSomeFundamentalConcepts・pp.496-517in:C.Menard(Ed.),2004.TheFounda-

tionsofNewInstitutionalEconomics.TheInternationalLibraryoftheNewInstitutional

Economics.

9 See:Groenewegen,J.,Spithoven,A.,Berg,A.,2010.InstitutionalEconomics.Palgrave

Macmillan.p.25.

10 See:Chapter7・ATheoryofInstitutionalChange:ConceptsandCauses・,2004,pp.125�147

in:C.Menard(Ed.)TheFoundationsofNewInstitutionalEconomics.TheInternational

LibraryoftheNewInstitutionalEconomics.

11 See:Mueller,D.,1988.PublicChoiceII,Cambridge:CambridgeUniversityPress;Wolf,C.,

1988,MarketsorGovernments:ChoosingBetweenImperfectAlternatives,Cambridge,

MA:MITPress.

12 ConceptofStateEnergyPolicyinNew EconomicSituation(GovernmentResolution

№ 26,September10,1992);PrincipalProvisionsofEnergyStrategyoftheRussianFed-

erationtill2010(GovernmentResolutionNo.1006,October13,1995);PrincipalProvisions

ofEnergyStrategyoftheRussianFederationtill2020(GovernmentApprovalNo.39,

November23,2000);EnergyStrategyoftheRussianFederationtill2020(Government

OrdinanceNo.1234�r,August28,2003);EnergyStrategyoftheRussianFederationtill

2030(GovernmentOrdinanceNo.1715�r,November13,2009)

13 See:http://www.bp.com/conversionfactors.jsp

14 Kanter,JamesandAndrewE.Kramer.2013.EuropeThreatensGazpromwithAntitrust

Action.TheNew YorkTimes,October,3�http://www.nytimes.com/2013/10/04/busi

ness/international/europe-threatens-gazprom-with-antitrust-action.html?_r=0�

15 Gazprom slishkom privyazanknefti.Kommersant,February10,2014�http://www.

kommersant.ru/doc/2404296?isSearch=True�

16 PresidentialAddresstotheFederalAssemble,December13,2013�http://www.rg.ru/

2013/12/12/poslanie.html�(inRussian),�http://eng.kremlin.ru/news/6402�(inEng-

lish)

17 Chung,J,.2014.SouthKoreacutsfuturerelianceonnuclearpower,butnew plants

likely.Reuters.January13�http://news.yahoo.com/south-korea-cuts-future-reliance-

nuclear-power-plants-034049040--finance.html�

18 ForthePSAshistoryanddevelopmentssee:Krysiek,T.,2007.AgreementsfromAnother

Era:ProductionSharingAgreementsinPutin・sRussia,2000�2007OxfordInstitutefor

EnergyWP34.November�http://www.oxfordenergy.org/wpcms/wp-content/uploads/

2010/11/WPM34-AgreementsFromAnotherEraProductionSharingAgreementsinPutinsRussia

2000-2007-TimothyFentonKrysiek-2007.pdf�

19 In2006RussiapressuredtheSakhalinIIconsortium promptingtheforeigncompanies

InstitutionalDimensionsinRussia・sNaturalGasPolicyinNortheastAsia64

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operatingtheprojectunderthePSAtosellcontroloftheprojecttoGazprom(Bradshaw

2008).ThereasoningonthepartoftheRussianGovernmentwastogaincontrolover

thecostsoftheprojectthathadmorethandoubled,toensuremoreoftherevenuesfrom

theprojectwouldcometoRussianparties,andtohaveadirectsayintheproject・sex-

portmarketingstrategy.Putmorebluntly,neitherPresidentPutinnorGazpromcould

acceptthataforeignconsortiumwasdeliveringRussia・sfirstLNGtotheAsianmarket.

See:ShadrinaandBradshaw2013.

20 UpontheprovisionsintheFederalLawNo.117�FL・Ongasexport・,2006

21 Asofnow,onlyfourcompaniesRosneft,Novatek,SOCsZarubezhneftandGazprommet

thegovernment-setcriteriaandareeligibleforLNGexports.Accordingtothelaw,only

thosecompanieswhichhavemorethan50percentofstateownershipandsecuredtheir

plansforLNGplants・constructionbeforeJanuary1,2013willbegrantedsucharight.

Theliberalisationcanbecalledpartialnotonlybecauseofaverylimitednumberof

eligibleexporters,butalsobecausethegovernmentsetupacoordinationmechanism(to

preventcompetitionamongRussianLNGexportersinexternalmarkets),whichrequires

theexporterstosubmittheirexportplanstotheMinistryofEnergy.Thenewlyen-

dorsedlawonLNGexportliberalisationrequirestheamendmentstoArticle3ofthe

FederalLaw・OnGasExport・andArticles13and24oftheFederalLaw・OnthePrinci-

plesofStateRegulationofForeignTrade.・

22 PresidentialAddresstotheFederalAssemble,December13,2013�http://www.rg.ru/

2013/12/12/poslanie.html�(inRussian),�http://eng.kremlin.ru/news/6402�(inEng-

lish)

23 Blagov,S.,2010.RussiaPlansFarEasternEnergyDrive.EurasiaDailyMonitor.7(130).

24 EnergeticheskayaSrategiyaRossiinaPerioddo2020Goda.2003.p.34�http://www.

domenergy.ru/files/Files/strategy.pdf�

25 EnergeticheskayaStrategiyaRossiinaPerioddo2030Goda.2009.p.9�www.kuzesc.ru/

laws/Rasp_Pravit/RP_1715.doc?�

26 EventhoughGazprom isconstantlylosingouttoindependentgasproducers,itstill

produces73percentofgas.

27 TheProgramofCreationofUnifiedSystemofGasProduction,TransportationandSup-

pliesinEastSiberiaandtheFarEastwithPossibilityofExportingGastoChinaand

otherAsia-PacificCountries(EasternGasProgram).Theinitialdocumentwasadopted

bytheMinistryofEnergyoftheRussianFederation,OrderNo.340ofSeptember3,2007,

butitsaw someamendmentsin2011and2013�http://bestpravo.ru/rossijskoje/rx-

normy/r9n.htm�

28 See:forinstanceSamuels,1987.

29 Shadrina,2013a.

30 See:http://government.ru/docs/333orhttp://www.pravo.gov.ru/proxy/ips/?docbody

=&prevDoc=102103701&backlink=1&&nd=102330030

31 See:http://www.kremlin.ru/news/15656

32 In2010,forinstance,thefederalgovernment・sofficialswererepresentedonthecompa

nies・BoDsasfollows:Gazprom― FirstDeputyPrimeMinister(chairman),Ministerof

IndustryandTrade,MinisterofEconomicDevelopment,SpecialRepresentativeofPresi-

dentforInternationalCooperation;Rosneft― DeputyPrimeMinister(chairman),Head

oftheFederalAgencyforStatePropertyManagement;Transneft― MinisterofEnergy

(chairman);Zarubezhneft―MinisterofEnergy(chairman);RZD―DeputyPrimeMin-

ister(chairman).

33 Fedorov,P.,2013.VsekrupneishiekompaniiobratilisjvMinenergozapolucheniemljgot.

February7�http://www.rusenergy.com/ru/news/news.php?id=64531�

InstitutionalDimensionsinRussia・sNaturalGasPolicyinNortheastAsia 65

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34 Seepublicationsontheweb-pageoftheUnionofOilandGasProducersofRussia

�http://www.sngpr.ru/tribune.php�

35 FormoredetailseetheFive-YearStrategy(2010�2014)toimplementtheIntergovern-

mentalCollaborativeMechanismonEnergyCooperationinNorth-EastAsia.Available

athttp://www.unescap.org/ESD/Energy-Security-and-Water-Resources/energy/trade_

and_cooperation/cooperation/documents/FiveYearStrategy-ECNEA.pdf,accessed5Octo-

ber2013,

36 FormoreinformationrefertotheNAGPFweb-page.Availableathttp://www.nagpf.

info/introduce/about_us.htm,accessed5September2013.

37 Formoredetailsee:GasPricingandRegulation.China・sChallengesandIEAExperience.

OECD/IEA.2012andKushkina,KseniaandEdwardChow(2013)・GoldenAge・ofgasin

China.Istherestillawindowofopportunityformoregasexportstochina? Yegor

GaidarFellowshipPrograminEconomics.USRF.IREX.

38 FormoredetailonplannedelectricitymarketreformsinJapansee:ThePolicyonElec-

tricitySystemReform.CabinetDecision.April2,2013�http://www.meti.go.jp/english/

press/2013/pdf/0402_01a.pdf�;Yamazaki,T.,2013.ElectricityMarketReform inJapan.

ElectricityMarketReformOffice,METIAgencyforNaturalResourcesandEnergySep-

tember11 �http://www.eu-japan.eu/sites/eu-japan.eu/files/Session2_Yamazaki.pdf�;

Sheldrick,A.,Tsukimori,O.,2013.Japanpasseslawtolaunchreformofelectricitysector.

Reuters,November13�http://www.reuters.com/article/2013/11/13/us-japan-power-dere

gulation-idUSBRE9AC08N20131113�

39 Forsomerelevantdatareferto�http://www.eu-japan.eu/sites/eu-japan.eu/files/Ses

sion2_Yamazaki.pdf�

40 LearntfrompersonalcommunicationswithRussianandJapanesepractitioners.

41 Kuzjmin,V.,KrugEksportyorovRasshiren.RossiiskayaGazeta.31.10.2013�http://

www.rg.ru/2013/10/30/gaz-site.html�

42 AconsortiumoffiveJapanesecompanies,includingItochuCorp.,JapanPetroleumEx-

plorationCo.(JAPEX)andMarubeniCorp.

43 SakhalinOilandGasDevelopmentCo.― aconsortium establishedin1974,unites

JAPEX,JOGMEC,ItochuCorp.andMarubeniCorp.

44 Milov,V.,2014.GlavnayaProblenaEnergeticheskoiStrategiivtom,chtoeepishutne

Vizionery,aTechnokraty�http://www.rusenergy.com/ru/comments/comments.php?

id=72488�;Mitrova,T.,2014.GeneralyTEKGotovyatsyakProshedshimVoinam�http://

www.rusenergy.com/ru/comments/comments.php?id=72458�

45 Mukhin,A.,2014.LukavyeTsifryRosnefti�http://www.rusenergy.com/ru/comments/

comments.php?id=72710�

46 Shadrina,Elena(2009)EnergyCooperationinNortheastAsia:InsightintoImpacton

RegionFormation.UnpublishedPhDDissertation.GraduateSchoolofModernSociety

andCulture,NiigataUniversity,Japan.

Andrews-Speed,P.,2010.TheInstitutionsofEnergyGovernanceinChina.Brussels:Ifri.

Baev,P.,2010.Russia・sArcticPolicy:Geopolitics,Mercantilism,andIdentity-Building.Brief-

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Balmaceda,M.,2008.EnergyDependency,PoliticsandCorruptionintheFormerSovietUnion.

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Bayulgen,O.,2010.ForeignInvestmentandPoliticalRegimes.Cambridge:CambridgeUni-

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Introduction

AccordingtoUN�HABITAT,halfofthepopulationoftheworldlivesinurban

areasandthisratioisexpectedtoincreaseto70% bytheyear2050.Meanwhile,the

totalurbanareaoccupiesonly3% ofthesurfaceoftheearth.1 Urbanconcentration

inthissmallareaisnowdrivenbythemega-cities,whichholdmillionsofpeople.

Althoughurbanismprovidesvariousbenefits,itshouldbenotedthatthehighpopu-

lationdensityandtheconcentrationofwealthinthesetinyspotsontheglobein-

creasestheexposureofsuchplacestorisk.Nowadays,manypeopleareloudly

linkingnaturaldisasterstoclimatechange,andcitiesthathavebeenconsideredsafe

69

Abstract

TheTokyoMetropolitanAreaisknownasthelargestmetropolitanareainthe

world.ThecityhasbeenfacingseveredisastersliketheGreatKantoEarthquakein

1923,aswellasmoreroutinetyphoonsandfloods.Therehavebeensignificantlosses

causedbythesedisasters,however,becauseoftheirconsistency,riskmanagement

policieshaveaccumulatedovertime.ThecomplexdisasteronMarch11,2011caused

bytheGreatEastJapanEarthquake,andsubsequentlythetsunamianddamageto

theFukushimanuclearplant,gaveahugeimpactonTokyo,400kilometersaway

fromtheepicenter.However,Tokyoin2011offersussomevisiblesuccessofseveral

riskmanagementpoliciesthathavebeenrefinedoverthepastcentury.Ontheother

hand,fragilityhasbeenexposedparticularlytowhomrelyonthehighlydeveloped

urbaninfrastructureofthemega-city.Reviewingtheselessonslearntfrom the

eventsofMarch2011inTokyo,someimplicationstoenhancetheriskmanagement

policyaresought.OneoutlierisRoppongiHills,whichwasnotaffectedbythedisas-

teratallandbecameabasetoservefortheneighborhooduponthedisaster.While

RoppongiHillsprovidesseveralbestpracticelessons,itisarelativelysmallarea

comparedtothewholeMetropolitanRegion.Tounderstandthecurrentlevelofrisk

managementmeasuresfordisastersinTokyo,strengthsandweaknessesthatcorre-

spondtothefourstagesofcrisismanagementarepresented.Thisaimstobeatem-

platetoprovidereferencesinsettingtheriskmanagementpoliciesfortheemerging

mega-citiesespeciallyinAsia.

Keywords:GreatEastJapanEarthquake,urbanrisks,TokyoMetropolitanArea,

mega-city,riskmanagementpolicies

RiskManagementPoliciesforMega-Cities:LessonsfromTokyoonMarch11,2011

TakayukiKUBO

SeniorResearcher,TheFukuokaAsianUrbanResearchCenter

Lecturer,GraduateSchoolofGovernanceStudies,MeijiUniversity

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hithertoareatrisk.Simultaneously,complexdisasters,suchasacombinationof

floods,plantaccidents,moralhazard,andpandemicdiseases,canbetriggeredbya

singlenaturaldisaster.Theemploymentofriskmanagementpoliciesthatareuni-

quetothemega-citiesseemstobeanurgentmatterasthegrowthofcitiesacceler-

ates.

TheGreaterTokyoArea,composedofthecapitalTokyoandthethreesurround-

ingprefecturesofKanagawa,Chiba,andSaitama,isknownasthelargestmetropoli-

tanareaintheworldwithapopulationof35millionandaGDPofUS$1,479billion.

Althoughmega-citesintheemergingcountriesareexpectedtoachievesignificant

growthinthecomingdecades,Tokyowillremaintopin2025bothintermsofits

population2anditsGDP.3 Domesticallyalso,Tokyoisdominant.Forexample,the

threeprefectures,Iwate,Miyagi,andFukushima,whichweremostaffectedbythe

GreatEastJapanEarthquake,makeup4% ofthenationalpopulationandthe

nation・sGDP,whiletheGreaterTokyoAreaaccountsfor28% ofthenationalpopu-

lationand32% ofthenation・sGDP.(Figure1)

Tokyo,formerlyknownas・Edo,・hasbeendevelopedasacapitalcitysince1590.

Thecitywasdesignedwithacastleatitscenterandwiththedowntowninacircle

aroundthecenter.Thisuniqueconcentricstructurehasbeenmaintainedintothe

modernperiod.Amoderninfrastructure,suchasrailwaysandhighways,islaidout

onthisurbanform,andtheaccuracyandsuccessfuloperationoftheseseamless

servicesallowpeopletolivetogetherinthishugecityandenjoyahighqualityof

life.Supportedbyamatureeconomyandadevelopedinfrastructure,Tokyoalso

enjoyshighexposureasatouristdestination,aswellasbeingaglobalcenterfor

innovation.Forinstance,itsoverallpositionintheGlobalPowerCityIndexhas

beenfourth,followingthethreeworldfamouscitiesofNew York,London,and

RiskManagementPoliciesforMega-Cities70

Figure1 ComparisonbetweenGreaterTokyoAreaand

SeriouslyDamaged3PrefecturesinTohoku

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Paris.4 TokyonotonlyfunctionsanengineforJapan,italsoplaysacriticalroleas

aglobalhub.

TheGreatEastJapanEarthquakewasthelargestearthquaketohitTokyosince

theGreatKantoEarthquakein1923.Although,unfortunately,somecasualtieswere

reported,therewasalsoanopportunitytoexaminetheriskmanagementpolicies

thathadbeenputinplaceoverthedecadessincetheGreatKantoEarthquake.

ElaboratingonTokyo・ssuccessesandfailures,whichwererevealedwhilethecity

wascopingwiththeseriesofrisksthatweretriggeredbytheMarch11,2011event,

providesareferencefortheestablishmentofriskmanagementpoliciesintheemerg-

ingmega-citiesofAsia.

1.ThePhysicalDamagetoTokyofromtheEarthquake

CasualtiesandDamagetoProperty

ThecomplexdisasterduetotheearthquakeinNortheastJapanonMarch11,

2011,whichwasfollowedbyatsunamiandanuclearplantaccident,causedsome

damagetoTokyo.Thescaleofthecrisiscanbeimaginedwhenitiscomparedby

combiningthreedisastersintheUnitedStates,theSanFranciscoEarthquakeof

1906,HurricaneKatrinain2005,andtheThreeMileIslandnucleardisasterof1979.5

400kmawayfromtheepicenteroftheM9earthquake,thetremorincentralTokyo

wasmeasuredatlevel5+outofthe7levelsintheJapanMeteorologicalAgency・s

measurementsystem.6 WhiletheTohokuregionneartheepicenterrecordedlevel7,

whichisequivalenttothelevelinthecenterofKobecitybytheGreatHanshin-

AwajiEarthquakein1995,tremorsindowntownTokyowererelativelylow.None-

theless,aroundtenhousescollapsedandsevenpeoplewerekilledinthedowntown

areaofTokyo.Itisimportanttonotethatthelimitedamountofdamageconstitutes

animprovementontheseismicperformanceofTokyo・sbuildingssincetheGreat

Hanshin-AwajiEarthquakein1995.Also,therewerenocasualtiescausedbyfirein

Tokyowhilemorethanhalfthe100thousanddeathsintheGreatKantoEarthquake

werecausedbythequake-triggeredfires.Theintroductionanddistributionofthe

system・my-com-meter,・whichsensesaquakeandshutsdownthegassupplyineach

unitofaresidentialbuildinghelpedtopreventfires.

CommercialbuildingsinTokyowerenotseriouslydamagedbytheGreatEast

JapanEarthquakeeither.Forinstance,outof100propertiesmanagedbytheMori

BuildingCompany,whichisamajorpropertyholderandmanagerinTokyo,70were

damagedbythequake.However,mostoftherepairworkthatwasneededasa

resultwaslimitedtominorrepairstotheexteriororinteriorwallsandsurfacefin-

ishes.7

Whilemostofthecasualtiesresultedfrom thetsunamiintheTohokuregion,

Tokyowasnotaffectedbyatsunamithistime.ThehighestwaveatTokyo・s

Harumiwaterfrontwasreportedtobe1.5m.TheleveesalongtheTokyoshoreline

arefrom4.8mto8.0mhigh,andtheyaredesignedtowithstandthekindofflooding

thatcamewiththeIseBayTyphoonin1959,whichisknowntobeoneofJapan・s

worstpost-wardisasters.8

RiskManagementPoliciesforMega-Cities 71

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DamagetotheInfrastructure

Theimpactontheinfrastructure,suchasbridges,highways,andrailways,was

alsolessvisible.Thisreflectedtheworkdonetoreinforcetheinfrastructure,which

hadbeencarriedoutsince1995.Trainsystemsona30kmradiusfromthecenterof

Tokyostationsuspendedtheirserviceatonce,but40% recoveredwithintheday,

andthispercentagereached95% thenextday,afterdueinspectionshadbeencar-

riedout.9

Utilities,suchaselectricity,gas,andwatersupplies,werenotseriouslyaffected

bythequake.Theconventionalsteelgaspipesburiedundergroundhavebeenre-

placed withflexibleanddurablepolyethylenepipes.Waterpipeshavealsobeen

switchedtoaseismic-resistantsystem,sonoleakswerereportedthistime.Tokyo,

asofMarch11,2011,offersusvisiblesignsofthesuccessofseveralriskmanagement

policiesthathavebeenrefinedoverthepastcentury,andspecificallywithinthepast

15years.

However,eventhoughtherewerenocasualties,severesoilliquefactionwas

reportedintheTokyoBayarea,especiallyinChibaprefecture.Thetotalliquefied

areaapproached42squarekilometers,whichisthelargestareaofliquefaction

ever.10Asaresult,30housescollapsedandover1,000housesweredamagedinChiba.

ThemainreasonfortheliquefactionbeingconcentratedinChibawasthemethod

thathadbeenusedtoreclaimtheland.Toprotecttheenvironment,sandunderthe

baywasre-used,andthisresultedinanunstablefoundationforthereclaimedland.

Ontheotherhand,thereclaimedlandwherethegroundhadbeentreatedandim-

provedwiththesandcompactionpile(SCP)methodwasnotliquefied.Inresponse

tothe1964NiigataEarthquake,wherethecollapseofbuildingsduetoliquefaction

occurredinJapanforthefirsttime,theBuildingStandardsActwasamendedin1978

inordertoenforcegroundimprovementmethodsforlandreclamation,butmostof

theareasliquefiedinChibahadbeenestablishedbeforethisact.

2.Socio-EconomicIssuesExposedbytheEarthquake

StrandedPersons

Whilenomajorinfrastructuraldamageoccurredandthenumberofdeathswas

limited,Tokyoitesstillfacedseriousinconvenience.Thiswasparticularlysofor

thosewhorelyonthehighlydevelopedurbansysteminthecenterofthecity.

Theearthquakestruckataround3p.m.onFriday.Initially,peopleinoffices

andschoolsthoughttheycouldgohomeasusual.Tokyoisequippedwithoneofthe

mostsophisticatedtrainsystemsintheworld,andthissystemmaintainsagigantic

urbanstructurethatallows10millionpeopletocommutesystematicallyandevery

dayinandoutofthecityboundariesofTokyo.Rightafterthequake,allthelines

wereshutdownbecauseoftheneedtomonitorpossibledamagefrom thequake.

40% ofthelines,whichweremostlysubways,recoveredwithintheday,butthe

otherlinesstayeddownuntilthenextday.Thiscausedanunprecedentedphenome-

non,theoverflowofpeoplearoundthecity.Themajorterminals,suchasTokyo

RiskManagementPoliciesforMega-Cities72

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StationandShinjukuStation,whichusuallyaccommodateover1.5millionpassen-

gerseachday,askedpeopletoleavethestations,whichclosedtheirshutters,and

thismeantthatpeoplethenhadnoplacetostay.

Consequently,peoplestartedtousethelinesthathadrestoredtheirserviceand

madedetours.Somepeoplewalkedseveralhoursbacktotheirhomes,othersbought

androdeabicyclehomeorgotpickedupinthefamilycar.Othersstillreturnedto

theiroffices,orstayedattherefugeareasthatweresetupatpublicfacilitiesand

shoppingcenters.Therewerenoriotsandthingsremainedorganized.However,the

linesofpeoplewalkingalongthesidewalksdidnotdisappearuntilthemorning.

(Image1)Thetotalnumberofstrandedpeopleisestimatedat3.52millionbythe

TokyoMetropolitanGovernment.11

Thisexperiencemadepeoplerealizetheriskoftheirdailylong-distancecom-

mute,andsincethiseventoccurredalifestyleoflivingquarters-workplaceproxim-

ityhasattractedpeople・sattention.Riskmanagementpoliciesaimedatstocking

foodsandsuppliesatofficesandschoolsinthecaseofanemergencyhavebeen

highlighted,andtheTokyoMetropolitanGovernmentenforcedanewordinanceto

securethesemeasuresinMarch2012.

UrbanThreatfromtheNuclearPlantAccident

Moreinconvenienceresultedfromtheaccidentatanuclearplant.Thiscaused

newhardshipsforTokyoites.ElectricityshortagesoccurredafterallJapan・snuclear

plantswereshutdown.Thisresultedinareducednumberoftrainsandshutoff

barrier-freefacilitiesinpublicspaces,suchastheescalators.Manyelderlypeople

andfamilieswithinfantsfoundtheiraccesstothecityrestricted.Thegovernment

orderedeachfamilytoreducetheiruseofelectricity,sopeopletriedtosaveenergy

byturningofflightsandbycarefullycontrollingthetemperatureoftheiraircondi-

RiskManagementPoliciesforMega-Cities 73

Image1 StrandedPersonswalkingbackhome

Source:YomiuriShimbunNews

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tioners.Peoplesufferedacertainamountofdiscomfortandstressasaconsequence.

Furthermore,therewasashortageofgeneralsupplies,withshelvesat・Convenient

Stores,・whichareusuallyfullofgroceries24hoursaday,becomingempty.Oneof

theworstproblemswasthepollutioncausedbytheirradiationofthetapwater.

Eventhoughofficialannouncementsregardingthepollutionlevelsdeclaredthat

theselevelshadnoaffectonthehumanbody,peoplerushedtostorestohoardbot-

tledwaterandthiscausedashortageofsuppliesforinfantsforwhomsuchwateris

essential.Assuch,thecomfortableurbanlifeofTokyoites,whichresultsfrom

dense,systematicandprogressiveurbanization,wasthreatened.Allthisinconven-

iencemadeTokyoiteslosetheirconfidenceaboutlivinginthelargestmega-cityin

theworld.

Thenuclearplantaccidentwasrepeatedlydescribedbygovernmentofficialsas

an・UnexpectedAccident.・However,afterithappened,peoplerecognizedthatthere

isnothing・Perfect・aboutman-madesystems.Figure2showsthelocationofthe

activenuclearplantsaroundthemajorcitiesrelativetothecenterofeachcity.

・GlobalCities,・withahighaccumulationoffunctionswithinthecity,shouldremem-

berthattheyarenottotallyfreeoftheriskofnuclearaccidents,eventhoughtheir

nuclearplantslieoutsidethecity・sboundaries.

RiskManagementPoliciesforMega-Cities74

Figure2 ActiveNuclearPlantLocationsrelativetoCityCentersofMajorGlobalCities

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3.ImplicationsforRiskManagementPoliciesforMega-Cities

ModernSeismicPerformance

Thebreakthroughinimprovingtheseismicperformanceofbuildingswastrig-

geredbythe1978MiyagiEarthquakeinNortheastJapan.TheBuildingStandards

Actwasamendedduetotheseriouscollapseduringtheearthquakeofbuildings

witha・PilotiStyle・firstfloor,andstructuraldesigncriteriaweredramaticallytight-

ened.Followingthe1995GreatHanshin-AwajiEarthquake,theActforthePromo-

tionofRenovationforEarthquake-ResistantStructureswasimplemented,andin

2000theBuildingStandardsActwasamendedagaintointroduceperformance-based

designtobuildings.TheEarthquakeBuildingCodeScandalin200512alsoresultedin

theactsbecomingstricterregardingstructuraldesignwhenapeerchecksystem

andstrongerpenaltieswereintroduced.Inthisway,andasaresultoflessonslearnt

frompastexperience,seismicbuildingdesignstandardshaverapidlyimproved.In

the1995Hanshin-Awajiearthquake,24% ofthereinforcedconcretebuildingscon-

structedbeforethe1981amendmentcollapsedorwereseverelydamaged.Mostof

theolderbuildingsthatcollapsedwerebuiltunderpre-1981standardsorwere

woodenstructureswithoutsufficientearthquakeproofing,suchasadequatecross-

bracing.Nobuildingswithprefabricatedwallscollapsedinthe1995earthquake.13

CurrentlyinTokyo,80%oftheresidentialbuildingsand87%oftheelementaryand

juniorhighschoolsareearthquake-resistant14,butitishighlydesirablethatthe

remainingresidencesandschoolsbebroughtuptostandardassoonaspossible.

Meanwhile,theGreatEastJapanEarthquakeonMarch11testedtheseismic

performanceofthehigh-risebuildingsinTokyo,whicharerelativelyrecentinthe

historyofJapan・sconstructionindustry.IncentralTokyo,thereareapproximately

400high-risebuildingsthatareover100metershigh.15 Oneshakeofahigh-rise

buildingduringanearthquakeissaidtobeoflongduration.Thiscanresonatewith

along-termoscillationofbetween2and20seconds.Dampingdeviceswereproved

tobeeffectivebothinpreventingresonanceandinprotectingthebuildings.The

introductionofdampingtechnologytohigh-risebuildingsbecamepopularinthe

2000sinJapan,anditsinstallationinbuildingsisnowcriticalforseismicperform-

ance.The223-meter-highShinjukuCenterBuildingwasbuiltin1997andwasreno-

vatedin2009inordertoinstalldampingdevices.IntheMarch11quake,the

maximumdisplacementofthebuildingwas54cm,withthesedeviceslimitingthe

tremorofthebuildingby22%.16The238-meter-highRoppongiHillsMoriTowerwas

builtwithadampingsystemandthiswasshownonanalysistoreducethedisplace-

mentatthetopofthebuildingafterthequakebynearlyhalf.17 Infact,therewasno

damagereportedtoRoppongiHillsMoriToweraftertheMarch11quake,while

TokyoMetropolitanCityHallexperiencedsubstantialdamage,suchascollapsed

officeceilings.Consequently,thecityhallwasrenovatedinordertoinstalladamp-

ingsystem.

RiskManagementPoliciesforMega-Cities 75

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RedundantEnergySupply

TheGreatEastJapanEarthquakealsorevealedthevulnerabilityofTokyo・s

energysupplyinsuchanevent,becauseofplannedblackoutsandtherestrictionson

electricityusageinthesummer,bothofwhichwereorderedbythegovernmentfor

thefirsttimein37years.Aredundantsupplyofenergy,whichoffersalternative

energysourcesandproviders,hasbecomeimportantwhenitcomestomaintaining

amega-city・sabilitytocopewithadisaster.AtthetimeoftheMarch11quake,

RoppongiHillswastheonlycomplexwhichwasoperatingitsownpowerplantin

Tokyo.In1995,theElectricityBusinessActwasamendedtoenableprivatecompa-

nies,besidesthemajorelectricitycompanies,toproduceandsupplyelectricityfor

businesspurposes.UponthedevelopmentofRoppongiHills,theRoppongiEnergy

ServiceCompanywasestablishedtorunanexclusiveLNG(LiquefiedNaturalGas)

powerplanttosupplyelectricitytotheentireRoppongiHillscomplex.Sincethis

powerplantissustainedbygasfromtheTokyoGasCompany,itwasnotaffectedby

thepowerblackoutbytheTokyoElectricPowerCompanyaftertheearthquake.To

preservethisredundancy,RoppongiEnergyServicealsohasacontractwiththe

TokyoElectricPowerCompany,incaseofanemergency,inordertoreceiveelectric-

ity.However,aftertheMarch11earthquake,RoppongiEnergyServiceprovidedthe

residualelectricityofRoppongiHillstotheTokyoElectricPowerCompany.18

Sincetheearthquake,RoppongiHillshasattractedtheattentionofoverseas

corporationsespeciallybecauseofitsabilitytocarryonbusinessoperationsina

crisis.Learningthislesson,aspartofthepublicsector,theTokyoMetropolitan

Governmentinitiatedapolicytorealizearedundantenergysupply.Tokyohasbeen

relyingforabout80%ofitselectricityonproductionbasedoutsideTokyo,including

thenuclearplantsinFukushima.19 Toincreasethelevelofself-sufficiencyinenergy

becameaseriousissue,andthelocalgovernmentsoughttobuildanewLNGpower

plantintheTokyoBayarea.Theelectricityproducedbytheplantcouldbeabout

1millionKW,whichalmostequalstheenergyproducedbyonenuclearreactor.

Thisactionenhancedthecreationofacity-wideredundantelectricitysupplysys-

tem.

SafeUrbanBlocks

SincetheMarch11quake,thecontrastbetweensafeandunsafeplacesinTokyo

hasbecomeclear.Tokyoisacitythathasfeweropengreenspacesthanothermajor

globalcities.(Figure3)Itisalsorareinthatthetotalareaofopengreenspace

decreasesthefurtheronemovesoutfromthecenterofthecityintothesuburbs.

In1958,thegovernmentcreatedaplantointroducesustainableurbangrowthin

thenationalcapitalareabyreferringtotheGreaterLondonPlan.Thegovernment

triedtointroduceaGreenBeltaroundTokyo・scitycenter.However,thepolicywas

notproperlyimplementedduetooppositionfromtheland-ownersintheareasdesig-

natedtobepartoftheGreenBelt.Theseareaswereconsequentlydevelopedas

urbanareas.Intheend,thegovernmentgaveuptheideaofaGreenBeltandre-

movedthepolicywiththerevisionoftheNationalCapitalAreaMasterPlanin

RiskManagementPoliciesforMega-Cities76

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RiskManagementPoliciesforMega-Cities 77

Figure3 ComparisonofGreenOpenSpaceforTokyoandThreeMajorGlobalCities

Source:GlobalPowerInnerCityIndex2010,InstituteforUrbanStrategies,TheMori

MemorialFoundation

Figure4 NationalCapitalRegionMasterPlan(1958leftand1968right);

BlackzoneistheplannedGreenBelt

Source:NationalLandAgency

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1968.20(Figure4)

Sincethen,Tokyohasbeendevelopedaggressivelywithnoattentionbeingpaid

tomaintainingopengreenspaces,whichareessentialfrom thepointofview of

disastermanagement.Opengreenspacesnotonlypreventfirefromspreadingbut

theyalsoserveasabaseforfightingfiresandforacceptingrefugees.Figure5

showsamapcreatedbytheTokyoMetropolitanGovernment,whichhighlightsthe

・Zonesexpectedtoreceivedetrimentaldamageinthecaseofadisaster.・Thetotal

areaofthesezonesis7,000ha,whichis11%ofthetotalareaformedbythe23wards

ofTokyo.1.8millionpeoplecurrentlyliveinthesezones,whichhavebarelyany

opengreenspaceandarecongestedwithwoodenhouses.Thesezonesarenotslums,

however.Infact,manyaremoderatelywealthy;therearejustnoincentivesfor

propertyownerstoredeveloptheneighborhood,includingtheirownproperties,to

createnewopenspacestomaketheirareasafe.

Meanwhile,thecentralareaofTokyocanbeseenfromthismaptobesafer.One

reasonisthattheredevelopmentofthecentralareaismoreadvancedthanthesub-

urbs.Since2002,UrbanRegenerationprojectshavebeencarriedoutasamatterof

nationalpolicy,andalotofnewmixed-usecomplexes,basedontowersandopen

spaces,haveemerged.RoppongiHillsinFigure6representsthisstyleofdevelop-

ment,andithasbeenfollowedbyothermega-complexes,suchasTokyoMid-Town.

Thesecomplexes,developedinthe2000s,clearlyappear,aftertheMarch11quake,to

besafer.Infact,RoppongiHillswasnotonlyunaffectedbytheearthquake,italso

accommodatedthousandsofrefugeeswhowerenotabletogohomebyproviding

amplestocksoffood,waterandblankets.Ashasbeenshown,whileRoppongiHills

canprovideseveralbestpracticelessons,andisthelargestprivatelybaseddevelop-

RiskManagementPoliciesforMega-Cities78

Figure5 ZonesExpectedtoreceiveDetrimentalDamageintheCaseofaDisaster

Source:HeadquartersoftheGovernorofTokyo,

TokyoMetropolitanGovernment

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mentinTokyo,itcoversarelativelysmallarea,comparedtothatoftheentiremega-

cityregion.

ResilientGovernment,Communities,andIndividuals

TheMarch11earthquakewasnotan・unexpected・disasterforTokyo,even

thoughthemetropolisexperienceditslargesttremorsincetheGreatKantoEarth-

quake.Eventheappearanceofstrandedpeoplehadbeenpredicted,responses,such

asopeningupgovernmentfacilitiesandpublicschoolsforthosepeoplewhohad

beenstranded,waspromptlycarriedoutbygovernmentstaffs.Infact,manymeas-

uresintheplansandmanualsservedtoprovideresiliencetothecity.

TheBusinessContinuityPlan(BCP)fortheTokyoMetropolitanGovernment

maybeamongthemostsophisticatedintheworldintermsofitscountermeasures

intimesofdisaster.Theplandesignates1,061ofthegovernment・s2,884servicesas

apriorityintermsoftheprovisionofcontinuityinTokyo・sservicesandfacilities.

Itspecifiestargettimesfortherecoveryoftheseservicesafteranearthquake,taking

potentialunderstaffingintoconsideration. TokyohasalsocreatedthePost-

EarthquakeRecoveryManual,whichpresentsroadmapsforrecoveryforeachofits

districts,basedonthescaleofdamageexpected,andthecityannuallyholdsdisaster

drills,whicharetiedintothemanual.

Meanwhile,communitiescomplementgovernmenteffortsindisasterprepara-

tionthroughtheformulationofdistrictcontinuityplans(DCP).Businessesaround

TokyoStationhaveformedtheNeighborhoodCommunityAssociationaround

TokyoStationforDisasterManagement,whichseekstoaddressthechallenges

postedbytheexpectedstrandingof600thousandcommutersaroundthestation

afteralargeearthquakecenteredonTokyo.21Thesechallengescannotbetackledby

anysinglecompany,sotheassociation・snetworkaimstocopewithamajorquake

inacooperativeway.Theycaneffectivelygatherinformationonthesafetyof

individuals,guidecommuterswhoaretryingtowalkhome,distributefoodand

water,andperform othercrucialcommunitytasks.Theorganizationisthusan

exampleofputtingintopracticetheviewthatinadisaster,communityresilience,

RiskManagementPoliciesforMega-Cities 79

Figure6 RoppongiHillsbefore(left)andafter(right)thedevelopment

Source:MoriBuilding

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basedontheconceptsofself-helpandcooperation,ismoreeffectivethanwaitingfor

publicassistance.

Finally,eachindividualhastoberesilientandactresponsiblyduringadisaster.

AlongthecoastalareaintheTohokuregion,alegendhasbeenpassedonfrom

previousgenerationswhichinstructspeople,whenatsunamiarrives,toimmedi-

atelyescapefromthecoastwithoutglancinganywhereelsebutthehillsandnotto

careaboutotherpeople.Thismaysoundslightlybarbaric,buttheexpectationis

thateverybodycanfinallymeetonthehillifeveryonefollowedthisrule.Itisesti-

matedthattherewereabout500thousandpeopleinthetsunami-floodedareaatthe

timeoftheearthquakeonMarch11intheIwate,Miyagi,andFukushimaprefec-

tures,andthatthecasualtiestotaledapproximately20thousand.Iftherehadbeen

noexperiencewithtsunamis,includingfrequentevacuationdrills,thecasualtyfig-

urescouldhavebeenonedigitlarger.However,inamega-city,thesituationmight

beslightlydifferentbecauseofthehighpopulationdensity.Forinstance,rightafter

thequake,peoplerushedtothestationstoreachtheirhomesassoonaspossiblein

ordertoconfirm thesafetyoftheirfamilies.Asthestationswereshutdown,a

massivenumberofpeoplecouldnotfindtheirwayhomeandtheyoverflowedonto

theplazasandstreets,raisingthechanceofmoralhazards.Eveninthissituation,no

riotingorlootingtookplace.PeopleinTokyohavebeentrainedtosharespacein

congestedtrains,streets,andsidewalkssincetheperiodofhigheconomicgrowth

duringthe1970s.Thus,theexperienceandmoralityofeachindividual,especiallyin

denseurbanspaces,isimportantinadisasterifeveryoneistosurvive.Dailyprepar-

ednessfordisastersbycreatingresilientindividualsisaprimarymeasure.

Conclusion

RiskmanagementpoliciesinTokyohavebeenpolishedasaresultofitsrecord

ofdisastersinhistory.However,theGreatEastJapanEarthquakeonMarch11,2011

provedthatthesepolicieswerenotsufficient.Forecastsshowthatthereisa70%

chanceofagreatearthquakeoccurringinornearTokyowithinthenext30

years.22 Therefore,justlikeaftertheearthquakein1995,urbansystemsneedto

continuetoimplementriskmanagementpolicies.

Tounderstandthecurrentlevelofriskmanagementmeasuresfordisastersin

Tokyo,Figure7hasbeencreatedtoeasilyidentifystrengthsandweaknessesthat

correspondtothefourstagesofcrisismanagement:Mitigation,Preparedness,Re-

sponse,andRecovery.23 Tokyo・sstrengthscanbeseeninitshighdesignstandards

regardingseismicandfireperformance,whicharephysicalaspects,togetherwith

thewell-organizedTokyo・sBusinessContinuityPlanandthePostEarthquakeRe-

coveryManual,whichrepresentcertainoperationalaspects.Ontheotherhand,the

weaknesses,suchastheexistenceofthecongestedwoodenhousezones,whichre-

sultinthelackofopenspaceforegressandfirefighting,areclearlynegativefactors.

Toproperlycopewiththenextearthquake,eventhoughthetimingofthatearth-

quakeisuncertain,policiestoconfronttheseweaknessesandchangethem into

strengthsshouldbeimplemented.Inparticular,theredevelopmentofthezones

RiskManagementPoliciesforMega-Cities80

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wheredetrimentaldamageinadisastercanbeexpected,asdesignatedbytheTokyo

MetropolitanGovernment,isanurgentmeasurethatneedstobeimplementedas

soonaspossible.WithintheentireTokyoregion,thecitycenterisrelativelysafe,

but,sincemostofthenation・scentralfunctions,suchasitsparliament,itsministries,

andtheheadofficesofitsmajorcompaniesareconcentratedinthecentralcore,the

levelofsafetyshouldbefurtherenhanced.Oncetherewasanargumenttorelocate

thecapital・sfunctionstootherregionsoutsideTokyo.However,thishasnotbeen

realizedafterstudiescomparedtheoverallbenefitsagainstallthedisadvantages

thatwouldresultfromsucharelocation.Infact,ithasbeenrecognizedthatthere

isnoplacethatis100%freefromanearthquakeevenifearthquakeengineeringhas

maderemarkableprogressinrecenttimes.Tokyohasnochoicebuttosquarelyface

thechallengespresentedbytheworld・slargestmetropolisanditsmassiveconglom-

erationofpeople,communities,businesses,andinfrastructure.24 TheJapaneseGov-

ernmentdecidedtointroducenew・SpecialZones・incentralTokyotoaccelerate

urbanregenerationtomitigatefuturedisasterrisksandtoprovideinternational

urbanplatformsthatcanattractpeople,companies,andinvestmentinordertosus-

tainthezones.25(Figure8)Thesezonesareexpectedtobemodelsthatshowcasea

livableurbanenvironmentwitharobustinfrastructure.

Therearemanyimportantlessonstobelearntfrom TokyobyotherAsian

mega-cities.UnderstandingthatTokyoisstilldevelopingitsriskmanagement

measures,eachcity・sriskmanagementmeasurescanbereviewedusingthefour

categoriesaboveandtheleveloftheirperformancecouldbecomparedwith

Tokyo・s.Comparativeanalysiswillrevealthestrengthorweaknessofeachmeas-

ure,andthenpeoplecandiscusswhatpoliciesshouldbeimplementedasaresult.

Thescopeofriskmanagementincitiesseemstobeexpandingthesedayswith

RiskManagementPoliciesforMega-Cities 81

Figure7 StrengthsandWeaknessesoftheRiskManagementMeasurescorrespondingtotheFourStagesofCrisisManagement

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theattentionbeinggiventoglobalclimatechangeanddiversesocialconflicts.Since

themega-citiesarefrequentlyregardedasthemajorurbanplatformsforsustaining

theworld・seconomyoverthenextfew decades,contemporaryriskmanagement

policiesneedtobeupdatedprogressivelysincewearelocatedinaplaceinwhichwe

co-existwithdisasters.

Theauthordevelopedthispaperbasedontheresearchpresentedas・Whatkindofim-

pactdidtheGreatEastJapanDisasterhaveonTokyo?・inJune,2011,atthe・G-SECEmer-

gentForum,・whichwasheldbytheGlobalSecurityResearchInstituteatKeioUniversity.

TheauthorwouldliketothankProfessorHeizoTakenaka,whoinvitedtheauthortothe

forumasapresenter,andtheparticipantswhoprovidedmultiplefeedbackonthepresenta-

tion.Theauthorfurtherdevelopedtheresearchandpresentedtheresultsas・RiskManage-

mentinMega-Cities:LessonsfromTokyoonMarch11,2011・atthe23rdPacificConference

oftheRegionalScienceAssociationInternational(RSAI)inJuly,2012,intheDisasterMan-

agementsession,atwhichtheauthorwasalsoadiscussant.Theauthorisgratefultothe

sessionchairProfessorHarlanDimasatPadjadjaranUniversityandotherparticipantsfor

theircomments,whicharereflectedinthispaper.Theauthoralsowishestoexpresshis

appreciationtoProfessorHirooIchikawaatMeijiUniversityandProfessorAkiraYamasaki

atChuoUniversityfortheirunfailingsupportintheproductionofthispaper.

RiskManagementPoliciesforMega-Cities82

Acknowledgements

Figure8 ComprehensiveSpecialZoneAreadesignatedbytheNationalGovernmentandTokyoMetropolitanGovernment

Source:HeadquartersoftheGovernorofTokyo,TokyoMetropolitanGovernment

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1 TheEarthInstitute,ColumbiaUniversity,TheGrowingUrbanizationoftheWorld,

March8,2005.

2 UnitedNations,WorldUrbanizationProspects:The2011RevisionPopulationDatabase.

http://esa.un.org/unup.

3 PricewaterhouseCoopers,GlobalCityGDPRankings2008�2025.http://www.ukmedia

centre.pwc.com/Media-Library/Global-city-GDP-rankings-2008-2025-61a.aspx.

4 TheInstituteforUrbanStrategiesattheMoriMemorialFoundationhaspublishedcom-

prehensiverankingsofcitiesannuallysince2008,andTokyohasbeenranked4thuntil

thelatestpublication.

5 YoichiFunabashi,・Postmortem ofCrisisinGovernance,・Lessonsfrom theDisaster

(2011),p.222.

6 TheJapanMeteorologicalAgencyrankstheintensityofseismicshakesfrom 0to7.

Levels5and6aredividedintotwogrades,lowerandupper,makingatotalofninelevels.

7 InterviewwiththePropertyManagementDivision,MoriBuilding,May,2011.

8 BureauofPortsandHarbors,TokyoMetropolitanGovernment.http://www.kouwan.

metro.tokyo.jp/yakuwari/takashio/shisetsu/gogan.

9 MinistryofLand,Infrastructure,Transport,andTourism NewsRelease,April20,2011.

http://www.mlit.go.jp/common/000142505.pdf.

10 MinistryofLand,Infrastructure,Transport,andTourism,Heisei23-nenbanShutoken

haakusho[2011WhitePaperontheTokyoMetropolitanArea].

11 TokyoMetropolitanGovernment,Tokyo-tonokitakukonnanshataisakunokihonteki

kangaekata[BasicConceptstoSecureStrandedPeopleinTokyo].http://www.bousai.

metro.tokyo.jp/japanese/kitaku_portal/tmg/pdf/240113kitakukihon.pdf

12 The・Anehascandal・overfalseearthquakeresistancedataforresidentialbuildingshad

revealedasocialproblem.Manybuildingswerediagnosedasfatalwithregardstoseis-

micperformanceafterhavingoriginallyobtainedcertificationundertheBuildingStan-

dardsAct.

13 HirooIchikawa,・TheEarthquakeinTokyo,・LessonsfromtheDisaster(2011),p.112.

14 Residencesasof2008announcedbytheMinistryofLand,Infrastructure,Transport,and

Tourism.Elementaryandjuniorhighschoolsasof2010announcedbytheMinistryof

Education,Culture,Sports,Science,andTechnology.

15 InstituteforUrbanStrategies,theMoriMemorialFoundation,GlobalPowerInnerCity

Index2010(2011),p.28.

16 TaishinNet2013.05.12.http://www.taisin-net.com/solution/taiseis_eye/87lvn700000157

p5.html.

17 MoriBuildingNewsRelease,March7,2013.

18 MoriBuildingNewsRelease,March17,2011.

19 TokyoMetropolitanGovernment,2020-nennoTokyo[Tokyoof2020](2011).http://

www.chijihon.metro.tokyo.jp/tokyo_of_2020/index.html.

20 TakayukiKubo,TheRemakingofTokyo,UrbanIntelligenceNo.4(2012),p.19.

21 Tokyo-ekishuhenbousaitonarigumi[NeighborhoodCommunityAssociationaround

TokyoStationforDisasterManagement].http://udri.net/tonarigumi/indextonarigu

mi.htm.

22 CentralDisasterPreventionCouncilofJapan,February2005.

23 FourphasesdefinedbytheUS.NationalGovernorsAssociationin1978.

24 HirooIchikawaandTakayukiKubo,Tokyonomiraisenryaku[TheFutureStrategyof

Tokyo],p.133.

RiskManagementPoliciesforMega-Cities 83

Notes

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25 TokyoMetropolitan Government,Tokyo・sSpecialZonesforAsian Headquarters.

http://www.chijihon.metro.tokyo.jp/ahq_project/index.html.

Funabashi,Y.,etal.(2011).LessonsformtheDisaster:RiskManagementandCompoundCrisis

presentedbytheGreatEastJapanEarthquake(Y.Funabashi,& T.Takenaka,Eds.).

Tokyo:TheJapanTimes.

Ichikawa,H.,&Kubo,T.(2012).Tokyonomiraisenryaku[TheFutureStrategyofTokyo].

Tokyo:Toyokeizaishimposha.

InstituteforUrbanStrategies,TheMoriMemorialFoundation.(2012).GlobalPowerCity

Index2011YEARBOOK.Tokyo:TheMoriMemorialFoundation.

InstituteforUrbanStrategies,TheMoriMemorialFoundation.(2011).GlobalPowerInner

CityIndex2010.Tokyo:TheMoriMemorialFoundation.

Japan,MinistryofLand,Infrastructure,Transport,andTourism.(2011).Heisei23-nenban

Shutokenhaakusho[2011WhitePaperontheTokyoMetropolitanArea].

Kubo,T.(2012).TheRemakingofTokyo,UrbanIntelligenceNo.4.MIPIM Worldblog.

Websiteby:http://blog.mipimworld.com.

Kubo,T.,&Miwa,Y.(2011).HigashiNihondaishinsainimiruValueofTokyo[Valueof

TokyoseenintheGreatEastJapanEarthquake].Tokyo:GlobalSecurityResearchInsti-

tute,KeioUniversity.

Nakabayashi,I.(2011).Anatanotoshinijishingakitaradoushimasuka?[Whatwouldyoudo

whenearthquakehitsyourcity?].Tokyo:MagazineHouse.

Nakabayashi,I.(2012).DaijishinanatanomachinoTokyokikendomap[Riskinyourcityby

earthquakeinTokyo].Tokyo:Asahishuppansha.

Smith,K.(2013).EnvironmentalHazards:AssessingRiskandReducingDisaster,6thEdition.

London:Routledge.

TheEarthInstitute,ColumbiaUniversity.(2005).TheGrowingUrbanizationintheWorld.

ColumbiaUniversity.Websiteby:http://www.earth.columbia.edu/news/2005/story03-

07-05.html.

TokyoMetropolitanGovernment.(2011).2020-nennoTokyo[Tokyoof2020].Websiteby:

http://www.chijihon.metro.tokyo.jp/tokyo_of_2020/index.html.

RiskManagementPoliciesforMega-Cities84

References

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1.Introduction

Smallandmedium enterprises(SME)accountfor99.5percentofallJapanese

companies.1 WetendtothinkoflargecompaniessuchasSonyandPanasonicas

representativeofJapanesebusinesses,but,infact,suchnamebrandsaresupported

bySMEs.Despitetheirsize,manyJapaneseSMEshavealonghistory,withsome

deliberatelystayingsmalltomaintainmanageabilityandenjoyingsolidperform-

ance.SuchfeatureshaveallowedmanyJapaneseSMEstoadeptlyovercomenumer-

ouseconomicupheavals,suchastheoilcrisesofthe1970sandthecollapseof

LehmanBrothersin2008.2 Someofthewell-knownfeaturesofJapanese-styleman-

agementincludesuchmovementsas・5S・and・Kaizen(improvement),・3whichare

quality-managementinitiativesbasedontheuniquelyJapanesemanufacturingcul-

ture,butlessknownisthefactthatmanyleadingSMEsemploymanagementac-

counting. Even smallJapanesebusinessesmakeactiveuseofmanagement

accountingintheirbusinessdecisions.Inthisstudy,wewilllookat・fixedrevenue

accounting,・anewstyleofmanagementaccountingdevelopedinJapan,andlookat

howaJapaneseSMEusesthisaccountingtool.

Fixedrevenueaccountingisaformofmanagementaccountingcenteredonthe

ideathatacompanyisoperatingstablywhenitsfixedcostsarecoveredwithreve-

nuesfromregularcustomers.Infixedrevenueaccounting,theprofitwhereacom-

panycoversitsfixedcostswithregularrevenuesisreferredtoasfixedoperating

profit(Asada,Suzuki,&Kawano,2005,pp.3�8).Putsimply,ifabusinesscancover

itsfixedcosts,suchassalariesandofficerents,withtherevenuesitgeneratesfrom

astable,repeatcustomerbase,thecompanyisnotlikelytogobankrupteasily.

Fixedrevenueaccountingisanewmanagementaccountingtoolthatmakesthis

85

Contents

1.Introduction

2.Customerandproductsegments

3.Researchdesign

4.Outcomeofresearchandanalysis

5.Conclusion

AStudyofManagementStyleof

・Japan・sSmall-MediumSizedEnterprises・:FromtheViewof・FixedAccountingSystem・

HiromuneIshii,Ph.D.(B.A.)

Lecturer

GraduateSchoolofGlobalBusiness

MeijiUniversity

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conceptmeasurable,visibleandcommunicable.Therearemanymanagementac-

countingmodels,4buttheprominentcharacteristicoffixedrevenueaccountingis

thatprofitabilitycanbegaugedintermsofthecustomerrelationshipsthatacom-

panyhas.Bycontrast,conventionalmanagementaccountingconceptsmostcom-

monlymeasureprofitabilityfromthevolumeofsalesorthenumberofunitssold.

Forexample,inthewidelyknowncost-volume-profit(CVP)analysis,agraphsimi-

lartotheoneinChart1�1isused,wheretheYaxisrepresentsrevenuesandcosts

andtheXaxisrepresentssalesvolumeorunitssoldinordertoarriveatthebreak-

evenpoint(BEP)representedbyP2.However,inChart1�2,whichillustratesfixed

revenueaccounting,theXaxisisdividedintopartsrepresentingsalesfromdiscrete

customersegments.Also,fixedrevenueaccountingpayscloseattentiontoP1,focus-

ingonfixedoperatingprofitwheresalesfromregularcustomerscoverfixedcosts,

whileP1ishardlyamatterofdiscussioninCVPanalysis.Inotherwords,fixed

revenueaccountingisbuiltonthehypothesisthatacompanycanstabilizeitsbusi-

nessoperationsbyachievingafixedoperatingprofitatthebreak-evenpointrepre-

sentedbyP1.Thisisthefundamentalprincipleoffixedrevenueaccounting.

Inordertoconsistentlyachievethebreak-evenprofitofP1,acompanyneedsto

increasethenumberofitsregularcustomers,asshownontheXaxisinChart1�2.

Giventhatcustomersaretheonlysourceofrevenue,itgoeswithoutsayingthatthe

veryfoundationofcorporatestrategyisthetirelessefforttoacquirenewcustomers

andturningsuchcustomersintoastable,regularclientbase.Theconceptoffixed

revenueaccountingaimsnotonlytomeasureprofitabilitybutalsolookstostabilize

businessoperationsthroughincentivestocreatenewcustomersandtoturnsuch

customersintoregularcustomers.Fixedrevenueaccountingworkstowardthe

creationofcustomersandtheexpansionofregularclientele.Thisconceptiscom-

patiblewithaquotefromPeterF.Drucker(2001,p.15):・Thepurposeofbusinessis

tocreateandkeepacustomer.・

Today,thebusinessclimateinJapanisbecomingincreasinglysevere,andthere

AStudyofManagementStyleof・Japan・sSmall-MediumSizedEnterprises・86

Chart1�1 CVPAnalysis

Chartsbytheauthor

Chart1�2 FixedRevenueAccounting

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isnoendofseriouschallengesfacingJapanesecompanies.Domestically,thereare

theproblemsofthelosttwodecadesafterthecollapseofthebubbleeconomy,the

hollowingoutofindustriesamidintensifyingglobalcompetitionandthewildfluc-

tuationsofcurrencyexchangerates.Andtheoutlookoftheworldeconomyhas

remaineduncertainsincetheallbutunprecedentedturmoilfollowingthecollapseof

LehmanBrothersandtheEuropeandebtcrisis.Onthepoliticalfront,therearetrade

issuesarisingfromterritorialdisputes,andmajornaturaldisasters,suchastheGreat

EastJapanEarthquakeandwidespreadfloodinginThailand,dealtaheavyblowto

alreadyweakenedcorporateearnings.Undersuchharshcircumstances,theelec-

tronicsindustryremainsparticularlysluggishandfindsitselfinastateofdisarray.

Thedramaticdeclineincompetitivenessandstaggeringlossesincurredbymajor

Japaneseelectronicsfirms,whichhavelongbeenthemaindriveroftheJapanese

economy,servesasastarksymbolofthedifficultiesconfrontingJapanesecompa-

niestoday.CompanyA,whichwewilllookatinthisstudy,isanelectronicsfirmin

thethickofsuchdifficulties.ItisalsoanSME,andasasmallbusinesswithaweak

capitalbase,itgoeswithoutsayingthatthecompanyfindsitselfinaverytough

businessenvironment.

Nevertheless,CompanyAhasovercomenumerouschallengesusingfixedreve-

nueaccounting,constantlypostingpositiveoperatingincomeswiththeexceptionof

theyearthatsawthedemiseofLehmanBrothers.JusthowisCompanyAemploy-

ingfixedrevenueaccountinginitsbusinessoperations?Inthepresenceofmany

uncertainparameters,ifthereisoneformofmanagementaccountingevensugges-

tiveofapositiveimpactoncorporateprofitabilityandgrowth,thenitisworth

takingacloselookat.Inthisstudy,wewillexaminehowfixedrevenueaccounting

caninfluenceperformancefromtheviewpointoftheprofitabilityofCompanyA,a

businessthatpracticesfixedrevenueaccounting.

InChapter2,wewilllookatCompanyA・scustomersegmentsandproductseg-

ments.Infixedrevenueaccounting,definingsegments,meaningcustomersare

brokendownintonew,regular,non-regularandlost,andproductsarecategorized

accordingtothecompany・sbusinessdemarcation,isthebasisforanyfurtherdiscus-

sion.InoutliningsuchsegmentsitisnecessarytoshedlightonthehistoryofCom-

panyAandthebackgroundofitsmovetointroducefixedrevenueaccounting.In

Chapter3,wewilldiscussthestudy・sresearchdesign.Researchquestions,research

methods,researchsite,andresearchdatawillbedescribed.InChapter4,wewill

lookattheoutcomeofprofitabilityanalysisinaccordancewiththenew,regular,

non-regularandlostcustomersegmentsofCompanyA,madeavailablebytenyears

ofdatatakenfromthecompany・stransactionswith845customers.InChapter5,I

willsummarizethefindingsfromabove,anddiscussthestudy・soutcome,limitsand

issues.

2.Customerandproductsegments

Inthischapter,wewilllookathowCompanyAdefinesitscustomerandprod-

uctsegments.Infixedrevenueaccounting,theclientbaseisbrokendownintonew

AStudyofManagementStyleof・Japan・sSmall-MediumSizedEnterprises・ 87

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customers,regularcustomers,non-regularcustomersandlostcustomers,upon

whichprofitfiguresarecomputedseparatelywithaviewtodeterminingtheprofit-

abilityofeachsegment.Withoutpropersegmentation,fixedrevenueaccountingas

ameasureofprofitabilitydoesnotfunction.Defininganddeterminingcustomer

segmentationistheveryfirststepinfixedrevenueaccountingandaveryimportant

procedureindeed.Meanwhile,productsareseparatedaccordingtothecompany・s

productlinesanditisrelativelysimpletodeterminethesegmentationcompared

withcustomers.Usually,productsarecategorizedinaccordancewiththeirmakers,

marketsandintendeduses,andindividualproductlinesaresortedbysalesvolume

orprofitabilitywithineachsegment.Thepracticeofproductsegmentationalso

helpsusunderstandwhatthecompany・scorebusinessis.

Ascanbeseenhere,definingcustomersegmentsandproductsegmentsisa

crucialstepinfixedrevenueaccounting,butdeterminingthesegmentsofacom-

panyaloneisnotenough.Itisequallyasimportanttoknowwhythecompanycame

upwiththesegmentation.Inordertostudyacompanyinamoreappropriateway,

weneedtolookintoitshistoryandindustrycharacteristicsaswellastheback-

groundtoitsdecisiontoadoptfixedrevenueaccounting.Weneedtounderstand

thesamplecompany・scustomerandproductsegments,andanalyzeitsprofitability

andgrowthpotentialbasedonsuchunderstanding.

2�1 Industryandbusinessoverview

Thetargetofthisstudy,CompanyA,iswhatisknownasaspecializedtrading

company,oratradingcompanythatdealsinelectroniccomponentswithanempha-

sisonsemiconductors.Inrecentyears,however,ithasalsooperatedamakerdivi-

sionengagedindesigningandmanufacturingelectroniccomponents,inadditionto

theoriginaltradingdivision.Itsannualsalesonastand-alonebasisamountto5

billionyen,andto7billionyenonagroup-widebasis.CompanyAwasestablished

in1979asatradingarmofCompanyS,amanufacturerofsemiconductors,andfor

manyyearsmainlydistributedCompanyS・ssemiconductorstospecificdomestic

customers.Itsmainproductsincludediodes,transistorsandMOSFET5andother

devices.

Inthewakeofthelate1970soilcrisistriggeredbyturmoilintheMiddleEast,

thefollowing1980ssawconsumer-marketproductssuchasTVsandVCRsbecome

increasinglyinclinedtowardenergyefficiency,andelectroniccomponentsusedin

thoseproductsbecamethinnerandsmallerwithsemiconductorsbeingthemainstay

ofsuchcomponents.Later,similartrendsoccurredwithwhitegoodssuchasrefrig-

eratorsandairconditioners,andsemiconductors,withtheirinstrumentalrolein

enablingenhancedenergyefficiency,cametobecalled・thericeofindustry,・mean-

ingtheywerenowtheverystapleoftheJapanesemanufacturingindustry.Further,

semiconductorsmadetheirwayintoautomobilecontrolsystems,and,inthe1990s,

becameaninvinciblepresenceassemiconductor-loadedpersonalcomputersspread

amongthepublic.Withsuchtrends,semiconductor-specializedtradingcompanies

establishedthemselvesasarelativelystablebusinesssector,thankstotheallbut

guaranteedclientbasefromtheirassociationwithasemiconductormanufacturer.6

AStudyofManagementStyleof・Japan・sSmall-MediumSizedEnterprises・88

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Manysemiconductormakersformedcontractualrelationshipswithspecifictrading

companies,wherethelatterwouldactasdealersoragents,thusensuringastable

supplyofproductsandinreturnmaintainingcontroloverpricing.Thesemiconduc-

tormakersweremakinguseofwhatisknownastheinventoryholdingfunctionof

tradingfirmstomaintaintheirsalesnetwork.

However,startinginthemid-1990s,makersfromSouthKorea,Taiwanandother

emergingcountriesbegantoerodetheJapanesemakers・strongholdintheworld

marketsharewiththeircostleadershipstrategy.Inthemeantime,theJapanese

workforcehadlongpassedtheso-calledLewisianturningpoint7andlaborcosts

werestuckathighlevels,andithadbecomedifficulttoreducemanufacturingcosts.

Itwasatthispointwhensemiconductormanufacturingequipmentincreasingly

becamecommoditized,makingitpossibletoproducesemiconductorsofequalqual-

ityinanycountry,andthisledtoadramaticdeclineinprices.Italsocoincidedwith

thestrengtheningoftheyen,andsemiconductormakersrapidlylostinternational

competitiveness.Inthesamevein,manyassemblymakersofapplianceslikeTVs

andrefrigeratorsthatusesemiconductorsstartedshiftingproductiontocountries

withlowlaborcosts,suchasASEANcountriesandChina,inresponsetoglobalized

competition,andtheJapanesemanufacturingindustryincreasinglyhollowedoutin

theearly2000s.

Itwasundersuchcircumstancesthat,in2003,twogiants,HitachiLtd.and

MitsubishiElectricCorporation,integratedtheirsemiconductoroperationsandes-

tablishedRenesasTechnologyCorp.Later,RenesasTechnologymergedwithNEC

ElectronicsCorporationtoformRenesasElectronicsCorporation,whichcametobe

calledthe・hinomaru・semiconductormakeraftertheJapanesenationalflag.But

eventhemergerofthreemajordomesticmakersdidnotreversethedeclineincom-

petitiveness,andthenewcompanypostedanetlossof62.6billionyeninthebusi-

nessyearendinginMarch2012.Inasimilarcase,ElpidaMemoryInc.,originally

createdfrom the1999mergeroftheDRAM8operationsofHitachiLtd.andNEC

Corporation,facedaseriousfinancialcrisisin2009andwasbailedoutbytheMinis-

tryofEconomy,TechnologyandIndustry.Thecompanycontinuedtosufferlack-

lusterperformanceandfiledforprotectionundertheCorporateReorganizationAct

in2012,withanoutstandingdebtexceeding448billionyen.

ThedrasticchangeinJapan・sindustrialstructurehadanimpactnotonlyon

semiconductormakersbutalsoonsemiconductor-specializedtradingcompanies.

Duetothemergersofsemiconductormakers,suchtradingfirmswerefacedwith

suddenchangesintheirsuppliersandweredeprivedoftheirguaranteedpositionin

thedistributionchannels.Morethanafewtradingcompanieslosttheirplaceinthe

marketandeventuallywentoutofbusiness.Tomakemattersworse,assembly

makersshiftedtheirproductionbasesoverseasindrovesandincreasinglyused

semiconductorsproducedbyoverseasmakers,suchasKoreanandTaiwanese

brands,aspartoftheircost-cuttingefforts.Moreover,adrasticchangeoccurredin

thedistributionchannelsasassemblymakersmadeexpandeduseofSupplyChain

Management(SCM)9andincreasinglypurchasedcomponentsdirectlyfrommakers.

Simplyput,therewasnoplacefortradingcompanies.

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Semiconductormakerslostinternationalcompetitiveness.Theirintegration

causeddrasticchangesinthedistributionchannels.Assemblymakersbecamerap-

idlyglobalized,shiftingproductionoverseas.Caughtinthemidstofsuchdrastic

changes,bothonthesupplierandcustomerends,semiconductortradingcompanies

facedrapidlydwindlingprofitsandaweakenedraison-d・etreastheirprimaryfunc-

tionasinventoryholderscametoanend.Theauthor・sMAthesis(2004)titled

・CoreBusinessofSemiconductorTradingCompaniesandtheirFinancialPerform-

ance・categorizedthechangingprofilesofsuchcompanies・coreoperationsasfol-

lows:thefirstgeneration,conventionaltradingfirmsasinventoryholders;thesec-

ondgeneration,tradingfirmswhichalsodesignsemiconductorsontheirown;and

thethirdgeneration,tradingfirmswhichperform manufacturingfunctionsusing

electronicsmanufacturingservices(EMS)10ormakingtheirownbrandofcompo-

nents.Thethesiscomparedthefinancialstandingofthefirst-generationfirmswith

thesecond-generationandthird-generationfirms,anddemonstratedthatconditions

ofthelatterweregenerallysuperiortothoseoftheformer.Itforetoldthatsemicon-

ductortradingcompanieswouldfinditdifficulttosustaintheiroperationsunless

theysucceededinflexiblytransformingtheircorebusinessstructuresinafiercely

competitivemarket.

Asiftodemonstratethehypothesisputforwardintheauthor・s2004thesis,

CompanyAtransformeditscorebusinessfrom thefirst-generationmodeltothe

third-generationmodel.Withaviewtosurvival,thecompanylaunchedin2002a

strategytoshiftitsbusinessmodelfromatradingfirm・stoacomponentmaker・s.

In2002,itestablishedadesignandmanufacturingdivisionforpowersupplies11and

anoverseassubsidiaryinHongKong,andstartedupamakerofspecialoptical

componentsasagroupfirm.In2006,itfoundedasubsidiarymakerofspecialinduc-

torparts,thussteppingupitsmanufacturingfunction,besidesitstradingfirmca-

pacity,inthecourseoffiveyears.12 Itmadeaconsciousmovetoconcentrateits

managementresourcesintomanufacturingfunctionsinsteadofitstraditionaltrad-

ing.Asaresult,CompanyAisrecognizedinthemarkettodayasnotonlyatrading

companybutalsoanelectronicdevicemaker.

2�2 Backgroundtotheadoptionoffixedrevenueaccounting

AsCompanyAtransformeditselffrom asemiconductortradingfirm intoan

electroniccomponentmaker,themovenecessitatedareinforcementofitsbusiness

strategytowithstandtheresultantchanges.Thecompanybelievedthatitssuccess

restednotonasimpleexpansionofitsbusinessarenabutonstrengtheningitsman-

agementbase,orconstructingmanagementcontrolforitsstrategicaims.In2004,in

amoveemulatingWesternbusinessstrategyconcepts,CompanyAformulatedthe

managementprinciples,visionandstrategyuponwhichtobaseitsmanagement

control,andbuiltasystem forbudgeting,profitplanningandbudgetvariance

analysis,withanaim toquantifyitsbusinessstrategymeasuresoverathree-year

periodbasedonamedium-termbusinessplan.Atthesametime,undertheslogan

of・Forthecustomers,・CompanyAestablishedanewmarketingfunctionwhereit

analyzedproductsandmarketsbySWOTand4Pmethods13andclarifieditstarget

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customerstopromoteitsnewproprietaryproducts.Allthesemeasureswereessen-

tialelementsinmanagementcontrol,butCompanyAhadyettoaddressthem.Ina

movetosolidifythefoundationofitsmanagementcontrol,CompanyAestablished

codesofcorporateconductforcompliancewithethicalstandardsandlaws,some-

thingparalleltoacompanyconstitution,andcreatedproductqualitymanagement

manualspursuanttoISO9000andenvironmentmanagementsystemspursuantto

ISO14000,guidelinescorrespondingtolawsandregulations.Inordertofurther

improvemanagementefficiency,itcarriedoutathoroughimplementationofration-

alization,streamlining,andKaizenand5Sinitiativesregardingitsinternalprocesses

throughareviewofthevaluechain,thusachievingimprovedproductivityanda

significantreductioninoverheadcosts.

Alongwithmanagementcontrol,CompanyAreformeditsorganizationalstruc-

turefromahierarchicalstyletoaflatterstructureandintroducedcorporatesocial

responsibility(CSR)programs,suchascommunitycleaningactivities,donationsto

areasaffectedbydisasters,andstudentinternships.Inordertoboostcustomer

satisfaction(CS),thecompanyintroducedaweb-basedschemetorespondtoinquir-

iesaroundtheclock.Toenhanceemployeesatisfaction(ES),itstartedpayingfull

salariestoemployeesonmaternityleaveuptoayearandahalfaftergivingbirth

andprovidinganallowanceof20,000yenforeverychilduptosixyearsold.Asa

wayofprovidingtrainingandself-improvementopportunitiestoemployees,ites-

tablishedanin-housecollegeandintroducedascholarshipprogram.CompanyA

alsoimplementedaseriesofstrategic,tacticalandsupportivemeasures.Manyof

suchmeasuresworkedtoenhancetherelativequality,costs,deliverytimesand

developmentcapacity,knownasQCDD,ofCompanyA.Inotherwords,theadoption

ofmanagementcontrolenabledCompanyAtodifferentiateitsproductsinthemar-

ketandultimatelyhelpedtoimprovethecompany・smanagementquality.Andsuch

avirtuouscycleledtoinnovationasseeninthedevelopmentofspecialspherical

transformers,apatentedproductwhichCompanyAdevelopedtodifferentiateitself

asacomponentmaker.

However,howcansuchabusinessstrategycenteredonmanagementcontrolbe

showntohavebeeneffectiveforCompanyAanditsbidtoincreasecompanyvalue?

Anon-financialconceptlikemanagementcontrolaloneisinadequatewhendiscuss-

ingtheeffectivenessofabusinessstrategy,hencetheneedtomeasureandanalyze

accounting-baseddatatogaugewhetherornotmanagementcontrolhasbeenappro-

priatelyapplied.Asdescribedearlier,CompanyAlaunchednewoperationsin2002

andintroducedmanagementcontrolin2004.However,thecompanywasnotcapa-

bleofmeasuringtheeffectivenessofitsmanagementcontrolwithfinancialdata.It

waspossibletocomputefinancialratios,suchasROAandROI,from itsannual

reports,butsuchfiguresprovidedonlyfinancialaccountingperspectives.Inorder

toprojectfutureearningsanddevelopmanagementstrategies,therehadtobeanew

managementaccountingschemethatwentbeyondbudgeting,profitplanningand

budgetvarianceanalyses.In2006,CompanyAadoptedfixedrevenueaccounting,a

managementaccountingmodelthatmadeitpossibletoassessthecompany・sprofit-

abilityandgrowthpotentialfromtheperspectiveofcustomerrelationships.

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Asada,Suzuki,andKawano(2005,p.4)referredtothepracticeofplacingfixed

revenueaccountingatthecenterofmanagementcontrolasfixedrevenuemanage-

mentanddefineditasfollows:・Fixedrevenuemanagementisastyleofmanage-

mentwhereastrategyfoundedonestablishingcustomerrelationshipsiscarriedout

inaplannedmanner,andprogressisevaluatedbasedonamanagementaccounting

system.・Asaresult,fixedrevenueaccountingworkedtoenhancecustomerrelations

andhelpedboostfinancialstability,safetyandgrowthpotentialforcompanies

(Asadaetal.,2005,pp.7�16).Withoutadoubt,CompanyAclearlycarriedoutfixed

revenuemanagement.

2�3 Definitionofcustomerandproductsegments

SakiandSuzuki(2012,p.25)describedtheconceptofcustomersegmentsas

follows:Newcustomersarethosewithwhichacompanyhasnewlystarteddoing

businesswithinapre-definedperiodoftime;regularcustomersarethosewithwhich

acompanyconductsbusinesswithacertainlevelofregularity;non-regularcustom-

ersarethosewhichlackacertainlevelofregularity;andlostcustomersarethose

whichhaveceasedbringinganybusiness.Thesearethelargercategoriesinfixed

revenueaccounting,andeachcompanyneedstodetermineitsowndetailedcriteria

forsegmentingcustomers.

WewillbeginbylookingatCompanyA・sdefinitionofnewcustomers.Com-

panyAdefinednewcustomersasthosewithinthreeyearsofthefirsttransaction

withCompanyA,andbroughtbusinessonaregularbasis.Thecompanydefined

・regular・asdoingatleastonetransactionperyearinthecourseofthosethreeyears.

Threeyearswasmadethethresholdfornewcustomersduetothelengthoftheco

mpany・smedium-term businessplanthatspannedthreeyears,andthecompany

viewedcustomersnotforeseenatthetimeofformulatingthebusinessplanasnew

customers.Customerswhichcontinuedtodobusinessfromthefourthyearonward

wereregardedeitherasnon-regularorregularcustomers,andlostcustomersthat

returnedwereregardedasnewcustomers.

Nextwewilllookatthedistinctionbetweenregularcustomersandnon-regular

customers.Generally,regularcustomersareconsideredthosewhichbringregular

businessduringacertainperiodoftimeandprovideacertainlevelofsalesorprof-

its.CompanyAdefinedregularcustomersasthoseacquiredthroughitsownmar-

ketingefforts,hadbroughtbusinessonaregularbasisforthreeyearsorlonger,and

continuedtoconductatleastonetransactionayear.Thenthequestionarises:Ifa

customerbringsbusinessonlyonceayearandprovidesonlyamodestlevelofsales

orprofits,doesitreallydeservetobeclassifiedaregularcustomer?Ifacustomer

canbereliedondoingbusinessonceayear,doesitmeritbeingdefinedaregular

customer?ThequestionisnotuniquetoCompanyA,butisacommonproblemin

determiningcustomerclassificationsforfixedrevenueaccounting.Todealwith

thisproblem,CompanyAdividedregularcustomersintoregularcustomers(a)and

regularcustomers(b).Regularcustomers(a)werethosefromwhichCompanyA

madegrossprofitmarginsaboveitstarget,andregularcustomers(b)werethose

from whichitmadegrossprofitmarginsbelowtarget.Simplyput,itwasadis-

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tinctionbasedonwhethercustomersboughthighorlow.

Also,CompanyAappliedthenon-regularclassificationtocustomerswhichhad

donebusinessregularlyforthreeyearsandwereinthefourthyearorlater.Gener-

ally,non-regularcustomersareregardedasthosewhichbringbusinessonacontinu-

ousbasis,butprovidesalesorprofitsornumberoftransactionsthatarerelatively

modest.InthecaseofCompanyA,itderiveditsdistinctionfromindustry-specific

thinking.Intheelectroniccomponentindustry,itisacommonpracticethatsemi-

conductormakerstakechargeofmarketingandconsigntransactionaloperationsto

tradingfirms.Thereasonsvaryfromcreditmanagementtotheinventoryholding

functionoftradingcompanies,butsuchcasescannotbeconsideredascustomers

acquiredthroughtradingcompanies・ownmarketingefforts.CompanyAclassified

suchcasesasnon-regularcustomers.14

Lastly,wewilllookatthedefinitionoflostcustomers.Lostcustomersare,in

principle,thosewhichhavecompletelystoppedbringinganybusiness.Theques-

tionishowlongdoesacustomerstayinactivebeforeitiscategorizedalostcus-

tomer?Dependingontheindustry,thisperiodcanbeaslongasthreeyears.Inthe

caseofCompanyA,customerswithnoactivityforoneyearwereregardedaslost

customers.Whethernew,non-regularorregular,ifacustomerwastotallyinactive

inthecourseofabusinessyear,itbecamealostcustomer.Thedefinitionalsoap-

pliedtocaseswherethecustomerceasedoperationduetobankruptcyorothersimi-

larreasons.15 Table2�1summarizesthecustomercategorizationdefinitionsapplied

byCompanyA.

Andnow,wewilllookatCompanyA・sproductsegmentation.CompanyA

divideditsproductsintofivesegments.ThefirstwasproductsbySemiconductor

MakerS,themajorsupplierinCompanyA・stradingcompanydivision.Thereason

forthetoplistingwasthatproductsbySaccountedfor60percentofCompany

A・ssales,anditwasalsobasedonCompanyA・smanagementphilosophythatits

manufacturingfunctionwasfoundedonitsstablefootingasatradingfirm.The

secondsegmentwasproductsbyCompanyA・smanufacturingdivision,theproprie-

taryelectroniccomponentsdesignedandmanufacturedbyCompanyA.Thethird

waselectroniccomponentsmadebyCompanyB,asubsidiaryofCompanyA;the

fourthwaselectroniccomponentsbyCompanyC,anothersubsidiary;andthefifth

wastheremainingproductsprocuredfrom othersources.Table2�2summarizes

CompanyA・sproductsegmentation.

AStudyofManagementStyleof・Japan・sSmall-MediumSizedEnterprises・ 93

Table2�1 CompanyA・sCustomerSegmentation

Frequencyoftransactions

Atleastonetransactionayear

forlessthanthreeyears

Atleastonetransactionayear

forthreeyearsormore

MarketingExternal New Non-regular

Internal New Regular

Tablebytheauthor

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3.Researchdesign

Thepurposeofthischapteristoclearlydescribethewaythestudywascon-

ducted.HereIwouldliketodiscusstheresearchquestions,researchmethods,re-

searchsite,andresearchdatainthatorder.

3�1 Researchquestions

Fixedrevenueaccountingisamanagementaccountingmodelthataimstohelp

acompanystabilizeitsoperationsbycoveringfixedcostswithfixedrevenues.

Asadaetal.(2005,p.4)assertthatbyputtingfixedrevenueaccountingatthecenter

ofmanagementcontrol,acompanycanimproveitscustomerrelationsinaneffec-

tiveway.Heretheyalsorefertothepracticeofapplyingfixedrevenueaccounting

inmanagementcontrolasfixedrevenuemanagementanddefineitasfollows:・Fix-

edrevenuemanagementisastyleofmanagementwhereastrategyfoundedon

establishingcustomerrelationshipsiscarriedoutinaplannedmanner,andprogress

isevaluatedbasedonamanagementaccountingsystem.・

Further,byhelpingtoenhancecustomerrelations,fixedrevenuemanagement

providedpositiveeffectsinthreeareas:financialbenefitsofstability,safetyand

growthpotential,constructionofasuperiorcompetitivefoundation,andimprove-

mentinemployeesatisfaction(Asadaetal.,2005,pp.7�16).Inthisstudy,Ihave

focusedonthefirstoftheabovepropositionsandexaminedthefinancialfruit―

earnings― offixedrevenueaccounting.

3�2 Researchmethods

Infixedrevenueaccounting,thereisauniqueincomestatementformatthat

enablesprofitabilitytobeanalyzed.Inthissection,Iwillconductaprofitability

analysisandtakeacloselookattheeffectsoffixedrevenueaccountingoncompany

performance.First,infixedrevenueaccounting,profitabilityisanalyzedinanin-

comestatementform,asshowninChart3�1.Asseeninthechart,thecolumns

displaythesalesfiguresforeachofthenew,regular,non-regularandlostcustomer

AStudyofManagementStyleof・Japan・sSmall-MediumSizedEnterprises・94

Table2�2 CompanyA・sProductSegmentation

1Productsby

CompanyS

Tradingfirm

divisionElectroniccomponentssuppliedbyCompanyS

2Productsby

CompanyA

Manufacturing

division

Electroniccomponentsdesignedandmanufacturedby

CompanyA

3Productsby

CompanyB

Manufacturing

divisionCompanyBisasubsidiarymaker

4Productsby

CompanyC

Manufacturing

divisionCompanyCisasubsidiarymaker

5 OthersTradingfirm

division

Electroniccomponentsandotherssuppliedbyother

firms

Tablebytheauthor

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segments,whiletherowsrepresentsalesperproductsegmentsandsmallercatego-

riesofproducts.Thisway,theincomestatementformatisdesignedtohelpgrasp

thecompositionofsalesfrom theperspectivesofcustomerandproductsegments.

Finally,thecostsofgoodssoldforeachcustomersegmentareenteredtoarriveat

segment-by-segmentgrossprofits.16

Costsarebrokendownintouniquevariablecosts,uniquefixedcostsandcom-

monfixedcosts,andareallocatedtotheappropriatesegmentsaccordingtotheco

mpany・saccountingpolicies.17 Inthisstudy,Ihavedividedthetotalvariablecosts

bythetotalnumberofcustomersfortheperiodunderstudytoarriveatthevariable

costpercustomer,andthenmultipliedthefigurebythenumberofcustomersbe-

longingtoeachsegmenttoarriveattheuniquevariablecostsbysegment.Sundry

expenseitemsincorporatedinthiscomputationweretravelingexpenses,entertain-

ingexpenses,meetingexpenses,transportationexpensesandsalescharges.Gross

profitminusuniquevariablecostsmakesmarginalprofit.

Uniquefixedcostsconsistofemployeesalariesandbonuses,legalwelfareex-

penses,employeebenefitexpenses,utilityexpenses,communicationexpensesand

rents.Marginalprofitminusuniquefixedcostsmakescontributiveprofit.Common

AStudyofManagementStyleof・Japan・sSmall-MediumSizedEnterprises・ 95

Chart3�1 IncomeStatementFormatforFixedRevenueAccounting

TotalNew

customers

Regular

customers

Non-regular

customers

Lost

customers

Sales

Division1

Product1

Product2

Product3

Product4

Product5

Division2

Product1

Product2

Product3

Product4

Product5

Division3

Product1

Product2

Product3

Product4

Product5

Numberofcustomers

Total

Costofgoodssold

Grossoperatingprofit ①

Segment-uniquevariablecosts

Marginprofit

Segment-uniquefixedcosts ②

Contributiveprofit

Segment-commonfixedcosts ③

Operatingprofit

Fixedoperatingprofit④=①-(②+③) ④

Formatbytheauthor

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costsarethosecostsappliedtooveralloperations,namely,overheadcostssuchas

thoserelatedtotheheadquarterswhicharetheremainderofselling,generaland

administrativecostsminusuniquevariablecostsanduniquefixedcosts.Contri-

butiveprofitminuscommonfixedcostsmakestheoperatingprofitfromeachcus-

tomersegment.From thesegmentedoperatingprofits,wecandeterminewhich

customersegmentcontributestothecompany・searningsmorethantheothers.

Further,bydeductinguniquefixedcostsandcommonfixedcostsfromthegross

profitforregularcustomers,wecanarriveatthefixedoperatingprofit.Fixedoper-

atingprofitrepresentsthedifferenceinrevenuesfromregularcustomers(i.e.,fixed

revenues)minusfixedcostssuchassalaries.Ifthefixedoperatingprofitispositive,

thecompanyiscoveringitsfixedcostswithfixedrevenuesalone,indicatingthatits

businessisstable.Achievingapositivefixedoperatingprofitistheforemostfinan-

cialobjectiveoffixedrevenueaccountingandthemostimportantaim.

InthisstudyIlookedatCompanyA・sfixedrevenueaccountingincomestate-

mentsandexaminedchangesintheoperatingprofitsbycustomersegment,total

operatingprofit,andfixedoperatingprofitoveraperiodoftenyears.Andonregu-

larcustomers,IfollowedCompanyA・sdistinctionanddividedthembetweenregular

customers(a),thoseabovethetargetedgrossprofit,andregularcustomers(b),

thosebelow.Asforanalysisbyproductsegment,Ilookedatthepercentageshares

ofnewproductsintotalsalesandgrossprofits.18 Ialsolookedintothepercentages

ofproductsbyCompanyA・smanufacturingdivisionintotalsalesandtotalgross

profits.Theaim wastoanalyzetowhatdegreesnew productsandproprietary

productswerecontributingtoeachofthecustomersegments.Focusingonthe

percentagesofnewproductsandproprietaryproductsshouldallowabroaderview

oftheeffectsoffixedrevenueaccountingonCompanyA・searnings.

3�3 Researchsite

Asstatedearlier,manyJapanesecompaniesarefacedwithseriouschallenges

arisingfrom economicandpoliticaluncertainties,themosttypicalexamplebeing

theelectronicsindustrywheremanyfirmsaresufferingfromrapiddeclinesininter-

nationalcompetitivenessandpostingmassivelosses.Thefocusofthisstudy,Com-

panyA,isanSMEthatbelongstosuchanelectronicsindustry,anditisnothardto

imaginethetoughconditionsitfacesgiventheunstablebusinessfoundationof

manySMEs.Notwithstandingallthis,CompanyAhasweatheredthehardtimes,

consistentlypostingpositiveearningswiththeexceptionofthebusinessyearthat

sawthecollapseofLehmanBrothers.HowhasCompanyAbeenusingfixedreve-

nueaccountingandfixedrevenuemanagement?Thetenyearsfrom 2002to2011

weremarkedwithcrisesexceedingtheimagination,startingwiththe9/11terrorist

attacks,anunstableworldeconomy,thedemiseofLehmanBrothers,theEuropean

debtcrisisandtheGreatEastJapanEarthquake.CompanyAsurvivedsuchupheav-

als,anditisworthwhiletoanalyzetheroleoffixedrevenuemanagement,theman-

agementaccountingsystemthatunderpinnedthecompany・smanagementstrategy.

Also,CompanyAbelongstotheelectroniccomponentsubcategoryoftheelec-

tronicsindustry,anditsmaincustomersareelectronicmachinerymakers.Its

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businessmodeliswhatisknownasbusinesstobusiness,orBtoB,andallitstrans-

actionscanbeascribedtospecificcustomers.Bycomparison,withretailbusinesses

suchasdepartmentstores,whosetransactionsarebusinesstocustomer,orBtoC,it

isdifficulttoidentifythetransactionsforthelegionsofcustomers.Manystudiesof

fixedrevenueaccountinghavetargetedcompanieswiththeBtoCbusinessmodel,

suchasdepartmentstores.Fromthispointofviewaswell,itisworthwhiletoana-

lyzethecustomersegmentsofCompanyA,aBtoBcompanywithallitstransac-

tionsidentified,fortheadvancementoffixedrevenueaccountingstudies.

3�4 Researchdata

ThedatausedinthisstudyareCompanyA・sprofitabilityfiguresoverthelast

decade,itsfinancialstatementsandcustomer-identifiedtransactiondatabetween

fiscalyears2002and2011.

4.Outcomeofresearchandanalysis

Inthischapter,wewilllookattheoutcomeofthestudyconductedaccordingto

theresearchdesignaboveandexaminetheoutcomefromtheperspectiveofprofit-

ability.Ihavelaidouttheprofitabilityfiguresforthetenyearsfrom2002to2011in

alinechart.Fromthefixedrevenueincomestatements,astheoneshowninChart

3�1,Ihavecompiledtenyearsofoperatingprofitsbycustomersegment,totaloper-

atingprofit,andfixedoperatingprofitinChart4�1.Also,fromtheaspectofproduct

segmentation,IhavelistedthehistoricalpercentagesofnewproductsandCompany

A・sproprietaryproductsintotalsalesandtotalgrossprofit.

4�1 Profitabilityanalysis

Letusstartbylookingatthenewcustomersoperatingprofit.FromChart4�1,

wecanseethatthissegmentoperatedcontinuouslyinthered,exceptforfiscalyear

2006.ItcanbeinterpretedthatCompanyAwaseithernotverykeenonacquiring

new customers,oracquiredonlythosewhoprovideverypoorsalesandprofits.

However,itcanalsobesaidthatnewcustomersgenerallydonotbringlargevol-

umesofsalesandbydefinitiondonotaddverymuchtoprofits.Eitherway,Com-

panyAcontinuouslylostmoneyinthenewcustomerssegment,andwhetherthis

situationisregardedasaproblemtoaddressoraresultofactiveinvestmenttoturn

suchcustomersintoregularcustomerswilldependonthepolicyofthecompany.

Next,operatingprofitfromnon-regularcustomersshowedconsiderablechanges

inthelastdecade.Thesegmentlargelyproducedapositiveoperatingprofitupto

fiscalyear2007,butabruptlyturnedunprofitableinfiscalyear2008.ForCompany

A,non-regularcustomersarenotcustomersacquiredbytheirownmarketingef-

forts.CompanyAsawsalestosuchexternally-introducedcustomerssharplyde-

clinestartingin2008.Inthemeantime,thecompany・soverallfixedoperatingprofit

turnedpositiveafterthatsamefiscalyear.Itcanbeassumedthatsuchexternally-

introducedcustomerscostmoremoneybutbroughtlessprofitthanthosemarketed

internally.Suchobservationswouldnotbepossiblefromananalysisofchangesin

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operatingprofitsalone.Throughanalysisbasedonfixedrevenueaccounting,we

areableseethatCompanyAweaneditselffromexternally-marketedcustomersand

shifteditsfocustointernally-marketedcustomersoverthecourseofthetenyears.

Wewillmoveontotheanalysisofregularcustomersoperatingprofit.Regular

customers(a),thegroupofcustomersthatbringsgrossprofitsaboveCompany

A・starget,providedpositiveoperatingprofitsmoreorlessconstantly.Notably,

operatingprofitfromthissegmentfrom2009onwasgenerallydoubletheaverage

figurefortheyearsbeforethen.Tounderstandwhy,itiseffectivetolookatthis

fromtheperspectiveofproductsegments.ThesegmentofCompanyA・sproprietary

productsregularlyrepresented1to2percentoftotalsalesuptillfiscalyear2008,but

AStudyofManagementStyleof・Japan・sSmall-MediumSizedEnterprises・98

Chart4�1 HistoricalProfitabilityAnalysis(unit:¥1,000)

FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011

New customersoperatingprofit

-110,207 -68,900 -74,304 24,466 -69,675 -59,404 -80,346 -80,361 -83,193

Non-regular customersoperatingprofit

39,691 2,102 42,529 -3,104 10,669 -30,624 -49,450 -31,968 -34,752

Regularcustomers(a)op-eratingprofit

119,758 66,910 59,726 74,313 59,166 87,224 163,183 148,688 151,255

Regularcustomers(b)op-eratingprofit

71,567 115,989 58,131 111,000 113,394 37,284 82,300 62,158 62,176

Lostcustomersoperatingprofit

-82,043 -63,839 -61,270 -104,890 -74,089 -111,118 -87,168 -78,170 -64,979

Operatingprofit 38,766 52,262 24,811 101,785 39,465 -76,637 28,519 20,347 30,507

Fixexoperatingprofit -139,031 -115,311 -195,703 -74,314 -146,993 -92,670 17,347 65,224 57,299

Percentageofnew prod-uctsintotalsales

70.05% 70.08% 65.97% 57.67% 58.86% 57.89% 59.68% 56.97% 47.27%

Percentageofnew prod-uctsingrossprofit

65.22% 59.43% 56.89% 54.85% 59.71% 55.95% 64.31% 55.26% 40.15%

Percentageofproprietaryproductsintotalsales

0.46% 0.78% 1.64% 1.83% 2.94% 1.00% 6.43% 20.65% 26.26%

Percentageofproprietaryproductsingrossprofit

0.67% 1.24% 2.81% 2.33% 3.65% 1.27% 30.92% 45.16% 45.31%

Chartsbytheauthor

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theratiosoaredto26.26percentinfiscalyear2011.Moreover,theratioofsuchprod-

uctsagainsttotalgrossprofitclimbedfrom just1.27percentinfiscalyear2008to

45.31percentinfiscalyear2011.Inotherwords,withthejumpinsalesofproprietary

products,suchproductscametoprovidenearlyhalfthecompany・sentiregross

profit.Fixedrevenueaccountinganalysismadeitpossibletoquantitativelygrasp

thetransformationofCompanyAfrom atradingcompanyintoamaker.Inthe

meantime,regularcustomers(b),whichprovidegrossprofitsbelowCompanyA・s

target,providedmoreorlessstablepositiveprofitsthroughout.However,even

thoughtheregularcustomers(b)segmentwasconsistentlyintheblackfromfiscal

year2007on,itdidnotshowmovementintangentwiththegrowthofproprietary

productsthewayregularcustomers(a)segmentdid.CompanyA・smanufacturing

divisiondidnotmakeanoticeabledifferenceinregularcustomers(b).Fromthis

observation,wecaninferthatregularcustomers(b)contributedmoretothesales

ofthecompany・stradingdivisionthantothemanufacturingdivision.

Thelostcustomersdivisionconsistentlyshowednegativeprofitthroughoutthe

decade.Bydefinition,lostcustomersarethosewhichbroughtnotransactionsinthe

respectivefiscalyears,soitmaybeanexpectedresult.Still,fromthefactthatthe

sectionincurredlossesofcomparablevolumeeveryyear,wecansurmisethatthere

weresimilarincidencesofcustomerlossesyearafteryear.Asstatedbefore,the

electronicsindustryinJapanhasbeenindirefinancialstraitsandseennumerous

closuresofdomesticfactoriesandbusinessesasproductionmovedoverseas.Itmay

bethathighlevelsofcustomerlossespersistedduetothesecircumstances.Dowe

considersuchsituationsassomethingunavoidable?Theoutcomeofthelostcus-

tomersanalysisbyfixedrevenueaccountinglaidbarethesevereeconomicsituation

andtoughproblemsthatJapanesebusinessesface.

Lastly,wewilllookatfixedoperatingprofit.Thelinechartforfixedoperating

profitshowsacontrastbetweenthesignificantlossesuptillfiscalyear2008andthe

positivefiguresfrom fiscalyear2009onward.Itisthoughtthatthiscontrastoc-

curredincorrelationwiththesignificantincreasesinthepercentagesofCompany

A・sproprietaryproductsagainsttotalsalesandtotalgrossprofitsstartinginfiscal

year2009.Fixedoperatingprofitturnedpositiveinfiscalyear2009,whileatthe

sametimethepercentageofproprietaryproductsintotalsalesjumpedfrom the

previousyear・s1percentto6.43percent,andthepercentageintotalgrossprofit

from1.27percentto30.92percent.CompanyA,byboostingsalesinitsproprietary

manufacturingdivision,succeededinturningarounditsfixedoperatingprofit.

Intheaboveprofitabilityanalysis,itisofparticularnotethatthecompany・s

fixedoperatingprofitturnedpositivestartinginfiscalyear2009.Thecollapseof

LehmanBrothersinSeptember2008triggeredaglobalfinancialcrisisthatplunged

theentireworldeconomyintoturmoil.Itwasimmediatelyafterthisincidentthat

CompanyAachievedapositivefixedoperatingprofit,orputdifferently,cameto

coveritsfixedcostswithfixedrevenues.Itwasinfiscalyear2006thatCompanyA

adoptedfixedrevenuemanagementwiththefocusonfixedrevenueaccounting.

Andinits2006medium-termbusinessplan,itsetitsstrategicsightsonimproving

profitabilitybymeasuressuchasaimingtoturnmorenewcustomersintoregular

AStudyofManagementStyleof・Japan・sSmall-MediumSizedEnterprises・ 99

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customers.WecanfeasiblypointoutthatamajorfactorinCompanyA・ssuccessin

producingapositiveoperatingprofitintheimmediateaftermathofLehman

Brothers・demisewasitseffortstoturnmorenewcustomersintoregularcustomers

andboostprofitabilitywiththehelpoffixedrevenueaccounting.

Further,eveninfiscalyear2011,immediatelyfollowingtheGreatEastJapan

Earthquake,CompanyA postedapositiveoperatingprofitandfixedoperating

profit,andwecanassumethatthecompany・sbusinessstrategybasedonfixedreve-

nueaccountinghelpedtoturnnewcustomersintoregularcustomersandimprove

profitability,andultimatelytostabilizebusiness.Incidentally,thoughCompanyA

postedanoperatinglossinfiscalyear2008,theyearthatsaw LehmanBrothers・

collapse,itmanagedtoreportapositivepretaxprofitthankstoproceedsfromthe

cancellationofaninsurancepolicy.Putdifferently,itsperformancewasstable

enoughastobeproppedupwithinsurancecancellation,andwiththatkindofresil-

ienceithasbeenabletowithstandthespateofcrisesthatcontinuestopunishthe

electronicsindustry,suchastheglobalfinancialcrisis,theGreatEastJapanEarth-

quake,theEuropeandebtcrisis,floodinginThailandandtheterritorialdisputeover

theSenkakuIslands,andhascontinuallyreportedstableoperatingandfixedoperat-

ingprofits.AstudyofCompanyAaloneisnotenoughtoidentifytheeffectsof

fixedrevenueaccountingonprofitability,butatleastinthecaseofCompanyAwe

cansafelystatethatfixedrevenueaccountingwaseffectiveinpromotingthemove

toturnmorecustomersintoregularcustomersandboostprofitability,orinother

words,tostabilizebusinessperformance.Asananswerto3�1Researchquestions,

wecanconcludethatfixedrevenueaccountingiseffectiveinboostingprofitability.

5.Conclusion

Inthefinalchapter,Iwillsummarizethestudyandlookatitseffectiveness,

limitsandissues.Thepurposeofthestudywastoexaminetheeffectsoffixed

revenueaccountingoncompanyperformance.ThetargetofthestudywasCom-

panyA,anelectroniccomponentmakerandtradingcompanywhichintroduced

fixedrevenueaccountinginfiscalyear2006,anditsfinancialdataovertenyears

from2002to2011wereanalyzedfromtheperspectiveofprofitability.

InChapter2,wesawanoverviewofCompanyA・shistoryaswellasindustry

trendsandwentontodefinethecompany・scustomersegmentsandproductseg-

ments.CompanyA characteristicallydistinguishedbetweencustomersacquired

throughitsownmarketingeffortsandthoseexternallyintroducedwhichdidnot

giveCompanyAanysayinthechoiceofproducts,suchasthecaseofEMS,defining

theformerasregularcustomersandthelatterasnon-regularcustomers.Also,Com-

panyAregardedasnewcustomersthosewithinthreeyearsofthefirsttransaction

andbroughtbusinessonaregularbasis.Fromthefourthyearon,suchcustomers

weredividedintoeitherregularornon-regularcustomers.Lostcustomerswere

thosewhichdidnotbringanybusinessduringtheyearunderstudy.Further,regu-

larcustomersthatbroughtgrossprofitsaboveCompanyA・stargetweredefinedas

regularcustomers(a),andthosebelowweredefinedasregularcustomers(b).In

AStudyofManagementStyleof・Japan・sSmall-MediumSizedEnterprises・100

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themeantime,productsweredividedintofivesegments,thelargercategorization

beingtradingdivisionandmanufacturingdivision.

InChapter3,welookedattheresearchdesigncenteredonprofitabilityanalysis

asusedinfixedrevenueaccounting.Asforresearchquestions,thestudylookedat

thediscussionbyAsadaetal.(2005,pp.7�16)andfocusedonexaminingtheeffects

offixedrevenueaccountingoncompanyperformance.Asforresearchmethod,the

studyconductedaprofitabilityanalysisusingthecompany・sfixedrevenueaccount-

ingincomestatements,scrutinizingthechangesinoperatingprofitforeachofthe

customersegments,totaloperatingprofitandfixedoperatingprofitovertenyears.

Notably,fixedoperatingprofitisthemostimportantmeasureofstability,asaposi-

tivefigurehereindicatesthatfixedrevenuesalonecoverfixedcosts.Thepercent-

agesofCompanyA・sproprietaryproductsagainsttotalsalesandtotalgrossprofits

werealsolookedat.AndtheresearchsitewasCompanyA,anSMEthatbelongsto

theJapaneseelectronicsindustrywhichconfrontsarapiddeclineininternational

competitiveness.WhilemanySMEssufferfromanunstableoperatingfoundation

andfaceseverebusinessconditions,CompanyAhasconsistentlypostedpositive

operatingprofits,withtheexceptionofthebusinessyearthatsawthecollapseof

LehmanBrothers.Ofespecialnotewasthatthetenyearsfrom 2002to2011saw

numerousglobalcrises,startingwiththeaftermathofthe9/11terroristattacks,the

fallofLehmanBrothersandsubsequentglobalfinancialcrisis,theEuropeandebt

crisis,andtheGreatEastJapanEarthquake.ThestudylookedatCompanyA,which

adoptedfixedrevenueaccountinginfiscalyear2006,andshedlightontheeffects

androlesoffixedrevenueaccounting.Theresearchdatacomprisedprofitability

figuresobtainedfromCompanyA・sfinancialstatementsoverthepasttenyears.

InChapter4,weexaminedtheoutcomeoftheprofitabilityanalysis.Company

A・snewcustomersegmentchronicallypostedoperatinglosses,anditdependedon

thecompany・sjudgmentwhethertotakeissuewiththisorregarditasaninvest-

menttowardturningsuchcustomersintoregularcustomers.Next,operatingprofit

fromnon-regularcustomersstayedpositivetillfiscalyear2007,butturnednegative

fromfiscalyear2008on.Thiswasthoughtduetothesuddendecreaseinsalesto

externally-introducedregularcustomers.GiventhatCompanyA・sfixedoperating

profitturnedpositiveinfiscalyear2008,wecanseethatCompanyA・ssalesfocus

shiftedfrom externally-introducedcustomerstocustomersacquiredthroughits

ownmarketingefforts,whichwerecustomersthatbroughtmoreprofitability.Asa

matteroffact,operatingprofitfrom regularcustomers(a)hadconsistentlybeen

positive,buttheprofitfiguredoubledfromfiscalyear2009oncomparedtotheyears

leadinguptothen.Atthesametime,thepercentageofCompanyA・sproprietary

productsintotalsalessoaredfromthe2percentleveltillfiscalyear2008to26per-

centinfiscalyear2011,testifyingtothecorrelationbetweenregularcustomers(a)

andproprietaryproducts.Bycontrast,operatingprofitfromregularcustomers(b)

hadbeenpositivebutdidnotshowacorrelativerelationshipwiththeincreasing

salesvolumeinCompanyA・smanufacturingsector.Finally,weanalyzedthefixed

operatingprofit.Thisfigurehadshownsignificantlossestillfiscalyear2008,but

turnedpositivefromthenextfiscalyearon.Itcanbethoughtthattheincreasein

AStudyofManagementStyleof・Japan・sSmall-MediumSizedEnterprises・ 101

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salesandgrossprofitfromproprietaryproductsstartingin2009wasthemajorcon-

tributor.WecanseefromherethatCompanyAsucceededincontinuouslyposting

apositivefixedoperatingprofit,inotherwords,stabilizingitsoperation,byboost-

ingsalesinitsproprietarymanufacturingdivision.Whileitisprematuretomakea

definitivestatementbasedonthisstudyalone,wecanconcludethat,inthecaseof

CompanyA,fixedrevenueaccountinghadacertainlevelofimpactonincreasing

fixedrevenuesandstabilizingbusinessoperations.

Ibelievethatthisstudyhassucceededinattainingacertainlevelofinsight

throughdemonstrativeanalysis.Theconclusionisthatfixedrevenueaccounting

hadastrongimpactonprofitabilityimprovementatCompanyA.Inthetumultuous

tenyearsfrom 2002to2011,wheresuchunimaginableeventsasthecollapseof

LehmanBrothersandtheGreatEastJapanEarthquakeoccurredoneaftertheother,

fixedrevenueaccountingwithitsprimarytargetofproducingpositivefixedoperat-

ingprofits,orstabilizingoperations,supportedthebusinessstrategyofCompanyA.

Aswecanseefromthiscase,JapaneseSMEsaremakingactiveuseofanewmodel

ofmanagementaccounting.JapaneseSMEsareshowingunparalleledresiliency,

evenonaglobalscale,andsuchresiliencycanbedemonstratedfromtheperspective

ofmanagementaccounting.IplantocontinuetostudyJapaneseSMEsandtheiruse

ofmanagementaccounting.

1 Accordingtothe・2009EconomicCensusforBusinessFrame・bytheMinistryofInternal

AffairsandCommunications,thereare4.201millionSMEsinJapan,andtheyaccountfor

70percentofallJapaneseemployment.AnSMEisdefined,asstipulatedintheSmalland

MediumEnterprisesBasicAct,asamanufacturingbusinesswithpaid-incapitalof300

millionyenorlessorworkforceof300orless,awholesalebusinesswithpaid-incapital

of100millionyenorlessorworkforceof100orless,aretailbusinesswithpaid-incapital

of50millionyenorlessorworkforceof50orless,andaservice-sectorbusinesswith

paid-incapitalof50millionyenorworkforceof100orless.

2 Oilcriseshererefertothosein1973and1979,whenupheavalsintheMiddleEastsetoff

asurgeincrudeoilpricesandturmoilintheglobaleconomy.Itdealtaparticularlyhard

blowtoresource-poorJapan.ThecollapseofLehmanBrothersin2008,triggeredbythe

deteriorationoftheU.S.sub-primemortgagemarket,inturnledtoaglobalfinancial

crisis.

3 ・5S・referstofivefundamentalbehaviorsofseiri(organization),seiton(tidiness),seiso

(cleaningup),seiketsu(cleanliness),andshitsuke(discipline)characteristicallyprac-

ticedbyJapanesemanufacturers.Kaizen,alsoknownastheToyotaWay,isaconcept

whichaimstoimprovequalitybyencouragingfiveiterationsofaskingwhy.

4 SuchmodelsincludeCVPanalysis,ABCanalysisandEVAanalysis.

5 ・Semiconductor・genericallyreferstoelectroniccomponents,madefromsiliconeorother

materials,usedtocontrolelectricalcurrentorvoltage.

6 SemiconductortradingcompaniesaremainlylocatedaroundAkihabarainTokyoand

NipponbashiinOsaka,whereblackmarketsforelectricpartsoperatedintheperiod

immediatelyafterWorldWarII.

7 Intheprocessofeconomicdevelopmentwhereruralpopulationsuppliescheaplaborto

AStudyofManagementStyleof・Japan・sSmall-MediumSizedEnterprises・102

Notes

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manufacturingandgivesrisetotheexpansionofsecondaryindustry,thereisapoint

wherethelaborsupplyfromtheagriculturalsectordriesupandgrowthinthemanufac-

turingsectorslowsdown.ThisideawasproposedbytheBritisheconomistArthur

Lewis(1915�1991).

8 DRAM standsforDynamicRandom AccessMemory,asemiconductordeviceusedto

storedata.

9 SCMreferstoaconceptofcomprehensivemanagementoftheflowofgoodsfrommanu-

facturingtodistributionandsales.Itismainlyappliedwhenmakersattempttoshed

excessinventory.DuetothespreadofSCM,directdealingbetweencomponentmakers

andassemblymakersincreased.

10 EMSisaservicewhereelectroniccomponents,suchaselectronicsubstrates,aremanu-

facturedonacommissionedbasis.

11 Powersupplyunitsconvertalternatecurrentpowertodirectcurrentpowerorvice

versa.

12 Here,opticalcomponentsrefertoxenondischargetubes,andspecialinductorpartsrefer

tosphericaltransformers.

13 SWOT isapopularmarketingtechniquewhereprojectsareanalyzedintermsof

strength,weakness,opportunityandthreat.4Pisanothermarketingtechniquethat

analyzesproduct,price,placeandpromotion.

14 CompanyA categorizesmakersthatspecializeinelectronicsmanufacturingservices

(EMS)asnon-regularcustomers.EMScompaniesmanufactureelectronicscomponents

likesubstratesonacommissionedbasis,andbasicallyhavenosayindeterminingwhich

componentstoproduce.Also,caseswhereCompanyAconductshardlyanymarketing

activityandwheresecondarydistributorsdeterminethedealsdonotqualifyasinter-

nallycreatedsales.CompanyAregardsthosecustomersnotacquiredthroughitsown

marketingeffortsasnon-regularcustomers.

15 AbankruptcustomerthatcontinuesoperationunderlegalprotectionsuchastheCivil

RehabilitationActisnotregardedasalostcustomer.Inthecaseofmid-term bank-

ruptcyandbusinessinterruption,salesfromthecustomeruptothatpointgointothe

calculation.Ifpurchasesarereturnedfrom alostcustomer,thecorrespondingfigures

aredeductedfromthesalesfigures.Inthisstudy,Iusedfiguresaftersuchadjustments.

16 ・Thenumberofcustomers・foundontheform isforinformationpurposesonly;the

numberofcustomersdoesnotenterinthecomputationoffixedrevenueaccounting

profitfigures.

17 AccordingtoAsadaetal.(2011,p.73),uniquefixedcostsincludeadvertisementex-

pensespertainingtorespectiveproductlinesanddepreciationcostsofmachineryand

equipmentattributabletorespectivesegments,whilecommonfixedcostsincludeover-

headcostssuchasheadquartersexpensesthatrelatetoallproductsandsegments.

18 CompanyAdefinesthoseproductsasnewthatarewithinthreeyearsaftertheywere

firstadoptedbycustomers,inadditiontoproductswithinthreeyearsofdevelopment.

Electroniccomponentsarenotfinishedproducts,andcommoditypartscanbeadopted

fornewmarketsornewuse.Insuchcasesitisappropriatetocountsuchcomponentsas

newproducts.

TakayukiAsada,KenichiSuzuki,Katsu Kawano,Fixed RevenueManagement,Chuo-

keizaisha-Inc.,2005

TakayukiAsada,MakotoYori,MasaruNakagawa,IkukoSasaki,IntroductiontoManagement

AStudyofManagementStyleof・Japan・sSmall-MediumSizedEnterprises・ 103

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AkihiroSaki,KenichiSuzuki,・TheConstructionofaTheoreticalModelforNewStrategic

ManagementControl・,inTheAnnalsofMeijiUniversityGraduateSchoolofSocialStud-

ies,Vol.50,secondissue,pp.24�83,2012

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ValueCreationandBusinessManagementbyTakashiNemotoetal.,pp.111�123,Gaku-

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AtsuoUeda,Diamond,Inc.,2001

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AccountingfromFinancialAnalysis,MoriyamaShoten,2008

KosukeMatsuoka,・StudyofVarianceAnalysisofFinancialandNon-financialPerform-

ancesbasedonFixedRevenueAccounting・,2012Ph.D.thesisatMeijiUniversityGradu-

ateSchoolofBusinessAdministration,2012

KosukeMatsuoka,KenichiSuzuki,・VarianceAnalysisinFixedRevenueAccounting:a

FrameworkandCaseStudyofVarianceAnalysisregardingCustomerRelationships・,

CostAccountingStudy,Vol.32,firstissue,pp.85�97,2008

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AStudyofManagementStyleof・Japan・sSmall-MediumSizedEnterprises・104

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EditorialBoard

EditorinChief HirooIchikawa,Professor,MeijiUniversity

YurikoMinamoto,Professor,MeijiUniversity

NobusatoKitaoji,Professor,MeijiUniversity

AkiraNakamura,ProfessorEmeritus,MeijiUniversity

ListofContributors

HideakiTanaka,DoctorofPolicyStudies(NationalGraduateInstituteforPolicy

Studies,Japan)

Professor,GraduateSchoolofGovernanceStudies,MeijiUniversity.Hereceived

MasterofEngineeringfromTokyoInstituteofTechnologyandMasterofSciencein

SocialPolicyfromLondonSchoolofEconomicsandPoliticalScience.

AfterlongexperiencesworkingintheGovernmentofJapanincludingMinistryof

Finance,CabinetOffice,MinistryofForeignAffairs,andMinistryofSocialWelfare,

heteachesinMeijiUniversity.Hemajorsinpublicpolicy,financeandmanagement.

Hiscurrentresearchcoverspoliticaleconomyofbudgeting,conflictmanagementin

coalitiongovernment,andageingandsocialwelfarepolicy.

RosarioLaratta,Ph.D.(UniversityofWarwick,U.K.)

RosarioLarattaisanAssociateProfessorofSocialPolicyandDevelopmentatthe

GraduateSchoolofGovernanceStudies,MeijiUniversity,Tokyo.Hereceiveda

MastersinPublicAdministrationfromBocconiUniversity,whichisaleadinguni-

versityinItaly,andaMastersandaPhDinSociologyfromWarwickUniversity,UK.

LarattaisalsotheauthorofsomebookssuchasNon-profitorganizationsinEngland

andJapan(2012)andhaspublisheddozensofarticles,includingpeer-reviewedpa-

persinleadinginternationaljournals,suchas・JapaneseSocialEnterprises:Major

ContemporaryIssuesandKeyChallenges・fortheSocialEnterpriseJournalin2011.

ElenaShadrina,Ph.D.(NiigataUniversity,Japan)

ElenaShadrina,anassociateprofessoratMeijiUniversityGraduateSchoolofGov-

ernanceStudies,isaneconomistspecializinginthestudyofenergygovernance,

energycooperationandenergypolicytransitionsinRussia,Japan,ChinaandSouth

KoreaandRussia・senergypolicyinAsia.Shehasresearchandteachingexperience

inRussia,NorwayandJapan.PriortojoiningMeijiUniversityin2011,sheworked

atKhabarovskStateAcademyofEconomicsandLaw,KSAEL(Russia)asan

105

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associateprofessorininternationaleconomicrelationsandvice-deanoninterna-

tionalacademiccooperationtill2005,atEconomicResearchInstituteforNortheast

Asia(ERINA,Japan)asaresearchassistantin2006�2009andwasavisitingre-

searcherattheNorwegianInstituteforDefenseStudiesin2009�2010.Shegained

PhDinEconomicswithdoctoralthesis・EnergyCooperationinNortheastAsia:In-

sightintoImpactonRegionFormation・(NiigataUniversity,2009).Shehaspub-

lishednumerousarticlesininternationalpeer-reviewedjournals.Amongherrecent

publicationsare:・Russia・sPivottoAsia:Rationale,ProgressandProspectsforOil

andGasCooperation・,Region,RegionalStudiesofRussia,EasternEuropeandCen-

tralAsia(2015),・Russia・sNaturalGasPolicytowardNortheastAsia:Rationales,

Objectivesand Institutions,・Energy Policy(2014);・Russia・sDilemmasabout

China・sGasMarket,・TheNortheastAsianEconomicReview(2014);・Russia・sEn-

ergyGovernanceTransitionsandImplicationsForEnhancedCooperationwith

China,Japan,andSouthKorea,・PostSovietAffairs(2013,co-authoredwithMichael

Bradshaw);・TheFukushimaFallout:GaugingtheChangeinJapaneseNuclearEn-

ergyPolicy,・TheInternationalJournalofDisasterRiskScience(2012);etc.Sheisa

memberofaresearchgroup・EnergySecurity・undertheauspiceofERINA.

TakayukiKubo,M.Arch(CornellUniversity,USA)

TakayukiKuboisaseniorresearcherattheFukuokaAsianUrbanResearchCenter.

Healsoteaches・GlobalCompetitivenessofCities・asanadjunctlectureratthe

GraduateSchoolofGovernanceStudiesatMeijiUniversity.Hehaspracticalexperi-

encesinurbandevelopmentinJapan,U.S.,China,andKoreaasaprofessionalarchi-

tectandplanner.Asanurbanresearcher,hewasinchargeofcreatingtheGlobal

PowerCityIndexwhichbenchmarksthecompetitivenessofTokyowithother

globalcities.HismostrecentresearchtopicincludestheurbanpoliciesofFukuoka

intheglobalcontext.

HiromuneIshii,Ph.D.(B.A.)(MeijiUniversity,Japan)

HiromuneIshiiisCEOofSanshinElectricCo.Ltd.,amediumsizedelectronicsfirm

basedinTokyo,andalsohasestablishedmorethansixenterprises.Hegrewupin

TokyoandearnedhisM.A.andPh.D.inBusinessAdministrationfromtheGraduate

SchoolofBusinessAdministrationatMeijiUniversity.Heteaches・JapaneseBusi-

nessManagement・asanadjunctlecturerattheMeijiUniversityGraduateSchoolof

GovernanceStudiesand・AccountingforPerformanceManagement・attheMeiji

BusinessSchool.

106

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MeijiJournalofGovernanceStudies

Vol.2,2014

DateofIssue:March31,2015

EditorinChief:HirooIchikawa

Publishedby: MeijiUniversityGraduateSchoolofGovernanceStudies

1-1KandaSurugadai,Chiyoda-ku,Tokyo,Japan101-8301

Tel03-3296-2398,Fax03-3296-4321

E-mail:[email protected]


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