JPRI Working Paper No. 42: February 1998
Political Reform in Japan: Is It Becoming More Democratic?
by David Arase

According to current theories about globalization, all actors are being forced to make fundamental adjustments to a post-Cold War world. Powerful new political and economic trends are said to be incorporating all nations and localities into a global market. More important, economic deregulation by states and their inability to control information flows is thought to produce a relative loss of state power and autonomy. This loss of power is presumably accompanied by a corresponding gain in the status and autonomy of actors in the private sector, who, with freer access to the global economy, are no longer so dependent on a particular national market or government.

Some also claim that in the age of globalization, state power is being diminished by a trend toward the devolution of state authority to subnational regional and local authorities. In extreme cases, this results in the disintegration of states, as in the former Soviet Union and Eastern Europe. Centrifugal forces inside the state are being driven by the shift away from preoccupations with international security, the need to address regionally differentiated domestic needs, and popular demands for better governmental services, delivered more efficiently. This trend toward the devolution and decentralization of state power and authority, which brings important decisionmaking closer to the electorate and local communities, represents a reversal of a long-term historic process in which national political entities were forged, binding together disparate primordial communities. This earlier trend toward the centralization of state power and authority has been called, in what is a good example of value-laden political science jargon: "modernization." The centrifugal aspects of globalization, however, imply more grass-roots, participatory forms of democracy.

Recent developments in Japan illustrate some of these broad shifts in state power. Until the 1989 Upper House election, in which the Liberal Democratic Party lost its Upper House Majority for the first time since it was created, Japan's political agenda was defined for the public by stable LDP rule and a Socialist-led opposition--an arrangement often called the 1955 system. From 1989 on, however, pressures for political reform grew. The Recruit Scandal, followed by exposés of other scandals, certainly played a role in arousing public discontent. But scandals in the past had never been sufficient to overthrow LDP rule. As far as popular discontent is concerned, the really new element was a deep dissatisfaction with the quality of life that Japan's political institutions were delivering to ordinary Japanese.

By 1989, sheer growth of Japan's GNP was no longer enough for the voters. Inflation of housing costs beyond what a salaryman could possibly afford during the bubble economy years was deeply alienating. The media and overseas travel had exposed the average Japanese to western standards of living, and comparisons with his ot her own created feelings of relative deprivation. To this extent, Japan's integration into global news, entertainment, and tourism markets contributed to the popular demand for domestic reform. But worker and consumer interests in curbing corruption and improving living standards are diffuse and difficult to organize, especially when the ruling political party is indifferent to the task of articulating these interests. I would argue, therefore, that the critical factor in moving Japanese politics toward political reform was the defection of big business from its postwar alliance with the LDP and the bureaucracy.

Reform demands were generated most powerfully by large-scale Japanese businesses, which by the start of the Heisei era in 1989 were already participating in the world of the borderless economy. In formulating borderless strategies, big business realized it had to alter radically the business environment at home. The feudalistic and costly structure of doing business in Japan, involving political payoffs, delays, and irrational government regulations, not only drove up business costs and slowed down initiative, but also threatened to close foreign markets to Japanese firms because of the trade friction it caused. At the same time, Japanese business had become less dependent on, and less fearful of the Japanese government since the large-scale business sector had already secured overseas markets and sources of capital. Japanese big business wanted reform because by the 1990s the domestic status quo had outlived its usefulness.

Many business- and government-sponsored study groups on reform sprouted in the first years of Heisei, although many of the recommendations issuing from these groups were subverted by bureaucratic and LDP opposition. There could be little doubt that the reforms, even if implemented in their diluted form, would still damage the interests of the LDP and the bureaucracy. In 1993, the LDP signalled, through Kiichi Miyazawa's decision not to cooperate with the opposition parties in reform efforts, that it would not back the fundamental changes desired by business. The large business association Keidanren retaliated by casting its 'no confidence' vote against LDP rule: it refused to channel political contributions to any party, a move that in effect boycotted the LDP. In June 1993, the LDP split and a pro-reform coalition cabinet led by Morihiro Hosokawa came into office after the July election, ushering in the current period of political turmoil.

The new political agenda revolving around the effort to implement domestic reform has been advanced largely by big business which, aside from liberalization and deregulation, is pushing administrative transparency, efficiency, and accountability. Business is not monolithic in this regard, since many firms have vested interests in the status quo, but as a matter of principle the leading business associations, Keidanren and Keizai Doyukai, are articulating a coherent reform agenda. This agenda is more or less in line with popular demands for an end to corruption, and more open and responsive government (especially in policies affecting the quality of life). The elective affinity between business and voter interests in this area has created a potent force to attack the prerogatives of the Japanese state, especially those of the powerful central bureaucracy. The politicians of all parties have been caught in the crossfire, unable in most cases to find a solution pleasing to all sides. Prime Minister Ryutaro Hashimoto's pledge to implement major reforms in six areas is the latest ineffectual effort by the "new" LDP to respond to these demands.

Decentralization--the devolution of central bureaucratic power and authority to local governments (chiho bunken)--is an item in the political reform agenda that is often overlooked by foreign observers. But in theory, at least, it promises to have the largest impact on the quality of Japanese democracy. The effort to decentralize authority and decisionmaking from the central government in Tokyo to popularly elected government authorities at subnational levels attacks the fundamental structure of the centralized and bureaucratically dominated Japanese state. Before we look at the two processes that are pushing decentralization in Japan--the top-down efforts originating in Tokyo through established institutional channels, and the bottom-up efforts originating in local communities--it is necessary to look at this centralized structure and the general problems identified by political reformers.

Japan is a unitary state in which subnational authorities lack the reserved powers characteristic of federal systems. The central government has the authority to force local governments to follow its directives in virtually all functional areas regardless of the desires of the locally elected legislature or executive. As of mid-1995, there were 561 national laws and ordinances obligating local governments to carry out a variety of what are called agency-delegated tasks (kikan inin jimu). These laws require chiefly provincial governors and mayors to act as agents of the bureaucracy in Tokyo in implementing education, public safety, social welfare, local development, and local finance matters. In these matters the locally elected executive (or local agency or school board) is not responsible to local voters but to an overseeing central government ministry or agency. The central government has the power to force compliance through the courts, and if non-compliance persists, to remove a mayor or governor from office.

Because the ability of local authorities to levy taxes or issue bonds is strictly limited by the Ministry of Finance and the Ministry of Home Affairs, and because the central government unstintingly hands down directives (tsutatsu) for local authorities to implement, these authorities are financially dependent on the central government. Traditionally, taxes collected by local governments only accounted for 30 percent of actual spending obligations, leading to the sarcastic characterization of local government autonomy as "3/10ths autonomy" (sanwari jichi). Today subnational authorities account for about 62 percent of all government spending in Japan, but they only collect 38 percent of all government revenues. They get the difference from Tokyo through a system of revenue-sharing (kofuzei), tax transfers (chihozei), and a variety of earmarked grants and subsidies.

Local governments are also penetrated by central government personnel, who ensure local compliance with Tokyo's directives. For example, each prefectural governor is charged with administering social security according to the policies and rules set forth by the Ministry of Health and Welfare (MHW). To subsidize this function, the MHW directly hires and pays for some 16,300 individuals (regional affairs officers, or chiho jimukan) nationwide, who administer social security from desks inside local government offices. Aside from such locally based staff, the central bureaucracy regularly seconds officers to local government offices on a rotating basis to oversee local affairs in a practice called shukko. As of January 1997, there were 668 central government bureaucrats on secondment throughout local Japanese bureaucracies. And the central government has still additional means of surveillance by maintaining regional offices of the main ministries and agencies, and through the practice of amakudari.

The situation is made especially difficult at the local level by the hierarchical and vertically segmented nature of national administration, known as tatewari gyosei. The lowest levels of government (cities, towns, and villages) must communicate with Tokyo through intermediate levels (prefectural or large metropolitan units). This means that the most mundane projects at the local level must go through a tortuous process of explanation and approval by multiple ministries and agencies before they can be implemented.

A national study compiled in 1995 found that it took on average two years and two-and-a half months for a local government to get a new town or city plan approved by all the relevant ministries in Tokyo. Estimates are that compliance with central government mandates and regulations account for up to 80 percent of local government activity. Former governor and briefly Prime Minister Morihiro Hosokawa, who strongly advocated decentralization when he was campaigning for the July 1993 Lower House election, noted then that even to move the location of a bus stop required permission from Tokyo (in this case, the Ministry of Transportation). In short, the system of local autonomy designed under the Occupation to promote strong grass-roots democracy and responsive government does not work as originally intended and instead, to a great degree, has turned local governments into the agents of the central government.

How the Law to Promote Decentralization Got Passed

A good place to start reviewing top-down efforts to promote decentralization is the Law to Promote Decentralization (Chiho bunken suishin ho), which was enacted by the Diet in May 1995. The law created the Committee to Promote Decentralization, whose members were appointed by the Prime Minister and who were charged with formulating a concrete plan to achieve decentralization. This plan would then be approved by the Cabinet, which would thereafter monitor its implementation. It was understood that none of the members of the committee could be former bureaucrats. The life of the committee was set for five years, and the official charge was to create a clear separation of functions between the central and local governments. To date the Committee to Promote Decentralization (CPD) has issued four sets of formal recommendations.

From the problems outlined above, it is clear that a real solution by the CPD will require a basic change in public finance and an unprecedented devolution of central government authority to local governments. Somewhat surprisingly, this is the direction the CPD is charged with taking. Since this development poses a major threat to the interests of the central bureaucracy as well as to the traditional rent-seeking activities of Diet representatives, the intriguing question is how this political reform effort has gotten as far as it has.

The Law to Promote Decentralization was the result of a process begun in 1989 by the New Provisional Council for the Promotion of Administrative Reform (Shin Rinji Gyosei Kaikaku Suishin Shingikai, now more commonly known as the Second Gyokakushin), which established a subcommittee to study central-local governmental relations. The subcommittee identified excessive central government control over local authorities as a problem, even though its key recommendations were emasculated by bureaucratic resistance by the time the final report was issued in December 1989. Other demands included more rational inter-local government coordination on a regional basis, strengthened local government finance, more efficient delivery of local government services, and a more flexible land-utilization policy. These points were incorporated into the final recommendations of the full committee issued in April 1990. They clearly indicated that decentralization would be a key agenda item in the next round of administrative reform efforts.

The Third Provisional Administrative Reform Council (Dai-san Rinji Gyosei Kaikaku Suishin Shingikai, or Third Gyokakushin), inaugurated in October 1990, took up the decentralization effort. It called for a clear separation of functions in central-local governmental relations, a devolution of authority to give local governments genuine autonomy, and public finance reform to give local governments greater independence from Tokyo. In its final report of October 1993, it demanded a Cabinet declaration of government policy principles (taiko) to promote decentralization within one year and a Diet-passed law to establish a mechanism to decentralize that was not bureaucratically-led. This demand was a controversial one and the first of two key battles that the bureaucrats fought and lost on the way to the creation of the CPD.

The decentralization agenda was carried forward by business interests who were aided by popular demands for reform. When bureaucrats seemingly had the upper hand inside the Third Gyokakushin after it was inaugurated, business interests executed two key maneuvers. First, in September 1992, the chair of the Third Gyokakushin, Eiji Suzuki, purged most of the retired bureaucrats. Then, the Council to Promote Political Reform (Seiji Kaikaku Suishin Kyogikai), more popularly known as the Private Sector Political Reform Council, which was composed of prominent business and labor leaders and public intellectuals led by Masao Kamei, and the Kansai Keizai Rengokai (Kankeiren), led by Osamu Uno (who also served as the Gyokakushin's deputy chair), spearheaded an effort to generate external political support for decentralization. By the beginning of 1993, this Private Sector Political Reform Council was calling for a basic law for decentralization (Chiho bunken kihon ho) and advocated turning the consumption tax into a local government revenue tax. It also polled all governors, mayors, and Diet members and found that 95 percent of them agreed that government centralization had "gone too far" (ikisugi). Seventy percent of the governors and 90 percent of the mayors and Diet members agreed that a Basic Law on Decentralization was necessary.

Meanwhile, the Third Gyokakushin commissioned the Kankeiren, in conjunction with Keidanren and the Japan Chamber of Commerce and Industry, to conduct a poll of employees nationwide. This poll found that of 2,100 respondents, over 90 percent agreed with the following statements: "Japan is now at a historical turning point where it is necessary to change fundamentally the organization of politics and administration;" and "fundamental political and administrative reform may be accompanied by pain, but it should be resolutely carried out." Over 90 percent also agreed that "in order for citizens to realize a comfortable life, local governments must be more independent and autonomous in their administration." Over 50 percent agreed that "the [central] government today is carrying out many unnecessary regulations and interventions in the private sector" and "bureaucrats are talented but they give greater priority to ministry interests than national interests and, overall, there is a trend toward mistaken judgments" (See Yomiuri Shimbun, February 13, 1993). From a strictly methodological point of view, these polls may have suffered from some bias, but they served the intended political purpose. By March 1993, four political parties were offering proposals for a decentralization law, and the Third Gyokakushin was able to overcome strong bureaucratic resistance and insert a firm endorsement of decentralization in its March 1993 interim report, along with a call for definite steps to be taken in the immediate future.

The critical struggle came in October 1993, when the final report was being prepared. Because the Management and Coordination Agency provided staff support for the Third Gyokakushin, it was the instrument of strong bureaucratic resistance. Written and verbal objections to the proposed reforms poured in from various ministries and agencies. As the final report was being prepared, the bureaucrats used these objections as an excuse to excise the call for a Law to Promote Decentralization (which would establish what would become the CPD). It then released the draft of the final report. This was a particularly bold move, since Prime Minister Morihiro Hosokawa, who at that point commanded an over-70-percent public approval rating because of his pro-reform agenda, had indicated his enthusiastic support for such a law only the previous month. The day after the bureaucrats' attempted coup, Suzuki convened the full council and, after heated debate, reinserted the call for the law. The bureaucrats succeeded in softening this by eliminating the requirement that it be done within the year. However, seeing the handwriting on the wall, the LDP finally adopted its first policy position on decentralization, which amounted to a vague call for "comprehensive cooperation" between central and local governments. From this point on, decentralization was at last placed on the political reform agenda.

Prime Minister Hosokawa then picked up the ball in February 1994 by appointing Osamu Uno as chair of the moribund Local Government Research Council (Chiho Seido Chosakai) and charged him with formulating the main provisions of the Law to Promote Decentralization. Hosokawa also created and personally chaired a subcommittee on decentralization within the Administrative Reform Promotion Headquarters (Gyosei Kaikaku Suishin Honbu). This subcommittee's task was to flesh out the cabinet's taiko and decentralization promotion law.

The first report by Uno's committee called for a taiko within one year and a law that would promote decentralization and set up the independent Committee to Promote Decentralization (CPD) to be passed swiftly thereafter. The committee would operate for five years and be made up of senior academics and individuals with backgrounds in business or local government (i.e., no former bureaucrats). It would report to the Cabinet with specific reform recommendations, which the Cabinet would then approve and enact. Thereafter, the committee would also assess whether the government was implementing the decentralization plan. An independent staff would be hired to support the committee's work. The basic idea was for the central government to retain only those powers needed for national security, stability, and technological development, and to spin off the rest to local governmental entities. Particular items included in Uno's report included the abolition, at local levels, of agency-delegated tasks; a sharp cut in the number of regional offices of the central bureaucracies; and the strengthening of local governments' financial independence.

Not surprisingly, the interim report Uno handed to Prime Minister Murayama in October 1994 echoed the Third Gyokakushin. Murayama turned this report over to the Administrative Reform Promotion Headquarters to serve as a template for his own efforts. He also pledged to speed up the agenda by issuing a taiko by the end of that year and by presenting a draft law to promote decentralization in the first regular session of the Diet in 1995. However, the taiko Murayama's Cabinet endorsed in December 1994 envisioned only a weak advisory body. At this point the private sector again intervened to move things forward. The Private Sector Political Reform Council upped the ante by calling for a decentralization promotion committee that would have legal powers to inspect and adjudicate bureaucratic matters in the course of drafting a decentralization plan. Mindful that both the voters and the private sector strongly supported reform, the ruling coalition parties appointed a committee that would draft a strong decentralization promotion law. These politicians brought the weak, bureaucratically-drafted proposal more into line with the Uno report's recommendations. The result was approved by the Cabinet and passed by the Diet on May 15, 1995.

The Law to Promote Decentralization got passed because business interests drove the reform agenda forward despite resistance from the bureaucracy. They did so not because of an ideological commitment to grass-roots democracy, but because decentralization was a strategic element in the reform of the domestic business environment needed to meet the challenges of globalization. To advance this agenda, business used private-sector groups to crank out policies for the politicians to enact. To keep the process moving forward business, together with pro-reform political parties, also mobilized public sentiment by linking bureaucratic reform to dreams of more democracy and a better lifestyle.

The Recommendations of the Committee to Promote Decentralization

In June 1995, Murayama appointed Ken Moroi, a deputy chair of the Nikkeiren and a member of the Third Gyokakushin, to head the CPD. This move elicited protests from private sector groups that recalled Moroi's limp efforts during the battle to get decentralization into the Third Gyokakushin's reports. Murayama had naively accepted the bureaucracy's argument that a 'neutral' person was needed to manage the CPD, but in fact the doubters may have been correct, since the decentralization drive seems to have lost a lot of steam under Moroi's leadership.

To date there have been four sets of official recommendations (kankoku) issued by the CPD. The first, issued in January 1996, was perhaps the boldest. It called for the abolition of the system of agency-delegated tasks. In its place, however, it proposed a system that retained some of these delegated tasks in other guises. For example, some would be assigned to local governments as "autonomous tasks" (jichi jimu), but in carrying them out local officials would still be required to consult the central government and obey its demands for corrective action. Thus it was unclear to what extent local authorities would gain autonomy, especially because the problem of local financing was not even mentioned.

The second set of recommendations, issued in July 1996, did address local financing problems, but mostly within the context of managing central government problems. It called for a 5-year limit on all future earmarked central government subsidies and grants to local governments. While it is true that these subsidies play a key role in the system of "30% local autonomy," the CPD's proposal to phase them out was not accompanied by recommendations to strengthen local governments' revenue capabilities. In fact, it seems this decentralization measure was actually a dressed-up fiscal reform measure. There were 2,200 cases of central government grants and subsidies to outside bodies amounting to ¥19.2 trillion, or 43.8 percent of the general account budget in FY97, and 80 percent of that went to local governments. The CPD did not bother to mention that its proposal had already been made by the Fiscal Structural Reform Council (Zaisei Kozo Kaikaku Kaigi) as a measure to control government spending. The CPD looked for central government subsidies that could be 'untied' for general local spending use, but due to fierce bureaucratic resistance it could only identify 14 candidates.

The other main points were a recommendation to devise an electoral scheme so voters could approve the merger and consolidation of local governments (something desired by business to simplify and create greater economies of scale in the domestic market), and a clarification of the first report's recommendation to abolish agency-delegated tasks. In what amounted to a major qualification of the first set of recommendations, it was now explained that of the 561 agency delegated tasks set by the central government, only 11 should be completely eliminated. Many of the rest were further subdivided, and of these it was suggested that 384 should become 'autonomous tasks' of the sort described above, and 260 'legally entrusted tasks' (hotei jutaku jimu), which would be virtually indistinguishable from the old agency-delegated tasks. In other words, a clear separation of the respective spheres of local and central government responsibilities was still lacking.

The third set of recommendations came out in early September 1997. One recommendation was to change the status of the central government's regional affairs personnel to that of ordinary central government civil servants, and to retain their tasks as central government functions. More important, the report dealt separately with the central-local government relations issues raised by the refusal of Okinawa's governor to authorize the renewal of leases for property occupied by U.S. bases there.

Under the agency-delegated task system, Governor Masahide Ota was assigned the responsibility by the central government to take the necessary steps to renew the leases. He had already refused to do so, but under the old system the central government could overrule him and the Supreme Court upheld the central government's right in a one-line opinion on August 28, 1996. Under pressure from the LDP and the bureaucracy, the question addressed by the CPD was how to maintain central government control over base facilities after the agency-delegated task system was eliminated.

The answer it devised was to cut out local governments from any say in military-base management. Local governments would be "freed" from having any jurisdiction in this area. The justification cited was the need to preserve central government control over national security issues. Prime Minister Hashimoto immediately pledged to have the necessary legislation drafted by the end of the 1998 ordinary Diet session. This reform would be useful not only for handling upcoming lease problems in Okinawa but also in handling the relocation of Futenma Marine Air Base to the small town of Nago, where local opposition is strong.

The response of local governments and pro-reform parties was dismay and anger. How, they asked, could a committee to promote decentralization recommend strengthening central government power and reduce the ability of local communities to control their quality of life? The interesting fact was that among all the expressions of dismay, the voice of business was not to be heard.

The CPD issued a fourth set of recommendations in October 1997. It featured a dispute resolution mechanism intended to resolve problematic areas in central-local governmental relations.

Bottom-up Decentralization Efforts

Demands at the local level for greater autonomy from central government control seem to have grown in the past few years, perhaps encouraged by mass media coverage of political reform efforts. In any event, what is most striking is the recent use by local government officials of plebiscites to justify their refusal to carry out agency-delegated tasks. Occupation reforms created a provision for local referenda to build grass-roots democracy. Two percent of local voters must sign a petition demanding a referendum and this must be approved by the local assembly before an item can be placed before the public. The local referendum is not legally binding; it serves only as an expression of the popular will.

Governor Ota organized a prefecture-wide referendum in September 1996 in which 89% of the Okinawan voters favored either the reduction or elimination of U.S. bases on their island. At its root this was a result of the public's turn toward quality-of-life issues after the end of the Cold War. Ota's point was that his duty to local constituents overrode his legal obligations to implement a central government mandate when it went against local wishes. This event was preceded, during the previous year, by the first ever local referendum held in Japan. The mayor of the town of Maki in Niigata Prefecture organized a referendum in August 1995 to register local opposition to the construction of a nuclear power plant, and this precedent-setting event became a symbol of growing demands for local autonomy. The local referendum idea was next taken up by the mayor of Mitake, a town in Gifu, where an industrial waste disposal plant was planned. A referendum in June 1996 rejected this plan.

On December 21, 1997, the town of Nago, Okinawa, held a referendum in which a majority voted against the building of a floating heliport to accommodate the closing of U.S. Marine facilities at Futenma. In this case, the mayor nonetheless acquiesced in the central government's wishes and then--like a samurai of old caught between conflicting loyalties--resigned as mayor. A new mayoral election is scheduled for February 8, 1998, pitting an LDP proponent of the heliport against the leader of the anti-heliport forces.

Even if the anti-heliport candidate wins, however, the CPD's September recommendation, if implemented by the Diet, would allow the central government to proceed over the objections of the affected locality. The top-down approach to decentralization thus joins with central government preferences, and the local government officials who might drive a bottom-up process of reform lack the legal and political framework needed to impose limits on central government authority.

What the decentralization efforts in Japan reveal, I think, is a microcosm of the larger political reform process in Japan. In essence, business has been the main agenda-setter in a complex effort to negotiate a more independent status for itself vis-à-vis the state. This effort has been carried out under the broader rubric of political reform in order to mobilize voter support for fundamental change to the status quo. When it became clear to those in charge of the state that concessions were necessary, quiet deals with business were struck and the political reform effort slowed down.

Hashimoto himself, perhaps reflecting on how his prime ministership will be remembered, has expressed disappointment in the process. A cartoon in the November 20, 1997, Mainichi depicts him envisioning a large piece of marble to be sculpted. But the actual result is a lot of rubble and a very small creation labeled 'Administrative Reform.' Hashimoto says, "After so many political compromises, it's become tiny."

Popular expectations in Japan of a more responsive government and an improved quality of life have been stimulated by the new post-Cold War global environment, but the mechanisms of political reform in Japan do not respond in equal measure, producing voter frustration and alienation. These mechanisms of reform, inherited from the old 'developmental state,' are the relatively closed deliberation councils in which bureaucrats were usually predominant. As before, they are used to communicate business preferences to the state, perhaps somewhat more effectively than in the past. The same cannot be said, however, of their representation of ordinary consumer or community interests. This should not be surprising, since these mechanisms were never intended to serve this function.

The continued heavy reliance on such mechanisms, however, carries implications for the nature and scope of political reform in Japan. In the business-orchestrated campaign for decentralization, voter expectations were raised by slogans such as "building quality of life" and "moving government closer to the people." Bureaucratic subterfuge and resistance help explain why popular expectations have been disappointed. But another key factor has been the defection of business from its tacit alliance with public opinion as soon as its own interests were met. In the case of the Nago plebiscite, for example, it was clear that the construction industry was once again operating hand-in-glove with the Japanese government.

In the various reform councils the defections of business have gone undetected by the public because of the closed nature of the deliberations. As far as decentralization is concerned, business has gotten many concessions from the bureaucracy in terms of measures to cut government spending, cut personnel, streamline local administration through amalgamation, open up local public services to competitive bidding, and simplify approval of business projects. But the demands of local government officials and local communities for more direct democracy, although encouraged by the climate of political reform, have not been dealt with seriously in the CPD.

The inescapable conclusion is that in the age of globalization, the demands for decentralization that one might expect from business and local communities can be detected, but the institutions of Japan are organized in such a way that business preferences are more effectively translated into reform than are local community demands for more participatory, grass-roots democracy. In other words, institutions still matter, and they will introduce considerable variation in the pattern of globalization outcomes. In the case of Japan, announcements of the demise of the centralized state and the emergence of grass-roots democracy may be a bit premature.

DAVID ARASE is Associate Professor of Political Science at Pomona College. His latest book is Buying Power: The Political Economy of Japan's Foreign Aid (Lynne Rienner, 1995).

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