Has Agencification Succeeded in Public Sector Reform? Realities and Rhetoric in the Case of Japan

Abstract

The separation of implementation from policy has been diffused as ‘agencification’ around the world. It is considered an organisational reform based on new public management (NPM). The semi-autonomous public organisations executing policy are set up and are given a greater flexibility in operations in exchange for strengthening accountability for results. The central government of Japan also adopted the organisational reform in which agencies were called independent administrative institutions (IAIs). The reform intends not only to make the public service more transparent but to improve efficiency and quality of services through separating the implementing functions from the policy units, ministries and departments. It is assumed that flexibility in operations and result orientation would improve organisational performance through a feedback instrument of evaluating results into the budget other than an incentive mechanism. This article investigates whether the intended objectives have been accomplished. The specific focus is on the impacts on the budgetary system in terms of performance. The analysis shows that in Japanese agencies, ex-post performance information has not been fed into the budget process. Also the actual outcomes are explained by an incremental funding system, technical problems in measurement of results (performance measurement) and bureaucratic motivation through adopting a principal agent model.

Keywords:

• Agencification
• NPM
• Performance Management
• Principal Agent Theory
• Budget
• Japan

Acknowledgements

The author would like to thank the anonymous reviewers. This research was financially supported by the Japan Society for the Promotion of Science, Grant Number 16203024. The article benefited from comments received at the Workshop on the Performance of Performance Budgeting in ‘A Performing Public Sector: The Second Transatlantic Dialogue’, Leuven, Belguim, June 2006; and the 20th IPSA World Congress, Fukuoka, Japan, July 2006. The views expressed in this article are those of the author and do not necessarily represent the views of the institutions with which the author is affiliated.

Notes

1. Hood (1991) described the concept of NPM in its innovating stage. Moreover, Barzelay (2001) studied NPM in multiple disciplines.

2. This conceptualisation is consistent with the findings of agencies in Finland, the Netherlands, Sweden and the UK (Pollitt et al., 2004). Pollitt (2006): 315) indicates that ‘the chief financial inquisitor is seen to be the ministry of finance rather than the parent ministry’.

3. The second factor of equation (2) is drawn by considering the MOF's preference for improving public welfare through the activities of IAIs.

4. The utility of the IAI is determined after the resource allocation decisions by MOF and the responsible ministry. Also the budget maximising model is modified, since the ex post effects shall be taken into account corresponding to real resources (P(t) + ΔP(t)).

5. The MOF is unable to identify the relationship between Y(t) or P(t) and D(t). In more correctly, ΔY/ΔD and ΔP/ΔD are unknown for the MOF.

6. The total number of IAIs was 57 when they were first established in 2001. However, by the end of FY 2005, five IAIs merged or were merged into other organisations. As a result, the data for this analysis are on 52 IAIs.

7. According to the accounting standards for IAIs, the operating grants are recognised as a current liability once received. Then, as the planned activities are implemented in accordance with the annual plan and the resources are consumed, the current liability turns into the revenues.

8. The increase in total expenditures is partly caused by the variations of capital expenditures and other subsidies. Since the total expenditures are financed from the operating grants, subsidies and self-income, in terms of public finance for MOF, the focus is on government spending that is operating grants and subsidies. Therefore, the coefficient in the case of total expenditures is unable to be compared with that of the general budget.

9. As the reviewer indicated, the budgetary behaviour might differ by the type of IAIs. However, the common formula for operating grants is adopted into all IAIs. Consequently the possibility for the IAI to be affected by the type seems to be quite low.

10. The national culture of Finland is highly risk-averse in western nations (Hofstede, 2001). The character might be resistant to NPM-type reform such as agencification.

Additional information

Notes on contributors

Kiyoshi Yamamoto

Kiyoshi Yamamoto, PhD, is Professor at the Center for National University Finance and Management and the University of Tokyo, Japan