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or absence of competitors in a specific area is also a
factor). The result is that fields with the harshest
working conditions (such as obstetrics/gynaecology,
surgery and paediatrics) are avoided in favour of
easier areas (e.g. ophthalmology, orthopaedics). This
gives rise to shortages in specific fields and
geographic locations. In other words, the fact that the
remuneration system is fixed for all medical services
down to the smallest detail means continued
mispricing causes doctors to favour certain practices
over others.
Until recently, the Central Social Insurance Council
(CSIC) of the Ministry of Health, Labour and Welfare,
which effectively controls Japan’s medical
remuneration system, had not set prices in a way
that appropriately balances supply and demand after
considering the interests of all parties concerned.
(Owing to problems including asymmetrical
information, the medical profession is heavily
regulated. But while some degree of price control is
needed given the absence of a market mechanism,
the problem is that price-setting has not been done
appropriately.) Experts have long complained about
this, but the problem was not widely known until the
budget-vetting process exposed it to the public. This
led to an overhaul of both the CSIC itself (a
membership shake-up has given a stronger voice to
hospital-based doctors) and the remuneration system,
with the latter focusing on rectifying the income
disparities between private practice doctors and
hospital-based physicians.
Is one hour per review sufficient time?
There has been some criticism that the time
constrains on the vetting process – one hour each for
some 450 projects – did not allow for adequate
assessments. Since the government-assigned
reviewers included accountants, authorities on fiscal
affairs and experts in regional policy matters, all of
whom came prepared for the specialised subjects
involved, an hour was enough to cover the issues in
question. In our particular working group, when
asked if outlays on their project warranted urgency in
the face of the many other priority issues raised in
the DPJ’s manifesto, some bureaucrats were at a
loss as to what to say, leaving reviewers with the
impression that the request for funding was just
routine, something that was also done last year and
the year(s) before that.
Given the clout of interest-driven lawmakers, these
officials probably assumed that, barring some
emergency, their pet projects would always continue,
even if fiscal conditions got tight, because that is the
way things had always always done. But the public
does not see it that way. Faced with severe
budgetary constraints, voters naturally want spending
projects to be selected on the basis of priority.
Vetting process creates micro-level fiscal
discipline
To ensure that limited tax revenues are wisely spent
on programmes required today means there must be
a constant review of the urgency of all spending
programmes so that an order of priority can be
determined. By establishing the programmes-vetting
process, the government has created micro-level
fiscal discipline. Of course, spending on areas
including science and the arts might require a longterm
perspective such as a 100-year plan. Further, if
certain science projects are weeded out during the
vetting process, lawmakers can always re-approve
them at later date. Even here, it is important that
efforts be made to ensure that limited resources yield
the maximum output. In this sense, the objective of
the vetting process is to promote efficiency.
Vetting process may have had little real effect
Another common complaint is that the vetting
process did little to actually reduce spending.
According to the Government Revitalisation Unit’s
final report, the process only pared JPY 969.2 billion
from the budget requests (we note that planned new
bond issuance in FY 2010 totals JPY 44 trillion). But
it is wrong to expect the vetting of individual spending
projects to yield huge spending cuts. For that to
happen, you have to either put a ceiling on the
overall budget or target areas for specific curtailment.
(Alternatively, you could overhaul the tax system to
secure increased revenue via higher taxes.) The job
in this situation is that of the National Policy Unit, not
the Government Revitalisation Unit. The National
Policy Unit has the role of creating a scheme for
guaranteeing macro-level fiscal discipline, such as a
long-term fiscal reconstruction plan, medium-term
framework or single-year budgetary ceiling. It could
be argued that the new DPJ-led government was
unable to address macro-level fiscal discipline this
time around owing to time constraints. However, if it
had at least imposed a single-year ceiling on
spending, then the FY 2010 draft budget probably
would not have swollen to record proportions.
While on the issue of macro-level fiscal discipline, we
have pointed out in previous reports that the aim of
bolstering economic activity always lures the powers
that be into raising fiscal spending. The DPJ-led
government is no exception. On the one hand, it vets
public works projects to eliminate waste; but, on the
other hand, it designs a package of emergency
economic stimulus (second extra budget for FY
2009) that is full of expansionary spending in order to
avert an economic “soft patch.” While the additional
spending might yield a momentary jump in GDP, it
nullifies all of the waste-cutting efforts of the budgetvetting
reform. It is extremely unfortunate that
Ryutaro Kono 29 January 2010
Market Mover
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