Iron Triangle in Japan - Case Study Example

JAPAN’S IRON TRIANGLE Introduction After the Second World War, Political economy has taken centre stage in all developed countries in a bid to spark economic development. The decisions made by the politicians are expected to contribute positively on the economy at these developed countries on a global scale. The political leaders have involved themselves in economical activities of the country by collaborating with private enterprises to from the ‘Iron Triangle’. The ‘Iron Triangle’ is a term used to refer a heuristic tool that is often employed to describe the relationship between government and business that unites the mutual interests of businessmen, politicians and bureaucrats. The ‘Iron Triangle’ has produced the best outcome for the inter-institutional cooperation through its policies to enable numerous mergers between politicians and bureaucrats. This essay will evaluate the ‘Iron Triangle’ in Japan and determine the reasons behind government effort to try to reform triangle. In addition, the paper will look into the factors that make it difficult to cut the resilience between the politicians and private enterprise. ‘Iron Triangle’ is a linking strategy between the politicians and financiers in the economy market. This triangle was formed to initiate the motion of post-war political reform in Japan and the triangle and it mainly consists of the occupation authorities and Japanese conservative politicians (Colignon & Usui 2001, p. 865). The iron triangle has dominated japans politics for decades and the reforms of the iron triangle can be traced back to the post-war period of 1945 -1952 (William 1999, p. 114). During this period, the structural corruption and vague relations between the financiers and the politicians led to the removal of foreign intervention and this move initiated democracy in the country (Smith 1945, p. 47). Before the World War II, Japan was ruled by an emperor hence the bureaucrats’ power of regulation was linked to the elite official posts given by the emperor. Civil servants and bureaucrats used to work directly for the emperor also known as Amukadari. The emperor appraised the noble work done by the civil servant and bureaucrats (Colignon & Usui 2001, p. 870). This ancient inter- institutional network of cooperation was the basis for Japan’s ‘Iron Triangle’ since it bared friendly regulations and master in reemployment and procure financial gain. This informal network of inter- institutional cooperation has become a central feature of Japanese political economy for the past six decades (‘The establishment’ n.d., p 216). The Japanese civil servant sector has seen old top ranked civil servant who had retired being recalled and given a high profile jobs in public enterprises and government agencies. This process of offering second employment was intensified during the 1960’s and 1970’s to enable massive development of the economic market in Japan. As a result, Japanese economy experienced a rapid growth in revenue generation and profit for private and public enterprises. This prompted the government to sought patronage and protection of the public and private sectors through formulation of new regulations and policies (‘The establishment’ n.d., p 215). These policies and regulations were meant to govern all economic activities in the country. Reasons for reforms in the iron triangle The Japanese government has set up clear motives to reform the iron triangle due to the large interest of money pocketed by the legislatures and the private enterprises through illegal market activities (Lindsay 2002, p. 65). Although the iron triangle, phenomenon was responsible for the rapid economic growth with regard to efficient corporation between the government and business operators, over the times is has become associated with mal practices and caused the government massive expenditure to maintain it (‘The establishment’ n.d., p 213).Such motives included tightening the fight against corrupt politicians in the government. The government also became the overseer of all transactions that incurred between bureaucrats and the private enterprise. The government further insists that the triangle based on all embracing categories contains non- transparent element (Rakhmanko 2011, p. 1). This non-transparency has elicited uncertainty on key Japanese political actors. This drastic change in the iron triangle placed the government on toes to carry out extensive reforms in crucial sectors where the phenomenon was applied (Kudo 2008 p. 12). The effects of these reforms are; improved business transactions and transparency in the business sector. Economy analysts argue that the government had lost a decade without realising the menace of the iron triangle (Black 2004, p. 605). The country had developed a unique system that channelled funds through Fiscal investment and loan program (FLIP) and funds from this kitty were intended to sponsor a series of Japanese development projects. Nevertheless, the iron triangle’ actors manipulated the economic system for their personal gain and profit and suspects that led to this demise are the politicians, ministerial bureaucrats and business circles (Rosenbluth & Thies 2010, p. 93). The government seemed to have lost vocal advisory in the economy market towards the end of 1990s. This was due to the increased mal practices such as corruption in the business sector. For instance, the negative effect of the iron triangle decreased the efficiency and effectiveness of government’s decisions in some sectors of the economy (Rakhmanko 2011, p. 7). This has prompted action to be taken by the government to have a bureaucracy-industry relationship characterised majorly by administrative guidance. This will allow a continued support of the domestic support and financial independence and deregulation. This move towards the late 1980s was inevitable and hence widely affected the ‘Iron Triangle’ policies for business transaction and industrial operations (Kudo 2008 p. 17). This was followed by failure of policies and measures as well as scandals on the private sector. Corruption overview The corruption mentioned scandals seemed to have started back after the post-war since during that time, there were no strict rules. This economic corruption has affected the business sectors with government losing a lot of revenue (Mitchell 1996, p. 36). The corruption overview reflects back to the shipbuilding scandal of 1954 where politicians were bribed to pass a law that allows shipbuilding companies to borrow below the market rate (Pascha n.d., p. 3). This scandal was severe that it led to the collapse of the Yoshinda cabinet. Another corruption scandal was the Lockheed scandal of 1976. If such scandals are allowed to continue, the drastic fall of Japan’s triangle is eminent. The corruption cases between 1950s and 1970s had brought shame and discomfort among investors. Similar situation may occur and may cause the government to lose out potential private investors hence it is prudent to take reform measures towards the triangle operations (Shleifer & Robert 1993, p. 607). Several scandals have been reported since the 1996-98 scandal of elite bureaucracy (Pascha n.d., p. 5). All these scandal affecting the government led to the reforms of business activities and policies governing the ‘Iron Triangle’. For instance, the government has minimised direct financial transactions between the bureaucrats and the enterprises. All transactions are done through the ministry of finance. This is a brilliant move in ensuring that the two decade menace of corruption in the iron triangle is eliminated (Rakhmanko 2011, p. 3). In addition, the government will have managed to restructure accountability of politicians in the legal process and transaction of the 'Iron Triangle'. The reforms are meant to clean up the corrupt politicians and private enterprise. The new policy by the government on business partnership limits the involvement of politicians in business activities. It also bars them from interfering with the economic market (Khondaker 2008, p. 9). In comparison to the iron triangle of the US, the Japanese government has taken stern steps to remove the frustration brought up by extensive business corruption and inefficient political and bureaucratic process (Mitchell 1996, p. 93). The reforms initiated will raise the economic score in the global market (Blechinger 2000). Currently the country has scored 71.6 in the global economy rating according to world heritage organisation (Mosk 2008, p. 106). A raise of this score regain the confidence of business persons in the country. The economic freedom in Japan is accredited to government regulations and minimal political interference of business transactions in the global market (Rakhmanko 2011, p. 25). The graph below shows the country is scaling up to greater levels of economic freedom due to the strong political push in the country’s government leadership (Pascha n.d., p. 5). The modern and well-developed financial sector has taken consideration of the export-oriented economy that boosts the country (Yamamura 1997, p. 321). Most of the businesspersons in this sector are pursuing bilateral agreement with bureaucrats. This forces the government to ensure that both parties enjoy favourable business environment in terms of a corruption free market economy. Figure 1: Graphical representation of japans’ freedom economy Source: http://www.heritage.org/index/images/charts-combined/2012/japan.jpg Policy issues In a quick view, to the policy proposals presented by both the ministry of trade and ministry of finance, the bureaucrats and the entrepreneur were supposed to be under stringent supervision (Stockwin 1997, p. 77). The government through the ministry o0f trade and finance have put up strict measures and supervision on trading and partnership between bureaucrats and private enterprise. However, the ministry of finance strongly feels that the politicians or bureaucrats should receive street level supervision with strict incentives and rules that will uncover and persecute the corrupt people (Pascha n.d., p. 5). The monetary policy has bared independent entities such as the bank of Japan from making fruitful contribution to the macroeconomic development (Witt 2006, p. 67). These entities were bared to allow the politicians and malicious businesspersons to acquire selfish gains. Such policies have been criticised as having an effect on the decline in revenue as from the mid `1960s (Kudo 2008 p. 2). The policies locked out genuine investors such as bank of Japan from venturing in national business sector. The 1960 period was characterised by the increase in fixed expenses by the Japanese government. The reforms in the policies are prospected to turn this phenomenon and scale the revenue collection to new heights (Moerke 2005, p 74). Nonetheless, Japan has initiated ethics management in regards to reforming the transactions carried out by bureaucrats and politicians in the iron triangle. This will over see business transaction in the country (McVeigh 1998). The approval of ethics law in the country opened up channels for the government and market regulators to asses the business traffic in the market with another perspective other than mutual benefits. The law provided measure and prescription for business activities in the public sector (Jeroen & Kudo 2005, p. 6). Mauro (1995, p. 684 evaluates that business ethics in the iron triangle sectors needs to change since the Japanese political administrative system is faced with serious scandals that hinder further development of national bureaucracy in terms of ethics management. The most relevant aspect to the ethical consideration is the reduction of power and prestige of bureaucracy because it holds the key element of a successful bureaucracy (Jeroen & Kudo 2005, p. 6). Towards the beginning of the new millennium, the government came up with a national public service code of ethics where all bureaucrats and businesspersons should observe in order to facilitate ethics management in the national business sector (Jeroen & Kudo 2005, p. 8). The compliance of such ethics is deemed by the government as a form of increasing the integrity of the public servants in external controls, behaviour roles and institutional control (Kaneko 1999, p. 278). This code of conducts was aimed to out do the hierarchical bias and implicitly decision making. The rule seeks to bound the political culture, Japan policy makers and dealing with compliance violators (‘The establishment’ n.d., p 215). The context at which the Japanese bureaucracy was marred with unprecedented public criticism provided justification for strict reforms and implementation of the ethics law (Jeroen & Kudo 2005, p. 8). With complete adherence to the law, the government hopes to create a clean evolution of the public and private business sectors (‘The establishment’ n.d., p 221). Complication surrounding efforts to break the resilience of the relations between bureaucrats and private enterprise The main outcome of the 'Iron Triangle' is the partnership of politicians or bureaucracy with business entrepreneurs in order to spark economical development in Japan through international trade (Furukawa 1999, p. 442). This merger bares vices and virtues, which have raised concerns to some parties (Yamamura 1997, p. 297). These concerns have attributed for many critics to call fro the break down of the relations between bureaucrats and private enterprise (Khondaker 2008, p. 1). Most of these bureaucrats who were former civil servants have been reemployed in crucial public and private corporation sectors (Wright 1999, p. 6). The bureaucrats have monopolised management boards and took crucial control of jobs in the public enterprises (Rakhmanko 2011, p. 29). This positive gain for the bureaucrats and other beneficial factors for both parties have made it difficult to break the relation. In addition, the control of all activities of the iron triangle has given the bureaucrats an upper hand in maintaining a strong relationship in the bureaucracy (Pascha n.d., p. 5). At the same time, the central government has been rendered powerless over the issue. The table below shows the impact brought up by the fact that bureaucrats control the distribution of directors in the independent administrative agencies. Type Service category Number (people) Retired civil servant Temporary transfer Independent administrative agencies Full-time 516 (79.1) 184 90 Part-time 136 (20.9) 23 0 Total 652 (100.0) 207 (31.7) 90 (13.8) Public corporations Full- time 319 (78.2 91 Part-time 89 (21.8) 6 Total 408 (100.0) 97 (23.8) 7 (1.1) Table 1: distribution of directors in independent administrative agencies Source: (Khondaker 2008, p. 3) T he table above shows how the independent administrative agencies have been affected by the control of boards and decision by key players in the iron triangle. Out of the 102 agencies, the ministries had to distribute them amongst themselves (Khondaker 2008, p. 3). The agencies had only 85,421 staff as of April 2006 because a significant number of employees were retiring and joining the bureaucracy. In this figure, 31.7% retired civil servant and servant occupied 23.8% and 1.1% board member. This clearly shows that the public enterprise and IAA have become iron triangle adjuncts (Khondaker 2008, p. 3). The situation hinders the development of managerial professionalism within the Independent Administrative Agencies (IAA). On the contrary, gave the actors of the iron triangle confident of a strong relationship (Moerke, 2005, p 69). Control and regulation Various factors such as profitable gains, collateral agreements and high investments by the government, make the government be reluctant in breaking the connection between the enterprise persons and the politician (Rakhmanko 2011, p. 4). There are strong claims that the occupation authorities played a crucial role in guiding the government trough the occupation period. The authorities secretly pushed certain individuals to be appointed as bureaucrats. These critics still believe that the occupiers are still acting on these roles. This is because it has been difficult to reshuffle the bureaucrats from their position of power. The study carried out by Ishibashi Shōjirō, founder of the Bridgestone Tire Corporation gives an account of the continuing influence by political fixers on the economy market (Lipsky 1980, p. 301). Kisugi (2007, p. 215) argues that the transition carried out by iron triangle is a formative and explanatory cause of democracy and success over corruption authorities. The legislatures view the efforts to destroy the close contacts with the business enterprise as a malicious act by money interest individuals. Throughout Japan’s industrialisation, the government recognises the bureaucracy to be the engine of economic transformation towards increased profit and revenue generation (Bardhan 1997, p. 1326). The bureaucracy enjoys the legal control over a wide range of activities that contribute to the national products (Khondaker 2008, p. 13). The different ministries in the government are competing to stamp authority over influence and domain of national economic activity (Lockwood 1954, p. 148). The private business firms enjoy the freedom to access information concerning regulation and general political development hence they make wise choices on which politician or bureaucrat to collaborate (Kudo 2008 p. 24). Amakudari The relation between the state and private sector constitute a regime responsible for developing Japan since they controlled resources and finances (‘The establishment’ n.d., p 215). The triangle has led the country to adopt promotional and industrial policies that favour economic change (Colignon & Usui 2001, p. 872). The close relationship between the bureaucracy and the private sector has evolved tremendously since the emancipation at post-war period. Amakudari, which means descent from heaven, has stipulated how high-ranking bureaucrats normally find executive positions in semi-government or private enterprises in the industrial sector (‘The establishment’ n.d., p 227). With the privileges, they enjoy at the helm of power, these politicians and the entrepreneurs will stop at nothing to bar the reforms and attempted cut off the resilience. With such arrangement as Amakudari, the business sector benefits by having the ex-bureaucrats in upper managerial positions (Koh, 1989, p. 14). The private enterprises believe that these ex-bureaucrats have an in depth knowledge of the network and the powerful national officialdom. These ‘old boys’ are valuable assets in the business world hence it makes it difficult to break the resilience between businesspersons and the bureaucrats (‘The establishment’ n.d., p 235). Furthermore, the contribution of Amakudari in policy network largely depends on society consensus to effect changes on the policies (Tsutsuumu & Yamaguchi 1997). This social homogeneity has led to the emphasis on loyalty and trust to the network corporation (Pascha 1996, p. 29). This gives it a strong resilience that bonds the politicians and businesspersons (Colignon & Usui 2001, p. 872). Apart from the policies, the iron triangle enjoys the logistical convenience of Tokyo as a hub of political and economic activities. These strong elements have made it difficult to cut the ties between the bureaucrats and private enterprises. This Amakudari concept also sets Japan as a well-suited informal policymaking hallmark and administrative apparatus (Quirk 1992, p. 182). The system suppresses the opposition accommodated in the electoral politics in the bureaucracy (Nakano 1997, p. 89). In a bid, to understand Amakudari, the diagram below shows the conceptual map of Amakudari paths (Colignon & Usui 2001, p. 874). This diagram explains how the retiring bureaucrats are shifted to Private Sector Corporation. Yokosuberi refers to the movement of retiring bureaucrats to a public corporation whereas Chii Riyo is the movement of ex-bureaucrats into political office (Arrow 1998, p. 41). Wataridori is the multistep career of the retiring bureaucrats. This movement influences the flow of money through regulations and licensing of the corporations. The diagram further depicts the transition of these bureaucrats from the political office to bureaucracy with a basis of business friendly legislation (Colignon & Usui 2001, p. 874). This makes them promote business interest and electoral base at ease. The evaluation of the paths taken by bureaucrats shows that they are more holistic than their counterparts who joined bureaucracy without political influence. Hence, the Japanese power structure in the iron triangle (Khondaker 2008, p. 15). In order for change to be effected in the partnership between the bureaucracy and enterprise, a consensus must be achieved by both parties (Wanner 2000, p. 14). Source: (Colignon & Usui 2001, p. 874) Conclusion This paper highlights the issues surrounding ‘Iron Triangle’. A clear history of the Japanese iron triangle has been presented while giving an account of the beneficial and shortcomings of the phenomenon. The essay has gone further to show the reasons that led to the demise of the business. The government has strived hard to come up with reforms that will shape up the entire iron triangle. In addition to the reforms, the paper has accounted for the strength of the iron triangle in Japan’s economy. This element has been acknowledged as the best practice in the japans’ free economy. However, the trend of vigorous economic growth was cut short by the introduction of new policies and mal practices by the key, players in this sector. Despite the negative influence and characteristics, the relation of both private enterprises and bureaucracy has been maintained all this time. The projects initiated by iron triangle are perceived to be the best development in the Japanese economic system. After evaluating the iron triangle, it is highly recommended that the reforms carried out by the government to be paced up so as to regain the hay days of prosperous Japanese iron triangle. Follow up to the recommendation will create a strong tendency of compliance integrity towards government activities. The framework in place will strive to enhance the relationship between the bureaucracy and the industry. 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