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Small Government Is the Answer

Posted December. 25, 2006 07:37,   


An administrative pilot program by the Japanese government proved that commissioning public service to the private sector was a great cost saver. The experimental measure also found that easing regulations on the private sector greatly boosts the productivity of the overall economy.

According to the Nihon Geizai Shimbun yesterday, the Japanese government ran a pilot program, commissioning five private companies to collect national pension premiums beginning last year, saving expenses by 59.1 percent for more than two years.

When the Social Insurance Agency (SIA) collected premiums in 2004, the collection cost amounted to 250 million yen. In contrast, the number was only 100 million yen when private companies chosen through a public tender competition took the job.

There were some frictions between private premium collectors and pension subscribers without knowledge of the transfer of the work, but the private collectors outperformed SIA in terms of collected amount as well. Private bidders to take over public services cut deals with the government at a lower contract price than before. For example, highest bid price for a reemployment program for senior citizens called "Career Exchange Center" fell 38.1 percent in its second year compared to the first year.

The Shimbun also said that the government has seen reduced costs in five comparable business segments out of its eight "privatization" projects on an experimental level. Here, "privatization experiment" stands for a system under which the central and local governments entrust public services to private companies and pay in return. The government is planning to expand the program into 27 services next year.

The Cabinet Office`s data from 1995 to 2002 found that deregulatory measures improved economic productivity by 7.59 percent, a remarkable figure compared to the OECD average of 1.2 percent. Non-manufacturing industry has seen productivity gains of 4.61 percent, higher than the 2.98 percent average for the manufacturing industry.

The telecommunications industry, where deregulation was reduced by 80 percent, saw a sharp increase in its share of added value. Construction and agriculture sectors, deregulation of which was down only about 20 percent, found their share of added value decreasing, however. This clearly shows that deregulation does help increase productivity and added value.

The Japanese government, as part of its drive for a "small government," announced that it would cut the number of public officials by 2129 next year. It is also planning to cut back on subsidies to independent administrative corporations including the Employment and Human Resources Development Organization, the National Agency of Vehicle Inspection, and the Japan Student Services Organization by 190 billion yen over the next five years.