Policy-making and macro regulation

Political scientists typically focus on macro-regulation and decision-making because here they find all the institutions and processes that are essentially political: Parliamentary debates, negotiations between both parliamentary chambers and across political parties, elections campaigns and public debates, to name but a few. At the centre of such analyses usually stands a policy decision which is interpreted on the grounds to what extent it mirrors the interests of different actor groups. The complex interplay of modes of decision-making, strategies, electoral pressures, power, ideas, institutional constraints and interests is sufficiently complex to justify research even on a single bill. In multi-dimensional settings, however, another crucial question can be addressed, that is, why some legislation is implemented while other is not. In order to be able to answer both questions about why specific forms of regulation and reform were chosen and to what extent they mirror institutional and power constellations, it is essential to get a clearer picture of the institutional and political context in which these decisions are derived. This section will discuss in comparative terms the macro LoRs in Germany and Japan and thereby look at veto structure, partisan competition and power resources of labour, capital and potential sub-groups therein (such as insiders and outsiders). While the focus here is on power distribution, chapter 4 will explore the issue of economic and political complementarities in more detail.

3.2.1 Veto points and centralisation of power

The theoretical discussion in the first half of this chapter has shown that there are several competing explanations for why actors prefer coordination over contestation or vice versa. Motives for either behaviour can stem from institutional

complementarities but also from power constellations, such as the opportunity of vested interests to influence decisions. In order to assess the relevance of complementarities, it is necessary to analyse the political systems of Germany and Japan with regard to their political-institutional incentives for contestation and coordination. This sub-section discusses the evidence by looking at political- institutional incentives for moderation and contestation that stem from the political system as such.

For Katzenstein contestation is not a typical feature of German politics because the governance structure encourages a “semi-sovereign” state who does not dominate policy decisions. One example for this is a lack of partisan conflict: "If viewed comparatively, West Germany is striking for its lack of new policy initiatives (as distinct from political rhetoric)" (1987: 4). Katzenstein attributes this to the fact that Germany is organised as a corporatist state which delegates many regulatory responsibilities to non-state actors. Many other authors have expressed similar views. Schmidt (2003), for example, sees German social policy firmly set on a “mittlerer Weg” with regard to social policy, that is, it avoids extremes such as full marketisation or state dominance due to a high number of veto players but also because both major parties, the CDU/CSU and the SPD mobilise across socio- economic divisions (e.g. both parties have labour wings and groups organising “entrepreneurs”). Vail (2009) describes the German state as primus inter pares who normally seeks consensus with the actors concerned and acts on its own only in exceptional circumstances, e.g. when it is under high electoral pressure as in the case of the Hartz reforms. Other authors such as Lijphart (1984) point out that the German political system features few institutions that concentrate power but rather distributes power across several governance levels (federalism) and institutions such as the powerful constitutional court (Bundesverfassungsgericht, BVerfG) and the Federal state (Länder). To this one could also add an independent central bank (Bundesbank and European Central Bank) which has made macro-economic steering employing monetary policy impossible. The German parliament, the Bundestag, is constrained by a powerful second chamber, the Bundesrat, which frequently gives the opposition a voice (see figure 3-2) in legislative decisions. Last but not least, coalition governments have been the norm in German post-war history both at the Federal and Länder (Federal states or Bundesländer) levels. Inside coalitions the Koalitionsausschuss (coalition meeting) can constitute an additional veto point

controversial legislative initiatives have to pass. In order to secure legislative success and enter government, German parties therefore routinely need to seek consent with others and have to compromise on their positions.

Japan, in contrast, has been one of only few advanced democracies which for decades has been dominated by a single party. The LDP has been in power from 1955 (the year of its founding) until the early 1990s and has remained the main political force until 2009. While in Germany several powerful bodies exist and different levels of government often compete over regulation, political power in Japan appears to be highly concentrated. The central government decides most regulatory issues and leaves only the execution of legislation to prefectures and municipalities. Furthermore, the Japanese Supreme Court26

26 _{In Japanese saikou saiban-sho (最高裁判所). One example for the Japanese court’s reluctance to get involved}

is the long going conflict about electoral districts. Although the Court ruled several times that disparities between urban and rural areas were unconstitutional, its verdicts were not attached with a time frame or other forms of penalties and widely ignored by Japanese policy-makers until the 1990s. In Germany, the BVerfG is regularly voted the most trusted national institution. The BVerfG has been responsible for several landmark cases and some of its verdicts have been political contested. For example, the “Kruzifixurteil” in 1995 requires public schools to end the practice of mandatory crucifixes in classrooms as this infringes on the state’s neutrality toward religions. However, in most cases German governments have followed the court’s rulings.

is politically almost insignificant as it tends to avoid concrete rulings on politically contested issues and the Bank of Japan has become independent only in the mid-1990s (as a result of the financial “Big Bang” reform package under PM Hashimoto). In addition, until 1993 coalition governments were virtually unknown in Japan. Even in earlier cases where the LDP lacked a formal parliamentary majority it could usually rely on “independents” who were often de-facto-LDP-members. This way the second parliamentary chamber, the Upper House of the Japanese Diet (UH; official name: House of Councillors, sangiin参 議院_{), played only a marginal role until 1989 because the LDP commanded over} absolute majorities in both houses (see figure 3-3). Except for the relative extensive role of the UH, which can veto the budget and the conclusion of international treaties and postpone all other legislation, and the electoral system (which through a proportional list facilitates minority party representation), Japan largely resembles the British Westminster system, where power is concentrated in the hands of the majority party, the cabinet and the Prime Minister. This leads to the curious phenomenon that despite common criticism Japanese politics was unable to implement structural reform, “by any ordinary measure (…), Japan comes out as a political system with very few veto players.” (Estévez-Abe 2008: 11).

This implies that the Japanese government should enjoy a much stronger position in policy-making than its German counterpart and thus should play a stronger role in regulation on the whole. However, scholars assess the Japanese political system very differently. For instance, George Mulgan finds Japan deviates “from the Westminster model in that the power of the executive is undermined by two alternative power structures: the party and the bureaucracy.” (2003: 76). She notes that actual decision-making takes place within the LDP through a system requiring all legislative projects to be reviewed by specialised Policy Affairs Research Councils (PARC)27 _{before they are forwarded for approval by the Diet. For Ono}

(2007b) this internal review process constitutes the major veto point in Japanese policy-making at least as long as the LDP dominates in both chambers of the Diet. For him the LDP’s Central Council (soumu-kai 総務会) where 40 senior LDP members discuss the PARC’s recommendation is the most powerful body because leading figures of the LDP factions (habatsu 派閥) are directly involved so that programmatic as well as strategic interests are present. As council decisions are by tradition taken unanimously, the council can in some instance be a key veto point for policy.28

While the argument of party-internal conflict implies contestation to be the dominant mode of change in Japanese policy-making, the assumption of a strong bureaucracy suggests an only mildly polarised proce-ss. The role of bureaucrats in policy-making has been analysed by several generations of political scientists and remains a key research topic to this day. Typically those seeing Japan’s ministerial bureaucracy as exercising excessive influence usually point to three arguments: first, the LDP and the bureaucracy entertain strong personal ties with leading bureaucrats who often start a career in the LDP after retiring. Also, until 1993 the LDP more or less controlled promotions within ministries and “post-retirement jobs” in state-run firms or related bodies and organisations.

29

27 _{Seimu chousa-kai, abbreviated seichoukai (政調会). PARCs are constituted like shadow cabinet parallel to the}

ministries. All Diet members (UH and LH) of the LDP are members in at least one council. Under the old SNTV electoral system this structure presumably helped individual LDP politicians to build up a specialist portfolio which is particularly relevant for their constituency. For instance, LDP politicians in rural districts often concentrated on infrastructure projects. The DPJ also maintains PARCs.

Second, nearly all bills that become law

28 _{Factions are not identical to party wings in Western European but mainly represent close personal ties}

between faction members. The importance of personal ties in the context of factions may also explain why political dynasties have been so dominant in Japan. For instance, of the last 5 Prime Ministers (as of 2012), 3 are direct descendants of former cabinet ministers or Prime Ministers (Abe, Aso, Hatoyama).

29 _{Career bureaucrats used to “retire” in their mid-fifties and then were either re-hired by their ministries on a}

different contract (often with lower pay) or hired by “independent” regulators, firms with strong ties to a ministry, lobby groups or political parties. The practice is known as amakudari (descent from heaven) and still common.

are drafted by the bureaucracy and then introduced into the Diet by the LDP. Amendments through parliamentary negotiations are rare, as Pempel (1974) noted as early as the 1970s. Bills which are drafted outside the ministries are hardly ever approved by the Diet. Third, ministries possess a range of regulatory means of their own which gives them regulatory authority for which Diet or cabinet approval is not needed. In particular, ministerial ordinances (shourei 省令) which provide details for the execution of laws, are, at least for Pempel, potent political tools because the “power to provide the technical interpretation of a law can often be tantamount to the power completely to revise the original intentions of that law, in contrast to the implications of a rigidly hierarchical Weberian model of a bureaucracy in which ‘policy’ is made ‘above’ and is meticulously ‘administered’ by those ‘below’.” (ibid: 654).

Yet, despite its weight in policy-making, scholars do not see the bureaucracy as an additional actor independent of politics but as one who is intrinsically linked to politics. A comparative study by Muramatsu and Krauss (1984) of elite bureaucrats in West Germany, Italy, the UK and Japan shows that Japanese bureaucrats are considerably more critical of partisan contestation than their counterparts in other countries and see it as their responsibility to console political conflicts and provide compromises. The dedication of the ministerial bureacracy to moderation and coordination may also explain why many issues do not become an issue of partisan contestation. Kume’s assessment of the shingikai (審議会 or deliberation council) which are officially characterised advisory bodies to the ministries, providing expertise on labour market issues, confirms this. Since the 1970s, Kume argues, it has been common practice to invite the main interests to discuss all legislative projects: “In the labour policy area, [shingikai] are very important. Council members include both union and employer representatives, and the councils usually adopt a unanimous ruling. In other words, union representatives have a de facto veto over labour policy, although so do employers" (Kume 2001: 6). Interestingly, cabinet ministers or elected politicians have seldom been members in the shingikai which implies that bureaucratic “issue management” has been dominating regulatory processes while the electoral salience of regulation has remained limited at least for a long period of time.

In comparison, therefore, it seems fair to say that in both countries decision- making is not dominated by a strong central government but is spread over several institutions or delegated to semi-political institutions below the national political arena. As both systems integrate labour and capital in decision-making this likely leads to low or moderate salience of regulatory issues as all main stakeholders are participating although outside formal bodies of political contestation such as the parliament.

Coalitions, bicameralism and the politics of reform

Coalitional dynamics and the bicameral structure of the German and Japanese parliaments have received growing interests among policy analysts in the 1990s and 2000s because the many reforms have required intensive cross-party talks in order to be passed. Also, in contrast to earlier periods, the situations where the majority party needs the support of other parties for passing bills have increased noticeably since 1990 as figures 3-2 and 3-3 indicate. For many political scientists coalitions and diverging majorities in bicameral parliaments are relevant because they see them as additional veto points which slow policy-making processes and provide institutional incentives for policy moderation and consensus-seeking strategies. Even the ability to postpone the passage of a bill can according to Money and Tsebelis (1992) be a strong incentive for a government to compromise, especially if it is under pressure to pass legislation quickly. Ono (2007b) sees a strong parallel between Germany and Japan in that their bicameral systems has had a similar effect on labour market reform processes until the early 2000s, basically delaying decisions and thus causing “incremental change”. There is some empirical evidence for this claim.30

30 _{Formally, Bundesrat and Bundestag are independent legislative bodies, so in a strict sense the German}

system is not a bicameral one. The Bundesrat is not directly elected but appointed by Länder governments (who are elected in state elections). Länder votes vary with population size. The GG foresees the participation of the Bundesrat only when the autonomy and the responsibilities of the Länder are impacted. Yet, this has been interpreted rather broadly since 1949 so that the Bundesrat is involved in a majority of bills. Another reason is that bills are often “bundled” into larger legislative packages on which the Bundesrat gets to vote even if only peripheral provisions are of Länder concern. The Bundesrat can then often broker deals on issues beyond its formal responsibilities. Two reforms in the early 2000s have tried to reduce the number of contested bills (Föderalismusreform I and II) but to limited effect.

Figures 3-2 and A-5 (annex A) indicate that since 1966 German governments have usually been forced to negotiate to some extent, either because the opposition held a majority in the Bundesrat (33% of cases) or because they had no majority of their own (31%). “Windows of opportunity”, that is, when Bundesrat majorities match those in the Bundestag, make up only a third of all cases and since the 1990s they have become even rarer. For instance, the SPD-Greens coalition coming into office in

1998 lost its Bundesrat majority after one year as did the CDU/CSU-FDP coalition that emerged from the 2009 Bundestag election.

Historically, situations of a twisted Diet (nejire kokkai ねじれ国会), that is when the opposition holds the majority in the UH, have been rare in Japan (4% of cases since 1966 whereas coalitional consultation amounts to 23%, see figure A-5) but, as in Germany, they have become more common in the course of the 1990s and 2000s (figure 3-3). To counter the growing role of the UH, majority parties have tended to form surplus coalitions (although cabinets formally only require a majority in the LH) to either reach a two thirds majority in the Lower House (which can overturn all vetoes by the UH) or to achieve a majority in the UH. As the UH still uses a SNTV electoral system variant combined with a national proportional list, minority parties enjoy somewhat better electoral chances in the UH while LH majority parties find it somewhat more difficult to achieve a majority in the second chamber.31

Formally, the UH is more powerful than the Bundesrat because it gets to vote on all legislative initiatives and can censure ministers and the PM, whereas the German government’s survival is completely independent of the second chamber. Nonetheless, it seems that the Bundesrat has a stronger strategy taming effect because it fosters comprehensive and almost constant cooperation among parties while in the Japanese case a clear government-opposition dichotomy is visible most of the time. This means that partisan competition and incentives for contestation should be stronger in Japan as party cooperation usually is limited to coalition- building. Nonetheless this itself marks a noticeable departure from the ‘1955 system’ where decision-making processes within the LDP mattered most. So it can be said Cross- party negotiations are more likely to be limited to coalition partners (leading to a government-opposition dichotomy), whereas in Germany there frequently is a necessity to reach across the aisle because coalitions on the Länder level often defy the government-opposition divide in the Bundestag.

31 _{Since a reform in 1994, the LH electoral system is a “parallel system” where the majority of seats are elected}

in single member districts (300 of a total of 480), and the remainder (initially 200 seats, since 2000 180 seats) in 11 regional lists. Like the German system (personalisierte Verhältniswahl) it combines majority vote with elements of proportional representation. However, some see the Japanese system more clearly oriented toward majority rule and the German system more oriented toward proportional representation. Both are similar in that they allow for limited minority representation and benefit the majority party. See Heinrich (2007), p. 107-108. The UH election system is a Single Transferable Vote System (similar to the LH system until 1994) with several multi-member districts and also regional lists. Mobilisation strategies for both chambers therefore differ considerably.

that since the 1990s there are more veto points in Japanese policy-making processes than in the past but still considerably fewer than in Germany.

Figure 3-2 Elections, cabinets and majorities in Germany, 1970-2010

Source: Election dates and details on majorities in the Länder and on the Federal level were obtained from the electoral archive of the German television news broadcast Tagesschau. Available at http://stat.tagesschau.de/wahlarchiv/archiv/. See also table A-5 in annex A.

Note 1: Xs above the upper arrow stand for federal state elections, those below the lower arrow for elections to the Bundestag.

Note 2: Category “coalition majority” includes only coalitions of one major (SPD or CDU/CSU) and one junior party (FDP or Greens).The category “unclear Bundesrat majorities” was chosen when neither the government nor the opposition held a clear majority, e.g. due to coalitions involving government and opposition parties.

1970 Bundestag Bundesrat Bundestag Bundesrat 1975 1980 1985 1990 1990 1995 2000 2005 2010 1970 1975 1980 1985 1990 1990 1995 2000 2005 2010

Unclear Bundesrat majority

SPD-led coalition majority/ Bundesrat majority CDU/CSU-led coalition majority/ Bundesrat majority Grand coalition (SPD and CDU/CSU)

Cabinets Cabinets

National Election / Federal state election

Kohl IV Kohl V Schröder I Schröder II Merkel I Brandt I Schmidt II _{Kohl II Kohl III}

Corporatism and power resources of capital and labour