The construction company in Shiroi, Chiba Prefecture at the center of the Amari scandal

The Feb. 21 Media Mix column in the Japan Times, which we also write, is about the money scandal surrounding Liberal Democratic Party member Akira Amari that forced him to resign his cabinet position. The scandal involved a construction company in Shiroi, Chiba Prefecture, which wanted to shake down the Urban Renaissance Agency for a large amount of compensation, since part of the company’s “offices” had to move due to a road construction project that UR was carrying out with the Chiba Prefecture authorities. Takeshi Isshiki, ostensibly an official with the construction company, told various media how he had paid money to Amari and his secretaries so that they would use their influence to get as much money as possible out of UR. One of the themes of the column is that UR, which is called a “semi-private” or “semi-public” organization, depending on which angle you look at if from, is an entrenched bureacratic entity beholden to the government for its very existence. It started out as the Japan Housing Corporation, a clearly entrenched bureaucratic entity, which built lots of housing developments in the years after World War II with government money. Since the end of the bubble era, it hasn’t done much of that and has sunken deeper into debt. Without much purpose in life except collecting rent on UR apartments, UR is seen as a pointless enterprise now and several administrations have tried to privatize it, but UR has resisted because being in the government guarantees incomes. Thrown on the mercy of the market, most of its employees would lose their jobs, or make less money.

The information we used to make these points in the column was taken from an article in Gendai Business written by Yoichi Takahashi, a former finance ministry economist who knows a thing or two about how bureaucracies work and bureaucrats think. His point is that the scandal would never have happened if UR weren’t involved. Had the road construction project been carried out by a genuine private concern, or even by the Chiba Prefecture government by itself, it would have been more difficult for the construction company to extort money, and, in any case, Amari wouldn’t have had as much pull in any related negotiations. But because UR occupies a shaky position vis-a-vis the government, it easily bends to pressure from that government, especially a cabinet member.

For reasons that should be interesting to readers of this blog, it’s worth going over Takahashi’s article in more detail. He opens by saying that the influence peddling law that Amari broke was implemented with an organization like UR in mind. He goes on to point out that many politicians have tried to set in motion the privatization of UR, and somehow the agency has always resisted. As it stands, UR is a dokuristu gyosei hojin, or independent administrative agency, which makes it sound as if it’s somehow separate from the central government, but according to Takahashi UR is 99.8 percent central government and 0.2 percent local governments. All you have to do to confirm this is look at the people who work there. Ikuo Kawanishi, the president, is from the private sector, but the vice president is a former land ministry official. Five of the ten directors, in fact, are “temporary transfers” from the land ministry, meaning they are full-time bureaucrats. This is not, strictly speaking, an amakudari (descent from heaven) situation, wherein retired bureaucrats are given cushy jobs in either the private sector or in government agencies specifically set up to provide jobs for retired bureaucrats. These men are still in the government earning good salaries and benefits. Takahashi describes is as a “verbal loophole,” in that an “independent” agency is still connected directly to one of the most powerful ministries in the country in terms of funding. The land ministry, which also handles the central government’s construction work, has “colonized” UR with the purpose of making UR a branch office. Since 1981, the name of the organization has changed three times, but its status has remained essentially the same.

What has also stayed the same is the organization’s record of failure. Chiba New Town, which is close to the road project at issue in the Amari scandal, ended up heavily in debt to the tune of ¥900 billion, which was paid off using maizokin, or “hidden funds” that the central government keeps just for such purposes. If UR were private, heads would have rolled and scores settled, but in true bureaucratic style, no one was fired and business continued as usual. The media didn’t know about these losses and therefore the public didn’t either. Consequently, UR does not invite scrutiny over what exactly it does any more. It’s not building condominiums, and while the people who live in its rental properties likely prefer UR’s semi-public status, since it is, in all honesty, a fairer landlord than the private kind (no gift money or resigning fees, more reasonable deposits, no guarantors), it also loses money for the government through bloat, which means all of us as taxpayers subsidize what is essentially middle class rental properties. Or sometimes not middle class. UR owns and manages quite a few luxury rental properties in central Tokyo. Why should the government provide luxury apartments? And what exactly is UR doing running a Chiba road project that is outside of its bailiwick, meaning Chiba New Town? What it’s doing is maintaining the illusion of purpose by “helping” a local government carry out a construction project it has no real business carrying out.

In 2010, a group of lawmakers from the Democratic Party of Japan, newly installed as the ruling party, attempted triage on bureaucratic bloat and UR was in their sights. They intended to sell UR’s rental properties to private real estate companies, or transfer some to local governments, which could use them for low income families or the elderly. However, the land ministry resisted mightily, saying that as long as UR was so deeply in debt it would be too difficult to privatize, so the DPJ backed off. The same thing happened during the Fukuda administration in 2007. As long as UR had all this red ink it would be too difficult to privatize. But as Takahashi points out, this is a dodge, much in the same way that the government uses the national debt to increase consumption taxes. UR debt is said to be ¥12.8 trillion, of which ¥12 trillion is owed to the fiscal investment and loan program, meaning the government itself. So while this money is a minus for UR, it’s a plus (asset) for the central government. If the central government sold off all these assets, in other words privatized them, almost all of UR’s debt would be gone. But that means the related bureaucrats would be out of a job, so they keep saying that the debt is somehow intractable.

Of course, privatization of UR would also stimulate the economy because it would boost commercial activity. As a small but not insignificant bonus privatization of UR would reduce any related influence peddling, which is why some politicians don’t want these “agencies” privatized. Influence peddling, as shown by the Amari scandal, is a prime method for raising money. UR is thus less of an integrated government organ than it is a mutual back-scratching machine. Politicians maintain its comfortable status and UR is always there to help when some company or individual needs a favor in the land or construction field and pays for that favor in political donations. Everybody’s happy and the taxpayers don’t know that they’re footing it all in the end.

The road construction project UR is in charge of