This post began as an email to the business consultant referred to in the main text and the host of the lunch. I’m sharing it with you because I think it’s relevant to understanding the implications of the domestic policy agenda of the DPJ, something I generally haven’t taken much time to go over on my blog.
What are the implications of downsizing the civil service by 30% and cutting personnel costs for the remainder by another 30%? It’s a suggestion that I heard from a relatively well-known management consultant—and presumably making the rounds of business circles—over lunch?
As of FY2008, there were 590,993 national civil servants accounting for 5.3252 trillion yen in personnel costs. A business-as-usual scenario will not change these figures significantly. So, a 30%-by-30% cut saves you about 2.7 trillion yen, which is comparable to the 2.5 trillion yen required to finance the increase (1/3, up from 1/2) in government subsidies to the basic public pension system, which in turn is roughly equal to the revenue that can be raised by a 1 percentage-point hike of the consumption tax rate*. The message? Soak the bureaucracy and you can finance pension reform without a consumption tax hike, a most desirable message politically speaking. But is it doable?
Under normal circumstances, roughly 5% of national civil servants (excluding Self-Defense personnel, but let’s assume that their attrition rate is more or less the same) leave the civil service each year. So, by simple attrition, the civil service can be trimmed by 30% in 7 years. But there’s a catch or two. Of the roughly 590,000 national civil servants, about 140,000, or 1/4th, are tax officials, police officers, coast guard personnel, etc., people vital to our personal and national security, people whom we do not commonly associate with the slovenly paper-pushing ways of the civil service and would be immediately noticed if their ranks were thinned in the form of fewer police officers on the beat, fewer guards at the Imperial Palace grounds, etc., etc. (Although fewer taxmen on the job might be a welcome turn of events by Keidanren members.) A further 235,000, or 25ths, comprise the military personnel of the Self-Defense Forces. Although our soldiers are usually less visible than, say, police officers, a significantly lower level of defense alert would have to be accepted—not that such a decision would be out of the question—in order to make a 30% cut in their ranks. That’s 375,000, or close to 2/3rds of the total that require a serious rethinking of our personal and national security priorities before they can be considered for major downsizing. Yet to leave them untouched means that you would have to take 30 percentage points out of the remaining 36 percentage points to make the numbers work.
The other 30% cut in personnel costs likely derives from a comparison of the average annual wage of the employees of all businesses with 10 or more employees—4.524 million yen (FY2004)—and the administrative personnel among the national civil servants (full-time employees excluding tax officials, police, coast guard, the SDF military, etc.)—6.295 million yen (FY2004). But note that the workforce for the basis of the 4.524 million-yen figure includes contract workers, temps, part-time workers and the like. Corrected for these differences and business size, this government(!)-sponsored study claims that the average annual wage of national civil servants and that of the general workforce are more or less equal. Now it could be argued that the national civil service should share the same fate, salary- and benefit-wise, as the rest of the population. But the argument must be made to stick as well with regard with the civil servants who are directly responsible for our personal and national security, and the fiscal well-being of our national government.
This is clearly a difficult, politically unpalatable task. Perhaps that is why the DPJ is willing to settle for a modest(!) goal of a 20% overall cut, theoretically achievable with simple attrition plus an absolute hiring and wage freeze over a 3-year period**, and even then hedging its bets by claiming that much of the load and by implication some of the personnel can be shifted to local governments…which passes the buck without really solving the problem.
* It is also roughly equal to the sum of the budgetary costs of eliminating tolls on most highways (debt payments 1.4 trillion + maintenance costs 0.16 trillion) and abolishing the gasoline tax surcharge (1.24 trillion yen). A trillion here, a trillion there, and soon you’re talking about real money…
*Under normal conditions, roughly 5% of civil servants excluding Self-Defense personnel leave the civil service. So, assuming SDF personnel leave the military at the same rate, simple attrition plus an absolute hiring and wage freeze should be enough to achieve the DPJ goal of cutting personnel costs by 20% in three years—other things being the same. (Note that attrition occurs disproportionately at the older and therefore more highly paid end of the wage scale.)