Normative Thinking Changes Communities

Faculty Fellow, RIETI

This year is the final year of the five-year Regional Comprehensive Strategy. The year may be a period of preparation during which many local governments verify their achievement in key performance indicators (KPIs) and consider their next strategies. However, I am afraid that only a small number of municipalities will have achieved the birthrate target set in relation to employment and demographics, due to the fact that recent demographic data show an increase in net inflow of people into the Tokyo metropolitan area, rather than a population recovery in less urban prefectures.

Individually, measures implemented under the Comprehensive Strategy may be meaningful, but few local governments are able to provide explanations for the relationship between input and output —namely how the implementation of their measures affects the population and employment in their communities.

A Lack of Normative Thinking

When local governments fail to achieve KPI targets, it is unclear how they can identify the cause of the failure without analyzing the relationship between their actions and results based on objective data. KPI targets should be set on the basis of such analysis, rather than wishful thinking. To that end, normative thinking is required.

Normative thinking is an approach to economics that incorporates value judgements and opinions—it asks what is desirable in which cases. This approach must be backed by a theoretical foundation.

For example, when a community has high income levels, the amount of consumption there must also be large. When the proportion of elderly people in the total population in a region is large, the proportion of people requiring nursing care there must also be large. Based on normative thinking, let us create a chart that shows the relationship between income and retail sales in Ehime Prefecture's municipalities in 2015 (Figure 1). Matsuyama City was excluded from the chart because of the disproportionate scale of its population and retail sales. The straight line, which is known as a regression line, is considered to be a reference line for the relationship between income and retail sales in Ehime Prefecture's municipalities.

The chart indicates that in Niihama City, the amount of retail sales is small relative to the income level, while it is large in Masaki Town. Why do the figures for those cities deviate so far from the reference line? It is not that Niihama City is located near municipalities where there are large retail stores. Niihama is a manufacturing industry city where Sumitomo group companies are located and where there is a substantial number of married workers living separately from their families. We may presume that those workers remit much of their income to their families living in other regions while they locally spend a small amount of money relative to their income level. In this case, the policy action that should be taken is to create a favorable living environment that would encourage workers' families to relocate to Niihama. To that end, it is essential to consider distinctive support measures for childcare and housing. On the other hand, the chart indicates that although Masaki Town is a suburban region from which many workers commute to Matsuyama City, the consumption in the town is large relative to the population size. This is explained by the presence of a large commercial complex attracting consumers from outside the town.

The Regional Economy Society Analyzing System, or RESAS, provides valuable data for the analysis of local economies. It clarifies the amount of money that flows into or out of a local economy during the cycle of production, distribution and expenditure. However, it does not tell us what solutions should be applied to problems. For that, we need a model based on normative thinking.

Coordinating Urban Planning and Economics

When you hear of the term "urban policy," you may think of specific policy measures for community development implemented by national or local governments. However, this term refers to policy planning for the purpose of creating a comfortable community both to live and work in. Urban planning, which includes such activities as formulating regulations governing construction and land utilization, is one specific way of doing that.

The compact city initiative, which has recently been adopted in various regions of the globe, is a method of urban planning which it is similar to community development, which incorporates cultural and societal aspects into the urban planning framework which mainly focuses on physical infrastructure in terms of road conditions, landscape, and land utilization. Urban planning does not pay close attention to activities that are important for community development, such as promoting community vitality and industrial development, but community development and especially the compact city initiative address these important topics for community health.

For example, in the majority of cases, land utilization regulations are designed in a manner which facilitates the status quo without examining how real estate value may be affected by regulatory measures. In fact, land utilization regulation is presumed to be unlikely to increase land value. That is because of the possibility that the regulation may rule out land utilization by the potential user who may create the highest value from the land. However, that presumption is conditional on the absence of external diseconomies for land users. If regulation reduces external diseconomies, land value may increase in some cases due to improved conditions. This would have a significant impact on local economic activities and communities' revenue-earning power.

It is widely acknowledged that the compact city initiative as an urban planning approach is essential to community development in the forthcoming era of the shrinking and aging population. However, the compact city initiative does not give us a clear idea of how local economies may change. To make that clear, it is necessary to introduce urban economic analysis into the urban planning approach. For example, it is necessary to consider what kind of spatial arrangement is suited to creating new jobs in a compact city. When considering urban policy from the viewpoint of local industrial development, which must take into consideration which industries should be prioritized and how the revenue-earning power can be developed, it is essential to coordinate the urban planning approach with urban economics.

What kind of land utilization will help to invigorate the whole of a local economy? When we consider this question, it becomes clear that urban planning, which focuses on land utilization, and urban economics, which focuses on industrial development, must be somehow integrated. Therefore, when we engage in urban policy planning in the future, we must consider how to enhance the value of the community through land utilization, and this requires the use of an urban economics analysis approach that leads to industrial development. Meanwhile, from the viewpoint of industrial development, in order to increase the value added of the community, it is important to consider not only how to attract companies, which corresponds to capital investment policy, but also how to attract excellent talent, which corresponds to human resource investment policy. Until now, urban policy measures based on urban planning and measures based on urban economics analysis have not necessarily been harmonious with each other. However, if policymakers want to make communities more attractive places both to work and live in, it is essential to coordinate the urban planning and urban economics approaches.


Policymakers need to map out the vision of a desirable community based on accumulated data and information, promote the vision among citizens, business operators and local government and consider what should be changed in what way. To that end, it is essential to analyze the vision, which is the ultimate goal, based on normative thinking. That is the backcasting approach to community development—first define the vision of the future and then work backwards to figure out what should be changed and in what way in order to realize that vision.

Note: This article was adapted from the book Machizukuri Kozokaikaku II [Structural Reform for Community Economic Development II] (Nihon Kajo Publishing Co., Ltd.), which was published in late February 2019

May 30, 2019

July 10, 2019