RIETI and the Reischauer Center of Johns Hopkins University jointly organized a roundtable (a workshop-like meeting) on relations between Japan and the United States as seen from the viewpoint of budget formulation (see program file).
A country's fiscal affairs form the base of its national policies, and as such, should be discussed across all fields. However, in both Japan and the U.S., it is difficult to look at things from a pluralistic viewpoint because researchers and policymakers tend to concentrate their energy on specific fields.
Budget formulation is an indispensable element for deepening understanding of the two countries. Indeed, when the bilateral relationship is considered through the axis called the budget, we can see the emergence of various problems. As this roundtable was jointly organized with the Reischauer Center of Johns Hopkins University, we decided to first take up the areas of defense, diplomacy and trade, which are familiar topics when discussing Japan-U.S. ties.
When the idea for this roundtable was first presented to the experts of each field, the initial reaction we got from both the Japanese and the U.S. sides was; "Although the budget is an important matter in my field, there has never before been an opportunity to deeply consider it." This made us even more keenly aware of the importance of discussing the issue of public finances from a pluralistic viewpoint, and that led to the realization of the roundtable.
It was very challenging to organize a pluralistic roundtable, and one in which the discussions focused on the problems of each field from the budgetary viewpoint. It was also unknown what we would discover as a result of the deliberations. Therefore, we positioned the roundtable as being a preparatory stage where we would seek the possibility of holding future conferences on the topic, and presentations were made with the speakers preparing no final papers. Mieko Nakabayashi, the organizer, led the moderation, under the kind supervision of Professor Nathaniel Thayer of the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University.
Upon the conclusion of the roundtable, the organizer felt that the following points were gained from the day's talks.
1. The subject of budgets was a common topic of interest for all.
Despite the fact that the day of the roundtable saw Washington D.C. hit with a snow storm that forced most schools and government entities to close, many people, including officials from the State Department, staffers of the U.S. Senate Committee on Banking, Housing and Urban Affairs and think tank researchers, came to Johns Hopkins University, which was the venue for the event. While it is the norm for people versed in specialized fields to attend meetings on particular topics, experts from a wide range of fields attended the roundtable and introduced themselves to each other, making it a unique gathering.
2. Not only did participants transcend national boundaries, they also went beyond their specialized fields.
The experts in each field are not well accustomed to the budget formulation process of their own country, and what is more, there are extremely few opportunities for them to learn about the budget formulation process of other countries. This roundtable was organized with the aim of promoting international understanding, but it became a starting point to have experts think about the budget formulation process from a pluralistic viewpoint. It is hoped that the participants will continue to keep in touch with one another beyond national boundaries and fields of specialties.
3. The political factors affecting a country's finances are a problem common to both Japan and the United States.
Japan and the U.S. are both democracies that have different budget formulation processes. The cycle of their fiscal years is different (Japan's fiscal year begins in April, while that for the U.S. starts in October), as is the role played by their legislatures. However, what they do have in common is that budget formulation is greatly tied in with politics and established systems. It is the fate of a democracy to implement reforms whenever vested interests become too rigid and harmful to majority. In this sense, Japan lags behind the U.S. when it comes to debate over how to reform the budget formulation process. It is necessary for Japan to study the issue of public finances from its framework as a part of the nation's system.
In terms of budgeting, we were able to confirm the existence of both politics and established systems in each of the fields discussed at the roundtable. Regarding trade, the issue of subsidization is a topic that has been taken up at many global trade negotiations. The U.S. Congress this year enacted the Farm Security and Rural Investment Act which budget cost was estimated to be more than 9 billion dollars in total. Meanwhile, Japan has begun debate on the pursuit of free trade agreements with other Asian countries, in defiance of pressure from vested interests. It is the norm for industries that have traditionally been supported by budgetary subsidies from the government to lose their own competitiveness. The reason such subsidies continue despite this is because of the influence wielded by politics and established systems, and it is also proof that they have become inflexible.
On the diplomatic front, the prime example of budgetary outlays is governmental aid such as Official Development Assistance (ODA). In the U.S., more than 30 governmental organizations are involved in forming the foreign assistance budget. In Japan, the process involves more than 10 ministries, agencies and other government bodies. The ODA budget formulation process is very difficult for many to comprehend, and in the U.S., it is an everyday thing to see confusion, even in Congress, over the budget allocation details. Furthermore, in both Japan and the U.S., politicians intervene in the process. At the same time, it is always ODA that is the first to fall victim to budget cuts in times of strict fiscal restraint. However, in the area of ODA we can see cooperation between Japan and the U.S. on such issues as the war against terrorism and the reconstruction of Afghanistan, and this contrasts to their relationship in the area of trade.
On the security front, the U.S. military budget is rising sharply after the terror attacks. On the other hand, the ratio of Japan's defense budget to its gross domestic product has changed very little for decades. This shows that there has been no major change in Japan's security policy. While cooperation on the fiscal front in line with the Japan-U.S. security treaty, such as host nation support for U.S. military facilities in Japan, is an indication of the closeness of the two countries, if there were a military strike on Iraq in the near future, for example, the true value of the bilateral alliance may be put to the test on Japan's budgetary front through the need for funds to assist the U.S. and to rebuild the country damaged. This is an area that is closely linked with diplomacy, and in Japan both politics as well as the final judgment of the Ministry of Finance will set the tone for any decision on the matter.
While perpetually affected by politics and the events of the world, budgets are formed within a certain framework. Through study of the budget formulation process, the roundtable once again showed the importance of taking the problems faced in various fields into consideration. Furthermore, we were able to reconfirm the magnitude and importance of the issue of reforming the process in line with the times and economic development. This is a common issue for both Japan and the U.S., and it is hoped that studies into fiscal matters will also help contribute to a better bilateral relationship and mutual understanding. If there is an opportunity to hold a conference in the future, I would like to plan more probes into each specific policy and its relationship with the budget formulation process.
December 2002
