The Public Service Governance in Japan:
Is an NPO an Agent or a Partner? *Kosuke OYAMA, Ph.D.
Professor of Public Administration and Policy
Department of Political Science, Faculty of Law
Keio UniversityJAPAN1. The Meaning of “From Government to Governance”
The purpose of this paper is to present an overview of the development of the Japanese
nonprofit organizations (NPO) 1 and their delivery of public services in partnership withgovernment, to evaluate their present situation and to consider their likely future direction
from the perspective of the concept of governance.
“From Government to Governance” is the title of our panel. It is useful to clarify what wemean by governance. R. A. W. Rhodes (1997: 15) defined governance as “self-organizing,

interorganizational networks characterized by interdependence, resource exchange, rules of thegame and significant autonomy from the state.” He then asserted that a “hollowing out thestate” had occurred and questioned the validity of the state-led Westminster model as a
descriptor of reality by noting the emergence of networks in the United Kingdom among themany public service providers at both the local and global levels, including the National HealthService Trusts and the European Regional Development Fund (ERDF) of the European Union.
What, precisely, is the role of government in governance? Does “from government togovernance” mean that the state has no role or responsibility in providing public services? Or is
it a matter of the state having a different role? “From rowing to steering” was the slogan chosen
in the US National Partnership for reinventing Government or National Performance Review(NPR) in its discussion of “reinventing government.” The organizational separation between
policy planning and its implementation is the main concern of the New Public Management(NPM). In response to the increase in the number of and increased variety of public needs
under conditions of governmental budgetary deficit, the government and the public or first
sector has no choice but to stop delivering public services directly and either abandon, privatize,or contract these out (outsource) to actors in the private (second) and non-profit (third) sectors.
Under arrangements of this kind government finances service providers and coordinates theiractivities through overall planning.

*I would like to appreciate Professor Lonny E. Carlile of the University of Hawaii at Manoa for checking andrevising my English kindly.
1 A variety of terms are used to refer to NPO or “third” sector: non-governmental organizations (NGOs),

voluntary organizations, community based organizations (CBOs), citizen groups, nonprofit sector, voluntary
sector, civil society, etc. Some of them have ideological connotations. The Liberal Democratic Party (LDP) of
Japan, for instance, after a great amount of debate changed the name of the Bill to Promote Citizen Activities
to the Law to Promote Specified Nonprofit Activities (the NPO Act) in the upper house of the Diet (Hatsutani
2001: 314-318). We will define NPOs here as “nongovernmental organizations constituted so that they cannot
distribute net profits (the profits remaining after costs are deducted form receipts) to interested parties”(Yamauchi, 1999: 2). Hatsutani (2001: 10-15) characterizes NPOs as being nonprofit, nongovernment (private),and voluntary.

It is necessary to better elaborate the character of government-third sector relations. Is
third sector a mere agent of government or is it a partner? What does it mean to be a partner oran agent of government? What are the differences involved in the area of accountability andresponsibility?

2. Government-Nonprofit Relation Models: Dual or Collaborative?
Gidron et al (1992: 16-20) presents four models of the government-third sector
relationship: the government dominant model, the dual model, the collaborative model andthird sector dominant model. In the government dominant model, government plays thedominant role in the financing and delivery of human services. The model is recognizable in theconventional notion of the “welfare state.” At the opposite extreme is the third sector dominantmodel. in which voluntary organizations play the dominant role in the funding and delivery ofservices. Given the prominence of the private sector and market in this model, an alternative
term for this model could be the “market model.” With regard to the function of regulation,
government and market, respectively, constitute the primary regulatory mechanism in the twomodels.
In between these two extremes are the dual and the collaborative models. In the dual
model, both government and nonprofit sector are involved in financing and delivering humanservices, but each in its own separately defined sphere. There are two submodels here, thesupplement submodel and the complement submodel. In the former, nonprofits deliver thesame kinds of services as government but only to clients not reached by the state. In thecomplement submodel, nonprofits fill needs not met through government activity. In either casethe distinguishing feature is the existence of two sizable, but relatively autonomous, systems ofservice finance and delivery.
In the collaborative model, by contrast, government and the third sector work together
rather than separately. Typically, government finances third sector organizations that provide
services. We can place the United States in this category. We can subdivide this model further
according to the extent of service provider discretion involved. In a case where nonprofits
merely function as agents of government program administrators in the area of policy
implementation with little discretion or bargaining power we have what can be termed the“collaborative-vendor” submodel. On the other hand, where third-sector organizations retain aconsiderable amount of discretion in managing programs and during policy implementation orin policy planning we have a case of what might be termed a “collaborative-partnership”
submodel. In the collaborative partnership submodel regulation is carried out throughgovernment and voluntary sector “mediating structures.”
As in the proverb “he who pays the piper calls the tune,” the collaborative-vendor model
might be assumed to be the most common form of government-third sector relations. Gidron etal (1992: 19-20), however, suggest that given the political clout of third sector and the difficultythat large government agencies face in monitoring contractors, the collaborative-partnershipmodel may actually be more common in practice. The resulting situation is akin to that which
has been characterized as “welfare pluralism” (Taylor, 1992: 150) or, alternatively, “third-party
government” (Salamon, 1995: 18).
The next question is how might we best characterize the present situation of the Japan’s
NPOs in the area of public services delivery? Does the government-NPO relationship fit thedual or the collaborative model? Do NPO activities supplement or complement those ofgovernment and are we looking at a role of vendor or partner role? These questions will beconsidered in the following sections.

3. The Present Situation of Japanese NPOs: Increasing Numbers of NPO
Corporations and Public Interest Corporations Controlled by Government
The Law to Promote Specified Nonprofit Activities or the NPO Act was enacted in March
1998 and went into effect that December. This was an epoch making development because the
new law made it possible for many citizen and voluntary groups to be granted status as an
NPO corporation (NPO hojin). However, Japan still has no all-encompassing legal structure forchartering of nonprofit organizations.2 The number of NPO corporations has been increasing.3
These NPO corporations vary widely in size and can be found in such fields as health, welfare,education, environment, human rights and international cooperation. In general, they aresmaller and more independent of the government than the traditional koeki hojin or public
interest corporations. Regrettably there is at present insufficient data to draw firm conclusions,but it does appear that they generally supplement and complement governmental services andthus act as partners of government.
Public interest corporations (koeki hojin) based on Article 34 of the Civil Code adopted in
2 The NPO Act was written as a “special exception” to Article 34 of the Civil Code, the article that provides thelegal foundation for public interest corporations (koeki hojin) (Yamamoto, 1999: 122).
3 Japan’s national and prefectural governments have so far certified 4,060 of the 4,811 accepted applications fordesignated nonprofit activities corporation status. Only 20 were rejected. But citizen volunteer groups (shiminkatsudo dantai) without corporate status are much more numerous. There were 87,928 such groups in
September 2000. See http://www5.cao.go.jp/98/c/19981217c-npojyuri.html/ andhttp://www5.cao.go.jp/seikatasu/2001/0409shiminkatsudou/main.html/.

1898 are generally bigger and more interdependent vis-a-vis government than are the NPO
corporations and, in their relationship with government, tend to act as an agent or vendor
under the control of government. Salamon and Anheier (1996: 92), in a comparative study,
concluded that Japan was the most restrictive of among the developed countries with regard to
the difficulty involved in establishing a nonprofit corporation. Even if an NPO meets the
stipulated requirements for becoming a koeki hojin, it is difficult to obtain permission from thegovernmental agency overseeing the field in which the organization hopes to operate and toobtain the required financial assets, which are substantial. Moreover, because most ministries
have laws of their own that stipulate the kinds of NPO they will authorize and in fact prefer acompartmentalized system, most NPOs must seek permission under the separate provisions of
the government agency in charge. Therefore, the Japanese NPO sector is separated into a
number of discrete subsectors built around a set of field-specific laws that permit the formationof not-for-profit institutions only for the performance of relatively narrowly defined functions
and even then only with the permission of the designated governmental ministry.
As a result of these operational limitations, the nonprofit sector in Japan has remained
small in relative terms, as shown in Table 1. The sector represents just 2.5% of total
employment and only 3.2% of gross domestic product in Japan. However, the scale of Japanese
economy is relatively large and thus the numbers for employment and expenditure are big inabsolute terms. For instance, Japanese NPOs employ more people than do their counterpartsin Germany, France, Italy, and the U.K. and employ more than three times as many as Japan’s
two largest private employers, Hitachi and Toshiba.
Education and health account for two-thirds of total nonprofit expenditures. Almost all of
the NPOs in the former are gakko hojin or private school corporations, and almost all of thelatter are iryo hojin or medical corporations. In social services, NPOs “play a more
supplemental role, buttressing state-provided aid in certain narrowly defined areas, such as
residential care for the elderly and day care for children under five. The specialized social
welfare corporations (shakai fukushi hojin) active in this field therefore operate as
quasigovernmental corporations”(Salamon and Anheier 1996: 94). As a general rule, if thesupervising government agency has a direct interest in forming an NPO, the NPO will beapproved but if not permission will not be granted.
Despite its critical role in to creating public interest corporations, the Japanese
government has not been their principal source of financial support. Rather, 60% of nonprofit
revenue comes from private fees and charges, the highest of any country examined in Salamonand Anheier’s study. This is nearly equal to the total tuition receipts of private universities andschools. Government support is considerably more important outside of education. NPOs inhealth and social services, for instance, receive most of their income from the public sector. Only
1% of nonprofit income is from private charitable contributions. One reason for this may be thelimited tax deductions granted for such contributions in Japan.
Although Salamon and Anheier (1996) suggest that government exercises very strong
powers as a consequence of its authority to grant the permission needed to obtain NPO status,
it would be wrong to conclude from this alone that public interest corporations are best
considered vendors. While the government-NPO relationship is close to that of a vendor in
medicine, health and social services, it appears closer to that of a partner in education. We alsoneed to pay close attention to the role of local governments because they provide more public
services than does the national government.

4. The Reality of Outsourcing by Japanese Local Governments
According to the survey data published in the Nikkei Regional Economic Report (Nikkei

Chiiki Joho, 280: 2-21, 1997), all local governments in Japan outsource projects and do so
because they anticipate cost reductions and because they consider outsourcing as a way torespond to the increasing variety of residents’ needs. As Figure 1 shows, over 40% of local
governments outsourced all of their projects to the private or NPO sector. Approximately 20%
outsourced part of their services, and about 40% maintained direct operations.
Generally speaking, the degree of outsourcing was highest for the least technicallycomplex service: e.g., city hall cleaning, school security, human services such as bathing
assistance services, management for the special nursing homes for the elderly, management of
the day care centers for the aged, and so on. By contrast, the degree of outsourcing was lower
and the frequency of direct operation highest in areas such as car driving, day care andkindergarten management, school janitorial services, school lunch preparation, and city hall
printing. Labor unions appear to be stronger and there appears to be a dearth of private or
NPO organizations that can serve as outsourcing agents in rural areas. It is also interesting tonote that local governments in suburban and new town areas more actively outsource than dothose in central city or more traditional areas.
What effect did outsourcing have? More than 90% of all responding local governments
answered that outsourcing had led cost reductions. More than half (56.4%) answered that thequality of services had remained comparable to those provided through direct operations while
36.9% responded that the quality of service had gone up.

5. The Monitoring and Accountability of NPOs
Just as market and government sometimes fail, nonprofits also sometimes fail. Salamon(1995: 44-48) points out four common types of failures in the NPO sector--philanthropic
insufficiency, particularism, paternalism, and amateurism--and suggests that the government
needs to supplement these, effectively turning government-nonprofit relations into collaborative
relationship. The question that arises is what is the nature of the collaboration or partnership.
If government as funds provider controls the nonprofit and the NPO is also accountable togovernment then it is an agent or vendor. But if the NPO retains discretion, it is a partner
under the definitions put forward by Gidron et al (1992: 19-20). The issue, in other words, is thenature of the monitoring and accountability in the NPOs partnership with government.
If an NPO provides a service with no governmental financing, accountability is not an
issue. But if the government finances an NPO, it needs to be accountable to the government.
When this happens, it is necessary for the NPO as a de facto quasi-government to alter its
values from those of individualism, regionalism, and discretion, to equity, egalitarianism, andrules. Information relating to the NPO will need to be more openly available to the government
and public. In Japan, the Information Disclosure Act of 1999 (effective April 2001) targets
administrative organizations only. As a result, despite the fact that they receive government
funding, independent administrative corporations (dokuritsu gyosei hojin), special corporations(tokushu hojin), and all NPOs--including public interest corporation (koeki hojin) anddesignated nonprofit activities corporations or NPO corporations (tokutei hieiri hojin or NPO
hojin)--are not subject to the law governing information disclosure.4 Some of these, however,are currently undergoing reform.
NPO information disclosure is important not just for government but also for the public.
Scandals involving NPOs, the overseeing governmental agency and politicians sometimes occur.
Such scandals occur because those involved are tempted to benefit their vested interest
networks using illegal methods made possible by the fact that their activities are hidden fromthe general public. For example, the top bureaucrat of the Ministry of Welfare was arrested in
1996 because the social welfare corporation (shakai fukushi hojin) that managed special
nursing homes for elderly in Saitama Prefecture had given him money illegally in return forfavors.

4 However, Article 89 of the Japanese Constitution reads: “No public money or other property shall be

expanded or appropriated for the use, benefit, or maintenance of any religious institution or association, or for
any charitable, educational or benevolent enterprises not under the control of public authority.”

While government has the authority to authorize the establishment of NPOs anddesignated private businesses and oversee the building of facilities for providing public services,
the government also needs to monitor whether the NPO or private company obeys laws
relating to their operations and activities. However, this kind of monitoring sometimes fails as
well. For example, the illegal disposal of industrial waste by private companies has been
increasing recently. The Industry Wastes Disposal Law adopted the Pollution Pay Principle(PPP) but the law had to be amended in 2000 to strengthen the regulation of the activities ofwaste disposal companies used by manufacturers.

6. Conclusion
First, the key phrase, “from government to governance”, means that government is nolonger the decision-maker in the pursuit of the public interest, it is no longer the main providerof public services, and that “self-organizing and interorganizational networks” linking
governments and non-profits are increasing in number. The NPO Act of 1998 has promoted thistrend. Japan’s “aging” society also promotes this. The Public Care Insurance System began
operation in April 2000 and volunteers and private companies to care for the elderly aredesperately needed. Despite the fact that the NPO Act did not provide tax deductions forestablishing NPO corporations, the situation will gradually improved.
Second, according to the models of Gidron et al (1992), government-NPO relations can be
categorized as dual or the collaborative. Given the fact that the NPO corporations andvolunteers are generally small and independent of government, the government NPO
relationship involved seems to involve the supplementing or complementing of governmental
service, or that of a partner. By contrast, public interest corporations (koeki hojin) are often
bigger and more interdependent with government. The relationship tends to be one in which
they serve as an agent of government or a vendor of government services. The advocacy or
think tank function of NPOs in Japan is becoming more important, but is not yet a strong one.
Third, the accountability and monitoring of NPOs and private companies is importantbecause in a governance situation NPOs and private companies are providing public services
and are financed by government and tax payers need to know whether their taxes are being
used effectively and efficiently by them. Information disclosure on the part of NPOs and privatecompanies using public money is strongly needed. The recurrence of scandals and illegal acts inthe process of providing public services shows that the monitoring and accountability system isstill weak.

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