The Power to Compete: An Economist and an Entrepreneur on Revitalizing Japan in the Global Economy

Chapter 4The Power of the Low-Cost State

The High Cost of Governance

Hiroshi

I want to discuss the high-cost structure of the Japanese government. I have given a lot of thought to the issue of cost structure. One of the biggest challenges to running a company is cost cutting for headquarters expenses, specifically personnel and administration costs.

At Rakuten, we have our headquarters, sales division, and development division, and within the headquarters are the accounting division and the office of the president, among other divisions. In order to cut our headquarters expenses, we established a key performance indicator (KPI) to keep overhead under 100,000 yen per employee.

A national government is roughly like the headquarters of a company, so it goes without saying that the lower the expenses, the better. I believe that an index is needed to show the best infrastructure that can be created at the lowest cost, but the government of Japan has never once considered this. Government officials only care about protecting their jobs, and they constantly search for ways to avoid anything that reflects negatively on what they've done in the past.

When trying to keep headquarters expenses in check, it's important to be closely aware of the expenses. The annual cost of providing government services in Japan in 2010 reached 23.1 percent of our GDP. Other developed countries like the United States and South Korea come in at 20.3 percent, while Germany is at 21.2 percent. The United ...