Sunday, July 17, 2005

Economics in the view of Japanese bureaucrats

People outside Japan seem to believe that, as Japan now has the world's second biggest economy, the Japanese government relies on the wisdom of economists to manage its economy.

This is absolutely wrong.

A good example came out on an article of Yomiuri Shinbun, Japan's most-read (and a bit right-wing) newspaper today. (Special thanks to Hayashi-san for calling attention to this article.)

Three professors of economics/statistics in Japan - Takamitsu Sawa at Kyoto University, Naosumi Atoda at Keio University, and Toshihiko Igawa at Meikai University - have shown that statistically there is no correlation between the bidding prices for public works projects and the quality of such projects, counterarguing the view held by the Ministry of Construction and Transport that open bidding for public works projects is not appropriate as it deteriorates the quality of such projects.

What's "fascinating" is the comment by the Ministry official on this research result:

"The ministry holds that there certainly is a relation between bidding price ratios and evaluation scores. Quality is low when bids are low. We have no plan to further examine the data (used for the analyses)."
It's not a counter-argument at all. It's like the Ministry doesn't believe such an econometric/statistical analysis to evaluate government policies.

See? Economic policies in Japan are made by those bureaucrats who know nothing about economics.

Well, the research done by the Japanese econometricians and statisticians is itself not a good reason to believe that open bidding does not sacrifice the quality of projects: the data used in the analysis is about what happened under the system of "bidding among designated companies", not under open bidding. Presumably, the relationship between bidding prices and the quality of projects undertaken will change if open bidding is introduced. It may still be the case that what the Ministry argues is correct. Alas, there is no one in the Ministry who is exposed to econometric analysis enough to counter-argue in such a way.

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