Perverse Incentives Prevent Villages from Becoming More Economically Efficient
From first sight, Yomitan, on the northeastern coast of Okinawa's main island, is a rather odd village. Among the small plots of sugarcane fields are five or six-stories-tall apartment blocks that would not be out of place in any major city in the world. Instead of rustic local eateries, its coastal areas and main streets are lined with luxury resorts and high-end restaurants that cater to holidaymakers from across Japan and the world beyond. With so many guesthouses and shops in the village, it is difficult to imagine anyone actually making a living doing anything related to farming.
In fact, it is odd that Yomitan is officially designated as a village at all. With a population in excess of 40,000, it fulfills all the requirements for being promoted to city status. Indeed, as locals with proudly point out, Yomitan is the Japanese village with the largest population. There are many cities across the country that have a larger population than this village. Yet, the Yomitan village council has repeatedly voted against motions to upgrade the village to a city, preferring to continue its work as a village rather than getting the prestige associated with being a city.
What lies behind this administrative oddity is a set of perverse policy incentives that give concrete benefits to officially designated villages like Yomitan. When asked about the subject, a resident who moved from Tokyo quickly lists a few. Villages do not need to have police bureaus, saving the local government tons of money. Residents can get away with driving without licenses and parking anywhere, all the while getting all the subsidies paid out to farmers across the country. Less cost for governing, more income from subsidies, and relaxed rules in daily life. What is there not to like about the village status?
But while gaining all the short-term benefits, the villagers are ignoring the bigger picture and missing out on all the long-term benefits that come from ridding themselves of the village status. In a Japan with a declining and aging population, labor-intensive sugarcane farming as practiced traditionally in Yomitan clearly is not a moneymaker of the future. Yet, by retaining the village status, Yomitan locks up farmlands that can be better used more efficiently as residential real estate that feed the growing population of tourists and retirees seeking sea and sun in this corner of Okinawa.
Moreover, the very fact of being labeled a village prevents places like Yomitan from attracting the young and dynamic people that can energize the local economy by coming with innovative ideas to further draw in visitors and better monetize the tourist traffic. The local youths, in particular, are deterred by having to be associated with being from a village, instead choosing more urbanized southern coast of Okinawa to develop their careers, if not outright decamping to major cities of the main Japanese islands. The mere image of the village hurts Yomitan just as much as its administrative status helps it.
In essence, the oddity of a densely populated place like Yomitan staying a village is driven by a set of perverse incentives that reward shortsightedness among the local residents. Residents think they can get the best of both worlds: lower costs and higher income for being a village, all the while presenting the place as a rural idyll that would be a magnet for tired urban white-collar workers. Unfortunately, they might get neither in the long term. As rural subsidies are cut back, villagers are stuck with unproductive farmlands and lack of young people that can structurally change the local economy.
A better way forward requires the government to give up on the idea that some villages need to be protected, by generous doses of subsidies if needed. This is an issue not just in Japan but across the world. As long as villages are rewarded for staying a village, there is little incentive for villagers to think of more efficient ways that they can use their greatest assets, plenty of underutilized lands and natural beauty, to create new industries that can revitalize the area for sustained future growth and development. Even if some diversifications are made, as in the case of Yomitan with tourism, they will remain halfhearted as long as people know they have subsidies to fall back on.
Getting rid of the subsidies immediately will be both politically and economically difficult. But gradual reform is possible. Villages will economic potential to succeed in non-farming-related activities can be weaned off financial support, all the while assigned business development professionals that can better turn the potential into real profits. By first revamping only villages with more chances of success, other villages can then be encouraged to repeat the success of others, lowering the hurdles of future reforms. Perhaps in the not-so-distant future, such reforms can get all "villages" to look like the luxury-apartments-and-shops-filled main streets of Yomitan.
In fact, it is odd that Yomitan is officially designated as a village at all. With a population in excess of 40,000, it fulfills all the requirements for being promoted to city status. Indeed, as locals with proudly point out, Yomitan is the Japanese village with the largest population. There are many cities across the country that have a larger population than this village. Yet, the Yomitan village council has repeatedly voted against motions to upgrade the village to a city, preferring to continue its work as a village rather than getting the prestige associated with being a city.
What lies behind this administrative oddity is a set of perverse policy incentives that give concrete benefits to officially designated villages like Yomitan. When asked about the subject, a resident who moved from Tokyo quickly lists a few. Villages do not need to have police bureaus, saving the local government tons of money. Residents can get away with driving without licenses and parking anywhere, all the while getting all the subsidies paid out to farmers across the country. Less cost for governing, more income from subsidies, and relaxed rules in daily life. What is there not to like about the village status?
But while gaining all the short-term benefits, the villagers are ignoring the bigger picture and missing out on all the long-term benefits that come from ridding themselves of the village status. In a Japan with a declining and aging population, labor-intensive sugarcane farming as practiced traditionally in Yomitan clearly is not a moneymaker of the future. Yet, by retaining the village status, Yomitan locks up farmlands that can be better used more efficiently as residential real estate that feed the growing population of tourists and retirees seeking sea and sun in this corner of Okinawa.
Moreover, the very fact of being labeled a village prevents places like Yomitan from attracting the young and dynamic people that can energize the local economy by coming with innovative ideas to further draw in visitors and better monetize the tourist traffic. The local youths, in particular, are deterred by having to be associated with being from a village, instead choosing more urbanized southern coast of Okinawa to develop their careers, if not outright decamping to major cities of the main Japanese islands. The mere image of the village hurts Yomitan just as much as its administrative status helps it.
In essence, the oddity of a densely populated place like Yomitan staying a village is driven by a set of perverse incentives that reward shortsightedness among the local residents. Residents think they can get the best of both worlds: lower costs and higher income for being a village, all the while presenting the place as a rural idyll that would be a magnet for tired urban white-collar workers. Unfortunately, they might get neither in the long term. As rural subsidies are cut back, villagers are stuck with unproductive farmlands and lack of young people that can structurally change the local economy.
A better way forward requires the government to give up on the idea that some villages need to be protected, by generous doses of subsidies if needed. This is an issue not just in Japan but across the world. As long as villages are rewarded for staying a village, there is little incentive for villagers to think of more efficient ways that they can use their greatest assets, plenty of underutilized lands and natural beauty, to create new industries that can revitalize the area for sustained future growth and development. Even if some diversifications are made, as in the case of Yomitan with tourism, they will remain halfhearted as long as people know they have subsidies to fall back on.
Getting rid of the subsidies immediately will be both politically and economically difficult. But gradual reform is possible. Villages will economic potential to succeed in non-farming-related activities can be weaned off financial support, all the while assigned business development professionals that can better turn the potential into real profits. By first revamping only villages with more chances of success, other villages can then be encouraged to repeat the success of others, lowering the hurdles of future reforms. Perhaps in the not-so-distant future, such reforms can get all "villages" to look like the luxury-apartments-and-shops-filled main streets of Yomitan.
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