The water supply industry is owned and managed directly by the local governments in Japan. The water administrators undertake the day-to-day management of the water supply but can not make decisions on fundamental policy issues. These must be made by the head of the local government through the local assembly. So the raising of water rates can not avoid political intervention. The revision of water rates usually follows a course from a deliberative council to the head of the local government to the municipal assembly.
The deliberative council usually consists of ordinary consumers, representatives from labor unions, and men of learning and experience. Members must start their deliberations on the basis of worsening water supply finances, but usually only representatives of labor unions develop ideological opposition. Sometimes they even support increasing public expenditures because of their ignorance of the self-paying principals in water supply industry management.
In the municipal assembly, leftists from the socialist and communist parties typically offer severe opposition to the raising of water rates based on their ideological point of view, too, and sometimes despite their knowledge of the difficult situation in the water supply industry. The political relationship between the head and the members of the municipal assembly is paramount. If the head is a conservative and the majority of the assembly are reformists, bills to raise the water rates will be very difficult to pass. In such cases the proposed increases are often reduced and implementation is delayed, though an overall rise in rates is not ruled out. Of course it can not be enforced when local elections are near because raising the water rates is never favorable for candidates.
There are many other political considerations as well. The increases must usually be under thirty per cent to pass the assembly without much difficulty. The rates are usually set up on a sliding scale, with the largest users paying the most, but the basic charge is kept low, even though most revenues come from domestic and small-industry sources and because the politicians need their votes. For those who use extremely small amounts, the raises are minimal. For public bathhouses, the raises are also small, though they use a large volume of water, because of public health considerations.
In the case of a city in the Kansai District, the consumption tax was included in the water rates when it started in 1989 because the mayor was a conservative and a member of the Tax Commission, but immediately after another mayor, a reformist, was elected the consumption tax was excluded from the water rates and was payed as a part of public expenditures.
The process of revising the water rates abounds with political considerations which interfere with smooth increases. This must be the destiny of the water supply industry as a public utility and a local government enterprise.

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Market System, Planned System and Social System
The mixed economy of Japan is somewhat different from the European one. Social and informal systems play an important role, for examples, in providing ‘welfare’ services and managing firms. It may be called a mixed economy of three systems, namely, (1) the economic system (market system), (2) the political system (planned system) and (3) the social system (informal system) .
Life-time Income Maximizatien Hypothesis: Optimum Share of Wages
The share of wages and the ratio of dividends (the pay-out ratio of profit) in large companies in Japan have been low. These practices are not rational in the short term for either employees or share holders. However, they are likely to choose to maximize the present value of wages (including fringe benefits) and profits (including capital gains) not in the short-run but in the long-run. Equations (1) - (3) below present a simplified model to show that the modest share of wages is accepted as a result of the rational optimization behaviour of employees. In a large company the so-called ‘larger pie theory’ is more acceptable in Japan than in European countries. This is one of the reasons to explain why the share of wages in large Japanese companies, where lifetime employment is the practice, has been relatively low.
Theoretical Model
Assuming a two-period life-cycle model, the present value of employees' total compensation, including bonuses and fringe benefits, is:
W^*=n₁v₁Ω₁+{Ω₁v₁n₁+n₂ΔvΩ₂/(1+γ) (1)
Assuming further that the saving = investment depends solely on profits, which in turn depend on the share of wages, the increase of value added (ΔV) depends on:
ΔV=Δvn₂=s_pσ(1-Ω)v₁n₁ (2)
As we assume a simplified two-period model, the present value of lifetime compensation can be obtained by combining (1) and (2) .
W^*=Ω₁v₁n₁+ {Ω₁v₁n₂+Ω₂s_pv₁σn₁× (1-Ω₁) n₂} / (1+γ) (3)
Differentiating (3) with respect to Ω₁ assuming Ω₁=Ω₂, the optimum share of wages in the sense that maximizes the present value of employees' lifetime income is deduced as equation (4) .
Ω₁^*=1/2[1+1/σs_pn₂{(1+γ)+n₂/n₁}] (4)
We may conclude that the optimum share of wages depends mainly on the following variables. Functions are indicated as increasing (+) or decreasing (-) .
(1) n₂/ (n₁+n₂) ……the length of expected service period (-)
(2) γ: the time discount rate (+)
(3) s_p: the propensity to save profit (-)
(4) d: the pay-out ratio of profit (+)
(5) s_w: the saving ratio of employees (+)
(6) σ : the productivity of investment (-) and the rate of productivity increase (-)
W^*: the present value of lifetime income,
r : the time discount rate,
n₁: the length of the young period,
n₂: the length of middle and senior age period,
Ω: the share of wages including fringe benefits,
V: the value added per employee,
s_p=1-d: the savings ratio of profit,
d: the pay-out ratio of profit,
σ: the productivity of investment,
Ω^*: the optimum share of wages,
W=wn, V=vn
Subscript 1 denotes young age period and subscript 2 denotes middle and senior age period.

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