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COMMENTARY: WHY JAPAN WON'T ACT TO SAVE ITSELFFrom the ashes of World War II, Japan built the world's second-largest and arguably most competitive economy. It seemed unstoppable, and books such as Ezra F. Vogel's Japan as Number One: Lessons For America fueled the fear that Japan Inc. would conquer all. Now, students of Japan are busy figuring out the puzzle of how it has stumbled into crisis and why it seems unable to dig itself out. Some of the best explanations come from the ''revisionists.'' These theorists first explained how the Japanese political economy, operating by different rules from orthodox free-market economies, is incompatible with global free trade. Their ideas explained why Japan would resist all moves to open its markets. Today, revisionists point to how Japan's uniqueness has gotten the country into trouble. Probably most telling is the argument put forth by Dutchman Karel Van Wolferen. In his seminal The Enigma of Japanese Power, published in 1989, van Wolferen says that Japan's government lacks any center of accountability. Conflicting bureaucracies contend for power. Meanwhile, politicians remain toothless. One reason is that parliamentarians can afford only about three staffers each, vs. dozens for a U.S. congressman. Even the Prime Minister's staff is on loan, mainly from the bureaucracy. This means that in a Confucian tradition where bureaucrats count the most, politicians suffer an information deficit. Asahi Shimbun, Japan's most influential daily newspaper, recently did a study showing that Prime Minister Ryutaro Hashimoto met more often during the last fiscal year with the finance vice-minister than with anyone else. The implication: Hashimoto is getting most of his intelligence on economic affairs, in effect, from a vested interest. Since the Ministry of Finance (MOF) is devoted to fiscal discipline, its bureaucrats have repeatedly advised Hashimoto to raise taxes. Lacking staff advisers to hammer out an alternate policy, he took the MOF's advice. The resulting tax hikes stopped Japan's growth in its tracks last year. The MOF's devotion to fiscal rigor is in general a fine guiding principle. The trouble is, the MOF has another, unofficial priority: protecting the financial industry it is meant to regulate. So the banks' disclosure requirements remain minimal. And, in return for being wined and dined, MOF bureaucrats forewarn the institutions under their care of impending audits. The result: Learning the true state of bank balance sheets is almost impossible. And the MOF has hesitated to disclose the size of the bank problem or release funds to solve it. So the debt crunch just gets worse. Surely, voters could throw out gutless politicians and vote in a government that stands up to the bureaucrats. But Japan's uniqueness gets in the way here as well. Voters don't cast ballots according to issues. Instead, they vote according to longtime personal contacts. At least 25% of Japan's Diet members are second-, third-, or fourth-generation holders of the same seats. They get votes because of who their ancestors were, not their positions on issues. POOR VISION. What's more, the Japanese are preternaturally conservative. Even while the signs of financial distress mount, they lack the sense of crisis that might provoke some action. Since they sit on top of the world's largest household-savings trove of $10 trillion, that may not be surprising--even though the debt crisis worsens every day. Besides, opposition parties haven't offered a much better vision than that of the long-ruling Liberal Democratic Party, so an increasingly apathetic and risk-averse electorate continues to vote for it. The web of personal connections in politics is reproduced in corporate practices. In the notorious keiretsu system of cross-shareholdings, related companies hold shares in each other, propping up stock values. Banks belonging to the keiretsu keep lending to weak members. Letting these banks fail would cause such a shock that the MOF is terrified of letting that happen. Politicians who cannot rule. Bureaucrats who cannot regulate. Voters who do not care. Corporations that do not change. It looks pretty dismal for Japan. ''There are differences among capitalist systems that are not trivial and that under the right circumstances can blow the system apart,'' says Chalmers Johnson, one of the leaders of the revisionist school. Japan's uniqueness is now turning into a dangerous liability.
By Robert Neff RELATED ITEMS
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Updated May 7, 1998 by bwwebmaster
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