Chapter 20: Decisions, Decisions
Chapter 20: Decisions, Decisions
Prime Minister Hashimoto was intent on fiscal consolidation. In order to control Japan’s sovereign debt which had been increasing since 1992, he made the bold decision to raise the consumption tax from 3 percent to 5 percent on April 1, 1997. The tax hike coincided with the Asian Financial Crisis when Japan was experiencing an apparent economic recovery from the 1990 financial crisis. The country slumped into recession and Hashimoto’s public support decreased dramatically. Hashimoto also made the unpopular decision to approve public funding of $6.85 billion to provide aid to seven of the home mortgage companies (jusen) burdened with masses of bad loans.
The jusen had been established in the 1970s by the metropolitan and top regional banks as non-deposit taking financial institutions which procured funds from the banks to provide loans for mortgages. Since the Government Housing and Loan Guarantee Corporation established in 1950 by the MOC provided mortgages, the retail banks could not compete because of asset liability risks. However, MOF wanted to extend lending opportunities for banks and supported this collaboration. The regulatory bodies at first were prefectural governments but in 1978, MOF took over and, therefore, the jusen were under the MOF umbrella.
Although in the 1980s the price of real estate spiralled, clients’ collateral was rarely questioned by the banks and their affiliates. But when the asset-inflated real estate bubble burst, the losses from bad loans jumped, leaving the jusen effectively bankrupt.
However, the companies were not financial institutions thus their bad loans did not create another financial crisis. Nevertheless, in 1995 the NPL held by banks which had extended their real estate loans during the 1980s, amounted to $4-5 billion (¥100 = $1) and the banks could not sustain the losses from the liquidation of the jusen. In order to stem the losses of individual depository institutions, the financial system and the enormous burden on tax payers, the MOF pushed through relief financing, avoiding formal court hearings. Furthermore, the LDP was reliant on the substantial donations from farmers whose cooperative banks also funded the jusen.
In mid-1998 the LDP suffered a major loss in the Upper House election, forcing the prime minister’s resignation. Keizo Obuchi, an LDP politician succeeded Hashimoto as Prime Minister but retained him as the head of administrative reforms. Nonetheless, Obuchi began his term by making a U-turn, cutting income taxes and increasing public spending in order to stimulate the economy out of recession.
The jusen scandal represented a critical systemic failure in the Japan Inc system of government administration. What few realized was that Special Status Corporation served to rigidify this system because they connected the ministries with the private sector and politicians, encouraging vested interests and thus frustrating reforms. Although they were not complex organizations, people on the outside could not appreciate how the system worked because there was not much information in the public domain. Since the subject was politically controversial, Japanese academics preferred to avoid publishing papers regarding the organizations because they could risk losing government grants for their research.
Bill Whitaker commented:
I think that what fools you, what is seductive is that on the surface it looks familiar. You’ve got tall buildings, freeways, subways and Western dress and all sorts of things that can lull you into feeling that you can relate to it and understand … But if you’re there for a while, you begin to realize that it is just a thin veneer, that the real Japan is behind or beneath that thought, that Western thought.
A Risky Venture
I was witnessing first-hand the slow deterioration of the world’s second largest economy which would struggle to recover from the impact of the 1990 Financial Crisis precisely because of the rigidity of the Japan Inc system. But my views that nothing significant would change and that there would be a resurgence of nationalism contradicted the mainstream consensus. I considered that the most effective way to stimulate a realistic understanding of Japan Inc. while busting the myths about the infallibility of the Japan Inc model would be to publish a book using information I had collected during my employment and putting Special Status Corporations at the center. But I was in a quandary of how to release the data into the public domain without compromising my colleagues or myself. I finally concluded that the most effective method would be to publish the book in an academic context for positive research even though the effort would demand entry into academia.
I investigated the programs at American universities but, not only would I have to pass a General Management Assessment Test (GMAT) which would take a year of study but, also, the PhD programs were for five years. The PhD programs at universities in England also demanded a GMAT. The only universities that at the time did not require a GMAT were Scottish universities. I had never been to Great Britain and Sandy Gordon was the only person I knew in Scotland. Although going the academic route would entail the inevitable continuation of a gruelling schedule, I decided to visit Scotland to see if I could be at ease in an environment where I would again be considered a foreigner. It was a risky venture because even if I managed to survive the ordeal there was no guarantee that a book would be the end-product.
I asked Mr M if he would like to accompany me to Edinburgh not for sightseeing but to confirm whether Ehime government and small business owners would want to participate in a program I had designed to help them understand how small business owners in other regions operated. The International Study Program for the Implementation of Regional Development (INSPIRED) was also pertinent to small businesses located in other countries.
Since I would be able to arrange a stay at the Newington flat of the daughter of my parents’ friends whom I had yet to meet, Mr M seized the opportunity to have a relatively inexpensive adventure. I suggested that he take some literature in English about Ehime in case there was an opportunity to engage with officials in Scottish government because the Scottish Parliament was scheduled to open in July 1999.
Ehime in Edinburgh: the LibDems and Hogmanay
We took advantage of the Christmas and New Year holiday period for the trip, arriving in London on 18 December. We stayed at a B&B in Earls Court and visited the Tower of London and the Monument. Mr M knew a Chinese lecturer at Sheffield University and wanted to stay overnight. I took him there before returning that evening to Earls Court on the last train. I had to transfer at Doncaster and when I asked the station master the number of the platform for the London-bound train he called me “love” which was the first time I had heard the northern expression.
In Edinburgh we stayed at the flat through the New Year. At first I was reluctant to contact Sandy Gordon because most likely he would not remember me but when I telephoned his home, to my surprise, he immediately recognized my voice and urged me to apply at the University of Edinburgh’s School of Management (now the UoE Business School) where he knew the Head of School. The school was closed for the holidays and I postponed a second visit until February.
Our host entertained a close female friend who was a committed member of the Liberal Democrats for many years and who participated in politics at the local level where the Lib Dems were influential at that time and whose policies included environmental protection issues and the development of alternative energy sources. The woman had been to Japan and was pleased to introduce Mr M at a Christmas party at the home of a member of the Ross family, the founders of the company that produces the confection the Original Edinburgh Rock. Lib Dem members enjoyed meeting Mr M who promoted his prefecture to Mike Pringle who was planning to stand for a seat for Edinburgh South in the first Parliamentary election and who later won against a Labor candidate.
I let Mr M experience Hogmanay on his own and he ventured out to the Royal Mile around 9pm before the action started. I waited anxiously until he returned at 2am pale-faced and in a mild state of shock, mumbling that he had gone to a pub on the Royal Mile where he met a man named Jim who said that he was a fireman in Glasgow. Mr M spent the evening in the pub with Jim while drunken revellers smashed bottles and glasses in the street outside. Mr M, who had a habit of exaggerating, claimed that broken glass was strewn everywhere. He managed to stay long enough to see the fireworks display above the castle.
But there was a bright side to his adventure. Jim had offered to be his guide around Glasgow on 2 January. Mr M took the train to Glasgow and returned that evening. He admitted that despite not understanding most of what Jim was explaining to him because of his Glaswegian accent, he kept nodding in the affirmative when Jim asked him if he understood (which was exactly how I behaved initially at Mercian).
I returned to Scotland in February to visit Glasgow University, Strathclyde, Stirling and the University of Edinburgh were I was interviewed and accepted. I did not inform the Head of the School of Management at the UoE of my connection with Sandy Gordon, preferring to gain acceptance to the doctoral program on my own terms. I decided to study at the UoE because the facilities best suited my INSPIRED program.
Meeting a Future Prime Minister
In April, the wife of a MITI officer seconded to JETRO New York took me to the Japan Society to hear an address by Naoto Kan the president of the recently established Democratic Party of Japan (DPJ). She had been invited by her friend Jun Azumi, a DPJ politician and one of Kan’s assistants. Speaking in halting English, Kan energetically promoted his party’s manifesto which encouraged devolution to ensure more policies were planned by local governments and the implementation of political reforms to allow fairer representation in the National Diet. There was no mention of fiscal reforms.
After the presentation, Azumi introduced us to Kan who gave us his business card, a copy of the DPJ’s first manifesto and a poster with the DPJ logo which still decorates my kitchen wall. I was not impressed with Kan. Although he had a healthy ego, he would not make a strong leader. Former Prime Minister Noda and Ozawa were also members. Hiroshi Kumagai joined the DPJ when it was initiated only to leave in 2000 after a disagreement with Kan to form an ultra-conservative party with four other disgruntled DPJ members.
On August 30, 2009 the Japanese electorate, in protest against the continuous corruption scandals in successive LDP administrations and the ineffectiveness of the policies to extricate Japan out of mild recession, gave the Democratic Party of Japan (DPJ) the majority of seats in the Lower House. Naoto Kan, the DPJ president became the Prime Minister. Mr. Azumi became the finance minister in Kan’s Cabinet.
Kan had made headlines in the Japanese press while he was the Minister of Health and Welfare in Prime Minister Hashimoto’s coalition government in 1996. When he investigated the ministry for its collusion in the distribution of blood tainted with HIV to haemophiliacs officials gave him the information he needed but on the condition that he would not release it to the public. However, Kan ignored their request. After he left the cabinet his information pipeline was cut and news regarding the investigation never went beyond the ministry’s confines again.
On March 11, 2011 and the Fukushima nuclear disaster Kan, who was well-known for his deep mistrust of bureaucrats, considered the nuclear energy industrial sector to be embedded in a web of collusion between METI (formerly MITI) bureaucrats, the utility companies, politicians and submissive academics. His reliance on DPJ colleagues to advise him on the escalating nuclear crisis isolated him from the bureaucrats and politicians who were privy to more information about the conditions at the power plant. Kan’s indecisiveness in dealing with the prolonged effect of the crisis on Japan’s economy culminated in Kan’s resignation the following August.
The DPJ manifesto focused on reforming the bureaucracy by eradicating Special Status Corporations and amakudari. By trying to bust bureaucratic rule Kan and the DPJ became the odd-men-out and, consequently, their policies were not enthusiastically supported by the ministries. Indeed, Kan’s administration finally came to terms with the fact that in order to implement economic reforms and trade agreements it had to rely on ministerial support and began back-tracking on promises to weaken the bureaucracy.
Immediately after Kan became the Prime Minister in 2010 his wife Nobuko published What on Earth will Change in Japan now that you are Prime Minister? (Anata ga Soori ni Natte, Ittai, Nihon no Nani ga Kawaru No?), detailing her marriage and her husband’s political background, which focused on politics at the grassroots level, challenging the traditional political system and environmental issues. Mrs. Kan wrote that her husband enjoyed person-to-person contact, pressing the flesh, drinking, and back-room politicking but not the homework.
Mr H’s America
Mr M’s term of duty at JETRO New York ended at the end of March to be succeeded by another Ehime government officer who will be referred to by his initial “H.” Evidently, Mr H recognized me as Mr M’s American guide and he requested a similar service. Although I was preparing to relocate to Scotland I decided to continue my relationship with Ehime and take him to some events and locations that were within a reasonable distance from New York City.
Mr H was in his mid-thirties and married with two young boys of primary school age. His wife had remained in Matsuyama to attend the children. While Mr M’s behaviour could be considered outside of the “norm,” Mr H was more subdued and reflective. But he was as keen as Mr M to see as much of America as possible during his time at JETRO.
The first escape was to the Gay Parade on Fifth Avenue, a block from the McGraw Hill Building. Mr H shot many photos of half-naked men in bizarre dress riding on outrageously decadent floats. He was fascinated by the “proud-to-be gay” police and fire brigades marching down the avenue.
I took him to an estate in the Hudson River Historic district to view a Scottish Highland Games, which occurred annually. One day we rode the ferry up the East River to Tarrytown and the home of Washington Irving, the author if Rip Van Winkle and Sleepy Hollow which were popular in Japan.
Mr H enjoyed the Atlantic City boardwalk in New Jersey and the Trump Casino. We walked across the Brooklyn Bridge to the Promenade for the view of Manhattan and the Twin Towers in the early evening. I introduced him to friends who invited us to lunch at their 200-year old white clapboard house in a New Jersey town that was registered as a Historic Landmark.
Mr H Speaks to Primary School Students
When I took Mr H as my guest to a luncheon at the Foreign Policy Association we were seated at a table with a man and woman in their late sixties. Paul Bruehl had recently retired as the vice president of Merrill Lynch’s international arm and his friend, Louise, a neighbour in Locust Valley, Long Island, a wealthy suburb which was commuting distance from banks and asset management houses. Louise was a patron of the Locust Valley Library and a volunteer at a primary school. When she mentioned to Mr H that the school’s fifth grade class was researching Japan and had written reports and designed an exhibit of Japanese art which was on display at the school, Mr H expressed an interest in seeing the exhibit. Louise invited him to speak to the class about Ehime schools.
Mr H whose research included American primary education received a warm welcome from the students. After the talk, Louise and Paul entertained us for lunch at Louise’s home. Paul mentioned that one of his protégés at Merrill Lynch was Michael Bloomberg who, by Paul’s estimations, was a genius and who had a great future.
More Adventure: Tom Sawyer and Uncle Tom’s Cabin
A half-day trip to Hartford, Connecticut to visit Samuel Clemens (Mark Twain) and Harriet Beecher Stowe’s homes was a good choice because Mr H had read Mark Twain’s books and Stowe’s Uncle Tom’s Cabin was popular in Japan. But he was unfamiliar with the Underground Railroad of which Stowe was one of the founders.
The visit was a prelude to a visit to Gettysburg and Atlanta. The Japanese knew about slavery in the South but mainly through American pop culture and the Hollywood version of Gone with the Wind. Mr H began to understand the tragedy of the Civil War when we visited the Gettysburg Cemetery and the Lincoln Memorial. But he particularly liked President Dwight D. Eisenhower’s home and his wife Mamie’s eclectic interior decoration, including the animal skin rugs, ruffled lampshades and the sofas upholstered in pink.
Black is Beautiful: Atlanta
Mr H’s final adventure in the US was to Atlanta, Georgia for three-days for a glimpse of a political economic society he would never have seen otherwise. He was surprised to see that Atlanta’s economic and business environment was significantly supported by an African-American population who were well educated successful business owners and politicians. If it had not been for the interview of Johnnetta B Cole for Inside/Outside Japan, I would not have known about Spelman College. By luck Martin Luther King’s alma mater Morehouse College was located directly across the street. Mr H saw how the Civil Rights Movement had impacted on Atlanta’s economic development to the extent that Atlanta had become a center for the corporate headquarters of CNN and Coca Cola and many multinational firms. We toured CNN and Coca Cola where we taste tested drinks produced specifically for consumer preferences in countries where Coca Cola was marketed. We also visited the Jimmy Carter Museum.
Mr H’s Edinburgh
I relocated to Edinburgh in July but Mr H also wanted to visit Edinburgh like his predecessor. But since I would begin the doctoral program in October and was in the process of refurbishing a dilapidated flat I asked him to reserve a room in a B&B nearby. During the week he spent in Scotland I took him for a tour of the university and introduced him to several lecturers in the School of Management whom I had met only a few weeks earlier. One evening we joined them in a typical Scottish pub.
Mr H mentioned that he had purchased his home in Ehime at the tail end of the asset-inflated bubble when the property market was booming. He estimated that the flat’s value had fallen by at least thirty percent. Although during my entire time at JETRO New York I was careful not to comment on Japan’s economic stagnation and political turmoil, I took the liberty of gingerly suggesting that Japan’s economy was experiencing serious problems. Mr H reacted by shouting, “What do you know? You’re only an American!” I understood his reaction because he, as did Japanese in general, considered foreigners to be “outsiders” and that only the Japanese could understand their political economy. On the other hand, the Japanese feel that they are the “outsiders” when they travel abroad. Although not as insular, many societies are sensitive to such remarks from foreigners in their countries.
Support for Good Instincts: better late than never
I became confident that my conviction that Special Status Corporations linked the ministries with the private sector, local governments, and politicans when a series of books were published by Japanese activists. Tsutomu Kuji, a political and environmental activist who had written about scandals involving the Ministry of Construction and the Ministry of Health and Welfare and the connections with the industries in their respective administrative jurisdictions, published a book in 1998 about the amakudari practices of MOF officials. In The Bureaucrats’ Kingdom: Japan’s Downfall (Kanryo Kokka Nippon no Botsuraku) he claimed that, traditionally MOF officials served as vice-presidents or directors in Special Status Corporations that were managed by the other ministries. They would move to such MITI corporations as the New Energy Development Corporation (NEDO), the JASME, the Japan National Oil Corporation and so forth. MOF officials went to the MOC’s Government Housing and Loan Corporation and the Agriculture, Forestry and Fisheries’ Finance Corporation. On the other hand, generally, MOF, which controlled the annual budget, was reticent to open the doors of its 900 corporations to other ministries.
Kuji wrote that in 1997, the prime minister’s office announced in a “White Paper on Public Corporations” that 7,080 bureaucrats had moved to 28,089 public corporations and that 184 retired officials received upper management positions in 87 public corporations connected to MOF. Kuji maintained that even though the corporations had different names their responsibilities were remarkably similar and it was obvious that they were established as places for amakudari.
In 1999 Koki Iishi, a DPJ politican who held a seat in the Lower House of the National Diet, also published a book about amakudari entitled Bureaucrat Heaven: The Bankrupting of Japan (Kanryo Tenkoku Nihon Hassan). He followed this with a fine book on Special Status Corporations in 2001. In The Parasites That Are Gobbling Up Japan: Dismantle All Special Status Corporations and Public Corporations!(Nihon wo Kuitsuku Kisiechu Tokyshu Houjin Koeki Houjin wo Zenhai Sieyo!).
Iishi, whose concerns centered on political and administrative misconduct, contended that Special Status Corporations and public corporations must be the focus of structural reforms. He claimed that the national ministries operated 6,879 public corporations, that 76 Special Status Corporations had 2000 subsidiaries and that local government operated public corporations which provided jobs for local government officers. He also contended that Special Status Corporations bred subsidiaries and that even though the parent corporations operated at a loss, their subsidiaries could be showing profits which were divided among the parent companies and their other subsidiaires.
His book posed pertinent questions concerning the rapid escalation of public corporations that were established through Special Status Corporations and government agencies and the employment opportunities they offered to elite bureaucrats. The reluctance of the ministries to reform these corporations, thereby preserving their territory, symbolized the rigidity of Japan’s political economic system. He stressed that there had been little movement towards reform of any kind and that before structural reforms could commence Special Status Corporations had to be dismantled.
Sadly while he was serving as the chairman of the Special Committee on Disasters. Iishi was assassinated by a right-wing sympathizer in front of the National Diet on October 25, 2001.
In 2001, Tsutsumi Kazuma, a former secretary-general for the Liason-Council of Labor Unions in Public Corporations published a revealing report on the methods used by the ministries to ensure that their retired elite officials were comfortably ensconsed in one or more of their corporations. The Monster Ministries and Amakudari: White Paper on Corruption (Kyodai Shocho Amakudari Fuhai Hakusho) provided a detailed account of the ministries’ corporations and a chronological chart indicating the migration of retired ministry officials to Special Status Corporations who then moved on to upper management positions in private indsutry or other Special Status Corporations. The chart included MITI officials’ migration to JETRO overseas offices.
Although very concerned about the route to academia, I knew that I had made the right decision.