Chapter 21: The Last Piece in the Puzzle

Chapter 21: The Last Piece in the Puzzle

The Japan Finance Corporation for Small and Medium-size Enterprise

In the spring of 1999 I took the opportunity to visit the JASME officers in the Tokyo and Hiroshima offices and Mr M and Mr H in Matsuyama. I also wanted to conduct interviews of small business owners. The officer posted at the head office in Tokyo arranged meetings and interviews with small business owners to whom I would never have been able to gain access without the assistance of the JASME. Furthermore, I would never have been able to tape the interviews without the presence of a JASME officer.

During the two-day visit I conducted interviews with firms which produced electronic parts, car parts, semi-conductors and chemicals. The businesses produced for large domestic companies which also procured cheaper goods from foreign firms. The owners spoke about how they were coping with the recession and how they received subsidies from MITI. With the exception of the chemical firm, the owners expressed frustration with the time-consuming process involved in applying for subsidies for R&D. Furthermore, the recipients were required to submit the results to MITI which distributed them to other businesses to ensure a level playing field.

The most revealing meeting in terms of the Japan Inc. model and the significance of interpersonal networks between business and government was a two-hour interview with the CEO of a medium-size chemical firm whose father-in-law had founded the company in 1941 as a producer of special chemicals for the war effort. MCI administered the chemical industry during the war and since the company had produced for the war effort, it remained in good standing with MITI after the war. Between 1952 and 1977 the company received a number of subsidies from MITI for R&D. The founder’s interpersonal network in government helped him to import new and inexpensive technologies in the 1950s and the 1960s. His strategy included creating a niche market by producing new chemical products and expanding operations overseas. His connection with MITI may also have expedited his applications for patents, licenses and permits.

By poaching an officer from the JASME as Senior Managing Director of Executive Affairs, the founder placed his company in a favourable position to receive long-term, low-interest rate loans from the JASME. After the founder’s death, his son-in-law took over as the CEO and continued to tie-up with a major pharmaceutical firm and a clock manufacturer, supplying them with chemicals.

The new CEO, looking ahead at foreign markets, opened a sales office in Hong Kong in the early 1980s. Eyeing markets in Europe and the United States, the CEO engaged in a joint venture with a major Japanese trading company, a wise move because the trading company had long-established distribution channels but did not manufacture the same kinds of chemicals. The company supplied technical information and production acumen, and the trading company supplied investment and distribution.

To ensure an enduring relationship, the CEO hired an employee from the trading company who had been based in Europe for many years, who knew how to conduct business in European countries and who was an appropriate figure for liaising with his former employer. Another pay-off was that the vice-chairman of the trading company had been an elite official in MITI, giving the company additional connections to the ministry.

Nevertheless, the CEO did not take his connections for granted, working tirelessly to maintain and to extend his interpersonal network in business and government. He was the friend of a former prime minister who graduated from the same university. He was the president of his district’s Chamber of Commerce and Industry, a chartered corporation managed by MITI’s Industrial Policy Bureau. The CEO also served simultaneously in other small and medium-size business organizations managed by MITI. Through this participation, the CEO was in constant contact with other business owners and with elite officials.


Ehime Prefecture

Before heading on to Ehime Prefecture I spent a day in Hiroshima to visit the offices of the JASME officer who introduced me to some of his colleagues, including the director of the office, an MOF official. I shot a short video of the officer explaining the services provided to small businesses but afterwards when he showed me a pile of brochures and leaflets describing the services, he said that they had yet to be implemented. His admission confirmed the article in Nikkei Business that the ministries established Special Status Corporations and their  subsidiaries to provide temporary employment for staff and post-retirement positions for retired senior officials before they moved to the private sector and that corporations used funds to do work that was in the best interests of the corporations. I wanted to know how the corporation assessed collateral for loans but I thought it best not to ask.

The two-hour ferry ride across the Seto Sea (Inland Sea) to Matsuyama was as interesting as it was scenic. A gentleman who was seated on the bench in front of me wore a gold necklace and an array of tattoos. Even though I could not see if he was missing the tip of his little finger, an indication that he was a member of the Yakuza, I suspected that he was.

Mr M and Mr H rolled out the red carpet. They had booked a hotel room and scheduled two-days showcasing everything I needed to confirm what I already had suspected but was reluctant to ask them in New York. After paying my respects to his colleagues at the prefecture government office, Mr M took me to interview the owner of a small business which produced car parts for one of Japan’s major automobile manufacturers. The owner expressed concerns about the impact on his business from the hollowing-out of the automobile industry in Japan.

I visited Iyo Bank where I interviewed the president who entirely positive about Ehime’s economy and proud of the bank’s establishment of overseas branches in Manhattan and Hong Kong.

Before a visit to FAZ, Mr M escorted me to the major fish auction house on Shikoku where catches from the Seto Sea were sold daily to retailers. However, due to pollution and over-fishing, the catches were decreasing.

The installations in the Ehime World Trade Center (I.T.E.M EHIME) were extensive. Within I.T.E.M was an Ehime Products and Tourism Center divided into three areas where products from local industries where exhibited. There were paper products, towels, canned and bottled mikan juice and extruded fish paste known as chikua one of my staples in Japan. Mr M told me that towels, imported from China were undercutting the price of the towels produced in Ehime as were the “made-in-China” paper products. We could not help but laugh because every time I took Mr M to look at the merchandise at US retailers invariably the soft goods carried “made-in-China” labels.

The World Mart displayed examples of foreign goods which had been introduced to Ehime consumers. Given Ehime residents’ conservative tastes I doubted that the colourful African textiles would be items on consumers’ wish-lists. There were confections and Marmite from New Zealand and Vegemite from Australia, a Swiss cuckoo clock, honey and jam, and a South African bicycle, which was odd because the Japanese bicycle industry was a protected industry. A JETRO Support Center was located next door.

The exhibition hall and conference room were vacant. When I asked Mr M how often the facilities were used he replied, “That’s a good question.”

A second FAZ was under construction. According to the Ehime Foreign Access Zone Co. the construction “involved building a new port and roads connecting the facilities to the expressway system. The result will be a comprehensive upgrading of industrial infrastructure.”


“Empty Boxes

An Ehime Prefecture government officer drove me on newly constructed highways and through tunnels that were carved through Ehime’s beautiful mountainous terrain. There was little traffic. I doubted whether a second FAZ was necessary but Governor Iga and his friends in the ministries pressed for public sector investment in infrastructure to expand Ehime’s economy while also providing lucrative contracts to big businesses and employment to hundreds of Ehime residents.

The officer stopped at the Kurushima Kaikyo Bridge due to be opened soon. It was a magnificent piece of engineering but I silently questioned how the JH’s Shikoku-Honshu Bridge Authority could justify the expense. I had the same question when the officer took me to the new international airport where few passengers were waiting in the terminal.

I was hoping to go to the nuclear power plant in Ikata to see how the town had prospered since the plant was commissioned but I was reluctant to request a visit which might be considered off-limits to foreigners.

Mr H and his wife entertained me for lunch at their flat before taking me to Matsuyama Castle and to the modern art museum resplendent with mahogany toilets. But the small collection of art did not justify the expenditure not only for the museum but the expenditure for the highways, the airport, the bridge and FAZ. It seemed as if no consideration had been given to the ultimate costs of the projects, let alone the drain on local tax revenue for the maintenance of what were essentially empty boxes.

During the remainder of my visit I played the tourist with Mr M and Mr H. Mr M took me to Dogo Onsen, Japan’s oldest hot spring which was the site of Natsume Soseki’s book Botchan. I consumed a good number of Japanese cakes named after the hero, which was a major incentive for visiting Dogo. Mr H took me to Kagawa Prefecture for the prefecture’s specialty Sanuki Udon.

Although Governor Iga was expected to maintain control over Ehime politics, the recession prompted dissatisfied voters to replace him in January 1999 with Moriyuki Kato, a high-ranking official in the Ministry of Education who retired from office to enter politics. The initial reaction from local businesses was positive because Kato’s close ties to the national ministries would hopefully serve to facilitate the procurement of public works contracts and subsidies.

The Ehime government officer who escorted me to the bridge and airport said that Iga had gained the reputation among residents as a governor obsessed with self-glorification.


Just to Make Sure

In the spring of 2001 I returned to Hiroshima to reconfirm my initial observations at the JASME branch. There was no evidence of any change in strategy or that the services described in the 1999 brochures were available to business owners.

I went to Ehime for another  look-see at FAZ. Between 1997 and 2001 there were a total of eleven international trade fairs but generally the halls at I.T.E.M. EHIME were vacant. There was no noticable change in the range of foreign imports in the World Mart. Foodstuffs, wine, toys, sporting equipment on display overshadowed industrial goods.

Traffic was still relatively light on the new network of highways. Commuters to Hiroshima preferred the ferry rather than the Kurushima Kaikyo Bridge to avoid the expensive toll.

In February a US naval submarine had collided with the Ehime Maru, a fishing vessel, when it suddenly surfaced off the coast of Oahu, Hawaii. Nine crew members on the fishing vessel drowned, including four high school students. Mr M was outraged that the captain had not tried to rescue the crew members and that Commander Scott Waddle had not offered an apology immediately following the accident. After a public court hearing and a naval board inquiry, Waddle was forced to resign from the Navy.


The Image of Administrative Reforms

2001 was an auspicious year.  Prime Minister Hashimoto was determined to streamline government administration by consolidating some of the ministeries and integrating minor agencies into the ministries as of 2001. However, the mergers did little more than change the names of the various ministries. The Ministry of Construction merged with the Ministry of Transport, the National Land Agncy and the Hokkaido Development Agency, which was burdened with debt. The new ministry was named the Ministry of Land, Infrstructure and Transport (MILT). Prior to the merger the Ministry of Transport had 849 public corporations.  The Ministry of Education, which had 1,811 corporations, merged with the Science and Technology Agency to form the Ministry of Education, Culture, Sports, Science and Technology (MEXT). The Ministry of Home Affairs merged with the Ministry of Management and Coordination, and the Ministry of Posts and Telecommunications to form the Ministry of Public Management, Home Affairs, Posts and Telecomunnications. The ministries managed jointly the corporations which had originally been independently established by a single ministry.

MITI was left unfettered with only a minor adjustment to its name – the Ministry of Economy, Trade and Industry (METI), signifying that the ministry was going to administrate more regional economic development. MOF was also left to its own devices. The officers at JETRO New York were correct in their assessment that the mergers would prove to be ineffective in making government smaller.

Indeed, the mergers did little more than to create turmoil within the newly merged ministries regarding the restructuring of management, territorial issues, budgets and objectives. Furthermore, officials were very concerned about how the mergers would impact on their careers in terms of ranking and promotion. The mergers triggered a gradual brain drain from the ministries as officers opted to leave for jobs in the private sector or in local government where the salaries were equal to the national ministries.


The New History Textbook: Ehime residents versus Big Brother

On April 1, 2000 Prime Minister Obuchi suffered a stroke and lapsed into a coma until his death in May. Yoshio Mori, an LDP politican succeeded him as Prime Minister. On April 26, 2001 Junichiro Koizumi, an LDP politican succeeded Mori as Prime Minister.

Koizumi represented a breed of neo-nationalist politicians who had become a force in politics since the late 1980s. Although Koizumi was a proponent of institutional reforms, he will be remembered best for his six pilgrimages to Yasukuni Shrine where, not only Japan’s military dead are buried but also Class A War Criminals. The Shinto Shrine was founded in 1869 and run by the military until the end of the Second World War, when the United States Occupation outlawed Shintoism. Infuritated by Koizumi’s apparent glorification of Japan’s military past and disregard for the suffering incurred by the Chinese and Koreans during Japan’s wartime occupation, China and North and South Korea lodged vehement protests. Despite angering important trading partners and Japanese pacifists, as well as businessmen whose ventures were vandalized by Chinese and South Korean protestors and who were extremely concerned about the ramifaications for future Japanese-Chinese economic relations, Koizumi continued his visits to the shrine, ending his term as Prime Minister with a sixth and final visit in August 2006.

 In 2001 Koizumi supported MEXT’s approval of the controversial New History Textbook (edited by Governor Kato’s former ministry) for high-school students which glosses over the wartime atrocities committed by Japanese military in Asia such as the abduction of “comfort women.” The textbook refers to the war in the Pacific as “The Greater East Asia War,” the term used by Japanese nationalists.

Besides Koizumi, other proponents of the textbook included former METI vice-minister Keiji Furuya and former Tokyo governor Shintaro Ishihara. Sankei Shimbun, which owned the same ultra-conservative media group that also owns the textbook’s publishers, ran a series of editorials supporting the textbook. The book’s authors were academics who were members of the right-wing Society of Textbook Reform and who believed that Japan had entered Asia to liberate the region from the control of white colonists and that the so-called atrocities were merely “normal excesses” committed by all armies. Despite China’s and South Korea’s anger over the manipulation of facts, negative reactions from the foreign press, heated debate in the Diet and strong resistance in local governments, by 2004 the book had been adopted by a number of prefectures, including Tokyo.

Governor Kato publically endorsed the textbook in 2002, announcing that he felt that the textbook was “most appropriate to deepen people’s appreciation of the history of our country.” Although many local citizens were opposed to the textbook, Kato received more support from Koizumi and Abe on May 15, 2004 at an Ehime town meeting for the revised education bill. The hall was packed with 100 educators with links to MEXT. A subsequent investigation of the event revealed the following November that sixty-five educators had been paid ¥5,000 each for attending the meeting and that one member was given the task of spouting statements in support of the textbook and asking questions prepared by the ministry. Despite a lawsuit filed in December 2005 against Kato by 1,000 people, including South Korean and Chinese, demanding the rejection of the textbook, it was distributed to schools in 2006.

Koizumi later admitted to organizing town meetings and paying educators to give rehearsed speeches in favour of the textbook. He also displayed his nationalistic colors by drawing up an education bill in June 2006 that for the first time revised the education bill that had been written in 1947. The new bill included the promotion of “patriotism” as part of the compulsory education. Although members of the LDP and opposition parties voted against the bill because it might promote nationalism, the bill was passed into law in January 2007 during Abe’s administration. The Basic Education Law calls for singing the national anthem and saluting the Japanese flag at school ceremonies as a part of children’s education. The law also gives the education minister more power over local education boards and requires that teachers renew their licences every ten years.

Before taking office for the first time in 2006, Prime Minister Shinzo Abe published his best seller Toward a Beautiful Country. In it he argued that the reporting of events regarding his grandfather’s revision of the US–Japan Security Treaty was misleading and must be corrected. The initial 1951 treaty inhibited the Japanese from prosecuting Americans who perpetrated crimes in Japan (e.g. military personnel). Abe claimed that his grandfather negotiated a revised treaty that gave Japan more autonomy from the United States and gave the Japanese more power to prosecute. Abe also maintained that the history of Japan’s war-time engagement in China reported in textbooks was also incorrect and should be revised as well. The New History Textbook praises the bravery and patriotism of Japanese military personnel.

When Prime Minister Junichiro Koizumi took office the sovereign debt was 130 percent of GDP. Koizumi, who was the Minister of Health and Welfare in Hashimoto’s cabinet was determined to implement fiscal reforms, state-sector reforms and tackle the NPL. He planned to eliminate a number of Special Status Corporations which were heavily in debt to FILP. He also planned to privatize the state banks, including the Postal Savings Agency and downsize FILP, the two institutions that funded the corporations. His struggle with the ministries and politicians is well-documented in Special Corporations and the Bureaucracy: Why Japan Can’t Reform which was the first book in English regarding Special Status Corporations and which predicted that Koizumi’s efforts would be superficial at best.