Japan: End of a win streak

As long as Japan was on an economic winning streak, just about everyone put up with these troubling cultural practices. Japan, after all, was being held up as a model for the world. Japan's early 20th-century winning streak led to World War II; its winning streak from 1960 (when the goal was doubling national income within the decade) to 1990 led to great confidence. Ware ware Nihon-jin (roughly translated as "We Japanese, we together") became a popular expression.

Some U.S. public policy experts a quarter-century ago thought that Japan's economic success grew out of such togetherness. Ezra Vogel hit best-seller lists in 1979 with his book Japan as Number One, and Chalmers Johnson praised Japan's Ministry of International Trade and Industry (MITI) for its ability to pick industrial winners and losers and send government money flowing to the best and the brightest. James Fallows, Laura Tyson, Lester Thurow, and other liberal analysts argued that the United States should imitate Japan by establishing an "industrial policy" that would rule markets and declare the old economic laws irrelevant.

Happily, Americans who emphasized private enterprise resisted the academic fad. Culturally aware economists such as Yamamoto argued that Japanese success grew out of the societal emphasis on hard work and discipline, and suggested that those who lived by MITI would die by MITI. During the late '80s and '90s it became apparent that MITI was like a mutual fund that had strung together a number of good years but was fundamentally flawed in its economic understanding.

The Japanese stock market collapsed in 1990 and has never recovered. When it seemed ready to stage a comeback in 1997, news broke that big brokerage houses had billions of dollars in hidden debt that was unrevealed because, in part, brokers had set up secret accounts for some major government officials. Tight corporate-government connections have included the practice of settai (expensive wining and dining). The United States has its strip joints, and in Japan, one key banking official gave a large bank special consideration after it treated him to an evening at a "no-pants restaurant" that featured waitresses in the nude from the waist down.

Cultural as well as economic factors have created crisis. In 1995 the Federal Reserve ordered the American branches of Japan's Daiwa Bank closed because Daiwa, with the blessings of the Ministry of Finance, had hidden from U.S. investigators a billion dollars in losses. Japan's Ministry of Finance complained that the Fed did not understand "cultural differences"-and perhaps that was true. A wonderful book about traditional Japanese aesthetics has the title In Praise of Shadows; a book about banking could be called the same, because Japanese apparently have had toleration and even praise for fuzziness, blurring, and shadows in many endeavors.

That may be changing. In the past, any Japanese who complained were characterized as "troublemakers," a terrible label in a land where group harmony (wa) was always seen as essential. Children of "troublemakers" faced bullying in school and most people were afraid to offer any criticism. Now, Japanese increasingly complain about food scandals: Snow Brand, one of Japan's largest dairy companies, lied about products that poisoned thousands. They cite frequent government financial scandals (and sometimes sex ones) along with an HIV-positive blood scandal: The health ministry knowingly allowed tainted blood to be used for two years, so that most Japanese hemophiliacs now have AIDS. They cite slow government responses to crises such as the Kobe earthquake.

Some Japanese see the Buddhist tradition, with its anti-individualistic emphasis on wa rather than a war on corruption, as a leading culprit. The thought expressed by "the buck stops here" is not popular in Japan, where an emphasis on shared responsibility often means that the buck stops nowhere. As the Japanese government has sustained insolvent banks and insurance companies, needed readjustments (such as writing off bad bank loans and emphasizing competition rather than government protectionism in farming and construction) have not come.

One recent Tokyo bestseller, The Straitjacket Society, decried Japan's collectivist emphases and complained that "the bureaucracy controls the entire market through a system of regulations and permits." Author Masao Miyamoto noted that companies frequently hire retired bureaucrats in a practice known as amakudari (literally, "descended from heaven") to oppose deregulation that could create new competition. Regulators, assured of fat jobs if they saw no evil, ignored deceptions. Miyamoto expressed pessimism about Japan's economic future, for change "would mean downsizing and restructuring, to which the bureaucrats would never agree."

Individual initiative is unpopular not only in government but in philanthropy. Japan's large government sector dominates social services even more than its U.S. counterpart. It's been difficult in Japan to form charities apart from government, and givers receive no tax incentives. Lack of philanthropic initiative seems to have a religious base, as Jodo Shinshu priest Shojun Bando acknowledged: "The basis of Buddhist teaching is karuna, compassion, but to what extent that is lived by people, by alleged Buddhists, is questionable. Karuna must be realized in concrete ways.... In that respect Buddhism is far behind Christianity."

In 1990 government debt was 65 percent of GDP, but in 2002 it was over 140 percent of GDP. (U.S. government debt in 2002 was 58 percent of GDP.) One reason is that Japan spends about 9 percent of its gross domestic product on public works, compared to about 1 percent in the United States. Faced with recession, Japanese authorities in the 1990s deliberately pursued a policy of spectacular deficit spending in order to revive the economy, with a huge emphasis on new public works projects, public expenditures for social infrastructure, and bailouts for banks. None of this has worked, and the Japanese economy has continued to contract.

Not allowing readjustments, the Japanese are stuck with $5 cups of coffee and construction costs inflated by 30 percent to 50 percent-and perhaps things far worse. Rejection of the straitjacket has led some to the opposite extreme. Japanese talk of teen disenchantment and an increase of graffiti, theft, and chaotic classrooms. Twenty years ago students would wait to go to the bathroom, or in cases of desperate need would raise a hand tentatively. Now they get up and go. Once any kind of incivility on trains or buses was taboo; now, some people eat in those public conveyances and occasionally get into fights.

So economics and culture work on each other in what can readily become a downward societal spiral. A 2002 cover story in Newsweek's Asia edition captured the mood: "JAPAN TAKES IT EASY: The Former Juggernaut Seems Destined to Become Asia's Switzerland-Rich, Comfortable and Irrelevant." In 1990 average Japanese employees worked 212 paid hours more per year than Americans, the Organization for Economic Cooperation and Development reported. By 1999, they worked 31 paid hours less. Operating costs of Japan's businesses are now one-third higher than the average in other major industrialized countries. Ware ware Nihon-jin is now rarely heard, perhaps an indication that the harmony has been broken.

Unless Japan can generate faster economic growth-and end its debt dependence-there will someday be an immense crisis. This includes the possibility of a debt default. Lenders may refuse to lend because they don't believe the debt can be serviced. This could bankrupt financial institutions that already hold government debt. Just because Japan is richer than Argentina does not mean it is invulnerable to a comparable financial collapse, with cultural and religious effects hard to predict.