Japan's Biggest Hurdle: Faith in Bureaucracy, Not the Market

It is hard to believe that Japan, once criticized for practicing predatory capitalism and lionized as the likely economic leader of the 21st century, is now lectured to as if it is a developing country being run by a group of financial illiterates.

In a dramatic reversal of the situation in the early 1990s when it was common to see Japan portrayed as a giant sumo wrestler getting ready to devour the global economy, Japan seems to be headed toward a full-blown economic disaster. Japan's bad bank debt is now estimated to be $1 trillion, nearly double the earlier reported figure of $550 billion, while the Tokyo Stock Exchange's Nikkei stock index fell Aug. 28 to a 12-year low despite a desperate appeal for calm from Japanese Finance Minister Kiichi Miyazawa.

Quick fixes like tax cuts and financial bailouts will temporarily raise the Nikkei stock index and appease the anger of market analysts, but the long-term economic condition may hinge on whether or not the Japanese people come to terms with the economic legacy of their country's bureaucratic-industrial complex.

Few understand the power of the Japanese state to shape how ordinary Japanese think and behave. The Japanese bureaucratic machinery has been so successful in marketing its ability to overcome the country's economic and social problems that many Japanese still cling to the fantasy that their economy is one tax cut or deregulation proposal away from reclaiming its rightful status as a global economic power.

After hearing for so many years that government bureaucrats are responsible for the economic miracle of the 1960s and '70s and that Japan is blessed with an elite group of economic mandarins, the Japanese public can hardly be blamed for being somewhat skeptical of claims that the invisible hand of market forces should now set the direction of their economy.

It is hard for Americans to imagine the degree to which local community decisions - ranging from the size of school playgrounds to environmental conservation efforts - are guided and ultimately decided by central government officials in Tokyo.

While "bureaucrat" has become almost a pejorative term in the United States, until very recently it has stood for power, authority, and, most important, legitimacy in Japan. Many Japanese mothers even hope their sons grow up to become officials in the Ministry of International Trade and Industry.

Most Japanese believe that the government has to ensure economic prosperity and that the first priority of a company is its workers, not its shareholders. Such beliefs are, of course, subject to change, but it will take time.

It is easy enough to blame the politicians for indecisiveness and the failure to adopt a clear strategy to deal with the economic and financial crisis. The greatest obstacle to the reform efforts of Prime Minister Keizo Obuchi's administration, however, may not be the absence of policy initiatives, but rather Japanese nostalgia for a bygone economic era.

* Jacob Park, a former policy analyst in Japan's Ministry of International Trade and Industry, is a Washington, D.C.-based environmental analyst.