Dogs and Demons

Japan's bureaucracy has been much studied, mostly with admiration, by Western analysts, who marvel at its extremely subtle means of control, its tentacles reaching downward into industry and upward into politics. And there is no question that Japan's bureaucracy can lay claim to being the world's most sophisticated-several rungs up the evolutionary ladder from the weak, constrained officialdom in most other countries. Bureaucrats in the United States or Europe are hedged in by politics, local activism, and above all by laws that mandate freedom of information as well as punish their receipt of favors from businesses under their control. In Communist countries, such as China, bureaucrats may be corrupt, but in the end the Party rules, and officials can see their most elaborate schemes overturned m a minute by the stroke of a Politburo member's pen.

Not so in Japan. A largely ritualistic form of democracy in force since World War II has given the bureaucracy far-reaching control over society. Ministries not only are shielded from foreign pressures but function outside Japan's own political system. Schools teach children not to speak out; hence activists are rare. The police investigate only the most flagrant cases of corruption and courts rarely punish it; cozy under-the-table give-and-take between officials and industries has become institutionalized. It is no exaggeration to say that government officials control nearly every aspect of life from stock prices to tomatoes in supermarkets and the contents of schoolbooks. From this point of view, too, Japan is a test case: what happens to a country that chooses an extreme form of bureaucratic rule?

The bureaucracy's techniques of control have a strong bearing on what is happening to Japan's rivers, cities, schoolyards, and economy, especially because of the amakudari, "descended from heaven," the retired bureaucrats who work in the industries that ministries control. MOF men become bank directors, Construction Ministry men join construction firms, ex-policemen staff the organizations that manage pachinko parlors, and so forth. The pickings are fat: a retiring high-level amakudari bureaucrat can earn an annual official salary of ¥20 million plus an unofficial ¥30 million in "office expenses" and, after six years, a retirement of ¥20 million, which adds up to about ¥320 million in six years!

The ministries meet any efforts to restrict amakudari with vigorous resistance. «It's because we are assured of a second career that we are willing to work for years at salaries below those in the private sector,» says an official at the Ministry of Agriculture, Forestry, and Fisheries. The result is an incestuous system where businesses hire and pay ex-bureaucrats, and in exchange receive favors from government ministries.

While amakudari in private industry have garnered most media attention, there is another, even more influential type-amakudari who run the vast web of semi-government agencies through which subsidy money trickles downward. The largest and most powerful of these are the tokushu hojin, «special government corporations,» almost half of whose directors are amakudari. After these directors retire from tokushu hojin, they descend another rung, becoming directors of a second group of agencies, koeki hojin, or «public corporations.» These agencies function with hardly any public scrutiny, and they are protected by ministry colleagues who look forward to enjoying amakudari benefits when their own time comes.

Consider the Japan Automobile Federation (JAF). Theoretically, JAF exists to provide road service for Japan's drivers. However, JAF spends only 10 percent of its annual ¥48 billion budget on road service, paying much of the rest to amakudari officials from the Transport and Police ministries who draw double incomes from JAF and its shell subsidiaries. Where the lion's share of JAF's money goes nobody knows for sure, and this is typical of the secret jugglings and cooked books of the tokushu hojin.

Tokushu hojin are the very keystone of Japan's bureaucratic state, and they represent yet another economic addiction. Although there has been much talk of reducing or abolishing their largely anachronistic activities, they and their subsidiaries employ 580,000 people; if you count the families and dependents, they support more than 2 million people. The government can no more afford to suddenly cut back on tokushu hojin than it can afford to reduce the construction budget, since such a large percentage of the workforce depends on income from these agencies.

Other soft landing sites for amakudari bureaucrats with golden parachutes are government advisory councils and kyokai, «industry associations.» Groups such as the Electronics Communications Terminal Equipment Testing Association and the Radio Testing Association administer standards and recommend new policies. This helps to explain why Japan's industry is so slow to update technical standards, for as one journalist has observed, «When you seek to abolish certain regulations, a stone wall is immediately erected. Abolishing regulations translates into destroying these cushy post-bureaucratic careers.»

Politicians exert influence through their relations with bureaucrats, and the press call the latter zoku giin, «tribal Diet members,» according to which ministry tribe they belong to. Former prime minister Hashimoto, whose prime area of influence lay in the Ministry of Health and Welfare, derived bis power from being a member of that ministry's tribe. Industry pays vast sums to tribal members who can secure contracts for them through their associated ministries. Construction Ministry tribalists sit at the top of the heap, as was illustrated in a major scandal of the 1990s in which it was found that Diet kingmaker Kanemaru Shin had made more than $50 million.

«Power,» said Mao Zedong, «springs from the mouth of a gun.» In Japan, even greater power springs from the issuing of rule and permits. Rules exist in every area and in a bewildering variety, most of them in the form of unpublished «administrative guidance.» How do you know what the rules are? Only by maintaining close ties with government officials through tbe practice of settai, «wining and dining.» Settai means giving expensive meals, but it extends into a gray area that most other advanced nations would call bribery at high levels: free golf-club memberships, use of corporate cars, and gifts of money.

Departments lower in the food chain need to curry favor with those higher up, which requires that officials practice settai with one another as well. Government bureaucrats spend billions of yen every year to wine and dine functionaries from other agencies. In this rich stream of slush funds, they have found ways to pan for gold – overbilling and charging for fictitious trips and nonexistent functions that cost prefectural governments millions of dollars a year.

Bureaucrats alone have the power to issue permits, and permits do not come cheap, as may be seen in the following example from the sports-club business. In the 1980s, although relatively new to Japan, sports clubs attracted the interest of men working in the Ministry of Health and Welfare (MHW) and the Ministry of Education. They saw ways of enriching themselves through the time-honored techniques of giving mandatory lectures and study sessions, issuing facilities permits, and creating credentials and «levels» for sports-club professionals; agencies staffed by amakudari would administer the study sessions and permits, as the social critic Inose Naoki has described. Nothing better illustrates the baroque structures Japan's bureaucracy.

First, the MHW created the Foundation for Activities Promoting Health and Bodily Strength, which licensed two categories of workers: «health exercise guides» and «health exercise practice guides.» The MHW and the Ministry of Education then jointly sponsored a Japan Health and Sports Federation, which granted permits to the first category, while the MHW alone founded a Japan Aerobics Fitness Association, which granted permits to the latter category. Not to be outdone, the Ministry of Education set up a Japan Gymnastics Association, which devised two credentials for Sports Programmer at the First Level and Sports Programmer at the Second Level. To gain a First Level certificate, an aerobics instructor has to pay ¥90,000, for the Second Level ¥500,000. In addition, something called the Central Association for Prevention of Labor Disabilities requires the instructor to attend twenty days study sessions-at a cost of ¥170,000-before obtaining a permit to be either a «health-care trainer» or a «health-care leader.» In short, if you want to teach aerobics, you must run the gamut of four agencies and pay for six permits. No laws explicitly require them, but nobody dares do business without at least some of these permits. The fees do not go back to the public purse but straight into the pockets of the amakudari who run the permit agencies.

With regulations earning so much money for bureaucrats, it is no wonder Japan has become one of the most heavily regulated nations on earth-former prime minister Hosokawa Morihiro once said that when he was the governor of Kumamoto he couldn't move a telephone pole without calling Tokyo for approval. Yet these regulations have created a strange paradox: they are a priori and exist solely on their own terms – they do not necessarily make business honest and efficient, products reliable, or citizens' lives safe.

The key to the paradox is that the regulations control but do not regulate in the true sense of the word. Industries in Japan are largely unregulated. There is nothing to stop you from selling medication that has fatal side effects, dumping toxic waste, building an eyesore in a historic neighborhood, or giving investors fraudulent company statements. But just running a noodle shop requires you to fill out lots of forms in triplicate, with stamps and seals. The point of Japan's red tape is bureaucratic control – the restriction of business to routine paths along which officials may profit.

Just as there is no environmental-assessment regulation, there is no product-liability law, no lender-liability law, very few rules against insider trading or other market manipulations, few testing protocols for new medicines – and no cost-benefit analyses for the gigantic building schemes of government agencies. Banks and securities firms routinely falsify financial information at the direction of the Ministry of Finance. When Yamaichi Securities went belly-up in late 1997, investigators found that MOF had instructed it to hide more than $2 billion of losses in offshore accounts. Hamanaka Yasuo, the trader who cost Sumitomo Trading $2.6 billion through his dubious commodities dealing, violated no Japanese law. While home builders must contend with a welter of ordinances that happen to keep construction-company profits high, there is no city planning in the true sense of the word.

Because of the paradox of control versus regulation, the world of rules in Japan has a Through the Looking-Glass quality. A store must wait three years after getting a liquor license before it can sell domestic beer – but vending machines sell beer freely, even to minors, everywhere. The supermarket chain Daiei had to apply for two separate licenses to sell hamburgers and hot dogs if it displayed these products in different sections of the same store – but meat-processing standards for food manufacturers had not changed since 1904. If a supermarket sells aspirin, a pharmacist must be present and have medical tools on hand – yet nowhere else in the developed world are physicians free to dispense drugs themselves, and as a result the Japanese use far more drugs, of dubious efficacy, than any other people on earth. The Through the Looking-Glass nature of Japanese regulations goes a long way toward explaining such preposterous prices as $100 melons and $10 cups of coffee. The aggregate cost to the economy is simply incalculable. These outrageous prices, absurd regulations, weird and inexplicable public works – all the ingredients of a manga-like world – exist for the simple reason that bureaucrats profit from them.

Officials have devised many ingenious ways of channeling funds into their own pockets. The River Bureau, as we have seen, has made a particularly lucrative franchise of its work.

While bureaucrats get the lion's share of the profits from construction work, a goodly percentage flows to political parties. The rule of thumb has been that contractors pay 1 to 3 percent of every large public-works project to the politicians who arranged it, in which practice the Tax Office colludes by recognizing «unaccounted-for expenditures» (i.e., bribes to politicians and bureaucrats) as a corporate-expense line item, which in the case of the construction industry amounts to hundreds of millions of dollars annually.

In Mito Komon, a long-running Japanese television series set in the Edo period, Lord Mito, the uncle of the Shogun, travels around the country incognito righting wrongs done to innocent people. The scene changes with each episode, but the villain is invariably a corrupt samurai machi bugyo, or town administrator, whom we see seated in his spacious mansion before an alcove decorated with rare and expensive art, counting gold from ill-gotten gains. His victims have no recourse against him. Only at the climax of each episode does Lord Mito's attendant raise high his paulownia-flower crest and reveal his true identity, whereupon the administrator falls to the ground in obeisance and is carried off for punishment.

The difference between Edo and modern Japan is that today we have no Lord Mito. The public suffers from chronically expensive goods and services, while bureaucrats and politicians prosper to a degree that verges on the fantastic, nowhere more than in construction, where amakudari reap post-retirement fortunes. With more than 500,000 construction firms in Japan, no ex-official will ever find himself out of a job. Their personal future income at stake, Construction Ministry bureaucrats support and encourage bid-rigging, which is endemic in Japan's construction industry, inflating the cost of public construction by 30 to 50 percent. (According to some estimates, inflated bids provide 16 to 33 percent of the industry's profits, which is between $50 and $100 billion every year.)

Just as leftist writers in the 1930s were so in love with the «dictatorship of the proletariat» that they were unwilling to admit the brutal reality of Stalinism, so mainstream Western commentators have kept up a long love affair with Japan's bureaucracy. As recently as 1997, Ezra Vogel of Harvard University, the author of Japan as Number One, described Japan's «elite bureaucracy» as one of its distinctive strengths, which «compare very favorably around the world.» «Japanese civil servants enjoy the priceless advantage of the moral high ground,» Eamonn Fingleton wrote in his book Blindside, which aimed to show «why Japan is still on track to overtake the U.S. by the year 2000.» «Their actions,» he continued, «will be judged only in terms of how well they serve the overall national interest. Their objective is to achieve the greatest happiness of the greatest number of people. Moreover, they take an extremely long-term view in that they seek to represent the interests not only of today's Japanese but of future generations.»

In the 1980s, the Ministry of International Trade and Industry (MITI) was the darling of foreign commentators; today, that honor goes to the Ministry of Finance. «MOF men truly are Nobel caliber,» continued Fingleton adoringly. MOF men are «brilliant, creative, tenacious, public spirited.» They have «not only grit and technical brilliance but an uncommon sense in reading people and their needs.» Unlike the «greed-is-good» West, «MOF today is living proof that top officials can be 'rightly oriented in their own minds and hearts.' » This is due to «pride in a distinctive (and distinctively masculine) way of life, a concern to earn the good opinion of comrades, satisfaction in the largely symbolic tokens of professional success.» What could be more attractive, more worth emulating in other countries? Nevertheless, the greedy machi bugyo of the Lord Mito series, sitting in his embroidered kimono eating off fine gold lacquer, represents a cold fact of bureaucratic life: corruption. It's a genteel, smoothly organized, even institutionalized, form of corruption, so endemic as to be called «structural» and thus not usually seen as corruption as we ordinarily understand it.

The sad reality is that the Japanese bureaucracy thrives on shady money: in small ways by cadging extra expenses with falsified travel reports; in larger ways by accepting bribes from businessmen and as favors from organized crime. Shady money is the oil that greases the wheels of Japan's smooth-running relationship between the bureaucracy and business, and that features in the expensive practice of settai.

The bureaucratic scandals that periodically rip through the Japanese media are efforts, as van Wolferen points out, to rectify outrageous excess, but they do nothing to address the structural corruption that is the normal state of affairs. In 1996, for example, newspapers revealed that Izui Jun'ichi, the owner of an Osaka oil wholesaler and a «fixer» in the Japanese oil business, had spent more than ¥75 million on wining and dining government officials, including forty-two from MITI and thirty from MOF, reaching all the way up to MITI's vice minister, Makino Tsutomu, and MOF's vice minister, Ogawa Tadashi. MITI, stung by these fierce press reports, investigated 138 employees and reprimanded six top officials. A former vice minister of the Transport Ministry, Hattori Tsuneharu (in the amakudari position of president of the Kansai International Airport), had received from Izui ¥4.9 million in cash, gift coupons, a bar of gold, and an expensive painting. (Paintings, easy to hide and difficult to value, are gifts of choice.) Izui was also reported to have given a painting worth several thousand dollars to Wakui Yoji, the chief of the MOF Secretariat – in exchange for which favor newspapers speculated that Wakui may have pressured Tax Bureau officials to relax their investigation of Izui's tax evasion.

Part of MOF's admirably «masculine way of life» involves enjoying the fun at hostess bars and other sleazy venues that are paid for by banks' settai budgets. In September 1994, Dai-Ichi Kangyo Bank treated Miyakawa Koichi, the chief of MOF's Inspectors' Office, to an evening at a «no-pants shabu-shabu» restaurant, featuring waitresses in the nude from the waist down. Miyakawa was so grateful that he let the bank people know about a surprise inspection due to take place the next day. A cartoon in a weekly magazine showed a devil at the gates of hell consulting his notebook and commenting, «For a bureaucrat from Japan's Ministry of Finance to sell his soul for no-pants shabu-shabu and yakitori, that's really cheap!»

That these scandals are chronic, not mere flukes in an otherwise honest system, is obvious not only from the sheer number of officials involved but also from their seniority. In the government ministries, a politician takes the largely ritual top position as minister, while true executive power lies with the senior career bureaucrat, the vice minister. Vice ministers from all major ministries have been implicated in recent settai and bribery scandals, and then the takings extend downward in diminishing amounts. For example, Okamitsu Nobuharu, the vice minister of Health and Welfare, was arrested in December 1996 for receiving more than ¥100 million in gifts and favors from Koyama Hiroshi, a developer of nursing homes subsidized by his ministry. At the same time,Wada Masaru, in a lesser position as the ministry's councilor, received ¥1 million from Koyama, and other officials further down the line benefited in various degrees from settai. The MHW, anxious to avoid further public scandal, carried out an in-house investigation and later fined or reprimanded sixteen employees.

Where in the past decade, in Europe, America, Malaysia, or Singapore, could we find a bureaucrat convicted of the ¥100 million garnered by MHW vice minister Okamitsu? Or the $600,000 paid by Takahashi Harunori, the president of real-estate company EIE Corporation, to Nakajima Yoshio, the former vice director of MOF's Budget Bureau in 1991? Such are the takings of those who have the «priceless advantage of the moral high ground» and stand as «living proof that top officials can be 'rightly oriented in their own minds and hearts.' »

One feature of MOF's superior moral quality is its links with organized crime. Under MOF's guidance, gangsters play a large role in Japan's financial system. In 1998, another scandal broke with the news that Dai-Ichi Kangyo Bank, one of Japan's top-ten commercial banks, extended collateral-free loans of ¥30 billion to Koike Ryuichi in 1989 so that he could buy stocks in Nomura Securities and other brokerage firms. Koike was in a business unique to Japan known as sokaiya, which is the disturbance of shareholder meetings by asking difficult questions. In other countries, people who ask hard questions at shareholder meetings are simply stockholders, but in Japan they are usually extortionist gangsters. Most large companies try to conclude their annual meetings in less than an hour, so sokaiya is a considerable threat. The answer is to pay the gangsters off. Nomura paid Koike as much as ¥70 million to keep quiet, and later it was revealed that all the other top stockholders and major banks had paid Koike as well.

The fact that officials enrich themselves at public expense is not considered to be more than a minor evil in Japan and the rest of East Asia, because people expect these same officials to manage the resources of the state in a wise and efficient manner. There is an ongoing debate in East Asia over the virtues of open, Western-style bureaucracy versus the paternalistic «crony-capitalism» found in Japan. Apologists for «crony-capitalism» admire the way that officials can easily and freely channel funds to pet industries and projects without having to engage in raucous policy debates in public. However, in this very freedom, lies the source of danger.

The muckraking journalist Lincoln Steffens, who exposed Tammany Hall-style corruption in American cities a century ago, defined «privilege» as the essential problem of corruption. What Steffens meant by «privilege» was that those with money get access to government resources; those who don't pay up go without. This is why corruption has to be taken seriously: privilege skews the way the state assigns its resources. Herein lies the key to modern Japan's mismanagement. Official support doesn't go to those who need it but to the privileged – those who pay bureaucrats the most. Looking forward to amakudari rewards, officials lavish funds on building up massive overproduction in one old-fashioned industry after another, rather than support new business involving services and the Internet. The pachinko industry hires ex-policemen as amakudari, and pachinko parlors overrun the country. River Bureau officials profit from dams, so dams go up by the hundreds. Useless monuments sprout and the seashore disappears under cement because of the privileged position of construction companies. The shady money flowing into officials' pockets is molding the very look of the land.