Dogs and Demons

Information is unreliable, knowledge of new techniques used abroad scarce, and public funds distributed not to the sectors that need them but to those who pay bureaucrats the most – in this dim twilight world, Japanese officials are losing touch with reality. Government agencies feel they should be doing something and, unable to see what the basic problems are or how to address them, they turn to building monuments. Monument construction is profitable, too. Anyone who travels in Japan will be familiar with the multipurpose cultural halls, museums, and communications centers that are becoming the predominant features of urban life. Even tiny villages have them. Halls and centers that cost tens or hundreds of millions of dollars each go up across the nation, it is said, at the rate of three a day.

In the ancient Chinese philosophical treatise Han Feizi, the emperor asked a painter, «What are the hardest and easiest things to depict?» The artist replied, «Dogs and horses are difficult, demons and goblins are easy.» By that he meant that simple, unobtrusive things in our immediate environment – like dogs and horses – are hard to get right, while anyone can draw an eye-catching monster. Japan suffers from a severe case of «dogs and demons.» In field after field, the bureaucracy dreams up lavish monuments rather than attend to long-term underlying problems. Communications centers sprout antennas from lofty towers, yet television channels and Internet usage lag. Lavish crafts halls dot the landscape while Japan's traditional crafts are in terminal decline. And local history museums stand proud in every small town and municipal district while a sea of blighted industrial development has all but eradicated real local history.

In libraries devoted to Japan, shelves sag under the weight of hundreds of volumes written about the gardens of Kyoto, Zen, Japan's youth culture, and so forth. Yet we must concede, after looking at the Construction State, that these are not the areas into which the energies of Japanese society are really flowing. The real Japan, sadly ignored by travel writers so far, lies in its many modern monuments; visiting a few of them will give us a taste of the true Japan.

Our first stop is Tokyo's Teleport Town, a waterfront construction project like the ones that almost every Japanese city with access to the sea now boasts. These Utopian visions of high-tech «cities of the future» are Japan's pride, with their expensive landfill in harbors, followed by museums, convention halls, and superexpensive «intelligent buildings.» The costs are astronomical, high enough to drag Osaka Prefecture and Tokyo, Japan's two major metropolitan regions, into bankruptcy. But the local governments are pressing on regardless.

Teleport Town was built on land reclaimed from Tokyo Bay by the Tokyo metropolitan government and developed with state-of-the-art infrastructure. Time 24, one of its «intelligent buildings,» boasts fiber-optic wiring and other equipment, and is serviced by a shiny new train system. The trouble is that there was no need for Teleport Town. Time 24 has been almost empty since it opened, and so has the train. So few tenants moved in that in February 1996 Time 24 tried to lease floors to the Fisheries Department, to be filled with fish tanks – unsuccessfully. Projections indicate that Teleport Town will run up a ¥5 trillion shortfall over the next three decades.

From here we move on to Tega Marsh Fountain, built by the Chiba prefectural government, northeast of Tokyo. This fountain, spouting water from the most polluted inland body of water in Japan, was built to «symbolize the community's hopes for the future.» So poisonous is the spume that operators halt the fountain when the wind is blowing hard or when there is an outbreak of toxic algae. In a newspaper interview, one man summed up the view of local residents: «I don't have a good feeling when I see the fountain.»

While Teleport Town is a monument in progress and Tega Marsh Fountain is in its terminal stages, in Gifu, between Kyoto and Nagoya, we can see a monument at its inception. The town of Gifu is a dreary conglomeration of little shops, home to thousands of low-end manufacturers of T-shirts and cheap clothing. This local industry, at a sharp disadvantage to China and other cheap foreign producers, is mired in chronic depression, hardly an encouraging sight, but in December 1995 Gifu Prefecture announced that it intended to become the «Milan of Japan.» At great expense, it redeveloped the wholesale market near the train station, raising a gleaming new complex that Gifu hoped would solve the problem of structural decline in Japan s apparel industry.

Northwest of Gifu, the Hokuriku Express, a spur train line, was built for ¥130 billion during the course of almost thirty years simply to shave fifteen minutes off the rail time between Tokyo and Kanazawa, and it is now to be overshadowed by a newer monument. In addition to the fact that there was no real need for it in the first place, it appears no one will ever use the line because Japan Railways is extending the bullet train to Kanazawa. A Hokuriku Express executive says, «Although no one openly says so, everybody's worried. We hope to attract passengers by developing tourist attractions.» In other words more monuments.

Last, there is the Hakata Bay project, a container port being built on mud flats in the harbor off Fukuoka City. When completed, the 448-hectare island, second in size only to Teleport Town, will destroy bird habitat, the last remaining place in Hakata Bay for migratory birds. There was some opposition to this project in the early 1990s, but Fukuoka Prefecture claimed the port would be needed for new commerce with Southeast Asia, though this is unlikely, given the high yen and increased competition from other ports in Asia and Japan. Kaneko Jun, a manager at Evergreen, a company that handles the largest volume of containers at Fukuoka, said, «As far as our company is concerned, the island is not necessary.» Would Fukuoka protect the birds, cancel the plan, and save itself ruinous expense? The answer is predictable. Although the World Wildlife Fund Japan petitioned the national government to review the project, the Environment Agency approved it and construction began in April 1996.

Japan's monument mentality is in evidence everywhere. Not only the Construction and Transport ministries raise monuments – every department does. One of the biggest builders is the Ministry of Agriculture, Forestry, and Fisheries (MAFF), which receives 20 percent of the public-works construction budget, far more than it needs. Nevertheless funds, once budgeted, must be spent. MAFF devotes as much money as it can to creating untraveled forestry roads and fishing ports where no boats call, but even this isn't enough to soak up the surplus. To spend it all, MAFF officials have cooked up some truly bizarre schemes, the most fanciful among them being rural airports devoted to airlifting vegetables. The idea was to improve Japan's agricultural productivity by speeding vegetable delivery from rural areas to big cities. The veggie airports are a classic Dogs and Demons project, because the problems in Japanese agriculture have little to do with delivery and everything to do with other factors-such as artificially high prices and a declining workforce – which MAFF would rather not address.

There are four veggie airports already built, and five more under construction. However, as it turns out, flying vegetables costs six to seven times as much as trucking them, and far more labor to load and reload them from trucks to aircraft to larger aircraft and back to trucks. Kasaoka Airfield flies vegetables to Okayama City, only a few dozen kilometers away, even though flying them takes just as long as sending them by road.

Boondoggle fever is infectious. It has expanded beyond government into endowed foundations and cultural groups. Even the Red Cross, it seems, is not immune. In March 1997, newspapers revealed that the Japan Red Cross had secretly diverted much of the $10.3 million in earthquake-relief donations that came from Red Cross organizations in twenty-six countries to build a facility called the Hyogo Prefecture Disaster Treatment Center.

«This money was collected for victims of the Kobe earthquake,» said Vedron Drakulic, the public-affairs manager of the Australian Red Cross. «We didn't know about other uses.» One could hardly blame the Australians for not understanding the way things work in modern Japan. The socially prominent Japanese who sit on the Japan Red Cross board and the millions of contributors across the nation who support it are sincere in their desire to be philanthropic. They, too, are victims for they are no match for the bureaucrats who manage the organization like every other, programmed to make construction a priority.

Mitsuie Yasuo, a Construction Ministry official who has argued in support of higher public-works budgets, makes the claim that «Japan is still a developing country compared with Western Europe and the United States.» This open admission of the Construction Ministry's ineptitude is, incredibly enough, a truthful one. Perhaps the single exception is Japan's rail network, one of the most extensive and efficient in the world. Railroad building is an example of a policy that grew far beyond its original aims and became one of officialdom's unstoppable tanks. A high priority in the postwar years, railways took on a life of their own as the ultimate pork barrel beloved of politicians, with the result that gigantic new lines continue to expand across the nation regardless of economic need or environmental impact. As Richard Koo, the chief economist for the Nomura Research Institute, puts it, «Good projects are a luxury. Recovery is a necessity. How money is spent is not important. That money is spent is important.»

That so much money has brought so little real improvement to life is an aspect of Japan's modern development that most defies comprehension. As boondoggles burgeon madly over the landscape, the sorely needed improvements that would really enhance life remain in the future: burial of power and phone lines, construction of sewage lines (still lacking for a third of Japan's homes), provision of good public hospitals and educational institutions, cheap and efficient air travel (Japanese domestic air travel is the most expensive in the world, and Narita Airport in Tokyo features such poor design and management that travelers recently voted it the forty-second worst airport in the world out of forty-three), and waterproof waste-disposal sites. This is not to mention a massive de-construction program to remove the Construction Ministry's worst mistakes – such as the asbestos found in almost every large building in the country. Yet money does not flow to such projects. It flows to museums with no artworks, rail lines with no passengers, container ports with no ships, new cities with no tenants, and airports for radishes. The trillions of dollars poured into construction during the past decades have been going, quite simply, to the wrong places.

To understand how the monument frenzy can continue at fever pitch, we need to take another look at how these projects are funded. Where do the bureaucrats get their money? They get it from Zaito, or FILP (Fiscal Investment and Loan Program). Zaito is Japan's second budget, the shadow budget, through which MOF's Trust Fund Bureau draws on a huge pool of deposits in the postal-savings system to fund its agencies and programs-with almost no parliamentary overview. Zaito is the bureaucracy's private piggy bank.

Zaito works like this:The government grants tax exemptions and other preferential treatment to postal-savings accounts managed by local post offices; interest on postal-savings deposits is consistently higher than in the private sector. Lured by these higher interest rates and by the convenience of banking at post offices, the Japanese people have put more and more of their money into postal savings, to the extent that by the end of the twentieth century they accounted for about a third of all bank deposits in Japan.

This enormous pool of capital – trillions of dollars' worth – is handed over to MOF's Trust Fund Bureau to manage. With the funds from postal savings, pension funds, and other special accounts combined, the Trust Fund Bureau has, in effect, become the worlds largest government bank. It invests much of the money in Japanese government bonds, which helps to explain why these bonds, which paid interest of only 1 to 2 percent or less for most of the 1990s, still found buyers – or, at least, one large buyer, the government itself, using captive savings deposits managed by the Trust Fund Bureau.

With money like this at its disposal, how could MOF resist the temptation to dip into the honey pot? It didn't take long. In 1955, only three years after the American Occupation ended, MOF borrowed a little money from the Trust Fund Bureau to support certain items for which there was not enough allocation in the general budget; the purpose was obviously to get around the official budget process in the National Diet.

It worked all too well. By 1999, Zaito borrowings had skyrocketed to ¥52.9 trillion annually, including ¥39.4 trillion overseen by the Trust Fund Bureau and another ¥13.5 trillion lent by the Postal Life Insurance system. In 1999, the ¥52.9 trillion Zaito program amounted to two-thirds of the money disbursed in the official «first budget.» The beauty of Zaito, from MOF's point of view, is that it flows from an inexhaustible pool of public savings and is largely invisible to politicians and the press. So far so good. The problem is that the people who manage Zaito are the same «brilliant, creative, tenacious, public spirited» MOF men who have run Japanese banks into the ground. With an endless supply of money at their disposal and no public accountability, the fifty-seven tokushu hojin and other agencies on Zaito support have racked up debts as they have spent trillions on all these wasteful monuments and shell agencies supporting ex-bureaucrats.

When these corporations and agencies found themselves unable to repay their Zaito borrowings, the tobashi started.

Tobashi, or «flying,» is a word we have met before as the term used by banks to describe the method whereby they pass bad loans on to subsidiaries, thus causing them to «fly» off the books. In the case of Zaito, MOF lent more money to Zaito borrowers to cover the interest payments. By 1997, troubled Zaito loans were estimated to be as high as ¥62 trillion, although even this is a conservative figure. These Zaito obligations, added to the cumulative deficits of the central and local governments, the «hidden debts» (such as ¥28 trillion for the old Japan National Railroad Resolution Trust), and the juggling of inter-governmental accounts, raise Japan's real national debt to a level higher in absolute value than the U.S. national debt, equal to as much as 150 percent of Japan's GNP.

To see where all the Zaito money went, one must step boldly into the swamp of bureaucratic finance. The breeding habits of tokushu hojin are remarkable: ninety-two tokushu hojin, grouped under various ministries, have spawned thousands of koeki hojin, of which the central government oversees 6,922 and regional governments 19,005. Amakudari run most of the koeki hojin associated with the government, while ex-officials and employee welfare funds of the various ministries own a major portion of their stock. The koeki hojin in turn breed grandchildren, owned by the same people: full-fledged private profit-making enterprises that, without having to make public bids, gain a large share of public-works contracts. The various corporations fall under the jurisdiction of different ministries, which use them like.cattle to be milked. MITI sponsors a herd of 901 hojin, the Ministry of Education 1,778. All these hojin feed on Zaito money. Their breeding ground is the ministries that oversee them. They have no natural predators. Their droppings take the form of huge pellets known as monuments.

At the top of the list is the Highway Public Corporation, Doro Kodan, the largest of all the swamp creatures, king of the jungle. To build and manage Japan's highways, it has an operating budget of ¥4.4 trillion, roughly half of which comes from road tolls and other highway receipts; Zaito borrowings supply the rest. (The Highway PC is in fact Zaito's single largest borrower.) Over the years, the Highway PC has sunk into a quagmire of unrepayable debt; its cumulative red ink had come to well over ¥20 trillion by the end of the century. At this level, it rivaled even the notorious Japan National Railroad debt (¥28 trillion) and by 2002 might even surpass it. This desperate financial situation lies behind the high tolls, such as the ¥1,700 charge to drive for three minutes over the bridge to the New Kansai Airport.

The management of highways has its profitable side, however-the operation of service and parking areas along the freeways, with their attendant food and drink concessions, as well as telephone and car-radio monopolies. These monopolies lend themselves to schemes whereby bureaucrats make money for themselves. Here's how it works: The Highway PC creates a koeki hojin known as the Highway Facilities Association, which owns and manages the thousands of service and parking areas and has annual revenues of ¥73 billion, making it Japan's seventh-largest real-estate company. For this it pays the Highway PC only ¥7 billion in fees (less than 10 percent of revenues); the rest goes to the amakudari who run it. In turn it contracts out the work of operating the service areas and parking areas to agencies whose qualifications are that ex-bureaucrats from the Highway PC and the Construction Ministry employee-welfare funds own most of their stock. These companies have combined sales of ¥545 billion and employ 26,000 people, almost three times more than the number employed by their grandfather, the Highway PC. Add in the sales earned by the Highway Facilities Association, and the earnings of these subsidiaries come to more than ¥600 billion annually, a large part of which is pure profit, since the Highway PC awards cushy bloated contracts with no public bidding.

What all these numbers tell us is that the retired bureaucrats from the Construction and Transport ministries who run the Highway PC have neatly removed the profits in road management from the Highway PC's budget and funneled them into their own pockets. Every time the Highway PC builds a new highway, the public pays high tolls, shouldering the burden of paying off the Zaito debt, while the bureaucrats profit from new service- and parking-area concessions. Therefore it is imperative to build more and more highways.

Everywhere you look, you find parasitic tendrils sucking nourishment from the flow of Zaito money. The favorite technique is marunage, «tossing it on,» by which an agency midway in the food chain receives a contract from the government and then tosses the project on to a subcontractor. The agency receives hefty fees in spite of not having done any work.

An example of marunage is the New Development Materials Company, an enterprise in the purview of the Ministry of Posts and Telecommunications (MPT). Anyone who has been awarded a contract to build a new post office must order materials through this company, although its business is entirely marunage – it simply channels orders to the suppliers that the builder would have used anyway. The contractors who design new post offices do not particularly mind, however, as there are only four of them and MPT employee funds own most of their stock. MPT has dozens of other profitable marunage subsidiaries, such as Japan Post Transport, which subcontracts the job of collecting letters from mailboxes and delivering them to post offices. This explains why the post office charges some of the world's highest postage rates. In recent years, postage rates have risen so steeply that people send letters to Hong Kong in bulk and have them re-posted to Japan one by one. International airmail from Hong Kong is cheaper than the domestic post.

The shell game goes on. Just as MOF found a way, via Zaito borrowings, to remove much of the budget from the overview of the Diet, individual ministries have found ways to raise money on their own account, thus bypassing MOF. A favorite technique is to establish a gambling venue from which the ministry takes a share of the proceeds via a koeki hojin. Thus the Transport Ministry has ¥6.6 billion at its disposal earned from boat racing, while MITI rakes in ¥16 billion from auto and bicycle racing. The police, meanwhile, make sums that dwarf those of all other ministries combined from their involvement with pachinko.

What happens to all this money is a mystery. In the case of MITI, the subsidiaries that handle the gambling earnings do not publish the names of the agencies to which they distribute the money. The official reason is that the United States might sue Japan at the World Trade Organization if it learned that MITI was subsidizing certain industries. The real reason is that most of the money flows to comfortable amakudari nests, such as the Industrial Research Center – the recipient of roughly $1 million a year for each of its twenty-three amakudari employees – for no work that anyone has been able to discover. A disgruntled MOF official remarked, «[Racing money] is not checked by MOF. It's MITI's pocket money. It's a warm bed of privilege that MITI will guard to the death.»

On the day the Bastille fell in 1789, Louis XVI went hunting and had a rather nice day; the news of the fall of the Bastille meant very little to him. In hindsight, we know that it was one of the pivotal events in world history and that it cost the king his head. But on that day hunting took priority, and in the evening the king wrote in his diary: «Aujourd'hui rien,» "Today, nothing."

The Japanese bureaucracy does not realize that the Bastille has fallen. When a reporter from the Nikkei Weekly pointed out that the value of the collateral on which banks granted their bad loans – mostly land – had dropped to the point that the banks can never recover the principal, a senior official at the Banking Bureau scoffed that it was, after all, «just collateral.» He went on to say, «There is enough cash flow for most companies to make payments on these loans, especially with current low interest rates.»

As we have seen, corruption in MOF is widespread and well documented. Scandals in 1997 and early 1998 resulted in a public raid of MOF's offices by police investigators, and two suicides, not to mention lots of salacious details about no-pants shabu-shabu. Yet, in an interview by the Mainichi Daily News in February 1997 concerning the bribery scandal of Nakajima Yoshio, the recipient some years earlier of $600,000 from the EIE Corporation, Sakakibara Eisuke (then vice minister of MOF) responded that this had been «emotionally magnified,» «an anomaly.» In February 1999, as the government was about to infuse ¥7 trillion into the failing banking system, he claimed that the financial crisis would end «in a week or two.» This despite the fact that admitted bad loans (at that time) amounted to ¥49 trillion, seven times the amount of the government bailout.

Alas, the crisis will not end in a week or two, because the world has changed. For MOF, no harkening after the old days of protected local markets will save Japan's depressed stock market, bankrupt pension funds, banks submerged in red ink-and a national debt that is the highest in the world. Fundamental problems beset other ministries as well. And yet the bureaucrats have still not been called to account. When the official at the Environment Agency remarked, «Even if underground water in Kobe is contaminated by chemicals, few people drink the water,» he was essentially responding, «Rien.» Dioxin in the water table? Not to worry. As for the destruction of Japan's last great wetlands at Isahaya, well, said the chief of the Ministry of Agriculture, Forestry, and Fisheries, «The current ecosystem may disappear, but nature will create a new one.»

For those looking to what the future is likely to bring to Japan during the next few decades, the answer "Rien" is an important one to understand. It rules for a simple reason: the Zaito piggy bank is still flush with postal savings. No force on earth can stop the forward march of Japan's bureaucracy for the simple reason that there is ample money to support it.

«Rien» does not mean just business as usual. As we have seen earlier from the Law of Bureaucratic Inertia, it means gradual acceleration: more of the same business, and faster. Most readers will be familiar with Dukas's music for The Sorcerer's Apprentice, which was featured in a famous animation sequence in Walt Disney's Fantasia. The story is that a sorcerer asks his apprentice to fetch water while he is away, but the boy is too lazy to do it himself. He uses a bit of magic stolen from his master by which he empowers a broom to fetch the water for him. For a while, all goes well. But the water keeps accumulating, and the apprentice realizes that he doesn't know the spell that will make the broom stop. The broom multiplies. Soon hundreds of brooms are pouring torrents of water. The music builds to a climax – there is no stemming the flood now – but finally the sorcerer returns, and in an instant the brooms stop and the waters recede.

Japan's bureaucracy is like this. Before World War II, the bureaucrats had already consolidated power but had to share it with the armed forces and the big zaibatsu business cartels. After the war, with the army and the zaibatsu discredited, politicians, the press, and the public consigned their fate to bureaucrats, allowing them near-dictatorial powers and asking no questions. For a while, the system worked reasonably well. But in the 1970s, things started to get out of hand. Government agencies began to bury cities and countryside under ever more aggressive building schemes, piling dam on top of dam and landfill on top of landfill. The tempo of the music sped up. Agencies started multiplying. First there were tokushu hojin, then there were koeki hojin, and finally there were companies like Friends of the Waters – all dedicated to building more dams, more roads, more museums, more harbor landfill, more airports for vegetables. By the end of the 1990s, there were thousands of brooms fetching water, most of it the color of red ink.

In Japan's case, unlike that of the sorcerer's apprentice, there is no wizard who knows the charm that will stop the brooms. The scale of public works on the drawing board for the next two or three decades is mind-boggling: 500 dams planned, beyond the more than 2,800 already built; 6,000 kilometers of expressways beyond the 6,000 already managed by the Highway PC; another 150,000 kilometers of mountain roads on top of the 130,000 kilometers already built by the Forestry Bureau. Nagara Dam, which resulted in three large river systems being concreted, was just for openers. «Why not go and connect those systems to Lake Biwa?» asks Takasue Hidenobu, the chairman of the Water Resources Public Corporation. For yet another Lovecraftian thrill, one need only look at a map of Japan to see what he is suggesting – nothing less than the demolition of a mountain range, as Lake Biwa sits on the far side of one, in a completely different prefecture from that of the Nagara Dam river systems. Meanwhile, Osaka Prefecture has plans to fill in all of Osaka Bay to a depth of fifteen meters. The music is building to a crescendo.

The process has the insistent quality of Japan's march to war in the 1930s. Inose Naoki writes:

At the moment, our citizens are waiting again for the "End of the War." Before World War II, when Japan advanced deeply into the continent, it was like the expansion of bad debts [today], and unable to deal with the consequences, we plunged into war with the United States. We should have been able to halt at some stage, yet even though we were headed for disaster, nobody could prevent it. At this point, lacking an «Imperial Decree,» there is absolutely nothing we can do to stop what is going on.