Placing the blame for lack of reforms?

John de Boer (University of Tokyo & GLOCOM Platform)

On 22 August, the Standard & Poors (S&P) credit rating agency once again threatened that Japan's backtracking on reforms could damage its rating. In an Associated Press article released on that same day S&P warned that, "any further dilution of the Japanese government's reform agenda will undermine the prospects for an economic recovery, further reduce the government's future fiscal stability and lead to an increase in Japan's already massive public sector debt". As evidence the agency pointed to the limited deregulation of the country's postal service; the small 3% cut in public works spending for the next fiscal year and a proposal to keep full government deposit insurance on certain bank accounts after April 2003. Regarding who was to blame for the government's failure to live up to Koizumi's promises, the author of the S&P report, Takahira Ogawa, did not know where to place the blame. He suggested that it was unclear whether the "backtracking" was due to opposition within the government (LDP), from bureaucracy or simply a tactical retreat. Neither is there consensus in the media. Some news sources point to Koizumi's lack of power, others place the blame on careless bureaucrats and others on old style politics. Before we know it people will start saying that we have to throw everything away and begin from scratch.

This is exactly what an article featured in the International Herald Tribune and the Singapore Straits Times on August 19 and 20 (respectively) tried to promote. The article was entitled, "Why Tokyo finds reform so difficult" and it was written by Yoshihiro Sakai, a former senior official at the Bank of Japan. According to Sakai, "Japan's failure to reform is rooted in its social fabric". This sounds worse than originally imagined. Sakai insists that there exists an entrenched unwillingness on the part of the establishment to accept the blame for any wrong doing and states that this can be traced back to the criminals honored at the Yasukuni Shrine after WWII. By refusing to take responsibility for a problem at the right time, states Sakai, Japanese politicians have consistently chosen to defer action indefinitely making things practically non-resolvable and this tendency has now become habit. The only way out, according to Sakai, is for Japan to start reforming its attitude of non-repentance beginning with Yasukuni. If government officials, including hard liners such as Shintaro Ishihara, do so Sakai believes that the taboo against accepting failure publicly will be removed and once this taboo is removed reforms will be easier.

The Japan Times editorial of 22 August did not go so far. In reference to the mounting difficulties surrounding reform plans for highway corporations, the blame was placed on the lax management practices of bureaucrats. The crushing 40 trillion yen debt incurred by highway corporations was explained as a result of the refusal of bureaucrats managing public corporations to comply with normal accounting practices. What is needed, argued the Japan Times, is an influx of pro-reform, private sector managers, such as the former shipbuilding magnate, Mr. Hisashi Shinto (who headed NTT's transition to privatization), who can shake up the system.

In stark contrast to this, the former Greek Ambassador to Japan, H. E. George Sioris, claimed that it was important for reformers to "listen to the voices from within the ranks" of government. If not, antagonisms between "well-meaning reformers and so-called protectors of the turf" will doom any reform effort. Mr. Sioris was specifically referring to reforms underway in the Ministry of Foreign Affairs (MOFA) and warned of future problems that MOFA may encounter if it continued to circumvent those inside the Ministry by appointing outsiders to top Ministry posts. "In the long run", claimed Sioris, "MOFA will no longer be able to attract the best university graduates". He ended his article in The Japan Times stating that "every practice of the past does not deserve a modern day inquisition".

Officially, the Foreign Ministry seems to have discounted such arguments as is evident in its appointment of Mr. Hatsuhisa Takashima, a former NHK news anchor, as a director general in the Ministry. According to the Singapore Straits Times, Mr. Takashima became the first-ever, private sector Japanese to be appointed to such a post in the central bureaucracy. The purpose behind this move orchestrated by Yoriko Kawaguchi (Japan's Foreign Minister) is to "inject new blood and new thinking into the ministry".

To complete the survey, fingers have also been pointed at Koizumi. A Singapore Straits Times article quoted a Senior Economist at Credit Suisse First Boston who lamented that, "Mr. Koizumi appears inclined to give way on his original reform agenda by reverting to the wasteful spending policies and muddle - along approach of past administrations". He concluded by stating that, "it is now hard to distinguish Koizumi's administration from all others". The whole process of reform according to him was a "sham".

As is evident, few agree as to where the problem lies. Perhaps as Sakai states, it has to do with the very social fabric of Japanese society. Nevertheless, considering that not every practice is in need of an inquisition, as George Sioris states, the process is by no means as straightforward as S&P would want. The problem is extremely delicate as it not only involves vested interests but challenges the very essence of how business, politics and government have been done for decades. In fact, there are still many, including some Europeans (See EU Report 21), who think Japan is on the right track. Contrary to what the S&P may think, the very stability of the Japanese government may be in jeopardy if reforms are rushed.

Articles:

• Kwan Weng Kin, "Japanese Ministry's Makeover Man", Singapore Straits Times, 21 August 2002
• Editorial, "Reform of the Highway Corporations", The Japan Times, 22 August 2002.
• George Sioris, "Managing MOFA fault lines", The Japan Times, 19 August 2002
• Yoshihiro Sakai, "Why Tokyo finds reforms so difficult", The International Herald Tribune, 19 August 2002
• "Koizumi fails to get past old guard to score reform goals", Singapore Straits Times, 19 August 2002