The Enigma of Japanese Power (18 page)

It is said that aspiring bureaucrats with brains and a good family background try to get into the Ministry of Finance, while those with brains only go to the Ministry of Construction. Nearly all the latter can eventually become directors of corporations, with no fear of being stopped by competitors with better family connections. All it takes is a tough liver to cope with their ‘evening duties’, construction bureaucrats being among the most lavishly entertained of all administrators.
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The National Tax Agency lists the construction industry as the second most ‘sociable’ industry, second only to the more amorphous category of wholesalers; in 1985 it spent 635.82 billion yen on entertainment.
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Construction officials may also expect invitations from mayors, local government leaders and members of parliament. Construction civil servants, followed by those of MITI, are the most frequently seen bureaucrats in Tokyo’s most exclusive and outrageously expensive class of restaurant. Sometimes, the ministry itself picks up the bill. In 1977 it attracted some attention for having spent 8.23 million yen dining and wining auditors checking accounts at eight regional construction bureaux.

The Construction Ministry is often referred to as the ‘godfather’ of some 350 contractors. Its officials serve them by including them among the nominees for a tender, by giving them vital information in advance, by refraining from ‘exaggerated’ inspections
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and by using their influence in the private-sector market. Although public projects pay less than private construction contracts, they have been much in demand since the slowdown in corporate investment following the oil crisis. Furthermore, 40 per cent of the contracted amount for public works is paid in advance, which means large funds for short-term investment, because much of the work is done by subcontractors who accept delayed payment of up to a year.

The regional construction bureaux are notorious for involvement in bribery cases – and those that come to light are certainly but a fraction of the whole. Only rarely do accusations touch the ministry. In 1973 a vice-director of the river bureau was arrested and made to resign, whereupon he was given a lucrative advisory position; the ministry had sacrificed one official to prevent the damage from spreading.
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A saying goes within the ministry that ‘accepting cash or women may be fatal’, the implication being that other kinds of present and entertainment fall within acceptable bounds. One perfectly safe type of bribery is the giving of
senbetsu
– cash as a parting present to retiring staff. Since even minor officials such as employees in a local office of a regional construction bureau may receive more than a million yen, higher officials probably receive rather staggering sums.
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It is clear that construction firms without ample funds to spend on politicians and bureaucrats, and without a
jinmyaku
to maximise the effect of the money, cannot survive. Signs of the pork-barrel operations that keep the LDP in power – and also keep millions of regular construction personnel, day-labourers, part-time farmers and farmers’ wives employed-can be seen all over the Japanese countryside. Huge concrete waterways hold what were once small creeks by the rice-fields; even the worst cloudbursts barely manage to cover their bottoms with water, and they are sometimes so overgrown that they are hardly recognisable as canals at all. Municipalities of small houses and shops lining half a kilometre of road are sometimes equipped with an administrative office and assembly hall complex of modern opera-house proportions. Concrete skeletons tell of projects that were never finished; a costly tunnel exists to take one single curve out of a road. The Japanese countryside is never finished; there is always room at the high end of a remote valley for one more small dam to hold back some rain-soaked earth. In the face of such vested interests, local opposition politicians in prefectural and municipal governments cannot afford, whatever their ideological views, not to co-operate with representatives of the System.
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Not all Japanese bureaucrats are as easy-going with respect to the businesses they supervise, or as vulnerable to LDP pressure, as those of the Ministry of Construction. The Agriculture Ministry belongs in the same league as the latter, but the other two economic ministries. Finance and MITI, are considered more ‘responsible’ and enjoy greater prestige.

Standing at the apex of Japanese officialdom, the Ministry of Finance (MOF) is unofficially in charge of protecting the System against the excesses that the informal relationships of a myriad
jinmyaku
could inflict upon Japan.
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If the officials of some other ministry seem too subservient to the interest groups they subsidise, or too easily swayed by politicians, they will be brought up short when they come to negotiate their share of the national budget with MOF officials. To be treated favourably where special requests or new projects are concerned, a ministry must have a good general reputation with the MOF, and a basic requirement for this is that it keep its figures straight.
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Another of the major functions of the MOF is to regulate the flow of funds from banks into the business sector. Since the war Japanese corporations have had little choice but to rely for capital on bank borrowings rather than on equity raised in public markets.
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The banks have been practically the only source of finance for industry. They hold large portions of the shares of companies within their corporate grouping. Working closely with each other, and with the very limited number of institutional investors – a group restricted almost entirely to insurance companies and trust banks – the hierarchically ordered banks have a tremendous steering power. Directing them in turn are the Bank of Japan and MOF bureaucrats. The central bank must give approval to the so-called city banks (attached to the
keiretsu
conglomerates) for their lending strategy. Each quarter, the banks submit plans and receive ‘window guidance’ in return. In the 1980s, with the days of scarce capital over, popular wisdom and the officials themselves maintain that ‘window guidance’ is only perfunctory; but foreign bankers in Tokyo and other specialist observers consider it still to be a powerful means of control. The central bank has not succeeded in its attempts to gain independence from the MOF, which therefore has the ultimate say over ‘window guidance’. Its direct control is formidable as well. A knowledgeable observer compares the function of the MOF’s banking bureau

to that of a franchiser. The banks, for their part, serve as franchisees. At the fortress-like MOF building in Kasumigaseki, 40-year-old
kacho
[section chiefs] in shirt-sleeves lay down the law to groups of blue-suited bankers, visiting in groups of five at a time. For decades these rituals were – and still are – the core of financial government. Little that matters is written down and codified. The regulations belong to an oral tradition, as interpreted by the
kacho
. The system endures, because the central motivation is to protect the banks’ profit.
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The unformalised nature of this process so vital to the Japanese economy is clear. As the author further notes, ‘regulation’ does not have the meaning attached to it in the West. There are no referees; the ‘officials are in effect player-managers who urge along their teams of bankers’.
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MOF bureaucrats generally receive privileged treatment from their colleagues in other segments of officialdom. And the general picture of them among the public comes closest to the ideal of the disinterested, hard-working, self-sacrificing civil servant whose only thought is for the public good. Hard-working most of them certainly are. A common joke has it that the children of budget bureau bureaucrats are all born during the same few months in the winter, since for most of the year they hardly ever see their wives. In recent decades the divorce rate among them has been uncommonly high, probably reflecting the fact that the élite expectations of their upper-class brides no longer include husbandless households.
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Although it cannot afford to appear to be anything but a model of public service, the training of this élite-of-elites and the environment in which it operates make it no less ruthlessly ambitious than officialdom in other ministries, and probably more so. Its members take it for granted that the LDP will endorse them for national elections in larger numbers than officials from other ministries. They also expect to receive the highest
amakudari
positions that the business hierarchy can offer, often ending up with well-paid top managerial posts in government corporations, banks, insurance companies or securities houses, as well as conglomerate firms.

The higher one’s rank in the bureaucracy, the better the
amakudari
post. Former administrative vice-ministers are the most likely candidates for the governorship of the central bank, the Export Bank or the Japan Development Bank, or for the presidency of a public corporation. Whatever a bureaucrat’s final destination, though, he can reach it only via the proper
jinmyaku
, which means that throughout his career he must cultivate patron-client ties with businessmen and politicians.

The golden age of the MOF bureaucrats extended from the United States occupation era to the mid-1960s. This was the period when, operating in tandem with MITI bureaucrats, they more or less ran Japan. They monopolised monetary and budget policies. They were at the same time secretive and extremely well informed, to the extent of earning the epithet ‘Japan’s CIA’. And since no one else understood enough about what they were doing, or for that matter about the financial resources they could draw upon, their instructions went nearly unchallenged.

This period of glory drew to a close as subsidies for co-opted interest groups began to tie the hands of MOF bureaucrats. For several years attempts were made to remove this major hindrance, the most eyecatching of them being the ‘break fiscal rigidification’ movement of 1967–8. The budget bureau of the ministry first sounded the alarm over a loss of flexibility in budget decisions due to obligatory increases in fixed expenses. Rice growers and many other parties receiving government benefits had become so accustomed to annual increases in their income that, together with salaries and other rising costs for which the government was directly responsible, they absorbed too much of the increases in revenue, leaving very little or nothing to be appropriated at the ministry’s discretion.
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In a fine demonstration of how powerful certain individual bureaucrats can be, the director of the budget bureau, Murakami Kotaro, in the autumn of 1967 launched a major propaganda campaign involving the press, other ministries and major figures in the LDP. The impression he tried to create was that a crisis loomed, necessitating a rescue operation by his bureau in the form of dramatic changes in budgetary policy. In spite of much support from LDP heavyweights and other administrative circles (including a parallel plan by Miyazawa Kiichi, then head of the Economic Planning Agency), the movement had little effect on the next budget and died a quiet death. The campaign backfired because the budget bureau claimed that the period of high economic growth was over even while the economy continued to grow at the usual high rates. An added problem, typical of a ministry sometimes described as ‘all bureaux but no ministry’, was the embarrassing failure of any of the other bureaux to lift a finger in support of the budget bureau.
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Whether the bureaucrats were aware of it or not, the ‘break fiscal rigidification’ movement and subsequent less intensive campaigns were, in fact, efforts to establish the budget bureau of the MOF as the strongest political body in Japan. They were a reaction to what it perceived as a gradual encroachment by strong LDP politicians (especially Tanaka Kakuei) on its prerogatives. If they had succeeded, they would have given the finance bureaucrats freedom to introduce new sets of national priorities. As things are, Japanese budgets do not reflect any national priorities that are newly established or consciously reconfirmed; there is no central political body that can direct significant shifts in existing priorities.
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The cake of national resources is sliced in an almost totally predetermined fashion, dictated by the need to ensure political peace through regular spending on behalf of LDP clients and interest groups attached to the bureaucracy. This rigidity of customary practice within the System means that deficit spending is a continuous nightmare for the finance bureaucrats. They are known, almost to a man, as ‘fiscal conservatives’; and they are ‘conservative’ for good reason. Once a trend is set in motion in Japan, it is very difficult to stop, let alone reverse. The informal relationships that keep the political economy going are such that the major participants could not be convinced they must forgo the benefits of current practice. No overriding rules for restricting excesses are recognised, and appeals to the national interest do not work. Yet since the late 1960s deficit spending has been a significant means whereby the bureaucrats help steer the economy. It created large government debts and, until the late 1980s, considerable fear of the treasury becoming trapped in ever deepening dependence on government bonds.
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For the MOF, the government bond problem has meant no-growth budgets (except for a few items) and a gradual decline of its leverage over other ministries.
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Only with the discovery in the late 1980s of new ‘money-game’ techniques for raising income, and with the privatisation of Nippon Telegraph and Telephone (whose stocks reached such an astronomical price-earnings ratio that it became the most expensive company in the world) were the MOF bureaucrats relieved of their worries. While Japan’s banks, security houses and insurance companies – all operating to a large extent under the wings of the ministry – were growing (at least on paper) at near exponential rates, and becoming a dominating force on the international capital and financial markets, the cream of the élite administrators appeared to be entering a new glory period.

Every Japanese ministry usually has one principal enemy among the other ministries. For the Ministry of Construction it is the Ministry of Transport, which has territorial claims over the roads and wants a share of the petrol tax. For the Ministry of Finance, it is the Ministry of Post and Telecommunications, which runs the postal savings system, the largest financial institution in the non-communist world. Since 1976 the proportion of postal savings has exceeded that of savings accounts at commercial banks. The MPT has also gained clout through its authority to set slightly higher interest rates for the postal savings system, as well as its willingness to close its eyes to tax evasion making use of multiple savings accounts under false names. It is also protected by a strong group within the LDP that partly depends on electoral help from postmasters in the post offices to be found in almost every hamlet of Japan.
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A major reason for the hostility of the MOF towards the MPT, however, is the rivalry over choice
amakudari
positions in institutions making use of postal savings funds. The chief of MOF’s secretariat has to secure more than twenty high-level positions for retiring officials every year. In order to safeguard its
amakudari
programme the ministry has helped establish new institutions such as housing loan companies, and has succeeded in supplying presidents to some of them.
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A beneficial byproduct of the competition for
amakudari
positions is that it provides a strong incentive for bureaucrats to keep their ministries small.

A ministry that has suffered even more spectacularly in its bureaucratic battles with the Ministry of Post and Telecommunications is the Ministry of International Trade and Industry. The struggle between the two ministries in the first half of the 1980s over the relatively new sector of telecommunications technology and industry was serious, and involved mediation by several LDP politicians before an inter-ministerial memorandum finally effected an armistice. Even before this, MITI’s powers had been on the wane. As Chalmers Johnson, the chronicler of this well-known institution, has put it: ‘In a certain sense, MITI is a classic example of a bureaucracy that has pursued suicidally successful policies. . . . The ministry is a little like a poverty agency that has actually succeeded in eliminating poverty.’
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With the end of super-high economic growth and the consolidation of the industrial apparatus, MITI has had to revaluate its tasks. It has thrown itself eagerly into new projects for the development of high technology and the information industry. But partly through the claims of rival bureaucrats in these new sectors, it cannot command the nearly unconditional obedience it was once used to.

It is MITI that has been most closely identified with Japan’s post-war ‘economic miracle’. For many decades it was a victor in power struggles with those who stood in its way, notably the Fair Trade Commission (FTC), the official watchdog of the Anti-Monopoly Law. As the first major work on the informal relationships among the administrators summed it up:

The Ministry has the powerful backing not only of industry but also of trade associations and the four big-business organisations that are, in effect, its constituency. Consequently the Ministry functions as a promoter and protector of industry more than as a regulator and has consistently pursued the policy of aiding and supporting business and industry in the face of opposition from the Fair Trade Commission.
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The FTC is about the only official Japanese institution that has tried to hold out, for some of the time at least, against the System’s informal practices and relationships that undermine the formal rules. Although it fails practically every time, it helps preserve the illusion that the formal rules are taken seriously. Very occasionally, though, the FTC gets the better of the economic bureaucrats. In one famous case in 1974, the Petroleum Association and executives from twelve oil firms were charged with having fixed prices during the oil crisis of the previous year. They claimed in defence that they had merely followed the instructions of MITI. But this cut no ice with the Tokyo High Court, and the case was closed ten years later with fines and suspended prison sentences for the executives.