Market Focus : The Practical Side of Japan Wins Out : In matters of negotiating--from trade issues to business deals--Tokyo always favors pragmatism over principle.

When Britain set out to win for its stock brokers the right to hold seats on the Tokyo Stock Exchange, London officials initiated negotiations on the principle of equal access for all qualified firms.

The Japanese asked, “How many seats do you want?”

“Any company that meets the standards should be allowed to enter the market,” the British replied.

“How many seats do you want?” the Japanese asked again.

And so, frustratingly, the exchange continued until finally the British said they wanted two seats. The Japanese agreed.

That story, related by author and noted Japan-watcher James Fallows, underscores a vital characteristic of Japan that businessmen and others trying to deal with the country fail to recognize at their own peril. Here, whatever principles may exist--in the form of constitutional provisions, laws, administrative rulings and political policies--are never applied with abstract, “let-the-chips-fall” neutrality.

Westerners are interested in process, but Japanese pay attention to the outcome, Fallows writes. “In Japan, the result itself is more important than the rules that led to it,” he adds.

Kunio Maeda, a former construction company executive who is now a lecturer at Hitotsubashi University’s commerce school, concurs. Japan’s “way of doing business is to make exceptions to its principles,” he wrote in an Asahi newspaper essay.

Indeed, Japanese pragmatism prevails over principle in the courts, diplomacy, economics, trade negotiations and everyday ways of thinking. The most recent prominent example was legislation enacted June 15 to permit the dispatch of noncombat troops overseas for the first time since the end of World War II--despite a constitutional requirement that “land, sea, and air forces, as well as other war potential, will never be maintained.”

The Bush Administration welcomed the pragmatism of the troops-dispatch legislation. But frustrated U.S. trade officials who are forced to negotiate one narrow issue after another--rather than a single principle that applies to all issues--are often driven up the wall by this pragmatism.

“You have a different regulatory system than we do,” Ambassador Michael H. Armacost complained at an annual convention of the Japan Chamber of Commerce last spring. “That is why we want the rules to be spelled out clearly. It is very important that the rules be transparent.”

Precise rules, however, are precisely what Japanese wish most to avoid.

“We give more priority to day-to-day decisions rather than to rules,” Takakazu Kuriyama said before assuming his post last March as ambassador to Washington.

Pressed by the United States to open its rice market as part of the Uruguay Round of GATT (General Agreement on Tariffs and Trade) negotiations, Japan’s initial response was, “How about 3% of the market?” When that offer was rejected, the Japanese responded, “How about 5%?”

Now, talks are focused on a proposed process of market-opening under which a ban on imports would be replaced over time by a decreasing schedule of tariffs.

The Japanese reason that opening up their market--rather than setting a specific quota--would increase American rice sales to Japan by, at the most, $500 million. That’s a minuscule portion of last year’s bilateral trade imbalance of $42.3 billion. Meanwhile, they fear, imports from other countries such as Thailand could substantially hurt Japanese rice farmers.

The Americans argue principle. “We’ve got to have free trade. No exception can be made for rice,” they say. But with one eye on bigger potential importers, the practical Japanese have so far refused to budge.

Japanese banks are among the latest to make exceptions more important than principles.

Under rules of the Bank for International Settlements (B.I.S.), major Japanese banks have pledged to build up capital reserves, including a portion of their stock holdings, to the equivalent of 8% of their loans by March, 1993. But with the value of stocks plummeting on the Tokyo Stock Exchange, banks have been forced to curtail lending.

The dilemma pits practical fears of creating what Kazuaki Harada, managing director of the Sanwa Research Institute, called “severe stagnation” in the economy against the principle of maintaining a healthy financial system. Rather than risk a recession, Japanese banks “have started advocating an easing of the B.I.S. standard” that would permit greater lending, Harada said.

America, however, has reaffirmed its stand on the side of principle.

“I am not one of those who believe you should change standards just because you get too much wind in the sails at a particular point in time,” Treasury Secretary Nicholas F. Brady told a recent international bankers meeting in Toronto.

The Japanese approach has deep roots in the country’s culture.

The Confucian ethic in Japan, for example, teaches the value of harmony but offers no universal principles on how to achieve it. Buddhism and Shintoism, similarly, lack the absolute standards of Christianity, which claims fewer than 1% of the people in Japan as believers.

As a result, Japanese do not have absolute values, observes Frank Gibney, former head of Encyclopaedia Britannica, Japan, and author of “Japan: Miracle by Design” and other books on the country. Tokyo University Prof. Nakane Chie goes even further. She once wrote in a Newsweek column that “Japanese have no principles”--period.

“Americans emphasize principles. Japanese adhere to situational ethics,” Takashi Hatagawa and Reizo Utagawa of the International Institute for Global Peace wrote in a paper on U.S.-Japanese economic relations.

“The United States should not adhere so religiously to the principle of laissez-faire,” but rather get government and business to “work together to reinvigorate important industries,” they said.

Similarly, in an editorial, the Japan Times criticized President Bush for remaining hamstrung in his economic policies by a commitment to “free market, liberal principles.” Japanese, who have been willing to “mix economic doctrines as long as the results were good,” think U.S. policy-makers should take a more pragmatic approach, the editorial added.

Washington, too, has been known to find ways around cherished principles to achieve a desired end.

But unlike the Japanese, who never make decisions upon principle without considering practicality, the U.S. government often acts on principle alone--so much so that even some Americans decry Washington’s obsession with principle.

Glen Fukushima left his job as a deputy U.S. trade representative bemoaning Washington’s focus on “the holy grail of market opening.”

An exasperated Prof. Chalmers Johnson of the University of California at San Diego berates mainstream American economists by asking: “How many free-market economists does it takes to change a light bulb?

“None,” he answers. “They sit in the dark waiting for the unseen hand of the marketplace to do it.”

Yukio Okamoto, a former Foreign Ministry official, complains that Japan goes too far in the other direction. “Lacking a perspective of values, Japan disposes of all problems with relative comparisons,” he says.

Okamoto argues that this approach hinders the country in some of its international aspirations. “It’s fine for Japan to talk about becoming a permanent member of the U.N. Security Council, but what would it do when it is asked to express its opinion on a specific diplomatic issue?” he asks rhetorically. “Can Japan uphold constant, universal principles in making decisions? I don’t think so. It would wait until all the other countries have made their decisions. . . . This is not a problem of the Foreign Ministry. It’s a problem of the whole country.”

Indeed, ideals held as “principles” are constantly bent to meet the dictates of practicality.

Early this year, for example, the majority of 16 members on a government panel insisted that cessation of brain functions be recognized as the standard for determining death and allowing organ transplants. But they simultaneously approved the continuing use of respirators for the brain-dead if relatives wished. Four dissenting commissioners rejected recognition of brain death--but approved transplants from brain-dead patients if the will of a patient had been determined in advance.

Another example: Last fall, 62% of the respondents in a survey conducted by the Kansai Electric Power Co. said they considered nuclear power plants unsafe. But 77.2% said nuclear power is necessary.

The legislation to permit the dispatch of noncombat troops overseas to participate in disaster relief and U.N. peacekeeping missions was a response to criticism of the country’s “checkbook diplomacy” during the Gulf War, when it gave $13 billion to the war effort but refused to send either military or civilian personnel.

“Is the peace constitution going to be upheld? Or is it going to be destroyed?” cried Socialist Chairman Makoto Tanabe.

Tanabe was right--in principle. The “peace constitution” of 1947 forbids even the maintenance of armed forces, not to mention their dispatch overseas.

But as one of the members of his own party put it, in Japan, “you can’t conduct politics by carrying around the legal code and waving the constitution.”

Similarly, Japan’s espousal of democracy and human rights is constantly tempered by its reading of the problem at hand.

“Japanese remain skeptical of solutions in the abstract,” the Japan Times said in an editorial April 24 after martial law was declared in Peru. “There is a suspicion here that simplistic applications of the emotive term ‘democracy’ . . . deny the complexities of Peruvian reality. Hence, the impulse here is to give (President Alberto) Fujimori the benefit of the doubt.”

The United States, in contrast, immediately criticized Fujimori and suspended all but humanitarian aid to Peru.

Shortly before Japan in 1990 ended its post-Tian An Men Square sanctions against China, the chief Cabinet secretary told reporters that “although Japan, like other Western countries, is concerned about the undemocratic aspects of China, the feeling of wishing to promote Japan-China relations by carrying out our aid promises is even stronger.”

As aggravating as it often is to Westerners, Japan’s pragmatism creates one of its greatest strengths: flexibility. Unfettered by ideological baggage, Japanese approach problem-solving with one criteria: what is needed to get the job done?

For example, while the Bush Administration ruled out government assistance to private industry to develop high-definition TV, insisting that the choice be left to the market, Japan has shown no hesitation in forming government-business consortia to research and develop promising technologies.

During a visit here last fall, Earle H. Harbison Jr., president of Monsanto, complained about America’s relative inability to turn its genius in creativity into manufactured products. He pushed for a Japanese-like collaborative effort.

“There is no point in having a Nobel Prize--if somebody else is making the product and getting the profit out of it,” he declared.