COLUMN ONE : Tide Turns on Mighty Tokyo Elite : Japan’s once-revered army of bureaucrats helped make the nation rich. But now, critics say, the gray suits must step aside and let the elected officials bring badly needed reforms.

He holds the hands of Japan’s top leaders, manages conflict among warring bureaucrats and, in a pinch, delivers decisions on major policies: Nobuo Ishihara is little known abroad. But here he is called the shadow prime minister.

A quintessential government blueblood, Ishihara is a Tokyo University graduate who excelled in finance, made powerful friends and scaled the ministry ranks. Now, having served as top aide to seven prime ministers, the deputy chief Cabinet secretary has quietly played critical roles in everything from the Gulf War crisis to U.S.-Japan trade talks.

In the fall of 1993, officials here were deadlocked over American demands that Japan open its construction market. With time running out, Ishihara called the top construction bureaucrat into his office and told him flatly of the proposed solution: “You have to accept this.”

In such ways, Ishihara--and the unelected, ultimately unaccountable bureaucrats he represents--make vital decisions for Japan behind closed doors.

These civil servants make up what may be the world’s mightiest bureaucracy: 838,000 people in 19 national agencies, some of Japan’s most brilliant minds and powerful ambitions cloaked in the gray suits and bland speech of government service.

The bureaucrats have steadied Japan through 18 months of uproar--four prime ministers, the shattering of the Liberal Democratic Party’s 38-year rule and a perplexing number of new party alliances.

For more than a century, they have largely decided Japan’s direction, scripting policies as feudal lords once did for puppet emperors. Indeed, in a nod to their elite training and lofty tradition, they once were called okami , “the honorable above.”

But now the fabled okami are falling from grace. The mandarins of Japan’s economic miracle are under fire for sabotaging the nation’s future. In a debate that cuts to the core of just who will steer Japan, more and more critics insist that the bureaucrats must loosen their grip and let elected officials usher in badly needed change.

In a startling outbreak of bureaucrat-bashing, bookstores are filled with works such as “The Finance Ministry Dictatorship” and “The Island of Bureaucratic Control: Japan in Danger.” The respected financial journal Nihon Keizai Shimbun, the NHK television network and other media have devoted extensive series to the evils of bureaucratic rule, while the issue has become a leading target for political reform.

The chorus of voices carry a singular message: The bureaucratic blueprint that has driven Japan for 50 years--the relentless expansion of its industrial, productive strength--risks impoverishing the Japanese people and inviting the enmity of the world.

The bureaucrats’ work is credited with helping to make Japan rich. But, critics say, the focus on economic expansion has also led to a stubborn trade surplus that is alienating other nations and boosting the yen to stratospheric levels.

Pressed to compete under a pricey currency, more firms are fleeing to lower-cost countries, taking jobs and critical manufacturing capacity with them. That, in turn, is fueling fears that Japan is “hollowing out,” retaining weak industries at home and losing its competitive edge.

The bureaucrats’ power base--a bewildering maze of 11,000 official regulations--also has helped make prices here the highest in the world. Their turf battles are thwarting development of leading technologies. Japan’s information highway is still a dirt road, for instance, because ministry wars are impeding the nation’s progress in wiring itself with the fiber-optic cables of the future.

At the same time, a world that until now tolerated Japan’s system is making noisy demands for change.

The United States put up with Japan’s export juggernaut and its sheltered markets in consideration of its Cold War alliance. But Americans are more vigorously defending their economic interests. Japan is also being pressed to leave the comfort of its political cocoon and to tackle world problems more actively.

To meet rapidly changing circumstances, nothing short of a radical reordering in how Japan governs itself is needed, officials say.

“In the past, we tried to achieve economic success putting ideology aside, and under those circumstances, I think bureaucrats were much more important than politicians,” said Koichi Kato, head of the Liberal Democrats’ policy research council, who has coordinated issues with the Socialists and the New Party Harbinger since they jointly took power in June.

“But now, we need a new vision of what to cultivate for society, and that, by definition, cannot come from bureaucrats,” Kato said. “So it is time for politicians, not bureaucrats.”

Many bureaucrats--most of whom would only speak anonymously--agree that Japan desperately needs a new direction. But they say most politicians are incapable of providing it because they are too ill-informed on the issues, consumed with reelection and busy taking care of constituents.

That is why bureaucrats end up writing most legislation and why some of Japan’s intelligentsia shudder at the thought of entrusting the nation’s direction to elected officials.

“The politicians don’t have the know-how--the information and experience--to govern Japan as a whole,” said Kojiro Shiraishi, a Yomiuri Shimbun editorial writer. “I know bureaucrat-bashing is rampant in Japan. But the question is, Who should take the initiative in changing the system dominated by bureaucrats? The politicians should, but they are not able to.”

And despite widespread public complaints--one newspaper poll this year showed more people view bureaucrats as snooty, irresponsible and cunning than as excellent--requests for protectionist red tape come from the public itself: Officials tell endless tales of local pleas for help with everything from cheap Chinese lacquerware to discount beer to new propane gas dealers.

Indeed, the interlocking interests of bureaucrats, politicians and business are so entrenched that the relationship is known as the “Iron Triangle.” Business implores bureaucrats to use their regulatory power to protect markets and rewards them with cushy post-retirement jobs. Politicians serve as mediators between bureaucrats and their business constituents, usually receiving political contributions for their trouble.

As a result of the entangled interests, merely disarming bureaucrats won’t in itself open Japan’s markets or nudge it down a new national path.

The entire system must begin to change--a process that will take at least 10 years and heavy foreign pressure, says Tomoaki Iwai, a Tokiwa University political science professor. And, he says, “No one wants to give up their vested interests--not the politicians, bureaucrats or people.”

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The reality of Japan’s political culture--and how difficult it will be to reorder the institutional roles played--was aptly illustrated by the phenomenon of Morihiro Hosokawa.

Tall and handsome, Hosokawa boasted an aristocratic bloodline and talked of bringing politics back to the people. He electrified the apathetic public and was anointed prime minister last year to lead the first government not headed by the Liberal Democratic Party in four decades.

He vowed then to end corruption, break open Japan’s markets, slash red tape, face the nation’s war history and bring greater benefits to a people still saddled with cramped homes, high prices and hellish commutes.

But today, Hosokawa is history--beaten down by the status quo he pledged to smash, dominated by the bureaucrats he declared he would tame.

Japanese media reports portray a man out of his league who lacked the policy knowledge and personal connections within government to push a coherent agenda. He could barely keep up with the blizzard of briefings on everything from North Korea to U.S. trade talks. His most common response to bureaucrats was a plaintive “So what shall I do?” according to stories leaked by them.

Yet even politicians with policy knowledge say they too buckled under the bureaucracy’s weight.

Yoshio Terasawa, a financial expert, left the World Bank to join Hosokawa’s now-defunct Japan New Party and was elected to the upper house of Parliament last year. In April, he was tapped to head the Economic Planning Agency under the second coalition government of then-Prime Minister Tsutomu Hata.

Terasawa came in hoping to invigorate Japan’s moribund economy. But meetings from 8 a.m. until past midnight left him with no time to think on his own.

Instead, he says, he had to swallow information fed him in daily briefings by a team of bureaucrats.

His own assertions were dismissed. Agency apparatchiks had projected a 2.4% economic growth rate; Terasawa found that ridiculous. But when he protested that every private estimate projected less than 1% growth, he was told never to say that in public because it would force the government to recalculate the entire national budget, which was based on the higher rate.

He complied.

“I felt very much like a puppet,” he confessed.

Such experiences illustrate some of the bureaucracy’s greatest advantages--its access to information and sheer intellectual talent.

It has long been so. Japan’s modern bureaucracy traces its roots to the samurai who went to serve the emperor after the Meiji Revolution ended the shogunate in 1868.

When Japan ended three centuries of isolation in the late 19th Century, the bureaucrats rapidly introduced Western modernization.

And after World War II, when they dreamed up the policies that led the shattered nation to economic supremacy, the legend of their invincibility grew.

The corps still draws Japan’s elite: graduates from the most prestigious universities who have out-competed thousands of others in civil service exams. The top-ranked recruits are overwhelmingly male and dominated by Tokyo University; 11 of the nation’s top 12 ministry chiefs are Tokyo graduates, forming an academic clique akin to Harvard alumni running every top department of the U.S. government.

Of 287 people who passed the highest of three civil service exam levels in 1994, 90% were male. Tokyo University graduates made up 90.5% of new recruits for the powerful Finance Ministry, 78% for the Ministry of International Trade and Industry, and 51% overall.

The bureaucrats often work until early morning in voluntary overtime, squeezed cheek by jowl with colleagues in cluttered offices. Their desks overflow with paper; cigarette smoke often hangs in the air. The setting is surprisingly low-tech; there are few computers.

Bureaucrats pledge lifelong loyalty to one ministry. Although sometimes lent to other agencies, they never make a permanent jump. Only when they are bypassed for promotion do they find jobs in private industry--often one they regulate.

This practice is known as amakudari , or “descent from heaven.” It is routinely criticized as a conflict of interest, but little has been done to stop it, since it serves as a practical way to cycle out aging bureaucrats.

Amakudari , though, also provides a way to spread bureaucrats’ influence throughout Japanese society. Top officials of many private firms and nearly half the executives of special public corporations are retired bureaucrats; so are an estimated one-third of Liberal Democratic Party politicians. Wherever they land, they continue to nurture ties to their former ministries.

Such loyalty provides the foundation for Japan’s vaunted institutional stability.

After 35 years of service, Yuji Tanahashi reached the position of vice minister of international trade before retiring in 1993. He can rattle off a history of negotiations with the United States from firsthand experience: tensions over cameras and watches in the 1960s, color TVs in the 1970s and semiconductors and cars in the 1980s.

He also boasts extensive knowledge of the Japanese economy, having helped execute the plan that rebuilt the nation, first with steel and other heavy industries, then with consumer electronics and now with information processing.

That kind of experience is often cited to explain why Japanese trade officials arguably out-negotiate their American counterparts, who often change with each new Administration.

To complete their elite course, Japan’s career-track bureaucrats rotate posts every few years to gain exposure to different fields--and to prevent such overly cozy ties with industry as those that produced scandals involving construction and telecommunications officials.

Midori Tani, for instance, is a fast-track career officer in the Ministry of International Trade and Industry. One of only two female directors in MITI, she has worked in divisions covering energy, technology and small and medium-sized business; she labored 30 hours straight analyzing the oil market during the Gulf War crisis and last year was tapped to author MITI’s annual policy paper.

Her paper was widely picked up in the media for its emphasis on Japan’s need to deregulate and improve its investment climate--a conclusion she reached after months of research, interviews with business executives and trips to factories both in Japan and elsewhere in Asia.

Armed with fluent English and an aggressive intellect, Tani, 39, says she enjoys sharp policy debate “to stir up my brain.”

“Some people say that bureaucrats fight each other thinking only of their own interests, but I disagree,” she said. “In order to foster critical thinking, you need someone to disagree with you.”

Not all bureaucrats, of course, exhibit such high energy.

Masao Miyamoto, a Health Ministry official, says many bureaucrats while away the day reading newspapers, writing vague answers to parliamentary committee questions and “free-talking” in meetings that lead nowhere. He describes petty office politics in which colleagues pick on those who question the status quo or who refuse to sacrifice their personal lives for their jobs.

The bureaucracy’s overall talent, however, enables it to function as the nation’s brain--and the role is unchallenged because Japan lacks competing institutions such as strong academic think tanks or policy-making staff in the Parliament or the prime minister’s office.

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Not only politicians but also journalists and the public advisory councils all depend on ministries for information. The Finance Ministry is Japan’s most dominant, in part, because of its budget authority, which makes it the nation’s sole repository of information from every other agency.

And bureaucrats hoard their information like jewels and surrender it sparingly and strategically. One trade official said they accommodate requests from ruling party leaders with reams of information personally delivered by top bureaucrats; Communist Party requests, in contrast, are handled with a page or two of notes sent by messenger.

Still, bureaucrats are hardly all-powerful. Analysts say that Liberal Democratic leaders, boasting more experience and connections than the Hosokawa government, are gaining greater political control.

And politicians still hold the trump card--the right to pass laws that bureaucrats propose--which they use to haggle for such benefits as new public works projects or increased farm subsidies.

But the bureaucratic genius, analysts say, lies in the bureaucrats’ consummate skill in knowing whom to approach and how to win support.

Jiro Saito is said to be the most powerful person in the most powerful ministry in Japan: vice minister of finance.

Unlike most of the nation’s polished top bureaucrats, Saito, 58, is neither articulate nor particularly social--he is said to decline most party invitations and buries himself in work and the game of go.

But he is regarded as the Finance Ministry’s budget brain extraordinaire, and defending the integrity of the national spending plan is said to be his single, overriding goal.

According to media reports, Saito and his ministry allies hatched February’s notorious proposal to increase the 3% consumption tax to 7%. To push the plan through, he targeted Ichiro Ozawa, the Hosokawa government’s strategic mastermind, as a key ally. The two secretly persuaded Hosokawa to announce the plan at a 1 a.m. news conference--a disastrous move that sparked a public outcry.

But Saito did not give up.

Even after the Socialists and New Party Harbinger, which opposed the tax hike, formed the present government with the Liberal Democrats in June, Saito simply plotted around his critics. He bypassed Finance Minister Masayoshi Takemura, who advocated cutting government fat first. Instead, he appealed directly to Noboru Takeshita, the influential Liberal Democratic lawmaker who, as prime minister, pushed through the original consumption tax in 1989.

The scheme worked. A 5% tax increase was approved last month.

“You Finance Ministry guys are skillful, aren’t you?” a defeated Takemura was quoted as saying to Saito. (Saito declined an interview request.)

Critics point to the consumption-tax coup as evidence of how bureaucrats dominate Japan, arguably at public expense.

They have, for instance, basically thumbed their nose at orders to streamline the government under Prime Minister Tomoiichi Murayama’s administrative reform. Asked to cut the 92 special public corporations--basically employment havens for retired bureaucrats whose tasks range from stabilizing silk prices to promoting bicycles--the ministries gave their response last month: Not one was dispensable.

The campaign to cut red tape is also lagging. Among more than 1,100 regulations proposed for elimination by business leaders and others, ministries have already rescued 91 as necessary or needing “further study”; bureaucrats are likely to defend more.

While deregulation may benefit the bold, it shakes up the interests that keep prices uniformly high.

One of the most damaging examples of how bureaucrats protect their own interests at public expense, critics say, is multimedia development.

Japan has barely begun to lay the network of fiber-optic cables needed to carry the huge volume of data used in information processing. The reasons: turf wars among ministries and a 30-year-old law that does not explicitly allow such cables in the underground tunnels that carry water, telephone, electricity and gas lines.

Rather than simply changing the law to accommodate cable, the ministries are thinking about burrowing a vast new network of tunnels. That plan is enormously more expensive and will take years to complete. But engineering a budget increase--which amounts to expanded power--is the name of the bureaucratic game, analysts say.

Meanwhile, MITI is warring with the Telecommunications Ministry over the overall strategy, arguing that software development--its turf--should take priority.

Critics fear that such bureaucratic battles are sabotaging Japan’s future.

Sensing the gathering crisis, some MITI officials have begun trying to take the lead in opening markets and cutting through the regulatory jungle. But each attempt to deregulate runs afoul of other ministry fiefdoms.

“In order to get beyond this wall, we need political leadership,” one MITI official said in despair.

But there are questions as to whether Japan’s politicians can provide it.

Megumi Shimizu and Chiaki Kitada of The Times’ Tokyo Bureau contributed to this report.

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