The Resistance to Change Is Rooted in Postwar Success

By MARK MAGNIER

April 25, 1999 12 AM PT

TIMES STAFF WRITER

TOKYO

From a distance, the solutions to Japan’s increasingly worrisome economic slide seem obvious. Japan must overhaul and globalize its creaky economy, expand domestic competition, invite foreigners in and weaken the death-like grip that bureaucrats continue to hold over the country.

As the rest of Asia shows signs of recovery from its disastrous economic decline, it is wealthy Japan that lags--still unable to confront the vested interests and other long-recognized obstacles to true reform.

Why is Japan so thoroughly paralyzed?

Reforms mean doing the equivalent of what Americans did a decade ago: shifted millions of people from steel mills in Youngstown and factories in Buffalo to service jobs in Phoenix and high-tech jobs in San Diego, in line with the global economy.

Yet Japan seems unwilling to destroy old jobs and unable to create new ones. It is around jobs, more than any other aspect of life, that the country’s ancient protective instincts--embodied by powerful Japanese institutions defending their turf--are playing themselves out.

“This country is a genius at hiding its weakness and showing strength,” says Kenichi Ohmae, management consultant and author of “The Borderless World.”

Indeed, the downturn of the 1990s has made it painfully obvious that Japan really has two economies.

There is the one that outsiders see, made up of world-class manufacturing giants such as Sony, Toyota and Matsushita that adapt and innovate. These already strong companies, competing around the globe with Ford and Philips and Hewlett-Packard, have been reinventing themselves, eliminating jobs and starting to pierce Japan’s myth of lifetime employment.

Then there’s the Japan of highly protected, inefficient shopkeepers, middlemen and farmers. They make up 75% of Japan’s work force. And exposing them to greater competition--and creating new jobs for them--is perhaps Japan’s most difficult challenge.

The solution posed by mainstream economists--fundamental restructuring--would cost millions of jobs in the near term, forcing rapid improvements in Japan’s weak social safety net and opening the door for a political shift.

“It’s a very painful process,” says Haruo Shimada, an economics professor at Keio University. “But unless Japan does it, it will gradually and continually decline--or suffer an acute, radical crisis.”

Author Ohmae foresees unemployment reaching 13% if Japan manages its future reasonably well, and a depression-style 35% if it doesn’t. Either way, he says, joblessness will be a catalyst for change. “It’s the best wake-up call,” he says. “Double-digit unemployment will do it.”

Japan’s reluctance to make meaningful change is rooted in its success.

While Western nations have weathered economic ups and downs that forced them to restructure repeatedly, Japan’s steady growth and protected markets allowed it to preserve a 40-year-old system largely intact--a system that today almost qualifies as a fossil.

Thus Japan must alter not only its economy, but its four-decade-old ruling party, its deeply entrenched bureaucracy, labor unions, educational system, corporate community, even its family structure and social rules.

“Japan will hold on until it has no choice,” says Nobuhiro Hiwatari, professor of political science at Tokyo University. “Everything affects another thing. It’s really difficult to change one part of it now and leave the rest.”

The major obstacles:

* Politics. Japan’s ruling Liberal Democratic Party remains overwhelmingly dependent on the support of farmers, small shopkeepers and the construction industry. Construction alone employs more than 10% of Japan’s entire work force.

Those same industries are also among Japan’s most protected, and would be the first victims of deregulation and structural reform. Not surprisingly, Japan’s long-ruling LDP remains intent on propping them up with huge subsidies and public works budgets to maintain its own viability.

“Unemployment is the No. 1 issue for Japan politically. That’s the bottom line,” says John Neuffer, a political analyst with Mitsui Marine. “The LDP’s biggest fear is getting thrown out, particularly in the big cities.”

* Bureaucrats. Even more powerful than the LDP is the huge government bureaucracy, whose grip on Japan’s economy has eased in recent years but remains substantial through its hold over budgets and information. Furthermore, there is still no credible challenge to the bureaucrats’ power.

That could change, though, if the bureaucrats were confronted by a mobilized citizenry disenchanted with the government’s inability to stem joblessness.

In response, the administrators have crafted a blizzard of subsidy programs, new industrial initiatives and job-creation schemes. Yet all these efforts leave the bureaucrats firmly in power under an idealized scenario whereby Japan moves smoothly from old industries to new without short-term disruption.

Bureaucrats insist they are reducing their role. “We will be the facilitators of change,” declares Hisamitsu Arai, vice minister of the Ministry of International Trade and Industry.

But critics say the ministries still work overtime to blunt market forces.

“The government is not [good at finding out] what is a promising industry or a good job,” says Naohiro Yashiro, professor of economics at Sophia University and a member of the government deregulation committee. “There’s a market that finds this out.”

* Labor. Japan’s labor unions are heavily weighted toward old-guard industries such as steel and shipbuilding that would be threatened by any rapid shift of workers into the new information and service industries.

Furthermore, Japanese unions for decades have been organized along company, not industry, lines, discouraging confrontation and encouraging largely symbolic actions such as lunch-hour strikes that do not disrupt production. Unions are an essential part of the old order, analysts say, and thus provide little impetus for fundamental change.

“One of the most successful things the LDP did was destroy the labor unions,” says Ohmae, the author. “They were treated very well and became nobility, elitists, where they worried about the good life rather than changing the country.”

* Education. Japan’s education system continues to derive its legitimacy from a full-employment model that has gradually slipped away, analysts say.

During the 1960s and ‘70s, Japanese schools did a brilliant job of pumping out lifetime workers for the country’s assembly lines and offices. And the system has real merit. Average high school graduates in Japan are far more knowledgeable in basic skills than their American counterparts.

But the traditional emphasis on memorization, conformity and respect for authority now leaves graduates increasingly ill-suited to a global world of ideas and information-based industries, critics say.

The Education Ministry maintains rigid uniform standards for the national curriculum, textbooks and educational methods, from kindergarten through university. Private training schools, innovative adult courses, international schools and other initiatives it doesn’t control generally are not accredited.

“The Japanese education system is totally outdated,” says Keio’s professor Shimada.

* Corporations. Japan’s corporations are under the greatest pressure to change because they are far less insulated from the rest of the world than are the bureaucrats or other institutions.

Yet most of them have spent the last several years shuffling workers to subsidiaries and reducing staffs through attrition while trying desperately to maintain the outward appearance of lifetime employment. In the process, they’ve resisted the factory closures, outright layoffs or innovations in decision-making that American and European companies have endured for a decade or more.

Even the recently announced job cuts--stunning, by Japanese standards--including 15,000 by NEC, 17,000 by Sony, 14,500 by Mitsubishi Electric, 10,500 by Hitachi, and 3,000 by Nissan Diesel, among others, still rely on attrition and don’t go far enough, some analysts believe.

“How many cases of aggressive restructuring have we seen?” asked Russell Jones, chief economist with Lehman Bros. Japan. “I can’t see one. The main way unemployment is rising is through bankruptcy--when they have no choice.”

* Family. Japan’s social structure remains highly traditional by world standards, especially regarding the role of women. The nation’s economic miracle allowed it to cling to a traditional family model--working father, stay-at-home mother, children dutifully studying at school.

Although the notion of working mothers might not be universally applauded, the limited role of women in Japan provides one more case in which the country is not using its resources effectively, but instead is letting tradition and vested interests outweigh economic results or even the welfare of its own people. Taxes, the child-care system and social pressures continue to promote a sexual division of labor that keeps even those women who do work confined to largely menial jobs.

“Europe and America have gone through demographic change, but Japan remains an exception so far,” says Chizuko Ueno, professor of sociology at Tokyo University. “It’s starting to change, but the Japanese family system has a long way to go.”

So far, the Japanese have displayed an enormous capacity to endure and suffer quietly, in part, analysts say, because of the country’s impressive wealth.

“Our weakness is our strength,” says Sophia University’s Yashiro. “Japan is such a rich economy, with so much savings, that it can survive without reform for so many years.”

But it has done so at a high price, squandering much of the wealth needed to cushion the retirement of an aging society and to finance a new, modern economy--such as the aggressive new venture companies that Japan desperately needs.

In a society that prizes stability above all and does not wish to import the vast pay discrepancies, wealth inequity and other disruptive elements of American society, softening reforms and stretching them over a longer period may seem more charitable than dangerous.

The real shame, however, some economists believe, is that Japan could have avoided much of today’s mess by heeding warnings on the need for restructuring a decade or more ago.

Instead, the reaper is taking bigger and bigger slices out of Japan Inc.--and the lives of its hard-working “salarymen” who sacrificed so much of their time, family life and individuality to bring about Japan’s postwar miracle--as the rest of the world waits for a vibrant Japan to return.

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What Ventures?

Japanese create far fewer companies than Americans do, partly because Japan has erected so many barriers to new ventures. And, except during Japan’s “bubble” years in the late 1980s, more new Japanese firms fail than succeed. Of all companies in each country, the percentage that open, and shut down, in annual averages:

Business Openings

1986-88

Japan: 4.2

U.S.: 14.4

1989-91

Japan: 4.1

U.S.: 13.4

1992-94

Japan: 4.6

U.S.: 13.4

1995-96*

Japan: 3.7