With Reforms, Japan Can Dig Out of Its Hole, U.S. Group Says

TOKYO -- Over the last decade, Japan generated a steady stream of bad economic, social and political news. Government, bank and corporate debt ballooned and unemployment grew. Public wealth built up by millions of hard-working Japanese was squandered by bureaucrats intent on building more roads to nowhere. Companies employed more “walking dead” -- workers with a paycheck but little to do.

On other fronts, social anxiety over crime rose as critics fretted that the family was imploding, that youngsters were losing their work ethic and the social order was breaking down. And year after year, a parade of mostly mediocre leaders greeted each new crisis with just enough of a face-saving plan to muddle through.

That’s the conventional wisdom. But Japan is getting a bad rap, says a report by the Los Angeles-based Pacific Council on International Policy. The nation’s image beyond its borders as a second-tier power bent on driving itself further into the depths of despair, stock market declines and stagnation is unfair, even counterproductive, the report contends.

The group ticks off a list of reasons the glass is half full. Japan remains the world’s second-largest economy and a major aid donor. It has several world-class companies that are technological leaders and household names abroad. It still is a major foreign investor, has become more engaged in security issues and is benefiting from younger generations that are more independent and worldly. There’s more foreign management and growing dynamism among small companies.

“There’s no doubt there are troubles,” said Pete Wilson, the group’s task force leader and a former governor of California, at a news conference in Tokyo. If reforms are carried out, “in five years Japan will be restored to health and will be welcoming investment and receiving it.”

Among the steps Japan needs to take to dig itself out of its hole, the report adds, include creating more opportunities for women, entrepreneurs, migrants and foreign investors, opening its economy and dispelling the ghosts of protectionism.

Perhaps most fundamentally, it must change the way decisions are made and establish rules that are fair and transparent. At the center of many of Japan’s myriad problems is an archaic political system that promotes the interests of senior bureaucrats, business leaders and politicians intent on preserving the status quo.

“Without political competition, you are guaranteed to have corruption,” Wilson said at the Foreign Correspondents’ Club of Japan this month. “Far more important than corruption measured in terms of scandals on the part of individual officeholders is a larger and more fundamental corruption ... [namely] preventing reform that is so clearly needed in this country for Japan to be all that it can be.”

The council’s report -- entitled “Can Japan Come Back?” -- includes caveats in its scenario. Given how far Japan still seems to be from the starting gate, a relatively quick turnaround may be overly optimistic.

“Recovery in five years sounds a bit tough to me,” said Kazuo Ogawa, economics professor at Osaka University. “I would think it’s going to take eight to nine years.”

Just clearing up the load of bad debts -- which independent analysts peg at about $1 trillion -- will take years, especially given that a financial recovery plan announced last week had been significantly weakened at the behest of old-guard politicians.

Many domestic companies also are on the defensive after a decade of tough times and still are in need of restructuring. And labor markets are wobbly at best. For many analysts, these factors raise the specter of another decade of drift before Japan regains traction.

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Takashi Yokota in the Tokyo bureau contributed to this report.