WHEN Japanese Prime Minister Morihiro Hosokawa, the reformist aristocrat, meets President Clinton in New York at the end of next month, economic reform will be a major topic.
Mr. Hosokawa has already enunciated the main lines of the reformist argument: To bring down Japan's enormous trade surplus with the United States and the rest of the world, structural changes are needed. An economy that was geared to production for export is going to have to shift to one that welcomes imports. But this cannot be done overnight or simply by government fiat.
Why is Japan's economy mired in recession despite repeated assertions by the previous government that the recession was bottoming out? Because consumers aren't buying, as all indicators from cars to department store sales show. And why aren't they buying? Not because they can't afford it. By comparison with Europe or North America, Japan still enjoys close to full employment. But bonuses have come down, a few companies have fired employees, and the white collar worker is worried that the Japanese traditi on of lifetime employment, if not coming to an end, is about to undergo unpleasant modifications.
What was known as the bubble economy - ever spiraling land and stock prices, cheap credit, extravagant purchases of real estate and status symbols abroad - collapsed two years ago. Throughout all the fuss about the Japanese buying up Rockefeller Center and the Pebble Beach golf course, the ordinary salaried worker, with his 70- to 80-hour-a-week job, was paying prices that were often double what Americans might be paying.
Not any more. Japanese consumers are now aware that prices in the US are higher than just about anywhere else. With the bubble burst, and very few things they really want to buy, most Japanese are keeping their purse strings tightly drawn. That depresses the economy and forces producers to put even more emphasis on exports to make up for their doldrums at home.
To stop the vicious cycle, the Japanese economy requires structural changes. First and foremost is to break the stranglehold of more than 20,000 rules and regulations administered by various government ministries - including the need to define in minute detail what anyone engaged in just about any kind of economic activity may or may not do. In his recent book "Building a New Japan," Ichiro Ozawa argues that governmental rules and regulations reflect the nature of Japanese society as a whole. People want
to be regulated; they would feel insecure without regulations, Mr. Ozawa says, because they have not yet established themselves as real individuals. Ozawa is said to be the mastermind behind the Hosokawa government. His argument is an unusual one for a conservative politician to be making, but it has struck a responsive chord with many readers.
The book opens with a visit Ozawa makes to the Grand Canyon, where he is dumbfounded to discover that no fences and no warning signs keep tourists within safe limits. It is up to individuals to judge for themselves how far they should go.
If, in Japan at a comparable site, a single accident were to occur, citizens would be up in arms. Ozawa reasons: What were the authorities doing? Why, it was their obligation to protect the public from such dangers!
Perhaps Ozawa's example is extreme. But it makes a persuasive case that reforming Japan requires freeing the individual from the trammels of the group. Reducing rules and regulations will lift many of the barriers that now hamper the inflow of goods into Japan. It will offer the individual more freedom of choice than he has ever known.
It also increases his risks. A well-regulated society is generally harmonious, at least in appearance. In Japan, the regulators mean well: They are like a governess or a nanny determined to protect her charges from the big bad world outside. A society without nannies is exhilarating, but also confusing.
Even under Hosokawa, a prime minister dedicated to renewal, economic reform is not going to be easy. He will have to convince Mr. Clinton, first that he is in earnest, and second that the steps he proposes are bold enough and go far enough to begin to make a difference.