WHEN former Japanese Prime Minister Morihiro Hosokawa called for sweeping reform of Japan's regulatory system in September 1993, he promised a revolution. Two governments later, deregulation is mired in a standoff with the powerful bureaucracy. The revolution has become a rout.
A telling moment came this fall when Prime Minister Tomiichi Murayama called on government ministries to figure out how to eliminate or restructure 92 public corporations under their jurisdiction. These companies cost taxpayers some 4 trillion yen ($40 billion) annually; the firms preside over licensing monopolies ranging from silk to construction.
They have also become retirement havens for elite bureaucrats, who make up more than half the executive ranks. Not surprisingly, when officials turned in their reports to Mr. Murayama in late November, they snubbed his action call and insisted on keeping all 92 companies.
Study after study has shown that the Japanese economy is massively overregulated. Experts say deregulation could boost Japanese economic growth by 8 percentage points over the next five years, reduce a widening gap between foreign and domestic prices, and launch new industries that could rescue Japan from the ``hollowing out'' of its economy, as the high level of the yen forces more businesses offshore.
The sheer whimsicality of many regulations infuriates Japanese businesspeople as much as foreigners. At an indoor ski slope near Tokyo, for instance, the Japanese developers balked at a rule that slopes must install a wind meter. After a two-year struggle with officials in charge, the developers finally gave in, installing a wind meter.
Even so, Mr. Hosokawa's omnibus legislation on deregulation survives in name only, a victim of limp political support and bureaucratic sabotage. The bureaucratic counterattack began last April, after the collapse of Hosokawa's reform government.
``You hear a lot about how much the Hosokawa administration did, and how little is going on now,'' says one diplomat.
In a rare instance of a Japanese minister fighting back against arrogant bureaucrats, one was fired last week for telling his minister, Makiko Tanaka, to go slow on administrative reforms. Mrs. Tanaka took the even rarer step of going public with the senior bureaucrat's advice.
A characteristic flaw of Japan's approach to deregulation, observers say, is that the government has entrusted the process to bureaucrats whose careers have been built on the system. In Japan, bureaucrats, not politicians, draft legislation. They even script question-and-answer sessions on new bills in the Japanese Diet.
The ``five-year action plan'' on deregulation that Hosokawa set in motion is now under full control of the bureaucrats. A draft plan with 279 recommended deregulation measures was unveiled June 28. The final version is scheduled to go into effect April 1. That gives the bureaucracy 10 months to work on implementing legislation - a process skeptics say will remove whatever punch is left in the plan.
``There is a word in Japanese, honnemuki, to take out the marrow. Japanese bureaucrats are very good at honnemuki. They know how to give the appearance of doing something while, in fact, they are doing nothing,'' says Hideo Takahashi, an official in the international economic-affairs department of Keidanren, Japan's leading business lobby.
Mr. Takahashi was staff director of a blue-ribbon committee that a year ago called for elimination ``in principle'' of 11,402 economic regulations it claimed clogged foreign and domestic business. Discouraged and disgruntled now, Takahashi sounds like many a foreign businessperson or government official worn down by tangling with Japanese officialdom. ``The deregulation issue is like this - you must watch over it constantly,'' he says.
With all the cynicism that the deregulation process has engendered, there are some hopeful signs. One is that support for deregulation has strengthened. The Japanese government's request for comments on its 279-point draft deregulation plan brought in some 3,000 suggestions from 150 organizations. These included the governments of the United States, European Union, Canada, and Australia. Keidanren's letter urged changes in 456 regulations.
Walter Mondale, the US ambassador to Japan, has lobbied ceaselessly on deregulation. The European Union sent Trade Commissioner Leon Brittan to Tokyo in November to present its recommendations.
In Japanese retailing, the high level of the yen has cemented the popularity of large stores and created a frenzy of discounting despite tight industry regulation.