Shepherds of Japan's Success Are Tainted but Undaunted

Lanky in stature and serious in demeanor, Shigenobu Sakama favors gray pin stripes, as a man of finance should.

His bureaucracy is the citadel of the world's second-largest economy, a monument to the 16-hour workday and, to listen to its critics, the source of nearly all that is wrong with Japan.

Mr. Sakama, a top official of the Ministry of Finance, sighs patiently and rubs his eyes when he is asked about the beating his organization has endured over the past year or so. Prosecutors allege ministry officials took favors in exchange for privileged information.

Sakama himself (a pseudonym, since the official declined to speak for attribution) was forced to take a temporary pay cut this year to atone for being wined and dined by an executive of a financial institution. But Sakama isn't contrite; he says the man was a longtime friend, and business wasn't discussed. "When the economy went well," he grumbles, "people didn't care about entertainment."

These days, of course, prosperity has been replaced by recession. Forces of change are at work in this economy, but conservative elements want to make sure that Japan preserves the social stability and broad distribution of wealth it achieved in the five decades since World War II.

First among these elements are economic bureaucrats, who will do whatever they can to ensure that Japan's economic evolution doesn't bring the social upheaval that similar transitions have created in the West. These officials say Japan's economy is not like other capitalist systems. They say it is fairer, more oriented to the common good, and more stable - and they want to keep it that way.

In public, some ministry officials talk about reform and adapting to new realities. In Sakama's office and other private settings, the mood is unrepentant, even defensive.

Critics and politicians accuse the ministry of mismanagement, an inability to admit to the economy's problems, and an unwillingness to change the system the ministry has created. Early this year, the ministry finally put a credible figure - about $600 billion - on the size of Japan's bad-loan problem, but only after years of pressure from outside analysts.

But Sakama says, "I don't think we've had a serious failure on the economic policy side." He notes that, after Japan's "bubble" economy of the late 1980s burst nearly a decade ago, roughly $1 trillion disappeared as prices for real estate, stock, and other assets plunged. "Still," he says, "people are enjoying their lives." In 1996, Japan's economy grew faster than that of any of the industrial powerhouses of Europe and North America.

Scandal and criticism have tarnished the status of bureaucrats in Japan. But, as in other Confucian-influenced societies like South Korea and China, they are still venerated as responsible shepherds of the national interest. The word okurasho, translated as Ministry of Finance, really means "ministry of the great storehouse" - evoking the institution's roots in the imperial court system.

Tokyo University, which has long educated the vast majority of ministry officials, including Sakama, was founded as an imperial college for training bureaucrats.

Sakama says without irony that he and his colleagues are driven by noblesse oblige. Yet few of these officials are part of a blood aristocracy; instead, they are a corps of men, and a few women, who have risen because of hard work and intellect.

Sakama's ministry collects taxes, compiles Japan's budget, watches over its financial industry - and as a result holds greater sway over this country than counterparts in any of the world's other developed countries. The balance of power between Nagatacho - Tokyo's Capitol Hill - and the Ministry of Finance buildings of the Kasumigaseki district is shifting in the politicians' favor. But the Japanese bureaucracy remains the single strongest element of the country's leadership.

And, when these officials look to the future, they see stability. They see moderation. They see a slow and steady Japanese way to manage an economic transition.

"The egalitarian aspect of Japanese society will be preserved," says Naoki Kajiyama, a senior ministry official who until recently served as its spokesman. But he concedes there will be "great modifications."

He sees "more individualistic" Japanese living a "different way of life." He sees "open-minded" people who don't like being "confined to a particular company." This vision contrasts with Japanese stereotypes of hard-working, group-oriented company workers, images that are in large part based on reality. Even officials at the apex of the Japanese economic system have accepted the inevitability of changes toward a freer, more market-oriented economy, but they want to contain the process.

If individualism begets selfishness, Mr. Kajiyama continues, if people here become egocentrics unwilling to think of the good of the nation, then they will be "paving the ground for a kind of social anarchy that I think may destroy the traditional Japanese way of life."

Officials are especially concerned because Japan's population is aging rapidly, creating a future in which a shrinking number of young people will have to create enough wealth to support a growing number of older people. This demographic certainty is one reason bureaucrats want to retain values that emphasize the group.

Kajiyama says the officials of the Ministry of Finance recognize that they must be "advisers and not policymakers" and work in service to politicians. But he adds that "mass democracy" is a worrisome thing, because "people lost sight of the whole picture." And, as for the efficacy of free markets, Kajiyama says, "We all know that markets will not be able to solve all the problems."

The bottom line is that Japan's bureaucrats still have more faith in their own ability to manage change than in entrusting the process to others. They are worried that, without their guidance, companies could start firing people in huge numbers and politicians could force banks to close in a way that would put thousands of companies out of business - steps that would turn many middle-class Japanese into poor people and undo the work of half a century.

That is not to say that change - even wrenching change - won't happen, because it already has. But at the same time gray- and blue-suited officials of Kasumigaseki will make sure that they find mechanisms, in Kajiyama's phrase, "to minimize social costs."

Sakama says the main problem with Japan's economy is that everyone is too negative about it. "We should say the Japanese economy will be rosy in the future," in order to encourage people to buy more things and pull the country out of recession, he says.

Many people say things aren't so simple.

"The reason why people are not spending is because they are worried about their jobs," counters Andrew Shipley, an economist in the Tokyo office of Schroders, a British bank. "It's a very scary environment to be in: This is an economic system that's unraveling."