Japan: The Pain Of Reinvention

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As it streaked home to Washington last week, Air Force One cast a long, lonely shadow over Japan. Yet its presidential passengers managed nary a wave. In fact, Japan was about the only country that was not graced by an encouraging word from Bill Clinton or his top aides as they wrapped up their China extravaganza. Instead, while Beijing's mistakes are all but forgiven these days, Tokyo is regarded as the regional deadbeat. Treasury Secretary Robert Rubin, who pronounced China "an island of stability" in Asia's economic crisis, reminded people in Malaysia, Thailand and South Korea that he was "deeply, deeply" concerned about the value of the yen. Other officials were tossing off background critiques of Japan (whose Finance Minister, Hikaru Matsunaga, has been referred to as Minister for the Destruction of the World Economy) and warning that if its leaders didn't take "decisive action" fast, the world's second largest economy might drag the rest of Asia--if not the world--further into recession.

Here in Tokyo, the threats and lectures are getting stale. Japan's leaders bristle at suggestions that they are still wallowing in a gigantic pool of bad bank loans and stagnant economic numbers. They point to a plethora of rescue plans and billions of dollars earmarked to jolt the economy awake. Granted, nothing seems to have worked yet. But the U.S. intervention to bolster the value of the yen last month and a stream of editorials decrying Japan's lack of resolve have spurred Tokyo to further action. Just last week, Prime Minister Ryutaro Hashimoto announced the establishment of a national bank to enable Japan to close insolvent banks while protecting their honest borrowers. He later said he would support a permanent tax cut.

So why, if the Japanese have announced all these plans, is their economy still dead in the water? The truth is that the sheer depth of Japan's crisis is beyond a simple menu of decisive action. Although some Tokyo policymakers may recognize that, much of the country is in denial. That's understandable, since the Japanese still enjoy one of the world's highest per-capita incomes. Moreover, this is an economy that since the 1980s has been heralded as a global model of success. This is the very system that allowed Japan to climb to greatness out of the ruins of World War II. It was supposed to be fail-safe. And now it has to be scrapped? Not easy.

For one thing, Japan's has never been a culture that made it easy to admit defeat. This year, in despair over malfeasance investigations and bankruptcies, more than a dozen prominent bureaucrats and businessmen have committed suicide. More important, the changes being discussed go far beyond dropping lifetime employment and closing the doors on a bunch of banks. Critics are calling for a complete overhaul of the much celebrated education system and drastic new environmental regulations, not to mention a reassessment of how Japan will deal with its biggest future headache: the world's most rapidly aging society.