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Monday, March 3, 2003

Rules of a premodern Japan


The Liberal Democratic Party has ruled Japan since 1955 -- except for a period of less than a year from August 1993. The name LDP may suggest modern Western ideologies of liberty and democracy, but it is doubtful that the party has been the guardian of these principles.

Diet proceedings are hardly based on the democratic principle of conducting thorough debate. Government advisory panels are made up of members unilaterally selected by government departments and endorse decisions made in advance by them. The panels are in no position to offer expert advice or objective viewpoints, as they should.

Powerful ministries and agencies have no compunctions about manipulating the opinion of their advisory panels. I believe Japan is the only advanced country where important policies are developed through such undemocratic processes.

Advisory panels were originally intended to facilitate democratic policymaking. In reality, they merely justify decisions made by government departments, taking into account the interests of the business community and the ruling coalition. The deep-rooted premodern ways of Japan are astounding.

Individualism, the foundation of liberty and democracy, is undeveloped in Japan. For better or for worse, Japanese are bound by groupism. Ongoing national university reform includes plans to evaluate accomplishments of universities, schools, research institutes and other groups, instead of individual professors. Under these plans, universities will be reorganized to resemble former Soviet-style institutions.

Since the 1980s, I have been calling for a new round of modernization, believing that modern Western ideologies of liberty, democracy and individualism should be firmly established in Japan.

However, from the 1980s to the mid-1990s, Japanese economists argued that the nation's postmodern system, including management practices, was responsible for its economic prosperity. They said the U.S. economic decline stemmed from a modern system that did not suit the times. In their opinion, Japan succeeded economically because its system was contrary to modern Western ideologies. In this context, calls for a new round of modernization were ignored.

I believe that Japan's long slump since 1991 has been rooted in delays of a new round of modernization. There have been serious delays in reforming the traditional employment system (such as seniority-based wages and lifelong employment), introducing competitive principles to the academic community and privatizing government-backed corporations. Modern Western ideas of liberty, democracy and individualism have yet to be established in Japan.

After World War II, the U.S. Occupation authorities pushed democratic measures in Japan, including land reform, the disbandment of "zaibatsu" business groups and constitutional amendments. It is generally agreed that these measures contributed to Japan's amazing economic recovery and high growth.

To be sure, liberty and democracy were established as a system after the war. But many of Japan's modern systems have failed to function properly. A free market economy functions effectively only when all participants strictly observe the rules. Rules are established as laws, and government departments and legal authorities must keep strict watch to ensure that all participants comply with the laws.

I have been saying that administrative reform should be aimed at changing much of the government's business from its focus on licensing and protection to supervision. Japanese government departments, however, have an aversion to supervision.

In 1991, when a series of scandals involving brokerages came to light, I urged that a Japanese version of the U.S. Securities and Exchange Commission be established as an independent body. As it turned out, the Securities and Exchange Surveillance Commission was established under the Finance Ministry. I wrote in a newspaper article that allowing the Finance Ministry to supervise financial administration was tantamount to letting thieves work for the police.

Systems are in place that give Japan the face of a free democracy. The systems, though, are subject to manipulation and often distorted intentionally. Most Japanese have little sense of guilt in violating economic laws. Those found guilty often get off with suspended sentences. There is little chance that prison sentences will be imposed. As things stand, such rule violations are likely to continue.

As a result, Japan will remain a premodern nation with undeveloped liberty and democracy. And efforts to implement structural reform to change Japan's regulated, opaque and unfair market economy into a free, transparent and fair one are bound to fail.

Takamitsu Sawa, professor of economics at Kyoto University, is also the director of the university's Institute of Economic Research.


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