- The Washington Times - Friday, February 15, 2002

Yoshi Tsurumi, professor of international business at Baruch College of the City University of New York and president of the Pacific Basin Center, responded to questions from reporter Takehiko Kambayashi. Mr. Tsurumi, author of "The Great Change," a book suggesting political and economic reforms for Japan, taught President George W. Bush at the Harvard Business School.

Question: Why is Japan unable to carry out the reforms it needs?
Answer: Japan is not a democracy, but a kleptocracy, an atrophied form of democracy. The ruling-party politicians and their narrow interest groups perpetuate their hold over the nation through election rigging and power-sharing collusion with the bureaucracy and the judiciary.
People suffer as if they were held hostage by greedy bandits who guard their vested interests. Despite his reformist gesture, [Japanese Prime Minister Junichiro] Koizumi has let his party's anti-reform politicians raid the national treasury for their useless pork-barrel projects. Budget deficits have continued to soar.
Heeding President Bush's ill-advised demand to "clean up banks' loans," Mr. Koizumi is blindly enabling Japanese banks to force heavily indebted but still viable businesses and households into insolvency. This is aggravating Japan's deflationary spiral and ironically increasing banks' bad loans. Banks want government bailouts with taxpayers' money, but without reforming their operations. Banks continue to hide their "Enron-style" assets and liabilities.
Aggrieved stockholders, firms, and households cannot seek the protection of the courts because judges always side with banks and bureaucrats. There is no law to protect borrowing firms and consumers from banks' flawed lending and management practices.

Q: Most Japanese seem to have lost hope. Is there any remedy?
A: The Japanese are still too discouraged to rise up like the Argentines. But, behind their apathetic masks, the Japanese are becoming increasingly angry at Mr. Koizumi for his betrayal and his supporter, President Bush, for making the wrong demands on Japan.
They already suspect that Mr. Koizumi is deflecting voter wrath over domestic problems by hitching a reckless ride on President Bush's military initiatives abroad. Besides, many Japanese are aware that the U.S. has long been an accomplice of Japan's deep-seated malaise the pervasive absence of public accountability for political leaders and government bureaucrats.
After Japan's defeat in World War II, the United States saved the Showa emperor, Hirohito, from abdicating the throne to atone for his wartime responsibilities. With this political pardon of Hirohito, Japanese leaders have retained their public infallibility.
To rule occupied Japan, the U.S. kept Japan's prewar judges and courts. This is as if it had kept the Nazi jurists and courts to rule occupied West Germany. No wonder, then, that Japan's postwar democracy atrophied rapidly once Japan regained her political independence in 1951.
Japan cannot clean up corrupt banks and carry out political and economic reforms, because no politician, bureaucrat and business executive is held responsible for their repeated and serious mismanagement of the Japanese economy and society.
To pull Japan out of the moribund economy, it is not enough for Japan to clean up its banks superficially or resort to tax cuts and pork-barrel projects under the guise of economic stimulus.
Japan must first deal with her kleptocratic malaise.
This ranges from bank corruption, soaring budget deficits, judiciary-bureaucracy collusion, and unfair voting system to bureaucratic controls over Japanese firms and consumers. Rural votes are worth five times as much as urban votes, due to the half-century-old gerrymandering in favor of anti-reform conservative [Liberal Democratic Party] members of the Diet.

Q: What's your view on the Bush administration's approach to Japan?
A: The Bush administration has been very intrusive in the wrong way. It has been demanding that Japan clean up banks' bad loans, without knowing how the banks and Mr. Koizumi would exploit such a U.S. demand to hurt small- to medium-size firms and ordinary households.
After the terrorist attacks on the United States, President Bush demanded that Japan "show the flag" in support of the U.S.-led war on terrorists. Mr. Koizumi eagerly seized on this demand and sent the Japanese navy to the Indian Ocean. Now, President Bush will try to enlist Japan in his military alliance against North Korea and other "axis of evil" nations.
But Mr. Bush's image as leader of democratic nations has been damaged in Japan and other Asian nations. He unilaterally pulled the U.S. out of the Kyoto Protocol to deal with global warming. The Japanese are dismayed.
Last summer, most Japanese and other Asians were also dismayed by President Bush's silence about Mr. Koizumi's official visit to Yasukuni Shrine, which honors Japan's war dead including [wartime Prime Minister Gen. Hideki] Tojo and other Class A war criminals. China, South Korea and other Asian nations strongly protested.

Q: What should President Bush say in Tokyo?
A: "Enron-ed America" has lost the moral authority to preach to Japan about managing her economy. If he wants to urge Japan to avoid a financial crisis, he should say, "Clean up bank corruption and protect borrowing firms and consumers."

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