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Japan: How Much Will It Really Change?



Japanese society distinguishes between tatemae, which is diplomatic truth or polite fiction, and honne, the inner truth, the kind disclosed late at night among close colleagues, after many drinks. With President Clinton traveling to Tokyo for a Group of 7 economic summit in July and Administration officials preparing a new Japanese trade strategy, the U.S. should keep that distinction in mind.

The tatemae coming out of Tokyo is that Japan is undergoing a major political upheaval, with fractures in the corrupt Liberal Democratic Party preparing the way for a reformed, consumer-minded coalition government that will deregulate the economy and open it up to imports.

The honne may be a bit different. For decades, factions have formed around powerful personalities within the LDP. What is new this time is that two small factions are calling themselves parties. The parties say they want to end the money-politics corrupting the Japanese system. The only trouble is that the men leading the rebellion are among the most notorious money-politicians in the country. Ichiro Ozawa is the proteg of disgraced political boss Shin Kanemaru, about to stand trial for having $40 million in cash and gold bars in his home and office, allegedly from political payoffs. Ozawa, with his own reputation for being a money-politician, is hardly the reformer he presents himself to be.

Ozawa's political ally Tsutomu Hata is a former agricultural minister who fought long and hard against imports of U.S. farm products. He is best remembered for saying in 1986 that Japanese intestines are too short to digest American beef. Hata, who could be the next Prime Minister, is not a likely pro-consumer, open-market advocate.

If there is less than meets the eye on the political front in Tokyo, there may be more going on economically than is publicly acknowledged. Japan in the 1990s is quite different from the Japan of the 1980s. While big business and government bureaucracies still dominate, the image of an economic juggernaut conquering global markets no longer holds.

The bursting of the "bubble economy" and a 50% decline in the stock market have finished Japan's zero-cost for capital. Japanese companies, like their rivals in the U.S. and Europe, now must operate to make profits, not simply to increase world market share. Gone is the open-wallet splurge on research and development. Today, R&D spending is more selective, with a focus on the bottom line. That's partly in reaction to the fact that billions spent on high-definition television and fifth-generation computers turned out to be bad bets on the wrong technologies. Additional billions have been wasted on foreign real estate and attempts to penetrate foreign banking markets.

Looking at the global economy, it is the U.S. that is coming on strong, dominating multimedia, biotechnology, entertainment, and the nascent market in mobile personal communicators. American companies, once again producing quality goods at cheaper prices, are regaining lost market share in autos, computers, printers, chips, steel, and construction equipment. If the '80s were a decade dominated by hardware, which is still Japan's main strength, in the '90s value is going to be added by software, which is clearly dominated by U.S. companies. Negotiating with Tokyo on the assumption of impending radical political and economic change would be premature at best. A pro-consumer, open-market government and society may make their appearance in Japan sometime in the future. But for now, U.S. negotiators will likely face the same hard-nosed bureaucrats, backed by the same tough businessmen, fighting for the same pro-Japan agenda as before.

Hata, Ozawa, and the younger generation of new political leaders who are now rebelling against the LDP may have a desire for reform, but they also share a growing willingness to say "no" to U.S. requests to reduce the trade deficit. Which makes it all the more important for Washington to do its homework on the "new" Japan--before trade negotiations actually begin.

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