Japan's Ldp May Be Going Back To The Bad Old Days

Hashimoto's crusade for economic reform is now a lost cause

Japanese Prime Minister Ryutaro Hashimoto had no choice but to cave in. His misguided attempt to bring Koko Sato into his Cabinet to the crucial post of reforming and slimming the civil service finally fizzled on Sept. 22. Sato, convicted in 1986 for taking a $16,000 bribe in the 1970s Lockheed scandal, resigned, and a grim-faced Hashimoto bowed toward TV cameras and apologized to the nation for his "lack of insight."

The incident shows that the ruling Liberal Democratic Party's (LDP) notorious faction-driven dealmaking is again alive and well. That's bad news for the LDP's leader, because it means that his crusade for economic reform is now a lost cause.

MIGHTY MINISTRIES. Any hope of bringing the country's powerful bureaucracies to heel is waning. Already, efforts to dismember the all-powerful Finance Ministry have been quietly dropped. The Ministry of International Trade & Industry, rather than having its wings clipped, will now likely extend its prodigious influence from manufacturing into broadcasting and telecommunications.

It's a high price for Hashimoto to pay for a personnel blunder. But he was persuaded to appoint Sato by former Prime Minister Yasuhiro Nakasone, to whose Watanabe faction Sato belonged. Besides, Sato's replacement, former Labor Minister Sadatoshi Ozato, comes from another faction run by ex-premier Kiichi Miyazawa.

Hashimoto bore the blame as hundreds of Japanese sent angry E-mail messages to the Premier. Public outrage at the resurgence of cynical backroom politics orchestrated by LDP faction leaders torpedoed his approval ratings, nearly halving them, to 28%. His government rocked as the LDP's two left-leaning coalition partners--the Social Democratic Party and New Party Pioneers--threatened to bolt and bring down the government if Sato didn't go.

But by beating up on Hashimoto, Japanese voters were effectively helping restore the power of the LDP's backroom barons. Hashimoto was already taking heat for a sliding economy that contracted 11% on an annual basis in the April-to-June quarter. The economic squeeze results from his government's austerity program designed to shrink the budget deficit that is 6% of gross domestic product. As Japan's trade surplus swells to $100 billion a year, Washington fears Tokyo is reverting to the old strategy of export-led growth and glacial deregulation at home. Hashimoto swears it isn't so.

Despite the Sato fiasco, he vows to charge ahead with reform. But, after five years of effort, about 9,000 regulations remain on the books and still give the nation's bureaucratic mandarins their enormous clout. Large pockets of the economy from retailing to construction are protected and couldn't stand the heat of global competition. As a result Japan's living costs will stay absurdly high, consumption remain weak, and the economy fixated on export growth.