Can This Man Save Tokyo?

Author Shintaro Ishihara is trying to turn around the city he runs

Shintaro Ishihara, governor of Tokyo prefecture, just can't hide his contempt for his predecessors. In the plush anteroom of his City Hall office, he ticks off Tokyo's woes: a budget deficit of $6 billion, debts of $60 billion, a legacy of public-works boondoggles--including the $1.3 billion City Hall. Apart from all this, Ishihara must cope with a mounting homeless population and a horrifically bloated bureaucracy. No wonder the 67-year-old Ishihara fumes at those who came before him. "There has been no concept of profit and loss or efficiency," he says. "This would never be tolerated in the private sector."

Such rage is part of the persona for Japan's ranking conservative intellectual. In The Japan That Can Say No: Why Japan Will Be First Among Equals, the neonationalist screed he co-authored in 1989, Ishihara railed against Washington's dominance of postwar Japan. But since winning the governor's race in April, he has stunned local politicos by turning his ire on the Japanese system he so long admired.

As Tokyo's governor, he now sees evidence of fiscal recklessness pretty much everywhere. And every day, it seems, Ishihara proposes another radical scheme to pull Tokyo back from the brink. In the budget for the fiscal year beginning next March, Ishihara calls for a 12% cut in public housing outlays and a 14% cut in public-works expenditure. The bigger question, though, is whether he can restore Tokyo's fiscal health. Observers say Ishihara is deadly serious about trying. "He has spent a lot of time studying the revival of New York" from its 1970s brush with bankruptcy, says Jesper Koll, Merrill Lynch & Co.'s Tokyo economist.

In many ways, Ishihara's problems are smaller versions of those facing Japan. Tax cuts and years of overspending have left Tokyo--along with many other cities--nearly insolvent. Ishihara has been grilling bureaucrats about the true depth of the city's burdens--and is still looking for the bottom. In assessing the mess, his aim goes way beyond fiscal discipline. Ishihara wants to smash the lord-vassal relationship that has long existed between the national leadership and local government. "He is a latecomer, but a real symbol of reform," says Yasunori Sone, a political scientist at Keio University in Tokyo. "He gives you the sense that a decisive politician can make a difference."

Ever the intellectual, Ishihara is quick to detail the historic roots of Tokyo's problem. The larger issue, he says, is the overcentralized power and administration that dates to the Meiji Restoration of 1868, when Japan entered the modern era. As a result, local governments have little control over their own finances. For decades, the central government has shifted tax revenues from big urban areas to rural prefectures, where the ruling Liberal Democratic Party's backing is the strongest. Only 30% of Tokyo's tax revenues are returned to the city. By contrast, some distant prefectures receive many times more in subsidies than they send Tokyo in tax collections.

BIG SPENDERS. Worse, the Ministry of Finance has shifted a big chunk of its deficits onto local governments by requiring them to issue bonds to help finance its spending plans. Naohiko Jinno, a government-finance specialist at Tokyo University, figures that 28% of all big public-works projects rolled out by the central government have been financed by municipalities.

Ishihara's challenge is to use his popularity to change all this. His name has been a household word for decades. At 21, he published his first novel, a rebel-without-a-cause sensation called Season of the Sun. It won the prestigious Akutagawa Prize and furnished an anthem for Japan's first postwar generation. His brother, the late Yujiro, is a beloved film star. Ishihara's campaign slogan for the governorship was "The Tokyo That Can Say No." Today, he enjoys a 70% approval rating--far above the 47% approval rating for Premier Keizo Obuchi.

Ishihara will need those high ratings, since he is starting to get tough. Over the next three years, he will start cutting government salaries, which consume 30% of Tokyo's budget. He also plans to slash employee bonuses--by tradition a 13th month of pay--by 10%.

NO BUYERS. These moves, analysts estimate, could cut the deficit in half by 2003. Pushing further, Ishihara is casting a gimlet eye at all pending public-works projects. Plans for a new subway line are being downsized to save $400 million. Ishihara dearly wants to sell off some assets, such as a half-finished, $20 billion man-made island. "But I doubt I would find many buyers," he laments. Ishihara has even insisted that the government rent out the governor's palatial residence; he continues to live in the well-to-do suburb of Denen-Chofu.

Tokyo needs to expand its tax base by creating jobs, Ishihara says. The governor has floated the idea of building a casino in the Tokyo Bay area, an idea that so far has been greeted with skepticism. He also has enlisted Fuji Bank and others to help create a bond market for small businesses that typically would not qualify for loans from major lenders. "The idea is to help these companies get ready for initial public offerings in the next five years," says Fuji investment banker Shuji Ayabe. Next March, some $100 million in small-business loans, backed by the Tokyo government, are to be bundled into bonds and marketed.

As governor, Ishihara continues to meddle in foreign affairs. This reflects his conviction that it is time for Japan to play a more assertive role on the global stage. He drew Beijing's ire by paying a personal visit to Taiwan's independent-minded President Lee Teng-hui in November. And he is no softer now on the Japan-U.S. relationship than he was as a candidate. "Why is it that anyone who disagrees with the U.S. is called a nationalist by the Western press?" he asks.

Fair enough. But Ishihara has also made far too many enemies in the LDP, from which he bolted in 1995, to have a shot at becoming Foreign Minister or Premier. Still, if he can win Tokyo and other local governments more control over their destinies, Ishihara will be remembered for something other than saying "no."