Fanning Japan's discontent

People who want to understand the complexities of Japan's banking crisis will not find complete enlightenment in this book, but they will find a great deal of useful background information. The general effect is to show the bureaucrats of Japan's ministry of finance in the worst possible light: self interested, arrogant, venal and incompetent.

There is little doubt that the volume will be translated and achieve instant success in Japan, where the newspapers continue to fan populist resentment against the ministry, thanks on the one hand to the problems of bank regulation and the appalling recession, and on the other to a crop of scandals over relatively minor abuses of regulatory powers that have already resulted in five ministry suicides.

Peter Hartcher is at his best when doing his most straightforward journalistic job of describing some of the more egregious ways in which cowboy businessmen gained and then spent the paper wealth that the 1989-90 bubble created, and how they were confounded by the mountain of debt it left behind when it burst. Harunori Takahashi, whose collapsed credit unions put the ministry through one of its severest tests, may pale in comparison with a Robert Maxwell, or with a Ross Johnson of RJR Nabisco, but Takahashi still makes good copy.

As for the information: the major episodes of macroeconomic policy-making and of regulatory administration in the decade up to 1996 are described clearly, if not always fully and impartially. The opening chapter, "The club", about the ministry's recruitment, its officials' career patterns, their post retirement jobs, their working habits, their culture and self-image, is usefully informative, even if slanted to a Thatcherite belief that pretentions to a sense of "public service" are always humbug.

But the analysis? Hartcher is sympathetic to the claim that Japan's regulated financial sector worked to promote both growth and a fair distribution of income, employment and the economy's inevitable growing pains. But by and large he simply reflects the current belief - shared these days by most Japanese commentators - that such notions belong to the past and nowadays everything should be left to the market.

He joins, for example, in that chorus of voices complaining that Japanese exporters' competitive strength was dragged down by the high prices they had to pay to a non-competitive, protected, over-regulated non-tradeables domestic sector.

But that was simply a function of the exchange rate. By the time this book was published, the weak yen had made electricity cheaper in Japan than in America. Now thanks to the hedge funds, the yen is back up again, and doubtless the poor non-tradeables sector will once more become a scapegoat.

As for the policy mistakes that have led Japan to its present traumas, they are easily identified with hindsight, but there is little "there but for the grace of God ..." charity in Hartcher's account.

The ministry demonstrated myopic procrastination, arrogance, all the sins in the book. Yet, there is no painstaking analysis that would sort out how far the ministry got it wrong, and how far the ministry got it right but had its good intentions frustrated by uncomprehending politicians. But then, one can hardly expect such analysis from someone whose sources seem confined to interviews with English-speakers or through an interpreter, and English language written materials plus a research assistant's translation of the odd Japanese article. The Japanese are poorly served.

The ministry of finance has a lot to answer for - not least the fact that it set regulated interest rates at a level that allowed the whole finance sector to pay salaries a third higher than in manufacturing.

Perhaps that is acceptable to a financial journalist, which may be why Hartcher fails to point it out - but it does make the achievements of Japanese manufacturers despite the consequent diversion of talent, all the more remarkable.

Ronald Dore is senior research fellow, Centre for Economic Performance, London School of Economics.