Japan's Quiet Transformation

Social Change and Civil Society in 21st Century Japan

Jeff Kingston

• Publisher: Routledge
• Year: 2004
• ISBN:
  9781134478279
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

The 1990s have been termed as 'Japan's lost decade' to describe how the phenomenal growth in the Japanese economy ground to a halt and the country was crippled by enormous and ongoing political, economic and social problems. In responding to these unprecedented difficulties, wide-ranging reforms have been adopted including NPO, information disclosure and judicial reform legislation. Controversially, this book argues that such reforms are creating a more robust civil society and demonstrate that Japan is far more dynamic than is generally recognized.

1 The Lost Decade of
the 1990s

The so-called Lost Decade of the 1990s has been misunderstood because it really marks a watershed in Japan and has been a time of far reaching transformation.

Gerald Curtis, Professor of Political Science, Columbia University, July 26, 2002

During the Lost Decade the powerful and privileged lost while ordinary people benefited.

Miyazaki Ikuko, founder of Mail Magazine, an internet job information service for working women, August 2002

The final ten years of the twentieth century have been called a ‘lost decade’ for Japan, which continues to suffer woes from the burst of the late-1980s bubble economy. Japan's comeback as a globally competitive economic powerhouse will require fundamental reforms not only in the industrial and financial sectors but also in government administration, politics and social systems, including education, the judiciary and immigration.

Japan Times, January 1, 2001

The 1990s in Japan have been dubbed the Lost Decade. This is a period when the economy imploded, the asset bubble collapsed, banks teetered on the edge of insolvency, unemployment skyrocketed, suicides increased and the leaders of Japan, Inc. were tarnished by exposés of pervasive corruption. The nation of the ‘economic miracle’ found itself looking into the abyss, lunging from the swaggering late 1980s, when commentators gushed about a Pax Nipponica, to the sobering realities of the turn of the century when analysts predicted systemic collapse. The nation's credit rating slumped to the level of junk bonds and zombie companies staggered towards bankruptcy. Everything seemed to go wrong at the same time, an inauspicious beginning to the Heisei era, a period that has virtually become synonymous with Japan's prolonged recession.¹

What was lost in the Lost Decade? Mountains of money, a sense of security, stable families, and the credibility of the nation's leadership. To this standard list of debits one might add hubris and confidence about the future. The mighty have been brought low and the reputations of some have been dragged through the mud. Many topics that were once carefully avoided have now been brought into the open: subjects such as money politics, mob influence, and pervasive malfeasance are now regularly aired in a feistier national press. Also lost in the 1990s was an orchestrated innocence about the nation's shared past with Asia between 1931 and 1945.

But while Japan lost a system and a fortune, it found improved lifestyles and a greater acceptance of diversity. People also gained new insights into the shortcomings of the system and those who were running it. They began to question prevailing values and the stifling regimentation of many aspects of life in Japan. The popular phrase ‘Not being #1, but being only 1’ articulates a new humility and a new-found freedom of self-expression. Such affirmation of individuality and uniqueness is a new phenomenon for Japan. The 1990s was also a decade when cellular phones and internet connections became widespread, generating a revolution in communications that is not yet fully understood, but cannot be overlooked as one of the significant changes that are sweeping contemporary Japan.²

Crisis and turmoil have a way of defining a people and their society. Japan has experienced pervasive adversity in the recession-plagued 1990s, undermining longstanding beliefs, attitudes, relationships, and patterns of behavior. As Japan enters the twenty-first century, it is emerging from a decade of profound change driven in no small part by the wave of developments in the tumultuous 1990s that acted as a grim finale for the postwar era. Perhaps one of the most profound changes has occurred in the way that citizens view their government, as a series of scandals and exposés of negligence, incompetence, and mismanagement have undermined the credibility of the ruling elite. The rhetoric of deregulation and reform owes its popular appeal to widespread skepticism about the abilities of those who make the regulations and wield power. The reforms and dynamics unleashed during and since the 1990s are comparable with the social and political transformations associated with the Meiji restoration (1868) and the American Occupation (1945–52). The breadth and pace of change in this emerging third era of transformation is remarkable: the Japan that slunk out of the 1990s was very different from the Japan that entered the decade with smug confidence and heady optimism. There have been profound changes in the public face of the nation — in attitudes and expectations, patterns of relationships, institutions, and civil society. It is an era of growing irreverence towards, and subversion of, the powers that be.

The building blocks of Japan's quiet transformation are being put in place and the shape of this new foundation is slowly emerging. The rapidity of the social metamorphosis is testimony to the adaptability and pragmatism of a nation that has often been criticized for failing to embrace reform and viewing the challenges facing it with complacency. Under the best of conditions, reform is often a slow and unsatisfactory process marked by setbacks and diversions — but once underway it has a knack of spilling over the carefully prepared sluices and flowing in unanticipated directions with unintended consequences. What happens is not always planned and what is planned does not always work out as intended. This book sketches some of these plans and consequences and suggests what they may portend for Japan in the twenty-first century.

Japan's quiet transformation involves the gradual process of extending and reinvigorating its stunted civil society. Although the institutions, practices, and patterns of civil society atrophied over the course of the twentieth century, recent developments suggest that they are slowly and incrementally recovering. Ordinary citizens are demanding a more democratic society marked by more transparent governance, more public participation and oversight, and greater accountability based on the rule of law — a trend heightened by the economic nose-dive of the 1990s.³ This debacle severely discredited Japan, Inc.,⁴ and led many to reconsider existing social and political arrangements. There is a growing revolution in the way people perceive and interact with those who lead Japan and the institutions that govern the nation.

However, this revolution in perceptions involves only a partial repudiation of Japan, Inc. The captains of industry have not been demoted, the Liberal Democratic Party (LDP) still calls the shots and the bureaucrats still wield considerable power to shape political processes and outcomes. The iron triangle (big business, the LDP, and the bureaucracy) may be battered, rusty, and out of synch, but it has not yet been toppled or melted down for scrap. Ironically, some of the strongest momentum for change has been generated by powerful elements in this triumvirate who — albeit out of self-interest — have jumped on the reform train. The reform agenda thus far unveiled, involving half-measures and carefully calibrated change, reflects the natural instinct of these vested interests to preserve their advantages, and a fundamental distrust of a vibrant civil society. Despite the establishment's misgivings over the consequences of ongoing reforms, it is becoming more perilous to stand against reform in an age when the status quo is so badly tarnished.

The quiet transformation portrayed in the following pages is a transitional period where the discredited practices and institutions of the past persist alongside the slow emergence of a new paradigm. Thus there is a degree of continuity between Japan, Inc. and the new reality being shaped — or rather cobbled together — in these early years of the twenty-first century. The persistence of the old order has been taken as a sign of stagnation and paralysis, reflecting a deep resistance to meaningful reform. While the transition to a new Japan will certainly encounter opposition, it is remarkable just how thoroughly the assumptions of the past have been questioned and jettisoned since the early 1990s. Moreover, there are few voices calling for the old system to be preserved. There is consensus on the need for reform, and maintaining the existing system is not seen as a viable option. Some favor a faster pace of change while others prefer to muddle through and manage a soft landing. There are also disagreements over who will bear the pain of reform and

Figure 1.1

Bikers clash with police in Hiroshima. (Photo: Stuart Issett)

restructuring. Certainly the vested interests are not rolling over and meekly acquiescing to the logic of reform. But ongoing institutional, regulatory, and legal changes favoring a more robust civil society are creating a momentum for change and the means to achieve it. These dynamics of transformation explain why Japan's transformation is a process that will take a couple of decades rather than a few years.

Before exploring recent developments in detail, it is important to understand why Japan, Inc. became discredited so rapidly in the Lost Decade. There are many questions that might be asked. Why did a system that had apparently worked so well for so many for so long suddenly lose the trust of the public? What can the scandals and disasters that beset 1990s Japan tell us about the systemic problems that so rapidly felled Japan, Inc.? Why does the comfortable and predictable status quo seem to be less and less appealing to many — business leaders, bureaucrats, politicians, and citizens alike — who have benefited from it in the past? An examination of the final decade of the twentieth century shows why increasing numbers of people are rejecting the discredited ways of the past — seen as ‘part of the problem’ — and pinning their hopes on a social transformation.

Collective hysteria

Japan's ‘bubble era’ takes its name from the steep appreciation in asset prices that occurred during the late 1980s. Economic bubbles, and the crashes that inevitably follow them, have occurred throughout history; they are marked by a collective mania spurred on by a contagious optimism that what is bought today can be sold tomorrow for a higher price. In general, bubbles result from a combination of strong growth, low inflation, and rampant expansion of money supply and credit. At some point the crowd — or, more often, those with privileged positions in the market — realize that prices cannot be sustained at stratospheric levels, resulting in panic selling, an implosion in prices and economic crisis.

During the bubble, stock and urban land prices soared to unprecedented heights in Japan. The Nikkei 225 stock index tripled in the 45 months prior to the December 1989 stock market peak when Japanese stocks reached a value of $4 trillion, constituting 44 percent of the world's equity market. Meanwhile, the urban land-price index quadrupled between 1985 and 1989. Between 1987 and 1989 alone, the value of all property assets in Japan held by corporations rose by the equivalent of the nation's entire gross domestic product (GDP) in 1988.⁵ By 1991, the value of Japan's property assets accounted for 20 percent of global wealth and was double the value of global equities. But just as suddenly as asset prices rose, they plummeted in the 1990s and have remained depressed into the twenty-first century. In 1990 property values in Tokyo, Osaka, and Nagoya fell between 40 percent and 60 percent from their bubble era peaks, while in 1991 alone the stock market average lost 36 percent of its value. This correction in asset prices constituted the bursting of the bubble. As of 2003, the Nikkei stock average was down 80 percent from its peak and urban residential land prices remain down by two-thirds.⁶ For example, a 150 m² wooden house with 284 m² of land in a desirable residential area in western Tokyo that was valued at roughly ¥300 million in 1990 was worth approximately ¥130 million (just over $1 million) in 2002.⁷

Why did the asset bubble occur? There are a variety of theories, and many factors no doubt contributed to the dizzying spiral in asset prices. Like speculative spirals throughout history, price increases were fed by greed and a herd mentality, and made possible by excessive liquidity and easy credit. In addition, a continuing escalation in prices for both stocks and land became a matter of faith, and investors remained confident, even as prices dove, that there was still untapped upward momentum if only they remained patient and hung on to their investments.⁸ A decade later, in the midst of a prolonged recession, it is hard to credit the leap of faith made by speculators and investors at that time. A powerful group psychology encouraged people to suspend their judgment and focus their anxieties on being left out of the boom.⁹

The asset bubble was not merely a result of this speculative frenzy — both international developments and domestic factors combined to pump it up. On the international front, Japan's agreements at the 1985 Plaza Accord to allow a sharp appreciation in the value of the yen and pursue monetary policies favoring high economic growth were aimed at reining in burgeoning trade surpluses with the USA; a more expensive yen was expected to dampen exports while imports would rise in tandem with growth and an appreciating yen.¹⁰ In the wake of the US stock-market crash in 1987, there was considerable international pressure on Japan to stabilize world financial markets and act as an engine of global growth by stimulating its economy. As a consequence, the Bank of Japan acted to boost domestic demand by slashing the discount rate from 5 percent to 2.5 percent and increasing money supply growth between 1987 and 1989 by 9–12 percent per year.¹¹

On the domestic front, surging monetary growth and easy credit fueled speculation. In the absence of alternative investment vehicles, and with extremely low interest rates on bank deposits and government bonds, surplus capital was funneled into stocks and land, driving an appreciation in asset prices. Due to corporate cross-holding of shares, the supply of stocks available for purchase was artificially limited, ensuring that the spike in stock buying would have an amplified effect on stock prices.¹² As a result, by 1989 the average price/earnings ratio on the Nikkei exceeded 65, more than quadruple the historic price/earnings ratio of the Dow Jones stock index in the US. Government plans to stimulate domestic demand by promoting urban redevelopment and making Tokyo into an international financial center sent a clear signal to bankers who promptly increased real estate lending from only 7 percent of their loan portfolios in 1985 to 17 percent by 1990. Zoning regulations on land use, development controls, taxation policies, and the myth of ever-rising land prices limited the supply of land for sale, thus ensuring a similarly amplified impact on real estate prices. At one point, the land in Tokyo alone was supposedly more valuable than all of the land in the USA.¹³

Decisions by the Japanese government, bankers, and corporate executives exacerbated the financial crisis. The government's interest-rate policy contributed to speculation by making it very cheap to borrow money, injecting huge sums into a system already awash in capital. The government was promoting expansion with cheap money and achieved growth rates averaging 5 percent per an...