Jumping Into The Fray

Ritual was meant to command the day. Japan's newly appointed Land, Infrastructure and Transport minister, 46-year-old Nobuteru Ishihara, stood in his office last Thursday afternoon as some 60 public-corporation chiefs entered, one after another, to intone the formal salutation, Yoroshiku-onegaishimasu. The script called for mutual bowing and a quick exit; in and out in 30 seconds for each gray-suited man in line. Yet with Haruho Fujii, president of the quasi-governmental Japan Highway Public Corp., the young minister broke protocol briefly to discuss pressing business. "We have to talk," Ishihara told the veteran company boss, who turns 67 this week. "I want to hear your side of the story."

Fujii has been accused by a whistle-blower of trying to derail the planned privatization of the highway corporation by inflating its net worth a staggering $50 billion, lying to Parliament and purging reformers who opposed his leadership. Those charges, first leveled in July, have so far failed to bring down Fujii, who denies conspiring to block reform and says the internal audit that showed the corporation to be insolvent was "unofficial." A career ministry heavyweight with close ties to pave-and-build lawmakers known as the "road tribe," Fujii has powerful friends. As recently as Sept. 2, outgoing Construction Minister Chikage Ogi said she saw "no reason for Fujii to be fired."

Ishihara, in contrast, sees every reason. First appointed to the cabinet in 2001 as minister of Administrative and Regulatory Reform, he drafted a plan to privatize, shutter or downsize some 163 public corporations currently receiving $50 billion a year in subsidies. His new post empowers him to implement that plan--and he's wasting no time. Already, says a ministry insider, Ishihara is searching for a successor to Fujii who can "pick a chestnut out of the fire," a traditional Japanese expression for toughness. Fujii is expected to fall within weeks.

The rumbling inside Japan's so-called construction state is welcome noise. More tantalizing still is evidence that similar shake-ups loom across Kasumigaseki, the Tokyo district that's home to Japan's mighty bureaucracy. Fresh from a triumph over hard-liners in his ruling Liberal Democratic Party, Prime Minister Junichiro Koizumi is intensifying his campaign to remake Japan. Last week he appointed a young, independent-minded and telegenic new cabinet--a cadre of leaders with the skills to be more than figureheads. Incoming Finance Minister Sadakazu Tanigaki told NEWSWEEK he's ready to "enter the sumo ring" to fight for a balanced budget. Environment Minister Yuriko Koike is "studying" an ecologically devastating reclamation scheme on Isahaya Bay, say staffers, a pet project of the good-ole-boy construction lobby. Incumbent Foreign Minister Yoriko Kawaguchi is heading a controversial drive to deploy Japanese troops to Iraq. And reappointed financial regulator Heizo Takenaka warned banks last week to tighten the screws on bad debtors.

In the short run this team has one mission: to help the LDP win parliamentary elections that Koizumi hopes to call in November. Yet what clearly lies ahead is a season of change--even, perhaps, a "fall of the wall moment" in which the old system begins to crumble. The power of gray-suited ministry men is shifting quickly to the prime minister. Factionalism within the ruling party has proved itself a spent force. The system known as amakudari (parachutes from heaven), in which retired bureaucrats take jobs in industries they once regulated, is eroding--undermining a powerful base of support for the ministry leaders.

Recent history suggests two possible outcomes in the battles that lie ahead. New ministers will either identify allies, shunt foes aside and take control of their agencies, as Takenaka did when he took over the Financial Services Agency last year, or they'll go the way of Makiko Tanaka, who was Japan's most popular politician when she became Koizumi's first foreign minister but was devoured by bureaucratic underlings. Entering office vowing to root out corruption, she exposed scandals and removed key personnel. Ministry insiders fought back, cutting her out of the information loop and leaking tales of her alleged moodiness and bad form. Embarrassed by the fracas, Koizumi sacked her in his first cabinet reshuffle.

Today the reform spotlight shines brightest on Ishihara, son of Tokyo's right-wing governor. With Koizumi's blessing, he's trying to derail hundreds of senseless construction projects approved by pork-barrel politicians eager to bring jobs to their constituencies. Four public road-building corporations, all but one of them believed to be insolvent, have some 2,300 kilometers of new toll highways in the works, some located in areas so remote that "people say there are more bears on the road than cars," says Kodo Ogata, head of the Toll Road Research Center. Runaway public-works spending has ballooned public debt to 150 percent of GDP, feeding a construction industry that now employs one in every 12 Japanese.

Fujii epitomizes what's wrong with the old system. After retiring from the Construction Ministry in 1998, he joined the highway corporation and became its president in 2000. Such close ties are one reason the ministries keep funneling contracts to public corporations, which are now deep in debt. Fujii is fighting accusations of inflating figures to cover up the whole incestuous mess.

If Ishihara can oust Fujii, the construction state may begin to fall, too. Standard & Poor's analyst Junko Miyakawa calculates that public contracts have better than 10 percent profit margins, compared with 3 percent in the private sector, and effectively support the top builders.

While Ishihara's task is to rein in spending, incoming Finance Minister Tanigaki faces an equally bitter struggle to boost government income. Despite Koizumi's pledge not to raise Japan's sensitive consumption tax while in office, Tanigaki has nonetheless opened up debate on the issue. In a NEWSWEEK interview (following story), he calls the consumption tax "a possible future source of funds for pension and other needs," and forecasts cuts in social services. He also hints that so-called zombie companies, the most visible being troubled retailer Daiei, will find it tougher in the future when approaching their main banks for debt relief. It's too early to tell whether Tanigaki is up to taming Japan's most powerful ministry, but his expertise in corporate rescues suggests he knows the critical issues and could prove something more than a mouthpiece for career Finance Ministry bureaucrats.

Not all the battles will involve frontal attacks. Kawaguchi has restored order inside Japan's Foreign Ministry since she took over from Tanaka in 2002. She is well respected among peers abroad, and won a spot in the new cabinet despite demands from party conservatives that she be sacked. The controversy at home involves Kawaguchi's most sensitive assignment: enhancing Japan's military cooperation with the United States--a development, many inside her own ministry argue, that violates Tokyo's pacifist Constitution.

The policy itself is Koizumi's. Kawaguchi's job has been selling it to a foreign-policy establishment that's overwhelmingly dovish, stridently pro-China and opposed to the Self-Defense Force's gaining new powers. For years the government has interpreted Article 9 of the postwar Constitution as a ban on Japanese involvement in collective security arrangements. But last month an advisory panel created by Kawaguchi concluded that this reading had become "a real stumbling block to maintaining peace and safety," because it prohibits, among other things, a joint U.S.-Japanese effort to develop antimissile defenses against the threat from North Korea. The panel recommended reinterpreting Article 9 to give the military a freer hand.

Even Koizumi's staunchest critics admit that the changes underway are potentially sweeping. Environmentalist and public- works expert Takayoshi Igarashi gives Ishihara "a 50-50 chance" of vanquishing the road tribe. His test case: the 328km-long Second Tomei Expressway linking Tokyo and Nagoya, a partially built toll road that could cost another several trillion yen to complete. Who knows? If that project is halted, Igarashi might even abandon the opposition Democratic Party of Japan, which he's supported for years. Another unlikely convert is Kenji Honma, an 80-year-old rice farmer in Yamagata prefecture. "I'm a country bumpkin and I have complaints about the government's agricultural policy," he says. "But still I think Koizumi is taking Japan in a good direction." As recipients of massive pork-barrel aid, farmers traditionally back the old system and resist all efforts to whittle down their entitlements.

Koizumi and his team are pressing hard to win more supporters ahead of parliamentary elections expected in November. On Friday, Ishihara did his bit by appearing on TV Asahi's popular evening news program to update the nation on his struggle to oust Fujii. "I've asked him to come to my office. I have questions, and I'm sure those questions are shared by the Japanese people," he said. The exact timing of when the doomed Fujii gets the ax may rest with the prime minister. What better way to kick off an election campaign than by sacking a reviled career bureaucrat? Many Japanese, no doubt, will be pleased to watch the spectacle.

Jumping Into The Fray | News