Economy of Japan

PM throws down corruption challenge

PUBLISHED : Tuesday, 06 October, 2009, 12:00am
UPDATED : Tuesday, 06 October, 2009, 12:00am

Yukio Hatoyama, Japan's new prime minister, took the first steps last week towards ending a pervasive but perniciously corrupt practice that has dragged down the economy for years.

Achieving success may lead him into a desperate battle with Japan's powerful bureaucrats, who regard the practice as part of their perks.

However, if he is successful, he may end notorious bid-rigging deals, make Japan's economy more efficient and open it up to the rest of the world.

The practice that the government wants to abolish is quaintly called amakudari, which literally translates as 'descent from heaven' and is a reference to the Shinto gods coming down to visit mere mortals.

The bureaucrats clearly see themselves as latter-day gods, who in the modern-style amakudari leave their ministerial posts to take well-paid jobs in leading corporations. In their new jobs they can earn several times as much as when they were the gods of the bureaucracy.

The new Hatoyama government decided to prohibit ministries from urging officials to take early retirement by offering them jobs outside the ministry.

Officials whose jobs were approved by the previous government will be allowed to take them, but anyone who still needs permission from the new government will be refused.

Similar practices of former top officials parachuting into lucrative posts outside the government happen in other countries, where officials retire at 60 or 65 at the end of their official working careers and take boardroom seats in private companies that hope they will bring with them useful advice and contacts.

In many countries, there is a sanitisation or cooling-off period, supposed to ensure that retiring officials do not take any state or commercial secrets to the private sector.

But in Japan, the practice of sending former bureaucrats into private companies is part of the business framework, widespread and often deeply corrupt as well as inefficient, part of the steel nexus between officialdom and Japan Inc.

The practice operates at several levels. The most senior officials, who reach the rank of administrative vice-minister, the top bureaucratic post in a ministry, generally hardly retire.

As just one example, a friend from the finance ministry who took over as vice-minister of the lands agency was, on his descent from heaven, first given the top job at the government housing loan corporation and later became the head of the biggest bank in his home area and an important figure presiding over the whole business life of the region.

Japan's biggest banks have recently become reluctant to provide jobs for the most senior finance officials, so instead they have gone to government bodies or universities.

One top finance official was given a leading university professorship dealing with India, although he hardly knew the country.

But the pervasive and insidious nature of the practice operates on a large scale at a lower level, and it will take more than an edict from Hatoyama to root it out, because it is deeply ingrained in Japan Inc.

In most other countries, senior bureaucrats usually work until their retirement age of 60 or 65, whatever their rank. It may be that one of them gets the top post in a ministry at the age of 50 or younger, but colleagues who entered in the same year continue working.

However, in Japan, where progress up the bureaucratic ladder is slow and measured, when one official reaches a top job, all the others who joined in the same year are expected to step down.

The solution has been to feed the lower officials to top quasi-government or corporate jobs, starting in their early 50s when it is clear they are not going to become a vice-minister or director-general of a bureau, who actually holds the legal power within a ministry.

This is not a case of a handful of people but of thousands. In some ministries, particularly those dealing with construction, public works and road building, but even forestry, the amakudari and associated processes breed corruption.

According to the previous government's own reports, almost 70 per cent of the bureaucrats helped by their ministries and agencies to find jobs between 2004 and 2006 ended up in companies that had close ties with their previous employment.

Other studies have found that companies with amakudari employees were more likely to gain contracts without a bidding process, about 70 per cent of them winning contracts worth about US$2.5 billion in 2005.

Previous governments have made efforts to limit the abuses of amakudari, most notably that of Junichiro Koizumi, but critics claim that it is rather like a game of whack-a- mole orchestrated by the bureaucrats themselves.

Revisions in 2007 were supposed to stop ministries helping bureaucrats find new jobs, but the new rules abolished the two-year cooling-off period under which retiring officials were banned from taking jobs with companies with which they had dealings in the five years before retiring, so the clever bureaucrats would be able to negotiate their own jobs.

Hatoyama's government does seem determined to root out abuses and has the advantage of being new to power and therefore not part of the longstanding grand conspiracy.

Reforming the amakudari system would be an important step to making the Japanese economy more efficient. Just to take construction, which is at the heart of much corruption, major Japanese projects cost up to three times as much as equivalent ones in New York or London.

Thanks to the system of dango or bid rigging, foreigners can also be kept out. Much of construction and associated industries is a cosy, closed, corrupt club.

Hitherto, it has been an adamantine steel triangle, with the bureaucrats and the construction companies working hand in glove with the politicians, who are anxious to bring new projects to their constituencies and benefit from backhanders from grateful construction giants.

With the downfall of the Liberal Democratic Party, the new government has an opportunity to smash amakudari and the vote-buying machine linking politicians, business and bureaucrats that was part of it.

One logical solution would be to get rid of the seniority system and raise the retirement age to 65 - to match Japan's greying population, where the country is getting increasingly elderly and people are living to 90 or 100. Then let all bureaucrats work until retirement.

Critics say that this would raise the cost of government pay, but it might not if the government machine were made more efficient so that it would need fewer officials.