The era of Japan Inc is over

A 50-year quest to excel has succeeded - too well. Peter Tasker surveys a disconcerting future

TOKYO - The 50th anniversary of the end of the Second World War finds the Japanese in an unusually troubled and self-questioning mood. For 1995 has truly been an annus horribilis. In all sorts of ways, the myths that have sustained Japan through the post-war decades have been coming apart at the seams.

It started on the morning of 17 January when in a few shuddering seconds the centre of Kobe was turned into a rubble-strewn wasteland. The human cost - 5,000 dead and 40,000 homeless right in the heart of one of the world's richest cities - was traumatic enough. The shock was compounded by what was revealed about the reliability of the authorities. All the elaborate disaster drills and failsafe procedures were shown to be useless. Residents were left to dig the dead and wounded out of the debris unaided; fires blazed unheeded due to the fire brigade's inability to obtain any water.

An even more shocking event followed - the nerve-gas attack on the Tokyo underground. The subsequent revelations about the schemes of cult- leader Shoko Asahara, a figure who could have stepped out of the pages of the weirdest "manga" comic-book, knocked giant holes the myth of the safe, well-governed society. Is it possible that the police really had no idea what was happening? If not, they were incompetent. If they did, they were hugely irresponsible in allowing it to continue.

Economic policy-makers have fared no better. A series of grave misjudgments has brought the most dynamic economy of the post-war era to the closest condition to a debt deflation that the world has seen for 60 years. Zero growth, collapsing asset markets, a banking system rotten with debt - the obvious problems are unwelcome enough. The more disturbing feature has been the government's inability to master a situation which, given Japan's capital resources, should be by no means beyond solution. Again, the weakness of a system based not on rules but on the exercise of bureaucratic discretion has been made manifest.

The protracted economic slump is having significant side-effects. Intense pressure to cut costs is forcing changes in Japan's post-war corporate culture. When the growth machine stops, lifetime employment and seniority pay become unaffordable. When the stock market collapses, the practice of companies "cross-holding" each other's shares becomes a recipe for disaster. When large chunks of manufacturing industry move off-shore - a process which has only just begun - the keiretsu network of suppliers and sub-contractors has to be cut away at some point.

All this will have far-reaching social implications. Through the lifetime- employment system workers have allowed themselves to be exploited in terms of working conditions in return for long-term security. Similarly, small companies have allowed themselves to be dominated by large companies in return for stable business relations. Sacrifice in return for risk-sharing - that is the grand bargain at the heart of Japanese-style capitalism and the impressive social cohesion it has fostered. As the pre-war record shows, there is nothing culturally determined about Japanese social stability.

The current slide down the GNP growth table is profoundly disorienting for a nation that has defined itself almost exclusively in terms of economic success. The path Japan has taken over the past 50 years was mapped out by Japan's greatest post-war prime minister, Shigeru Yoshida. According to the "Yoshida doctrine", Japan could return to the first rank of nations only by concentrating all its efforts on economic development. It would provide forward bases that would allow the US military to dominate the Pacific. In return, it would receive free protection and open markets. At home politics would be dominated by the one-party rule of the Liberal Democrat Party, which was set up in 1955 with the help of CIA funding.

Real power, however, would remain in the hands of the bureaucracy. Exports would be prioritised, consumption repressed and foreign competition kept out of strategic sectors until it was too late to make a difference. Industry would be organised hierarchically, and company unions encouraged in the place of trade unions.

It worked like a dream. Starting with the stimulus of Korean War demand, the Japanese economy took off on a super-charged reconstruction boom. Inflation and labour militancy - both serious problems in the immediate post-war years - were ruthlessly quelled, and the left-wing opposition marginalised. Self-Defence Forces were set up, in apparent defiance of the Peace Constitution, but America's nuclear umbrella provided all the protection anyone needed.

The Tokyo Olympics in 1964 marked Japan's return to international respectability. In the same year Japan sloughed off the official classification of "developing nation" and was accepted into the OECD. Since then the factories have poured out an ever more sophisticated range of goods, incomes have soared and Japan's great companies have become leading players in the global economy.

So the psychological effect of the current slump runs deep. Over the years, Japan has grown accustomed to its industrial strategies being criticised, feared, admired and imitated. In the hubristic Eighties, Japanese intellectuals even talked of a "reverse Marshall Plan" through which Japan would bail out that economic basket-case the United States.

Indeed, from the other side of the Pacific, the situation looked threatening. Japanese companies were dominating key hi-tech industries and snapping up trophy assets such as Columbia Pictures and the Rockefeller Center. An influential group of Washington insiders was suggesting that American policy should be geared towards the "containment" of Japanese industrial power - a deliberate echo of Dulles-era Cold War rhetoric.

Unlike the original "evil empire", the industrial version is still alive and kicking. But containment is no longer necessary. The trophy assets are being sold off at knock-down prices and Japanese companies are struggling to keep up in new growth areas such as multi-media and PC networking. While nobody was looking, the Japanese have done an excellent job of containing themselves.

The Americans, however, are unrelenting. Trade frictions appear to be endless and both liberal Democrats and right-wing isolationists have been questioning the value of the US-Japan Security Treaty, the bulwark of Japan's entire post-war foreign policy. Popular sentiment is reflected in the success of Japan-bashing best-sellers such as Michael Crichton's Rising Sun and Tom Clancy's Debt of Honour.

The eruption of bitterness about Japan's actions half a century ago can be seen in much the same terms. Simply put, the West no longer needs Japan as an ally in the fight against Communism. Conflicts, whether about closed markets or the treatment of PoWs and "comfort women", can be brought out into the open.

From the Japanese point of view, the natural response would seem to be a shift away from reliance on the West to an Asia-oriented strategy. Indeed, since the Meiji Restoration in 1873, Japanese intellectuals have veered between pro-Western and pan-Asian yearnings. The last swing to pan-Asianism supplied the ideological impetus to the Pacific War. Another such swing could have unfavourable consequences for all concerned. For this time there is competition within Asia itself. Another superpower already exists, nuclear-armed, increasingly powerful in economic terms, and as unpredictable and touchily nationalistic as Japan was on its own emergence on to the world stage. In the 21st century pan-Asianism will be a high-risk strategy.

Japan's long march - which began not with Yoshida but with the Meiji Restoration itself - reached its goal in the Eighties. In wealth and technology, Japan had finally caught up with the leading countries of the West. The first attempt ended in disaster 50 years ago. The second achieved everything that Yoshida could have hoped for. Yet in some ways his vision may have been too successful for Japan's own good. The Japan Inc system became too powerful, too rigid. In retrospect, the elimination of politics as a creative force in society now looks like a fatal flaw.

The premises on which the system was built - American goodwill, an immature, fast-growing economy, bureaucratic wisdom - are crumbling away, but Japan's natural powers of adaptation seem to have atrophied. No doubt time will restore them, but this phase of political and psychological restructuring has many more years to run.

The writer is an analyst and author. His novel, 'Silent Thunder', is published by Orion, pounds 4.99.