The Ministry : how Japan's most powerful institution endangers world markets /
Peter Hartcher.
Boston, Mass. : Harvard Business School Press, c1998.
viii, 310 p. ; 24 cm.
0875847854 (alk. paper)
corporate subject
More Details
Boston, Mass. : Harvard Business School Press, c1998.
0875847854 (alk. paper)
catalogue key
Includes bibliographical references and index.
A Look Inside
First Chapter



Japan's Ministry of Finance is headquartered in central Tokyo in a gray-tiled, six-story structure with all the architectural elegance of a prison block and the ambience of a Depression-era courthouse. Inside, the glare of fluorescent lights reflects off the uniformly white shirts worn by ministry officials, who scuffle across the floor from one pile of paper to another. Meanwhile, crowds of nervous petitioners shuffle on loose parquetry down long, chairless corridors. Blankets stacked in discreet piles testify to long nights at the office, and the occasional salacious poster of a barely clad woman points out at social attitudes as unreconstructed as the building itself. All the ministry's main bureaus are here, and their names largely advertise their functions: the Budget Bureau, the Banking Bureau, the International Finance Bureau. One exception is the small division on the second floor, responsible for the overall coordination of the ministry's many activities: the Minister's Secretariat. This office is opaque to the Japanese public and unknown to the rest of the world. Yet it is a remarkable place, an obscure little office with the vast responsibility of setting economic policy for Japan. It is here that the thrum of the Japanese wealth generator is checked, its irregularities diagnosed, and remedies prescribed. And now that Japan produces one dollar in every six in the world economy, monitoring the fluctuations of its own economy has become a tremendous task. It is no exaggeration to say that the Minister's Secretariat in the Okurasho is one of the most important centers of professional economic policy making in the modern world.

Like the Okurasho itself, the Minister's Secretariat is suspicious of economists and employs relatively few. For every economics graduate hired into its executive stratum, three law graduates are hired. Often, the top officials responsible for economic policy have no formal qualifications in the subject. And in the postwar history of the secretariat, its uppermost officer has never held an economics degree. Perhaps the starkest proof of this dearth of expert economists is that the secretariat has traditionally been obliged to borrow a steady supply of economists from outside institutions such as commercial banks, life insurance firms, and even Japan's monopoly tobacco company, Japan Tobacco.

Even those officials at the Okurasho and its secretariat who have earned economics degrees do not work as professional economists. They are instead encouraged to work as generalist administrators. Two of Japan's most eminent economics scholars--Ryutaro Komiya and Kozo Yamamoto--were able to write in 1979 that "there is not one professional economist employed by the Government of Japan." In 1995, they said there was no need to review their earlier study--at least in the case of the Ministry of Finance and its secretariat, nothing had changed.

The Minister's Secretariat is a particularly unusual office in that it operates as an employment agency and a matchmaking service as well as the coordinating administrative office of the Finance Ministry. These services are not offered only out of concern for staff welfare but reflect an important element of grander institutional strategy that sometimes involves the Okurasho's chief executive, the vice minister for administrative affairs. While the minister is the politician appointed to preside over the Okurasho, the vice minister for administrative affairs is the career bureaucrat who actually operates it.

Doing the work normally expected of an employment agency, a section within the Minister's Secretariat seeks out high-level positions outside the Okurasho for executives who are leaving. This does not happen randomly but in a meticulously organized manner that has helped the Okurasho to expand its network of influence far beyond its own gray walls. Through this practice--known as amakudari, or the descent from heaven--the Okurasho has established the exclusive right to fill top-level jobs throughout the public and private sectors. This practice has prompted accusations that it has "colonized" other government ministries, from defense to environment, and that it has subverted the proper priorities of a range of institutions, from Japan's central bank, the Bank of Japan, to its antitrust agency, the Fair Trade Commission.

In the role of matchmaker, the secretariat finds brides for single officials in the Ministry of Finance's executive career stream. By matching the ministry's elite officials with the daughters of politicians and industrialists, the secretariat has the ability to successfully forge feudal-style alliances between the aristocracy of the Okurasho and the political and industrial elites of Japan.

Based on the above facts alone, it is clear that Japan's Ministry of Finance is something more than just another government department.

[] How to join

Finance Ministry officials sometimes describe themselves as part of the Okurasho family. One told a foreign visitor that the ministry is more like "a rather splendid club." And like any club, it sets its own rules for membership. This club has a strong preference for the graduates of a single institution, the University of Tokyo. For many years, the ministry accepted graduates from no other institution. There is a historical explanation. The university was founded in 1877 as the Imperial University of Tokyo during the early part of Japan's drive to modernize during the reign of the emperor Meiji, which began in 1868. Its law school was granted a very special status: supply source of bureaucrats for the new state. For graduates of the university, the usual laws of gravity were suspended, and they were allowed to enter directly into the national bureaucracy without having to endure the rigors of the higher civil-service examination. Its critics said that the university was no longer a university but merely a school for bureaucrats. Nonetheless, within some thirty years its graduates came to dominate the national bureaucracy. This system had a political purpose. In the words of a retired Tokyo University professor, "The Meiji ideal was to staff the [Finance] Ministry with the ablest graduates of the elite university so that they would be impervious to questioning from the public or the legislature." The general disdain in which the Okurasho has long held politicians was captured by one Meiji-era bureaucrat who described the Diet as a collection of three hundred farmers.

This was more than a century ago. The Allied occupation of Japan stripped the university of its imperial status and reorganized it as part of the country's democratization. In the latter part of the twentieth century, Tokyo University graduates no longer have an automatic entree into Japan's civil service. But the condescension with which elite bureaucrats regard politicians is unchanged. In the early 1990s, one senior Okurasho official accused the national politicians of practicing the "low politics" of building public works and soliciting budget appropriations. The civil servant Eisuke Sakakibara, demonstrating qualities neither civil nor servile, in 1990 summarized the role of the people's elected representatives as being "to request appropriations from the central bureaucracy. They serve, in effect, as executive treasury officers stationed in Tokyo for their various regional institutions." While the bureaucrats and the private sector cooperated to create Japan's high-speed economic reconstruction after World War II, the politicians of the ruling party, the Liberal Democrats, "were," Sakakibara continued, "in a sense, bystanders left alienated from the machinery of high growth itself. Their function was to repair some broken parts of economic society which could not be repaired through the workings of the high-growth machinery." In the case of one particular Cabinet, Sakakibara was earlier reported to have gone so far as to suggest that the prime minister and his ministers--all political appointees--were "idiots," although this was denied strenuously by the Finance Ministry.

One of the shrewdest postwar Japanese politicians, the corrupt but dynamic Kakuei Tanaka, who served as prime minister from 1972 to 1974, and its finance minister from 1962 to 1965, did not resent this tradition of elitism but actually exploited it. Mr. Tanaka, whose own education extended no further than his local elementary school, submitted himself to his mandarins at the Okurasho when he was first appointed finance minister with these words: "You are the true elite of the elite. Studying at the topmost university in this country, your brains are the highest quality in Japan. I will, therefore, leave the business of thinking to you, and I will, with your permission, take responsibility for the results." Incidentally, as prime minister, Mr. Tanaka was more successful in extracting public funds from the Finance Ministry for his programs than any other postwar politician.

Disregarding the march of history, the graduates of Tokyo University have managed to bestow on themselves an effective stranglehold on posts in the Finance Ministry's executive track, what the Japanese refer to as the career stream. Career stream officials are the people for whom all senior positions are exclusively and permanently reserved, the elite, fast-tracked upper grade. They make up only 5 percent of the Finance Ministry's total staff but 100 percent of its directors-general and vice ministers. In the 1970s Tokyo University graduates routinely took about 70 percent of the entry-level positions in the career stream. By the 1980s they were typically taking more than 80 percent. Then, in its 1993 hiring, the ministry went too far. It recruited twenty-four staff members to enter its career stream, and twenty-two of them were from Tokyo University. At 92 percent, it was just too much.

The prime minister in 1993 was the Liberal Democratic Party's Kiichi Miyazawa, a man who well understood the Okurasho club system and the importance of holding an entry ticket stamped by Tokyo University. This was because he had himself graduated from the university and gone on to become a senior official in the Okurasho before entering politics. But in spite of the natural sympathies he might have felt for the ministry and its traditions, Miyazawa decided that the situation had become unacceptable. Miyazawa said publicly that the proportion of Tokyo University types at the Okurasho had to be reduced. The following day, his chief cabinet secretary and the official spokesman for the government, Koichi Kato, elaborated. He said that the government had decided that the proportion of Tokyo University graduates was to be reduced to a maximum of 50 percent over the ensuing five years at key government agencies, including the Finance Ministry.

The next year, 1994, the Okurasho hired twenty-one career officials. This time, eighteen were from Tokyo University--still an unrepentantly high 86 percent. The recruitment from other universities was token. The Finance Ministry hired exactly one graduate from each of three other highly regarded universities (Keio, Kyoto, and Waseda).

Miyazawa was never able to take the Okurasho to task. In August 1993 he and his Liberal Democratic Party fell--marking the first time this dominant political party had lost control of the government since it came into power in 1955. But after nine months on the opposition benches, the party had reclaimed power, in a coalition government. When things settled down, Koichi Kato found himself in one of the party's three most powerful posts: chairman of the Policy Research Council. In February 1995, he called the Ministry of Finance to account. He summonsed the head of the Minister's Secretariat, Takeshi Komura, and asked him to explain the Finance Ministry's lack of progress in implementing the directive. The bureaucrat reportedly told the politician that the ministry had a problem with the new policy: "Graduates of other universities do not want to come to the Finance Ministry." A furious Kato put Komura under a so-called access ban in response to this preposterous claim, refusing to speak to him. Kato went on to become one of the more implacable enemies of the Okurasho.

All the same, two months after his meeting with Komura, the ministry did exactly what Kato had feared--it hired twenty new recruits into its career stream, and eighteen--90 percent--were from Tokyo University. "It's a symptom of the stubbornness of the Ministry of Finance," said an official in the secretarial division of the Minister's Secretariat. The secretariat later set a target of 70 percent for Tokyo University new hires, which was finally met in 1997, when they comprised 73 percent.

Tokyo University graduates typically make up 30-40 percent of those students who pass the exam given for entry into the career stream of the national ministries. More applicants are screened out during the initial interview process, with the result that 50 percent are Tokyo University graduates. During the final round of interviews, the percentage reaches the extraordinarily high levels of 90 percent or more. The mechanism for skewing hiring is the interview process.

The gap between 50 percent and 90 percent or more indicates just how far the Finance Ministry is prepared to go to preserve its club. On this issue, the ministry's responsibilities as a public agency clash directly with the personal predilections of its officials. Personal predilections seem to have prevailed.

This is not the world's only example of a national bureaucracy dominated by elite universities. Britain's Oxford and Cambridge universities and France's Instituts d'Etudes Politiques hold similarly commanding positions. But a careful comparative study of five leading industrial democracies--the United States, Japan, Germany, France, and Britain--found that there is still no real match for the elitism in Japan's recruitment of career-stream bureaucrats. Japan's system is, in theory, the most open of all because it imposes no formal educational requirements on recruits. But in practice it is the least open of all, less flexible and less egalitarian than those of the other countries.

[] The trouble with economists

If the Okurasho loves graduates of Tokyo University, there is one thing it loves even more--Tokyo University graduates equipped with law degrees. One reason for the 3 to 1 ratio of law school graduates to economists stems from the law school's 1877 mandate to turn out custom-built bureaucrats. Another reason is that the economics faculties at Tokyo and elsewhere were dominated by Marxists for several decades following World War II. It was not until the 1960s that non-Marxian economics was taught at Tokyo University. Neither the ministry nor the Liberal Democratic Party it nominally served has ever been keen to promote Marxism. But these are historical explanations and not valid reasons; the Meiji era is long gone, and so is Marxism as a credible concern.

The real reason? It is not because the ministry rejects knowledge of economics. In fact, it has a tradition of offering its young officials intensive study of economic theory. For decades, a year-long in-house training program was conducted by a panel of highly qualified teachers, mainly academics from outside the ministry. Young bureaucrats in their third year at the ministry were given nine hundred hours of lectures and extensive tutorial and other work. Officials boasted that it was the equivalent of an undergraduate education in economics. A handful of each year's recruits was not processed through this system but instead sent to do postgraduate study abroad for two years--the favored subject being economics. In the 1990s, however, the in-house training program was abandoned and replaced with a new system. Now, all elite-stream officials are freed from their work at the Okurasho headquarters at 3-1-1 Kasumigaseki, Tokyo, and are sent overseas for postgraduate study for two full years. Just before they leave Japan, the Okurasho gives its future leaders a crash course in basic principles of economics and accounting. Thus primed, three-quarters of each year's recruits spend the next two years studying economic and monetary theory. Of the rest, most study business administration, while one in ten studies a miscellany of other subjects, including law. Their principal destination is the United States, but Germany, France, and Britain also feature. This raises an interesting question: If a knowledge of economics is so highly valued, why does the Finance Ministry give clear and consistent priority to hiring staff who have not studied the subject?

Consider first that the screening process begins with the simple choice of Tokyo University as the preferred source of staff. Most students at the university came from relatively affluent backgrounds and have mastered a difficult and competitive system of exams. The nation views them as Japan's best and brightest. It is common sense that the graduates of this elite university--and particularly those who seek work in the civil service--are likely to be more conservative than the public they are supposed to serve. This assumption is supported by a 1983 survey indicating that 60 percent of bureaucrats in all national ministries who had graduated from Tokyo University were supporters of the conservative Liberal Democratic Party, compared with a support rate of 37 percent in the general population at the time. And while only 34 percent of the general population described themselves as conservative or somewhat conservative, 58 percent of the Tokyo University alumni in the bureaucracy did. Consequently, choosing a Tokyo University graduate is nearly the equivalent of choosing a conservative whose leanings in politics and policy will be fairly predictable.

Second, consider the preference for those Tokyo University graduates holding law degrees. This, too, can be expected to yield a group of bureaucrats who can be expected to exert specific pressures on the ministry and its policies. And, according to a consensus of informed observers, it does. After a detailed study of Tokyo University law graduates, Byung Chul Koh of the University of Illinois suggested that "Tokyo University's law faculty may actually turn out narrow-minded technicians well versed in the fine points of legal theories and interpretation and supremely adept at taking examinations. As one writer put it, Tokyo University law graduates who become elite bureaucrats `can see the trees but not the forest.'"

The chief emphasis for economics students, on the other hand, is the pursuit of the most efficient allocation of resources in an economy--money and people--through a liberal play of market forces. This obliges economics students to consider the entire forest. Moreover, while the study of law naturally focuses on the significance of laws and ordinances, the study of economics tends to regard them as impediments to the invisible hand of market forces. It is an important difference; the economics graduate is far more likely to see regulation as a hindrance to be removed rather than an achievement to be preserved. Takahiro Miyao of Tsukuba University argues that the dominant reflex in Okurasho thinking is the "legal precepts-first" approach, while the ministry has "no belief in what might be called economic principles." This seems intimately connected to ministry officials' educational experience. "Most Okurasho people are from the law department, which maintains its prewar traditions--they have absolutely no understanding of the market," says Yoshiaki Miwa, a member of the economics department at Tokyo University.

The ministry's hiring preferences get it the type of officials it wants--predominantly, generalist administrators. This is how these officials like to be seen, too. Within the ministry, it can be a career liability to be regarded as an economist. The Okurasho wants its staff to understand economics but not to be possessed by it. It wants officials who see economics as one set of considerations within a larger framework of administrative and legal principles rather than those who see economics as paramount. It wants their mental framework to be that of the lawyer with a knowledge of economics rather than the other way around. For this reason, the Okurasho discourages qualified economists from working as professional economists in government and insists on rotating them into administrative jobs. Instead of letting economists pull the levers of power, it wants administrators who pull levers--including one lever marked "economics."

The net effect seems to be that the lawyer's instinctive love of law predominates in the work of the Finance Ministry. An eminent economist who has taught many Okurasho officials is Ryutaro Komiya. He believes that the economic sophistication of the Okurasho is slowly improving, but thinks that overall these bureaucrats "don't have much faith in the market mechanism, and they like to intervene in the market."

Kozo Yamamoto, a former elite official of the Okurasho and a respected economist, says "The Japanese public believes that the Okurasho understands the economy, but that's not true. When they make decisions, it is usually based on a common sense generalist approach, and not as economists. Many taxes are written without any understanding of the economy, so they make many mistakes." Mr. Yamamoto recalls that during the mid-1980s, when the Finance Ministry was debating whether to yield to U.S. demands for the opening of its financial markets, he mounted an economic case in favor of the U.S. proposal. "Most people in the ministry could not understand what I was saying, but they had no real choice because the pressure from the U.S. was so great."

Japan did indeed begin a slow but steady program of liberalization of its financial markets. But in general the Okurasho has been reluctant to open any market or to deregulate any sector. Change has been excruciatingly slow and grudging. Most liberalizations have been a result of U.S. insistence and have not been self-initiated. In part, this reluctance to change stems directly from the ministry's hiring preferences. And, of course, it is convenient that this approach also preserves the ministry's power; officials who abolish regulations are surrendering direct control. As we will see later in the book, the Finance Ministry is one of the more important reasons that Japan's economy has been relatively slow to reform itself in the latter part of the twentieth century, relatively slow to embrace market forces, and therefore surprisingly ready to sacrifice new opportunities for growth. For this reason alone, the cost of preserving the club Okurasho has been high.

However, there is a curious paradox in the ministry's approach to economics. In its approach to regulating markets and industries, its impulse is interventionist. Yet in its approach to the overarching question of the size of government, it favors small government and lower spending. So in microeconomics it favors an expansive role for the State, but in macroeconomics it wants a diminished State. The first impulse is characteristic of a leftist approach to government, the second a conservative approach. While this is indeed an ideological paradox, from a practical point of view it is entirely consistent. That is because both approaches resist change in Japan's status quo and preserve the power of the Okurasho. They are conservative in the literal sense of the word. Intervention in the affairs of the marketplace preserves the ministry's powers of regulation in, say, banking and the stock market. But cutting government spending in the budget puts power into the hands of the ministry as the nation's fiscal guardian, as we will see later. The vigilant keeper of the national treasury has immense leverage in dealing with politicians and other ministries.

[] Marriage and other intimacies

Being hired into the Okurasho career stream brings with it much more than a career. For many ministry officials, the Okurasho influences their choice of spouse and can take them deep into dynastic politics. This influence operates in two directions: from the ministry looking out, where ministry bureaucrats marry into the families of the rich and powerful, and from the ministry looking in, where officials marry the daughters of other ministry bureaucrats.

It is natural to expect some intermarriage between the different elements of what may be termed Japan's ruling class. This happens in most societies. It is also unsurprising that there should be some natural cross-fertilization within a large organization whose members often work together quite intensively.

But what distinguishes the practice of marriage at the Okurasho from what might naturally be expected is that matchmaking at the ministry is professionally organized--not just as a social activity or part of an extracurricular program but as a routine part of the ministry's professional work. The task of sorting candidates, filing dossiers, and suggesting prospective matches is done by full-time, career-stream officials working in the same section of the ministry responsible for high-level coordination of all personnel matters, including hiring, training, and promoting of staff--that is, the secretarial division of the Minister's Secretariat. According to the division head, his subordinate bureaucratic Cupids succeed in arranging two ministerial marriages a year on average. By one account, the photographs of young women being considered as prospective brides for ministry officials are stacked in a pile that commonly stands half a yard high. The daughters of politicians are the ministry's prospects of choice for its officials. This not only improves the quality of the ministry's political relations but can be immensely valuable to the young official with political ambitions, and there are many of these. It has its attractions for the politicians, too--they are forever seeking leverage with the Okurasho in the hope of winning a bigger share of budget funds for pet projects.

It is hard to find official data on the subject, but there are at least forty-one known cases of Okurasho officials marrying into the families of politicians in the last forty years or so, or an average of about one per year. Most of these marriages have involved the families of politicians of considerable standing. Eight ministry officials have married into the families of prime ministers. At least 4 to 5 percent of Okurasho career-stream officials in recent decades have married into politicians' families. It is not known how directly or deliberately the ministry was involved in these pairings, but we do know this: as a matter of unofficial Okurasho policy, the ministry favors the marriage of its officials into politicians' families, and it deploys public resources in the organized pursuit of this policy. This is not unique in Japan. Many large firms and public agencies also conduct matchmaking services for staff, an outgrowth of the twentieth-century Japanese principle of lifetime employment. Nevertheless, in considering the performance and priorities of the Finance Ministry, it is useful to ask whether matchmaking is a legitimate task for a modern, professional agency of the civil service.

The bureaucratic elite are scornful of the dynastic nature of Japanese politics; more than a third of the politicians in the Lower House "inherited" their seats in the Diet from their fathers. This sort of feudalism, in contrast to the principle of merit that is at least supposed to govern admission to bureaucratic ranks, is ridiculed by the mandarins. Yet according to the Okurasho itself, 1 in 20 of its career-stream recruits, or an average of one a year, is the son of a former career-stream Okurasho official. Within the limits imposed by the examination system, the ministry, like the Diet, has a tendency to nepotism. Intermarriage between officials' families is another interesting phenomenon. Although comprehensive statistics are hard to find, some of the anecdotal evidence is intriguing. For example, the three officials appointed consecutively to lead the ministry in the first half of the 1990s all had sons-in-law among their subordinates. The chances of this happening by sheer coincidence are extremely small. From 1992 to 1993, the top Finance Ministry official, the vice minister for administrative affairs, was Mamoru Ozaki. One of his daughters married a young official who in 1994 was an assistant director in the Finance Ministry's Budget Bureau. Ozaki was succeeded in his post at the top of the ministry by the celebrated Jiro Saito, as tough as he was controversial. One of Saito's daughters, too, married a young official who could also be found working as an assistant director in the ministry's Budget Bureau in 1994. And the remarkable Mr. Saito was replaced by Kyosuke Shinozawa, who, again, was in the happy position of having one of his daughters wedded to a ministry official who, again, in 1994, was working as an assistant director in the Budget Bureau. The Budget Bureau, incidentally, is the most prestigious in the Okurasho, and service here usually is a prerequisite for those aspiring to the top job in the ministry.

Consistent with all of this is the ministry's internal clubbiness. There are internal associations for all the career-stream staff who join the ministry in a particular year; other internal clubs for all past occupants of a particular post; still other clubs or "study groups" established around particular subjects, such as the Asia Club; internal groups arranged according to where officials went to high school; and a range of other criss-crossing associations defined according to common experience, attributes, and interests. And there is a range of other social, semisocial, and semiprofessional structures and events that are intended to engender solidarity and identification with the ministry. One such event occurs each year for each section or division, when it packs away its files for a few days and heads off for a weekend at a recreational resort for a lot of drinking, karaoke singing, and mah-jong. Another is the pairing up of a freshly recruited career-stream official with a colleague one year more advanced. The senior of the two (senpai) guides and advises the junior (kohai) and entertains him with food and drinks after hours and even buys him lunch daily for the one-month interregnum between his joining the government payroll and receiving his first paycheck.

[] The price of membership

The Okurasho operates a bus service, with the first bus running around midnight, ferrying home staff who have outstayed the subway system. The buses run until 2 A.M. But that is too early for many staff to finish their work, and in the busier times of the year, hundreds miss the last bus. That's why the ministry also has a room full of beds, which the staff deprecatingly call the Hotel Okura, after the famous five-star establishment just a suburb away. But this room can accommodate only sixteen people, which explains the small stacks of blankets adorning most of the offices, up to and including the vice minister's. Most of those who are obliged to stay overnight are forced to sleep in their chairs or on sofas.

"Let's go home while it's still dark," is a catchphrase at the ministry. For while the Tokyo markets may close and companies shut down, the Ministry of Finance never sleeps. The late-night lights burning in the Okurasho building have become a symbol of the vigilance and tirelessness of Japan's public servants.

Officially, none of this happens. Officially, the Okurasho closes at 5:30 P.M. Officially, Japan's national government departments cut back to a strict five days a week in 1992. Officially, the ministry has endorsed a policy of cutting overtime hours. Government guidelines stipulate that public servants should not work more than 360 hours of overtime per year. The average at the Okurasho in 1992 was 1,428 hours. That's not only four times the stipulated limit, it represents 5.4 hours of overtime every working day. It's the equivalent of working an extra thirty-five regular working weeks a year. Some of this overtime is paid at a premium above and beyond regular pay, ranging from 20 percent up to 50 percent for work done between 10 P.M. and 2 A.M., but officials at the rank of director and above are not paid for overtime. Instead they usually receive a manager's allowance, which can equate to about 25 percent of their regular salary. But these overtime figures do not convey the full picture. Many career staffers work more than 2,400 hours of overtime a year, or more than nine hours a day, but do not record or report it.

Why do they do it? A government survey of all the ministries asked this question in 1992 and got answers from 5,700 bureaucrats. One third blamed a heavy workload and a shortage of staff. At the Okurasho, the work that most obviously falls into this category is the preparation of the national budget. From the time the examiners in the Budget Bureau begin their annual grillings of the supplicant agencies in September, through to December, many staff go home rarely and work eighteen-hour days, seven days a week. Their burden eases in January. It is said that this is the reason the babies of Budget Bureau staff are usually born in October or November.

Another area demanding long hours is the defensive work done to prepare the finance minister when he appears before the Diet. Ministry staff stationed permanently in the Diet building talk informally to politicians and ask what issues they intend to raise in Diet questioning. With this information, plus the intelligence supplied by ministry staff working in the office of the finance minister and elsewhere in the political system, staff at the Okurasho compile a nightly list of questions their minister may encounter in the Diet session on the following day. Officials then sit up past midnight, drafting answers on the full range of potential questions.

A notoriously onerous area of work is the National Taxation Agency, the Okurasho offshoot responsible for collecting taxes. Masaru Mizuno, a former chief of the Tokyo bureau of the agency who later became a senior Okurasho official, once claimed that an average of twenty-five people on his staff died of exhaustion caused by overwork--karoshi--every year.

The second most common explanation for overtime (after heavy workload coupled with staff shortage) was inefficient work habits, which were cited by 20 percent of the bureaucrats responding to the survey. Closely related to this was the answer given by another 7 percent of respondents--that they had to attend too many meetings. These answers suggest that much overtime is simply wasted time. But the third most common explanation for overtime was the "invisible pressure" from peers and superiors. Evidently, going home at a reasonable hour was for wimps or, worse, those with questionable commitment to their section. Although none of the survey data applies specifically to the Okurasho, it is reasonable to assume that the same general conclusions would hold, both because of observed behavior in the ministry and because of the similarity in structure and practice across the national ministries.

All of this suggests that there is scope for a serious reappraisal of workload, staffing, and work habits to achieve a more methodical, balanced, and professional approach to the tasks of public service. The other big issue concerns whether unreasonably intense and unremitting workloads--in compiling the budget or in tax collection for example--can possibly produce optimum results if they are exhausting, perhaps even killing, staff. Whatever the reason, it is clear that the club Okurasho demands a heavy price for membership--not just hard work but absolute commitment.

[] Closing ranks

In most developed countries, the elected representatives of the people--the politicians--have considerable control over the appointment of the top government officials. In seeking the optimum balance between the principles of bureaucratic merit on the one hand and political control on the other, the United States offers an example of political excess. Japan is an example of the opposite, having denied politicians any role in choosing even the top official of its national ministries, the vice minister of administrative affairs. One of the Finance Ministry's greatest sources of power is its ability to appoint its own leader. This allows it to perpetuate its values and policies with a good deal of immunity from any outside force. It also severs a critical link in the transmission of political will; the people elect the politicians--in this case the finance minister--to govern, but the politicians cannot make even a limited choice in selecting the officials to carry out its policies. And if a finance minister encounters defiant officials, he has very limited leverage. He cannot remove them or choose their replacements except in extreme circumstances. (Officially, however, this is not so. Formally, the top bureaucrat in the ministry--the vice minister of administrative affairs--is appointed by the politician--the finance minister. But in truth it is only in the most unusual circumstances that the finance minister or any other politician has any real role in the appointment.)

Japan's system started to fray in the 1990s, most notably in the Ministry of International Trade and Industry. "The Okurasho's strength is its solidarity," says Kozo Yamamoto, a former official in the ministry's career stream who entered politics. "Other ministries--MITI, for example--have allowed political interference in appointments, but the Okurasho has not. If all the bureaucrats get together and say we don't like the minister and we will not work with him, then the minister can't do anything because he will not get any information and he won't be able to do his job. The most respected official among the Okurasho old boys is Teiichiro Morinaga. When he was vice minister, the finance minister directed him to appoint a particular official as director-general of a bureau. Morinaga refused and put himself at risk. But when a bureaucrat works to protect the ministry against a politician like that, all bureaucrats respect him." This respect was no doubt one reason why the ministry successfully supported Mr. Morinaga's later nomination as governor of the central bank.

How then does the ministry choose its bureaucratic leader, the vice minister of administrative affairs, an event that normally occurs annually? The process begins with each year's intake of twenty to twenty-five junior career-stream officials who join the ministry together and then compete against each other for the next twenty years or so. By the time the escalator of progression through the hierarchy has taken this group close to the top echelon of executive jobs, the group itself has rated all of its members, and the ministry as a whole has carried out an informal evaluation of each member of that group. A natural sorting process has occurred. This process is largely opaque, and, importantly, it proceeds according to the criteria of the ministry itself, not any external standard. A senior serving official explains: "In each intake year, there is a strong sense of belonging and also a strong sense of competition. After you have spent ten years in the ministry together with the same group of colleagues, you know yourself how competitive you are, and it is already clear what you will be able to achieve ultimately, and the others know, too. It is judgment by peers, and it is an extremely harsh system."

This system gleans the best from the rest--at least according to the ministry's internal standards--but it does not nominate the final successful candidate. The outgoing vice minister traditionally nominates his own replacement from among the top candidates in any particular "class year." Protocol and precedent dictate that he consult his predecessors--retired vice ministers--before making the final choice. There is usually a token consultation with the finance minister at the end of the process, but he is usually powerless to change the choice. There have been exceptions. In 1974, for example, there were two equally strong candidates, and the Okurasho was divided in its choice. This presented an opportunity for politicians to play a decisive role. The prime minister happened to be the unusually strong-willed Kakuei Tanaka, who was intimate with the workings of the Okurasho as a result of his term as finance minister, and he took the opportunity to press his case. More recently, in 1994, a finance minister successfully insisted on his choice of candidate for a second-tier job in the ministry, director-general of a bureau. But this, too, was an exception to the rule. It occurred in unusual circumstances, when the ministry was under great duress.

When the system works as it is intended to, it gives the ministry a thick wall of insulation against outside pressure. One administrative vice minister, Jiro Saito, took advantage of the system to unofficially nominate the next nine officials to occupy his job. Perhaps the most remarkable aspect of this act was not its breathtaking degree of presumptuousness--even by Okurasho standards--but its plausibility. In fact, his chosen successors have been named as actual successors for at least two places down his list, a 100 percent success rate at the time of this writing.

Mr. Saito himself was to become a fascinating test of the Okurasho's control over its destiny in the face of a political confrontation. As we will see in more detail later in the book, he cut an important deal with Prime Minister Morihiro Hosokawa in 1994. As mentioned earlier in the chapter, Mr. Hosokawa was the first Japanese leader in thirty-eight years to unseat Japan's party of vested interests, the Liberal Democrats, who spent an angry nine months in opposition before sweeping back into vengeful victory in a new coalition government. When they did, they decided to punish Mr. Saito for having accommodated Mr. Hosokawa.

The lines of the contest were clearly drawn, pitting the highest-ranking bureaucrat of the Okurasho against some of the most powerful individuals in the country's dominant political party. Both institutions had recently been damaged. The Okurasho was hurt by its own succession of failures to fulfill its core responsibilities--resulting in a protracted recession and a deteriorating banking system--and by its attempt to strong-arm Japan into accepting a major new tax increase. The Liberal Democratic Party had lost a thirty-eight-year old monopoly of power.

What happened? On March 14, 1995, during an informal meeting of the national Cabinet, one minister pointed out to his colleagues a fact that all literate Japanese over the age of twelve already knew: the Okurasho had been responsible for a series of policy failures as well as several scandals of note. In the latest front-page expose, two top Okurasho officials had been revealed to have a suspiciously close relationship with the modern villain of Japan's financial system, Harunori Takahashi. An entrepreneur of considerable profligacy, Mr. Takahashi had effectively bankrupted two credit unions he controlled. The Okurasho had then stepped in to rescue depositors with the use of taxpayers' funds, generating national outrage. Finance Minister Masayoshi Takemura had, one day earlier, timidly issued nothing more substantial than a reprimand to the two officials. He also admonished their superiors, including Mr. Saito, for failures of supervision.

The outspoken minister for Home Affairs, Hiromu Nonaka, told the Cabinet that this was not good enough. He reminded his colleagues of other Okurasho failings, including its responsibility for the what came to be known as the "bubble economy" of the late 1980s and the hangover of recession that followed it. Mr. Nonaka added that Mr. Saito bore responsibility for the 1991 stock investment compensation scandal in which brokerage firms made secret deals to refund any losses big clients might suffer. And, he said, he held Mr. Saito personally responsible for a political fiasco in which the vice minister had persuaded an earlier administration to introduce a new consumption tax in the guise of a "welfare tax." The penalty he demanded was the immediate removal of Mr. Saito. Other Cabinet ministers voiced support. After the meeting, Mr. Nonaka repeated his demand to reporters, along with his views on the Okurasho's many failures. Finance Minister Takemura, who was not drawn from the Liberal Democrats but from a tiny splinter party in the ruling coalition, initially defended the mild reprimands he had handed out the day before. The official spokesman for the government, the chief cabinet secretary, told reporters that the finance minister was responsible for his ministry and that no further action was to be taken. The matter was closed.

But it was not. Together with Liberal Democrat colleagues--including the man who had been so infuriated with the Okurasho's inflexibility over its intake of Tokyo University graduates, Koichi Kato--Mr. Nonaka continued to agitate. A press campaign against Mr. Saito and the Okurasho was one manifestation. Eventually, the finance minister joined in. To protect the Okurasho from paying a larger institutional penalty later, Mr. Saito decided to make a personal sacrifice. He began negotiating with the politicians over his early departure.

The outcome was that a little more than two months after the Cabinet meeting, the finance minister announced that Mr. Saito was to be replaced not at the usual time--when his term expired in late June--but one month earlier. And that was it. So the Okurasho stood charged with a series of policy failures and scandals. Its public standing was probably at its lowest since World War II. It had received direct and public demands for the resignation of its chief bureaucrat. It ultimately came under pressure from the finance minister as well. And yet the most that all this could achieve was to bring forward a normal retirement by one month. The ministry even denied the politicians the satisfaction of being able to show that Saito had been sacked--the entire institution's personnel rotation was brought forward by one month so that Mr. Saito's retirement appeared to be nothing out of the ordinary. Not only this, but Mr. Saito's preferred candidate as his successor, Kyosuke Shinozawa, was duly endorsed. Mr. Saito offered no apology and made no statement of regret or remorse as he departed office to take up a new position as a special adviser to the Okurasho, on an undiminished salary, just down the corridor from his former office. Indeed, he took the opportunity to do exactly the opposite. Mr. Saito's memorable parting words were: "It was not my intention to have my name in the media so many times. But even with the new vice minister, the way the Okurasho does things will never change."

Within four months, other outrages emerged, prompting politicians to attempt an attack on the ministry once more. In late 1995 a senior ministry official's relationship with the tainted entrepreneur Harunori Takahashi was shown to be not just suspicious but positively corrupt. The official, Yoshio Nakajima, was asked to resign from the ministry. The media luxuriated in the institution's embarrassment. The new vice minister at the Okurasho, Mr. Shinozawa, agreed to suffer a 20 percent pay cut for two months in ritual remorse. But the ministry's humiliation worsened with the revelation of yet another outrage: the Okurasho had decided to use 685 billion yen (the equivalent of $6.85 billion) of taxpayers' money to rescue a disastrously mismanaged collection of mortgage lending firms known as jusen. The media and the politicians were scandalized. The Finance Ministry had been partly responsible for the difficulties and the supervision of the jusen. It was now defenseless and friendless in the face of first-order national outrage. Again, attempting to minimize institutional damage, the vice minister offered to resign. Mr. Shinozawa served only seven months in the post.

His sacrifice was a recognition of deep and cumulative anger at the ministry, but it served the institutional interest. Once again, his replacement was the choice of the bureaucrats themselves (or, more particularly, of Mr. Saito, as indicated on his ten-man list of preferred successors). The convulsions of scandal and outrage and early retirements proved powerless to disturb the orderly succession of office or the tight system of bureaucratic self-determination. In fact, in conceding to resign, Mr. Shinozawa strengthened the position of his successor. The new vice minister, Tadashi Ogawa, took office in combative style, dismissing the ministry's corruption scandals as the problems of individuals, advancing the case for the public funding of the jusen rescue, and rejecting any notion of change in the way the ministry conducted itself.

It is not unusual for the civil service in an industrial democracy to resist its politicians. But the Japanese Bureaucracy's impermeability has given it an unusually high degree of success. As a result of its impenetrability, "the Japanese system does resemble an exclusive club more closely than any of its counterparts in the Western democracies," concluded Professor Koh in his study. Nor is Japan's bureaucratic willfulness necessarily a part of any broader East Asian system of mandarin supremacism. In Japan's neighbor and former colony, South Korea, where the bureaucratic system is largely modeled on Japan's, top ministry officials serve at the convenience of politicians. The country's first civilian president, Kim Young Sam, not only replaced the country's military leadership but also dismissed the heads of seven national ministries in a single stroke on May 23, 1994--including the official at the head of the Finance Ministry. He chose their replacements, all career bureaucrats, from a range of levels of seniority without regard for strict hierarchy. His aim was reportedly "to break up the current bureaucratic inertia." In short, Japan's bureaucracy has a great deal of control over its affairs by any standard. And within Japan, the Okurasho is the most robustly and successfully impenetrable of the ministries. This is not based on law, which gives the power of appointment to the minister, but on the culture of the ministry.

Copyright © 1998 Peter Hartcher. All rights reserved.

Full Text Reviews
Appeared in Publishers Weekly on 1998-02-23:
In some ways January's biggest scandal was on the business page. Two officials from Japan's powerful Ministry of Finance were arrested on the charge of taking payoffs. The finance minister and vice finance minister resigned, another bureaucrat killed himself, and some reports fingered the MoF in the collapse of the century-old Yamaichi Securities. And as the final indignity, an outsider was chosen to head what had been an old boys club since WWII. Although Hartcher's book was finished before this wave of scandals was reported, it as good as predicts them. Hartcher, Asia-Pacific editor for the Australian Financial Review, describes how the MoF, created to support the war and postwar rebuilding, outlived its purpose and fostered the bubble economy of the late 1980s and the subsequent bank crisis that almost crushed the miracle it helped create. By the 1970s, three of the MoF's most cherished tenets no longer held‘its absolute unwillingness to resort to fiscal supports; its insistence that no bank be allowed to fail; its general lack of faith in free-market forces. The MoF was further hampered by simple self interest: supporting protectionist measures in order to maintain the ruling Liberal Democrats' electoral base; and maintaining weak institutions that served as cushy outplacement positions for senior MoF bureaucrats. It's not quite Den of Thieves‘aside from the incomplete example of ultimate bubble businessman, Haurnori Takahashi, the book lacks a human face‘but it's filled with fascinating details and explanations that shine a needed light on Pacific Rim economics and into the fastness of the MoF. (Mar.) FYI: Hartcher will comment on recent events in an online postscript. The URL is and will be posted March 18. (c) Copyright PWxyz, LLC. All rights reserved
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Unpaid Annotation
Imagine the IRS, the SEC, the Fed, and the U.S. Treasury all rolled into one agency, so that the resulting bureaucracy could do whatever it wanted, reporting to no higher authority. It's the stuff of Orwell in the U.S. but it's reality in Japan - in the form of the Ministry of Finance, Japan's almighty Okurasho. This book is the first account in English of Japan's Ministry of Finance, the most powerful and the least scrutinized ministry in Japan, obscured until now by its cousin, the Ministry of International Trade and Industry. Hartcher exposes the Ministry as a network of good old boys who met in the elite Tokyo University Law School, and who've had very little financial or economic training, if any. What's more, the Ministry has the power to install its own members into key leadership positions throughout Japan's business world, thereby controlling most of the country's largest corporations, banks, and financial institutions. Any manager, investor, or regulator who deals with Japan should readthis book.

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