The story of this pricey oceanfront playground is more than an isolated example of waste. Multiplied thousands of times over, it represents the folly of Japan’s pave-and-build approach to economic revival. Since the early 1990s the ruling Liberal Democratic Party (LDP) has attempted to grow Japan out of its longest recession in postwar history through the creation–at taxpayer expense–of grandiose dams, bridges, railways and roads, plus countless smaller public-works projects. To prime the nation’s economic pumps, successive LDP administrations have funneled billions to good-ole-boy construction companies and dodgy public corporations. The dubious results: widespread environmental degradation and public debt surpassing even Weimar Germany’s in magnitude. By 2005 Japan will owe its creditors $9 trillion, or roughly twice the country’s annual GDP.
Despite this orgy of construction, Tokyo is no closer to economic revival than it was a decade ago. If allowed to continue, say experts, Japan’s spending spree will almost certainly end in crisis–either depression or hyperinflation. Enter Japan’s new leader, Junichiro Koizumi, who has set out to break his country’s addiction to concrete. After leading the ruling LDP to a convincing victory in July’s parliamentary elections, the prime minister is swinging a wrecking ball at Japan’s so-called construction state. His aim: radically trim public-works spending and privatize state monopolies that build most of these roads, bridges and dams. Eventually, Koizumi hopes to rein in public corporations involved in everything from construction to waterworks to airports. Today these 163 corporations cost taxpayers nearly $50 billion a year in subsidies. “In a sense we are going to destroy the existing system,” says Heizo Takenaka, Japan’s minister for Economic and Fiscal Policy. “Constructive destruction comes first.”
Koizumi’s offensive comes at a frightening time for the global economy. Looming recessions in the United States and Europe will only magnify the hardship of what Koizumi admits will be “pain before gain.” His belief is that cuts in the bloated construction industry will free funds to modernize more-productive enterprises in finance and technology, but not before raising unemployment, which last month hit 5 percent, a postwar high. To critics who fear Koizumi’s cuts could spread throughout Asia, he responds with a line that has become a mantra: “There will be no growth without reform.”
Koizumi’s target is an industrial complex grown so fat, it is dragging down the rest of the Japanese economy. Construction now accounts for about 9 percent of Japan’s gross domestic product, compared with about 1 percent in the United States and 5 percent in the European Union. Construction companies now employ 6.6 million Japanese workers, or one out of every 10. They receive 40 percent of the national budget, much of this in contracts to pave riverbeds, armor the coastline against erosion and build what Japanese call “bridges to nowhere.” The forces arrayed against Koizumi include more than half a million Japanese construction companies, their 70,000 allies in the construction bureaucracy and pork-barrel politicians who build careers by trading gifts and kickbacks for construction contracts. In short, Koizumi must derail the world’s richest gravy train, run by a corrupt triumvirate Japan watcher Gavan McCormack calls “a creation, even a virtual alter ego, of the LDP.”
Cynics doubt Koizumi’s resolve. They note that he’s a scion of the LDP system and therefore an unlikely rebel. Yet there’s no denying he has been consistent on this front. His pledge to enact “structural reform without sanctuary” underpinned the LDP’s election triumph. Since the vote, Koizumi has rebuffed calls from inside his own party to spend more on construction. Just last week he ordered his ministers to draw up plans to sell off six state-owned corporations that build and manage highways and bridges. “We have reached a turning point,” says Nobuteru Ishihara, minister for Administrative and Regulatory Reform. “I think it is about time for Japan to bid farewell to the ‘construction state’.”
The villain in Japan’s pave-and-build tragedy was a tireless country bumpkin nicknamed “the Human Bulldozer.” Kakuei Tanaka, prime minister from 1972 to ‘74, melded “the corruption of a Ferdinand Marcos with the interest-based machine politics of a Richard Daley,” writes Richard Katz in his book “Japan: The System That Soured.” A populist dynamo who crooned folk tunes, Tanaka built the foundation of the LDP political dynasty on massive public spending. His blueprint to “restructure the Japanese archipelago” by linking the hinterland with the booming Tokyo-Osaka corridor dotted the country with new freeways, dams, bullet trains and power plants. The scheme enriched loyal construction companies and (thanks to required kickbacks estimated at 1 to 3 percent of each deal) filled LDP coffers. “Since Tanaka’s time the machine has grown bigger than its operators,” writes Patrick Smith in “Japan: A Reinterpretation.” “It is a Frankenstein.”
At first, the construction complex served Japan by pursuing sensible projects. But that period ended in the late 1980s when Japan’s go-go economy hit meltdown. As land and stock prices tumbled, banks stopped lending and consumers stopped spending. Panicked, the government adopted a classic Keynesian strategy to revive growth through public works–but with a twist. The revival never came, yet the government pressed on, pouring billions into increasingly unnecessary projects. “By the 1990s what we needed was all done, but work was continued not for the people but as an economic policy,” says political scientist Takayoshi Igarashi, Japan’s pre-eminent expert on public works. “This was done to create employment.”
On Shikoku, the smallest of Japan’s four main islands, the largesse took the form of a third mighty suspension bridge to Honshu, even though the first two spans were lightly used. In Nagasaki prefecture, engineers sealed off Isahaya Bay, Japan’s largest wetland, triggering a huge clam kill and destroying the local seaweed industry. On Hokkaido, Japan’s northernmost main island, the Construction Ministry built a dam that submerged ritual sites held sacred by Ainu Aboriginals. By the time a court ruled the project illegal in 1997 it had long since been completed. “What I have witnessed from my boat over the last 35 years is Japan’s money politics and how it ruins nature,” says canoeist and environmental activist Tomosuke Noda.
In “Dogs and Demons,” author Alex Kerr portrays Japan as a land cursed by its “systemic addiction to construction,” in which developers advance like robots programmed to pave the countryside. “The situation in Japan enters the realm of manga, of comic-strip fantasy with bizarre otherworldly landscapes and apocalyptic visions,” he writes. “This is what the Construction Ministry is busy building in real life: bridges to uninhabited islands, roads to nowhere honeycombing the mountains, and gigantic overpasses to facilitate access to minute country lanes.”
Nowhere has spending been more lavish than in Nagano, host to the 1998 Winter Olympics. To prepare for the Games, Japan adorned the cozy alpine city with new hotels, sports stadiums, roadways, remote venues and a bullet train that cut the travel time from Tokyo by half, to just 90 minutes. After the Games, Nagano found itself more than $6 billion in debt. The city’s Olympian hangover turned political when, in October 2000, a flamboyant novelist and political neophyte, Yasuo Tanaka, mounted an anti-public-works campaign for governor and beat the ruling LDP’s handpicked candidate in a landslide.
Thus began the “Nagano revolution.” Tanaka brought to office a rare openness (a trait exhibited most shockingly in his magazine column, “Tokyo Sex Diary”) and soon launched a war on backroom deals in the construction industry. He moved his desk to a glass ground-floor office where citizens now queue up to view his daily routine from the street. Then he issued a “No More Dams” decree to halt the planning or construction of nine waterworks. Charging that local prefectures love dams because 80 percent of the cost is borne by the central government, he attacked the stupidity of building dams just “because a firm national subsidy can be obtained for their construction.”
One project Tanaka mothballed rests partially finished in a narrow valley just northwest of town. There, the knee-deep Asakawa River gurgles down a canyon, which Japan’s central bureaucrats wanted to block to control flooding and landslides. The dam they envisioned still graces fading billboards in the area. It would have towered 59 meters high, creating a pie-shaped lake and inundating peach, plum and apple orchards. To reach the site, the government built an elaborate 4.4-kilometer access road that corkscrews upward 540 degrees like a waterslide. It cost a cool $200 million, more than the original budget for the road plus the dam. According to anti-dam activist Takuro Uchiyama, poor geology renders the whole project a threat to public safety. “It’s the most absurd dam in the world,” he says.
Shigeru Kitazawa, a farmer and pro-dam organizer, is hardly enthusiastic. He worries that the proposed lake might shroud his orchard in fruit-damaging fog. But he likes the perks. He and his followers asked the authorities to build new housing and recreational facilities, along with the dam, in order to lure tourists up from the city. Like many Japanese farmers, what he wants most is to sell his land. Beyond self-interest, his support for the dam is rooted in the traditional notion that bureaucrats know best. “In Japan,” he tells visitors over watermelon, “many people still believe that you shouldn’t oppose what the government says.”
Professor Igarashi claims the whole system is rigged to thwart meaningful oversight. To make the point, he goes to a bookshelf in his suburban Tokyo home and finds a copy of Japan’s 2,430-page National Land Law. Then he pulls down six volumes of implementing regulations, each the size of a large brick. “All of this was written by bureaucrats in a manner that’s too complicated for lawmakers to understand.” The red tape, he says, creates a perpetual-motion machine in which roadways generate new auto and petrol taxes–all earmarked for building new roads. A retired engineer from one of Japan’s road-building corporations agrees. “Politicians want to build new roads to their villages to gain votes,” he told NEWSWEEK, adding: “We often thought some of these projects ridiculous because we knew hardly a car would ever run on them.”
This out-of-control spending spree threatens to bury Japan in debt. The major player, a quasi-government company called the Japan Highway Public Corp. (JHPC), hopes to build and manage an additional 11,000 kilometers of expressway by 2021, collecting tolls until its debts are paid in midcentury. At that time, the company promises to drop the tolls, but Koizumi doesn’t believe it. A review by his auditors sketched a worst-case scenario under which the JHPC’s debts triple by mid-century to $570 billion.
Rather than throw good money after bad, Koizumi is entertaining radical alternatives: either privatizing or simply disbanding infrastructure-related public corporations. Of the 77 currently funded by taxpayers, six are targeted for sale by a task force he established in April, including the JHPC and the Honshu-Shikoku Bridge Authority, builder of three major bridges across Japan’s Inland Sea. There’s a lot of resistance even within Koizumi’s cabinet. After his Land, Infrastructure and Transport minister said last week that privatization “could take 20 years,” Koizumi summoned her to his office and ordered her to draft a privatization plan, pronto.
The plan remains to be worked out, but the successful sales of Japan’s railway and telecommunications monopolies in the 1980s provide good models. In those industries, privatization increased competition and improved service. Minister Ishihara says the issue is quite simple: “We have many roads that aren’t competitive. If you stop building them, we can spend the money on something else.” By shedding the JHPC, Japan would no longer have to pay its $3 billion annual subsidy. Ultimately, Koizumi aims to privatize Japan’s huge postal savings system, which has funneled Japanese savings to the public corporations for decades. “In essence, it symbolizes the competition-promoting society [Koizumi] hopes to create,” says Heizo Takenaka.
To understand Koizumi’s agenda, simply follow the money. On spending, his habits contrast starkly with past LDP practice. Resisting calls for new spending to rescue an economy descending full-tilt into recession, Koizumi wants to expand Japan’s safety net to offer laid-off workers a longer period on the dole. The idea is to give workers more time to find productive careers rather than tying them to dead-end jobs. In the coming weeks Koizumi is expected to propose new spending on this unemployment-compensation scheme. Jesper Koll, chief economist for Merrill Lynch Japan, calculates that about ¥2.5 trillion would be just about right. “Anything bigger will start to smell of pork barrels,” he says.
Koizumi also plans to attack the tax pillars of the “construction state.” Today the central government collects taxes and distributes share to the 47 prefectures, giving national legislators and bureaucrats decisive influence over public works. Koizumi wants to let the prefectures raise and spend tax revenues on their own, shifting power over public works to elected governors like Tanaka, who are better attuned to local sensibilities. With Koizumi’s popularity still high, opponents of his reforms are expressing their resistance mainly behind closed doors. “Everyone supports reform in theory,” says Minister Ishihara. Yet “political colleagues sometimes call me and say, ‘I have a close connection to such-and-such public corporation, so please never say that you are going to abolish or privatize it’.”
The mere threat of reform is already changing the rules of the construction state. Bureaucrats who support it are scrambling for ways to cast their spending schemes in a new light. One ironic example: so-called public works to re-create nature, designed to restore ecosystems destroyed by earlier construction projects. Japan’s Environment Ministry proposes to re-create a meandering river that government engineers straightened 20 years ago, killing the wetlands around it. And Agriculture Minister Tsutomu Takebe recently declared it “unrealistic” to complete the massive reclamation boondoggle in Isahaya Bay, hinting that it might someday be reopened to the sea as environmentalists and local fishermen demand.
A new crack in the construction complex is set to open in the coming weeks in Nagano. On Governor Tanaka’s order, the government will launch a database containing critical information on public-works projects in the prefecture. “It will include the names of companies that win the bidding, how much was paid and whether they hired any local officials as advisers,” he says, almost giddy at the thought of putting such inner workings on display. “It is very important that [those involved] have the feeling that citizens are watching.” Many Japanese, no doubt, will be shocked by what they see.
