You Scratch My Back . . .

By John Greenwald

Joyous floor traders on the Tokyo Stock Exchange celebrated the end of 1988 with a traditional hand-clap ceremony last week as share prices closed at record levels. But their applause could not drown out the rising furor over a stock scandal that has already toppled several of Japan's leading business and political figures. Not since former Prime Minister Kakuei Tanaka was convicted of taking bribes from Lockheed during the mid-'70s have the Japanese been so shaken by disclosures of official wrongdoing. As the scandal spreads, it threatens to tarnish Japan's image abroad and to undermine the country's confidence in its businessmen and politicians.

The stock scheme has rocked the government of Prime Minister Noboru Takeshita. Though he has not been directly implicated, his approval rating plunged in December to less than 30%, the lowest level in his 14 months in office. The scandal seemed to magnify public displeasure with Takeshita's sweeping tax-reform bill, including a 3% national consumption tax, which he pushed through the Diet, Japan's parliament, in December.

As if to make amends, Takeshita responded last week with a Cabinet shuffle, ousting 15 of his 20 Ministers. But his new Justice Minister, Takashi Hasegawa, was forced to resign only three days later after it was disclosed that one of his political support groups had accepted legal-but-compromising cash contributions of $3,800 a month from the company behind the stock episode.

The scandal erupted last July, when the daily Asahi Shimbun disclosed that the Recruit group, the parent company of a real estate firm called Recruit Cosmos, had sold unlisted stock in the subsidiary at bargain prices in 1984-86 to politicians, journalists and business leaders. The well-placed purchasers reaped millions of dollars in profits when Recruit Cosmos went public and its shares tripled in value. While Japanese firms often sell inexpensive stock to influential buyers, the scope of the Recruit Cosmos handouts was unprecedented. Hiromasa Ezoe, chairman of the Recruit group, sold more than 885,000 unlisted Recruit Cosmos shares.

The unseemliness of the deals has forced the resignation of Ezoe and 20 other people. The first big political casualty: Finance Minister Kiichi Miyazawa, who resigned last month. He was caught in a net of contradictory denials, and finally admitted that an aide had taken part in the Recruit offerings, using the Minister's name. Ironically, the fall of Miyazawa strengthened the political position of Takeshita, since the men had been rivals in the ruling Liberal Democratic Party. Five days later, Hisashi Shinto, chairman of the giant Nippon Telegraph and Telephone, stepped aside after conceding his involvement in the Recruit stock deal.

Such transactions are illegal only if they can be proved to be clear-cut bribes that elicit favors in return. Thus prosecutors are looking closely at cases in which Recruit may have got something for its generosity. One such transaction is NTT's purchase in 1986 and '87 of two U.S.-made Cray Research supercomputers, which the utility in turn sold to Recruit. Investigators are looking into the possibility that NTT officials gave Recruit a special deal on the machines.

Several high-level bureaucrats could face bribery charges. Among them is Takashi Kato, former Vice Minister of Labor, who bought 3,000 Recruit Cosmos shares in 1986. Investigators suspect that Kato got the stock as a reward for blocking changes in an employment law that could have limited Recruit's ventures in help-wanted advertising. Kato denies that he intervened in any way.

The Recruit scandal has focused scrutiny on Japan's dubious but long- tolerated practice of kinken-seiji, or money politics. While Japanese law restricts corporate donations to any one political group to $12,000 a year, Japan's public and private leaders have long skirted the requirement. In all, Japanese political parties reported raising $2.2 billion in 1987.

To curb future scandals, the Finance Ministry is considering a plan to require companies to auction one-third of their unlisted shares to the general public. Some officials view the Recruit Cosmos affair as a blessing. "Businessmen will become a little bit more careful about giving stock to politicians," says Kazuo Nukazawa, a managing director of the Japan Federation of Economic Organizations. "Things will be a little cleaner." Perhaps, but more than a few token reforms will be needed to make Japan's tradition of kinken-seiji a thing of the past.

With reporting by Kumiko Makihara/Tokyo