Ending The Culture Of Deceit

By FRANK GIBNEY JR.

Ryutaro Hashimoto has a credibility problem. While international-finance officials raced to rescue Indonesia and buck up South Korea last week, Japan's Prime Minister was struggling to restore confidence in his own country's cratering economy. Hashimoto delivered a State of the Union parliamentary address that was unique in its brevity and laserlike in its focus on emergency measures to stimulate growth and reinforce sagging financial institutions. "It is my unwavering determination," he declared, "to avoid at all costs a worldwide financial or economic panic originating in Japan." The Japanese financial markets gagged on that plea for confidence, plunging to their lowest levels in more than two years. Hashimoto's public-approval rating wasn't far behind. To make matters worse, the powerful Ministry of Finance widened the credibility gap by announcing on the same day that...Oops--the amount of potential bad loans on the balance sheets of Japanese banks was actually close to $590 billion, or more than twice last month's announced total.

In Japan these days, the only thing in shorter supply than confidence is trust. A top broadcaster aired a show on the country's economic woes--bad debt, creeping unemployment, collapsing banks and businesses--featuring a series of film clips in which top politicians and bureaucrats kept insisting that there would be no bank failures and that the economy was recovering, even growing. "The subtext," says Alicia Ogawa, an American-born banker who has lived in Japan for more than a decade, "was that you couldn't possibly believe a thing these people said."

The still unraveling tale of hidden loans and payoffs at Japan's financial institutions has tainted several top companies. Just last week, a former chairman of Daichi Kangyo Bank admitted that he regularly paid racketeers not to divulge embarrassing corporate information. Yamaichi Securities' Nozawa dissolved in a shower of presidential tears over $2 billion in bad loans the company could no longer hide.

A culture of deceit has long been an integral part of Japan's success. Since World War II, the assumption has been that the government would back the banks, the banks would back the companies, and everyone would be guaranteed employment for life. That worked when Japan was growing fast enough to cover its losses. Those days are gone, and so are thousands of jobs.

As Japan's economy has receded like an unusually low tide, disturbing discoveries have been made. Government agencies have attempted to cover up leaks at nuclear power plants, and local officials have ignored the hazards of toxic-waste disposal. In 1996 the Health Ministry apologized for allowing the import of tainted blood products that so far have caused more than 400 deaths from HIV.

Of course, governments in every country occasionally lie to their people. The difference is that in Japan this practice has long been acceptable. "The government is structured in a way that it regularly does not tell the truth," says Yoshiaki Yoshimi, a professor of history at Tokyo's Chuo University. "They simply demand our trust." Yoshimi made headlines several years ago when, after painstaking research, he documented the charge that during World War II the Japanese military had forced Chinese and Korean women into prostitution. Like other evidence of wartime atrocities, this is still denied by many in Japan, which, unlike Germany, has never publicly encouraged real debate on its role in the war. "This is pathetic," says Yoshimi.

Hayao Kawai, a prominent Jungian psychologist and a member of Hashimoto's reform advisory council, traces Japan's collective dishonesty to a cultural trait. Kawai likes to joke that he is president of Japan's "Liars' Club." "There is no club at all, really," he confesses, winking. "In Japan, as long as you are convinced you are lying for the good of the group, it's not a lie." So it is that Japan is a place where doctors often withhold information from their patients, instead telling family members about a serious illness. Corporations customarily withhold potentially damaging information from their shareholders. Kawai points out that the trait helped create the stereotype of the Japanese businessman who says yes when he means no.

The good news is that this is changing; disclosure has become a popular mantra. The corporate scandals have given rise to a slew of shareholders' lawsuits. In 1994 Toshiaki Takahashi formed a national group of "citizens' ombudsmen" to combat corruption and gain access to the government's books. His organization has brought down officials for everything from construction-bid rigging to faking expense receipts. "The need for public disclosure has finally begun to disseminate," said Takahashi in a recent speech.

Last week a hint of confidence drove Japan's stock markets back up, but top bureaucrats and politicians still hew to the notion that the public cannot be trusted with its own fate. In the context of today's rolling financial crisis, however, tolerance for deceit is evaporating. "Our culture is changing, but very slowly," says Kawai. "Now we have to learn how to help ourselves." True, indeed.