On March 9, 1974, Second Lieutenant Hiroo Onada of the Japanese Imperial Army ceased his military activities on the Island of Lubang in The Philippines. During close to 29 years after the official end of World War II, numerous attempts were made to contact him in the jungle. Relatives came back to the island and beseeched him to abandon the strict regulations he had been operating under; planes dropped similar leaflets; Onada even heard news from Japan on a transistor radio. All to no avail.

A man choosing to remain in the wilderness for close to three decades is one thing. But when Japan, the world’s second largest economy, chooses to wander in the economic wilderness for a decade, the world grows concerned. At the recent Milken Institute 2000 Global Conference in Los Angeles, an assortment of independent specialists on Japan made this abundantly clear. The question now is whether Japanese officials will finally heed the implorations of foreign and domestic experts:deregulate to reinvigorate the economy. Or, like Onada, view the messages as little more than disinformation.

The Japanese economic-related numbers are not good. The labor force and birth rate are shrinking, while bankruptcies, unemployment and suicides are at post WW II highs. If Japan seriously deregulates, more jobs will be lost in the interim as capital gets freed up into new industries currently stillborn. And at less than 1% of new, annual economic activity, the orphaned entrepreneurial class doesn’t help the cause much either:scarce funds will have still scarcer new industries to invest in. In addition, government debt is forcing Japan to become a bond issuing machine to finance its deficit spending in attempting to “stabilize”, not improve, living standards.

What happened? Detesting change, the cold war was generally a sweet era for Japan. But with the G-7 coordinated end of the artificially cheap yen in 1985, so too ended the comparative advantage that Japan enjoyed in so many industries. And even with bloated payrolls and structural and cultural barriers to imports creating wildly inefficient domestic industries, non-western accounting practices allowed MITI to look like savants to the outside world. But when Central Planning in Japan caught a dose of the speed, sophistication and growing openness in the post cold war, they were ill-equipped to respond.

As the world’s money managers started to realize Japan’s inherent structural and administrative problems, its percentage of the world market capitalization dropped from 40% in 1988 to 11% by 1999 – further exacerbating a dysfunctional and ravaged banking system. To further compound matters, with democracy blooming in so many Asian countries, freedom of expression started to unlock latent memories of World War II graves underfoot while still living slaves seek redress from Tokyo. For the Japanese, a recipe for siege mentality.

In the chaos of post World War II in Japan, General MacArthur’s nixing of the idea of Emperor Hirohito’s divinity augmented the same combination of freedom and dread that is now gripping Japan’s citizenry. During this postwar confusion, when United States Occupation forces in Japan made compulsory new ideas about how a society organizes itself, some of the very cultural signals and internalized instructions that brought about the disaster of war to Japan in the first place remain extant and continue to bully the more rational aspects of the culture. And in this deregulated, high speed information era, with its plethora of ideas washing over weak political leadership, woe to those cultures like Japan that continue to praise incremental change as the best option.

Thus, it’s no surprise Japan’s civil polity remains largely gridlocked. So strongly ingrained in the Japanese psyche is the need to persist, to stand firm, that even when emissaries from the disbanded Imperial Army came to Lubang bearing information on Japan’s status, Mr. Onada viewed them from a distance as impostors manipulated by foreigners. He reasoned that if the Co-Prosperity Sphere was going to take 100 years to jell, there were bound to be some disloyal dissenters who not only refused to endure, but also advocated commensurate adjustment to a changing reality.

When Onada returned to Japan, it was to a hero’s welcome. In attempting to decipher this reaction from the public, there was either something infinitely subtle, that only Japanese can understand or, for foreigners, an objective lesson in surrealism. But one thing is unambiguous:Having the number two economic franchise in the world is not necessarily perpetual, and the longer Japanese decision makers remain estranged from the reality they find themselves in, the faster the burden, and the benefits, will accrue to other surging economic powers.

Copyright 2000 © Jeff Henderson All rights reserved.
This article was published in The Korea Herald Newspaper in Korea, April 2000.