Asia Pacific Report Number 7, 3rd September 2002.
The Japanese Economy and the Asian Crisis: Cultures of Corruption |
| Introduction | All economies grow due to a combination of two major factors: increases in productivity and accumulations or injections of capital. All growing economies are innovative, imaginative and capitalistic. The more innovative and capitalistic they are the faster they grow.
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| After World War II, Japan grew rapidly as a result of it combining imitated or 'borrowed' foreign technologies with capital accumulated through either domestic savings, war booty, US aid or foreign borrowings. For Japan to restore economic growth to something between 3-4% per annum, it must now do a number of things more or less simultaneously:
- Tackle its bad debt/bank problems, liberalise further and generally and restructure its economic system developing more transparent financial, corporate and bureaucratic institutions based on the rule of law, appropriate regulation and proper supervision.
- Completely open its economy to foreign trade and investment of all kinds and to the new technologies of the 21st century possessed largely by US corporations.
- Pursue expansionary and reflationary fiscal and monetary policies aimed at stimulating domestic demand by a prudent combination of :
- cutting taxes,
- increasing government expenditure and
- money supply growth.
- Resuscitate exports, that is foreign demand, especially from other Asian nations which, until the meltdown, took about 37% of Japan's exports.
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| Whatever Japan does in any of these fields will take time. Measures to increase domestic demand, for example cutting taxes, usually have significant time lags before making any worthwhile impact. (Conversely, policies and forces reducing domestic demand usually have more immediate impact.) | |
| Other East Asian and ASEAN economies plunged because bursting property bubbles, industrial overproduction and a lack of corporate and financial transparency caused a sudden and then snowballing withdrawal of foreign capital, including Japanese, which had been essential to the booms. Reviving the other Asian and ASEAN economies will require in each of them similar measures to those outlined above for Japan, and notably those aimed at maintaining and increasing their capacities to import. International debt rescheduling will also be necessary for many years, in some cases like Indonesia, for perhaps a decade. In some countries, these measures now seem to be getting underway with the agreement and assistance of the IMF, World Bank, other international agencies and foreign countries including Australia, the US and Japan itself. | |
| Corruption - 'Brick Walls' | The new Japanese government has already announced a programme of massive tax cuts to take effect from early next year and it can be expected to continue expansionary policies in other areas, including government expenditure and credit creation. However, the more important efforts to further open its economy to the world, tackle its extraordinarily bad debt problem (officially Y80 trillion or 16% of GDP, but probably much more) and implement some of the structural reforms referred to in points 1 and 2 above, notably, financial and corporate restructuring and 5 deregulation, have run into the proverbial 'brick walls'. Ever since the collapse of the Japanese property bubble in 1990-91 and the emergence of the massive bad loans and corporate insolvencies, Japanese governments have been unable or unwilling to break through these 'walls', variously called "vested interests" and "bureaucratic corruption". But these are euphemisms for a far more profound problem that goes to the heart of the Japanese and therefore Asian crises. To put it bluntly, that problem is the role and influence of secret societies and criminal gangs and gangsters in north-east Asian polities. This is not about 'Al Capones' running around the streets of Tokyo or tattooed Yakuza thugs occasionally terrorising shareholder meetings, but about pin striped, university educated, establishment types at the centre of national and international financial, corporate, political and bureaucratic structures, including the Ministry of Finance (MOF) . To explain this, we have to go back in history a little... | |
| Corruption - A Rough and Quick Historical Background. | Gangsterism in north-east Asia - in China, Japan and Korea - is, we might say, an ancient cultural tradition. However, we need go back only a few decades or so to illustrate its nature and make our point. In the early years of the twentieth century, an ultranationalist Japanese intellectual gangster named Toyama Mitsuro founded a para-military organisation called the Dark Ocean Society in opposition to the Meiji government. Within ten years, through blackmail, extortion, terror, prostitution, gun-running, assassination, and intellectual persuasion, the Dark Ocean, a name with Zen mystical connotations, had taken over control of the Japanese army, the intelligence service and the government bureaucracy. To quote Sterling Seagrave: "The Dark Ocean Society and its successor, the Black Dragon Society, provided the core of Japan's pre-World War II secret service who were sent abroad to prepare the way for the conquest of Korea, Manchuria, northern China and Southeast Asia. The ultra nationalism of Toyoma and his followers became the driving force in Japanese politics and conspiracy their way of life. He inspired the growth of hundreds of other secret societies with names like the Loyalist Sincerity Group and Heavenly Action....They were supported by wealthy patrons and financial operations involving gambling, prostitution, blackmail, strike breaking, etc... | |
| "Just before World War II, Toyama founded the Black Dragon Society which ran the Kempetei during the war and led the struggle to expel Bolshevism, democracy, capitalism and Westerners from Asia." | |
| (We are indebted for the above quote and other information in this report to Sterling Seagrave - in respect of both his published and unpublished material. However, while grateful for his knowledge and personal experience, he is not the only journalist who has had such experiences or trawled through the files on these and related matters. While Seagrave can sometimes be fast and footloose with the facts in pursuit of 'novelism', the information used in this APR is supported by other sources.) | |
| Yakuza Control of Navy | World War II and the extensive Japanese raping, burning and, above all, looting of Southeast Asia brought the Black Dragon, other secret societies, and the Yakuza even closer together. The political ultra-right fused with the underworld. Through General Yamashita Tomoyuki, Sasakawa Ryoichi and Rear Admiral Kodama Yoshio, who as a child had been 'adopted' into an Yakuza family, raised as a teenage assassin/terrorist under Mitsuro, and ultimately put into the navy as a 33 year old Admiral, the secret society gangs came to control almost all of the Japanese Navy and certainly all of its raiding and looting in Southeast Asia. This is what the war in the Pacific was largely about - and why much of it puzzled Western strategists. | |
| The Kempetai and the Japanese Imperial Army took over the opium trade in Manchuria and a regional drug cartel was established in collaboration with the Shanghai Green Gang and other Chinese underworld syndicates that were tied to, and in many ways controlled, the regime of Generalissimo Chiang Kai Shek. The Japanese Army alone made over three billion US dollars during the war, while the navy amassed $US50 billion dollars - including a fortune in Southeast Asia equal roughly to the value of Yamashita's gold which, supposedly, has never been found (although some people, including Cory Aquino, think that Ferdinand Marcos, who developed a close association with Sasakawa and Kodama in the fifties, found a part of it in the sixties). | |
| China | Almost the entire Kuomintang machine in China was controlled and funded from the outset by the Green Gang, as was Y. T. Soong and others who were supposedly running the government. A couple of examples give an idea of how this control was exercised:
- While the Green Gang, led by Tu Yueh-sheng or 'Big-eared Tu.' , was Chiang Kai Shek's power base and Tu one of his principal advisors, Chiang and every member of his family paid personal protection money to the Green Gang. When Chiang's new wife May-ling (Soong) refused to pay, she was kidnapped and terrorised by Tu. (This is a bit like Janette Howard being kidnapped by Peter Costello!)
- When the Whampoa Military Academy was established in the early twenties, with Chiang as its commandant, most of the initial class of 500 were highly literate, middle school graduates recruited all over China from Green Gang families. The recruiter, Ch'en Kuo-Fu, was a life time Gang leader and an "adopted" son of Chiang's. All told he recruited about 7000 Whampoa cadets from the Green Gang.
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| The Region | Well before WWII, there had developed across north-east Asia a network involving the KMT, the Chiang regime, the Green Gang, the Kempetai, the Yakuza, the Black Dragon Society, the Japanese navy and army, the bureaucracy, university departments and much, much more on a massive scale. The influence of the gangs spread to Korea and southwards to places like Luzon where it grew through the Filipino compadre system running smuggling and female slave trade operations across the South China and Sulu seas involving among other people both Marcos' step father and biological father, the latter having been an extremely wealthy and politically powerful Chinese magistrate named Judge Ferdinand Chua. (Marcos' stepfather, Mariano Marcos, was executed by the Americans as a war criminal). | |
| Influence | After the War, the various gangs continued to exert great influence. The Yakuza, deploying untold $US billions of war loot, financed governments and major political parties in Japan, Korea, Taiwan, the Philippines, Vietnam, Thailand and elsewhere and, most notably, the various incarnations of the LDP and the KMT. Sasakawa and Kodama, both convicted war criminals, were foundation organisers and billionaire financial backers of the LDP network, thus establishing a party culture that remains to this day. They also financed newspapers, research institutes and prestigious university departments at places like Tokyo University many of whose graduates came from Yakuza and secret society families. | |
| In fact, the Yakuza came to control or strongly influence many, if not most of the bureaucracies, parliaments, military establishments, large industrial and trading companies and financial institutions around the region. The great industrial and financial family conglomerates like the pre-war Japanese Zaibatsu, their modern successors and the Korean Chaebol have rarely ever been subject to serious audit, central bank control or public regulation. Indeed, in some cases, the gangs and these organisations were one and the same, their key figures appearing as immaculately dressed, publicly respectable businessmen, politicians and 'statesmen'. And often the people who ran the conglomerates ran or 'owned' the governments as well. Public and private sectors of the economy were a distinction without a difference - a condition that has continued in many Asian countries to the present day. (To blame one rather than the other for the Asian crisis is to betray gross ignorance about many things). | |
| Decline of Influence | Over the last fifteen years or so, the influence of these gangs and associated forces in Japan, Korea and Taiwan has begun to decline. This can be seen in the political changes and upheavals taking place in these nations - the weakening of the LDP in Japan, the rise of opposition parties in Korea, the metamorphosis of the KMT in Taiwan, the rise of the DPP in that country and, indeed, that nation's transformation from authoritarianism to democracy. It is not a coincidence that in all of these countries the political influence and role of the military has also been in decline. | |
| There have been many factors in this historic change, not the least of them being the dying off of many of the gangs' most capable political operators. But more fundamental than that has been the growth of popular demands for greater freedom and democracy as a result of economic growth and an enhanced knowledge of the world, in turn consequences of rapid technological change seen in the worlds of television, computerisation, globalisation, information technology and modern travel. | |
| The KMT on Taiwan changed, in the end rapidly, because Chiang Kai Shek and his brilliant son Chiang Ching Kuo saw that in moving offshore onto a small island they could start again and leave behind or cut down the influence of the gangs and secret societies which had terrorised their lives and dominated their mainland government. Chiang Kuo, in particular, appreciated the new freedoms and set out to democratise the island. This eventually led to Lee Teng Hui's presidency and the rise of the DPP. It also enabled Taiwan to more than partially reform its banking system and so, fortuitously, avoid the worst of the regional economic crisis. | |
| But Still There | However, while the gangs and their influence have been in decline in Japan and around the region, they are still there - and this is of direct relevance to what is happening today. | |
| When the Japanese boom and property bubble burst in the early nineties, the authorities did nothing to tackle the banking system. When the Korean property bubble burst authorities there did nothing again. One of the reasons was the gangs' stake in most financial institutions and their influence in so-called regulatory agencies. Japan might be de-regulating officially, but de-regulation should require public audits and disclosure of corporate and banking information and the gangs won't let that happen. They fear that disclosure and private investigation would reveal not just a plethora of shonky and corrupt deals going out the front doors of Japanese 10 banks to legal Yakuza and other companies, but the financing of massive regional criminal networks out the back. In fact, it seems that some of the banks are little more than criminal organisations in themselves and that some of the authorities have been afraid to bite the bullet for fear of getting the bullet. The same can be said of much of the corporate world. It is notable that Chiang's Taiwan never allowed large family conglomerates, and particularly Japanese-linked ones, to dominate the national economy, let alone national politics. Most Taiwanese industrial production comes from small and medium sized industry and gangsterism, while rife, is mainly a local, county-level phenomenon. | |
| The Southeast Asian Bubble | As the Japanese economy went into stagnation in the early nineties following the property collapse and the emergence of huge industrial over-production, $US billions of surplus Japanese money, much of it illicit, was diverted into S. E. Asia while the banking system loaned heavily into the same places - Thailand, Malaysia, Hong Kong and Indonesia. Gigantic apartment blocks and retail Mega- projects began appearing one after another on skylines across the region. Then the stockmarkets boomed and currencies rose as Western financial institutions and corporations moved in search of joint ventures. Imports ballooned, current account deficits blew out, inflation rose, foreign debt to GDP ratios grew, money supplies expanded and there was an increasing reliance on short term capital flows to finance the deficits. In short, a growing collection of classical macro-economic problems. All this was perfectly apparent by mid 1996 and almost certainly well before. The Economist, in August 1996, for example, ran a piece warning that the Asian tigers were developing worrying "Mexican symptoms" and singled out as particularly "dodgy" Thailand, Malaysia and Indonesia in that order (This was reprinted in The Australian, 4 September 1996, under the heading "Asia's Alamos?" along with a statistical table of their growing macro problems.) At about the same time, the IMF (as we now know) was issuing strongly worded private warnings along the same lines to these countries. Suggestions, therefore, that the IMF, George Soros, or "the Americans" somehow caused the Asian crisis can be dismissed. | |
| Lack of Transparency | While all of this was happening, many of the Western companies and financial institutions drawn into Southeast Asia in search of a quick buck or long term joint ventures began running in to if not 'brick walls', at least serious impediments to their ambitions - corruption in family conglomerates ( many of them loosely and romantically modelled on the old Zaibatsu), shonky banking practices, reckless and unsustainable borrowing, outrageous cronyism, and a general lack of transparency in the companies they were interested in. In the face of this lack of transparency, prudential supervision and accountability, many of their offices around the region sat idle for months, afraid to step out into the unknown, especially as the macro-economic problems kept mounting around them. It needs to be said that few outsiders know what is happening inside any Asian bank. Here was a classic clash between the so-called 'Asian way' and the 'Western way'. The uncertainty in these foreign offices helped gradually undermine the confidence of local, Western and Japanese short term money market operators which eventually broke in mid 1997 through speculative attacks on the Baht. Once Thailand went, Malaysia and Indonesia followed, as The Economist and the IMF had more or less predicted a year earlier, the forces of globalisation ensuring that the process was a rapid one. Once that happened there was never much doubt that the crisis would work its way back to Japan, from whence in many ways it had all begun. And that is where we are today. | |
| Hopeful Signs | Some observers have pointed out that in the March 1998 quarter, most of the Southeast and East Asian economies were showing signs of recovery with currency rises and balance of payments improvements all round. In some places, however, this was being upset by the political and economic turmoil in Indonesia and the continuing uncertainty and pessimism over Japan. | |
| China | Little has been said in this Report about current economic events in China because it is difficult to know what is happening - apart from the fact that it is also suffering a major banking crisis, that its inefficient state industries are breaking down and that unemployment is surging. Corruption is also rampant. But, as with the other countries, we have little knowledge of what is happening within any of its institutions through which a lack of transparency runs like the Great Wall. Nor do we know what happened to the gangs and secret societies following the war and the communist victory in 1949. Did they take over the People's Liberation Army (PLA) and its many industrial and commercial enterprises on the Mainland and in Hong Kong? Did the Communist Party (CPP) or the PLA take them over? Were they wiped out? Did many of them move off-shore into East and Southeast Asia? Are the 'powerful families' that today supposedly run China, Hong Kong and the PLA in fact the old secret society families? What international networks do they run? Who in the West knows the answer to any of these questions? And if we don't know the answers how can we say anything definitive about China, its economy and the world it influences? | |
| Technological Gap and the Future | Finally, one must point out that there is a defining technological factor running through the Asian crisis, namely the shift from industrial production technology to information and communications technology. By the mid-eighties, Japan had reached the limits of the former based on imitated or 'borrowed' Western technology. Around 1988, Japanese industrial productivity stopped growing and the economy went into systemic over-production on a serious scale. So a lot of investment shifted into what became the great property boom. In the early-to-mid nineties other Asian nations followed suit with over-production and property booms, fuelled largely by Japanese money. They were all struggling with yesterday's industries and technologies. The exploding information revolution or superhighway, seen, for example, in the revolution of military affairs (RMA), but impacting across the technological board, had simply left them behind. They now appreciate, as never before, that if they want to re-establish expanding economies in the next millennium, if they want to step up to 13 the next level of technological and economic interaction, they will have to swing open their economies to joint ventures with the Western, and mainly American, corporations who possess the new technologies, for they themselves possess neither the money nor the skills to do it alone. These will have to be real joint ventures and not the phoney arrangements of the past where foreign partners had no control, and often no say at all. The foreigners will surely demand as a pre-condition that Asian institutions be transformed so that legal, accounting, and corporate structures and processes become acceptable to them and the rest of the world. The 'Asian way' will have to give way to the 'Western way'. If this doesn't happen, Japan, the Asian 'tigers' and other nations risk becoming increasingly inefficient and discontented societies on the periphery of a dynamic world. | |
