Japan’s current economic challenges are the result of an imbalance in the nation’s "Iron Triad" of politicians, bureaucrats and businessmen, according to Yasuhisa Shiozaki, a member of the Japanese parliament, who delivered a lecture at the Wharton School’s SEI Center for Advanced Studies in Management.

The stage for financial crisis in Japan-which some believe is now turning the corner-was set 20 years ago, when bureaucrats and businessmen were better educated than politicians. At that time, people voted for candidates who were most like them, not necessarily the most intelligent individuals running for public office, he said. Politicians ceded power to businessmen and bureaucrats.

The bureaucrats gained power during reforms in 1868 and after World War II. "Prosperity was seen on that basis, but it planted the seeds for future problems," he said.

Favoritism and cronyism also weakened the system. "This led to a mistrust of the bureaucracy," Shiozaki said. Bureaucrats made many mistakes in the 1990s because they were responding to influential constituents rather than focusing on doing what was best for the country.

Legislators now are stepping forward to correct this imbalance through regulations designed to invigorate the country’s economy. "To achieve better performance by the government, we must institute legislation under which the wrong policy is checked and right policy is promoted," Shiozaki said. New legislation established a series of checks and balances between the "main players" governing Japan. Open discussions must replace backroom deals. "Now, all important policies are discussed in the open, not behind a curtain," he said. "The upshot is that the political show goes on in front of voters and, more precisely, the press."

These policy discussions are resulting in the creation of better policy, Shiozaki said. He cited reforms in the financial services and banking industries as evidence of the success of this open policy debate. "While life behind the curtain was easier, it wasn’t the best way to establish important policy," he said.

For Japan to maintain this level of open discussion and successful policy implementation, Shiozaki said the following must occur:

    1. Bar bureaucrats from Parliamentary procedures.
    2. Make the bureaucracy more accountable for its actions.
    3. Collect comments from the public for policy consideration.
    4. Expand the role of the legislative assistant to provide more support for the legislator.
    5. Promote the work of independent research agencies.

Japan faces great challenges. "Japan is at a critical juncture, especially in the financial services sector," Shiozaki said. "We’re experiencing global, political and economic changes and a prolonged economic crisis at home."

The Bank of Japan is instituting zero interest rates, a move that is "unprecedented, even during the time of the great depression," Shiozaki said. The government also has increased fiscal spending, resulting in a deficit that is 10% of GDP. "Much more has to be done," he added.

Japan, he said, is daunted by the task of structural reform. But he noted that throughout Japan’s history, there have been major institutional changes over short periods of time. He said reforms such as those he is proposing are necessary for permanent, positive changes to occur. And Japan continues to draw insights from around the globe on coming up with new solutions. "I would appreciate it if I could continue to borrow your wisdom which I can take back to Japan and share with others when we are going through difficult times," Shiozaki said.

Following his presentation, Shiozaki answered questions from the faculty, students and business executives who attended his lecture.

One question, for example, was about whether Japanese institutions could be modified rapidly so that they would not revert to the tough times of 1995-98. Shiozaki replied that the Japanese government had proposed the complete restructuring of its current 22 ministries and agencies. This restructuring would go a long way toward bureaucratic reforms, in that politicians would need to be accountable for gathering information, thus making them more capable of policy-making. In addition, agencies would gain more politically appointed people to assist in the process of establishing policy. This, he said, would force bureaucrats to think more about the country and less about their individual interests.

Another participant asked Shiozaki which countries Japan had observed as models for reform. "The government of Japan is much like that of the U.K., Australia and New Zealand," Shiozaki said. "We looked closely at the Australian government, where they have more politicians involved in their ministries. In Japan, we need to educate the public to understand that every now and then politicians do good and should be included in more decision-making."