Japan's Premier Focuses on Deregulation

Hosokawa sees erasing rules - from haircuts to trade barriers - a key to staying competitive

JUST a few weeks ago, bureaucrats in Japan would have made sure that a schoolboy's hair was cropped to within an inch of his scalp. Some teachers even chased after shaggy students with electric razors.

But a month-old reformist government, intent on trimming the formidable power of national bureaucrats, has decided to ease off the hair rule.

The government hopes to do the same with thousands of other rules that entrenched civil servants have used to regulate Japanese society and to create an economic system that repels many foreign firms.

``The bureaucracy is a tight-knit power, but Prime Minister [Morihiro] Hosokawa is determined to overrule any resistance,'' says Syusei Tanaka, his special assistant.

The haircut issue was thrust on the new government by a group of protesting teenagers in Osaka. Education Minister Ryoko Akamatsu had to overrule the ministry's implacable bureaucrats. She said that she shivered every time she saw students with close-cropped hair, a legacy of Japan's militarist past.

But the drive for such deregulation is coming from more than schoolboys.

The impetus for reforms lies with big business, the United States, and Mr. Hosokawa himself, who heads a seven-party ruling coalition. After helping to oust the long-ruling Liberal Democratic Party, Hosokawa is trying to reverse centuries of control by bureaucrats, whose prestige has been unquestioned by many average Japanese.

``He is so enthusiastic that he takes up the telephone himself to direct operations,'' Mr. Tanaka says. ``He needs to be like a samurai to fight the bureaucrats. Since he is descended from an old warlord family, he knows how to do it. In fact, this effort is almost like a war.''

A certain urgency is behind Hosokawa's drive for Reagan-style deregulation. At the end of September, he will meet President Clinton and hopes to present him with a package of economic measures to open Japanese markets, boost the economy, reduce the trade imbalance, and reorient Japan toward consumers rather than producers. Deregulation is his centerpiece.

``We will not delay carrying out those deregulation proposals which can be implemented in the short term,'' Hosokawa said on a government television program.

The US and Japan on Sept. 19 will begin their first round of economic ``framework'' talks, aimed mainly at opening up such protected industries as insurance.

Japan's economy is in the doldrums, after the implementation of three stimulus packages, and Hosokawa sees deregulation as one of the few tools left to boost business.

Japanese exporters have become so big and multinational that they now feel hampered by government restraints at home. Japan's refusal to import rice, for instance, has helped to block new world trade rules that would benefit Japanese exports.

Isao Nakauchi, chairman of Daiei discount chain stores, says he must submit to 17 laws, 45 administrative requirements, and 200 pages of applications to open one new store. Bureaucrats also require big stores to close at 7 p.m. and not open 44 days a year.

``This combination of business demands with foreign pressure will likely overcome the vested interest and bureaucratic forces that seek to maintain the status quo,'' says Robert Feldman, chief economist at Salomon Brothers Asia Ltd. in Tokyo.

Both big business and bureaucrats put forth their own proposals for deregulation in late August. But the proposals, Tanaka says, were ``selfishly oriented,'' and will need more negotiation.

Most of the ideas from bureaucrats are recycled, such as liberalizing taxi fares, easing rules for international television broadcasts, and allowing the sale rather than just the rental of portable telephones. Bureaucrats are reluctant to slash their own power until they see other ministries doing so.

Many regulations do not exist on paper but are made verbally to industry officials, a practice known as ``administrative guidance.'' Deregulation will help break the close ties between politicians, bureaucrats, and business, Tanaka says.

He says Hosokawa wants to stop parliament members from ducking opposition questions; they routinely make bureaucrats give answers. And he says politicians, not bureaucrats, must now write legislation. Most important, he says, politicians must not seek favors from ministries for pork-barrel projects, subsidies, or special permits for local constituents.

He warns that deregulation might create unemployment in those industries forced to face price competition. But the overall impact, according to the Japan Research Institute, would be to spur about $100 billion in consumer demand and to create a net increase of more than 1 million jobs.

The institute estimates that deregulation would also reduce the trade surplus by nearly one-third by stimulating imports.

If Japan fails to reduce its trade surplus, ``it will be one factor leading to the destruction of the world economy,'' says Hiroshi Kumagai, the new Minister of International Trade and Industry.