THE FAILED MIRACLE

By EDWARD W. DESMOND/TOKYO

Five years ago, Japan could look back on three decades of extraordinary accomplishment. Its economy had grown an average of 6.5% a year. By the 1980s, it had come to dominate the market for consumer electronics and semiconductors, and claimed the best automakers in the world. In the U.S., Japanese companies seemed to be buying everything in sight, from Rockefeller Center to Universal Studios. Over and over again, the question was asked in other countries, particularly the U.S.--What is Japan's secret?

For Japan did seem to have a secret, somehow managing to exempt itself from the economic laws that governed everyone else. Its society too seemed to provide a model of hard work, thrift and cohesion. Back in the early 1990s, both Japan and its competitors believed it had invented an economic version of the perpetual-motion machine. And that being the case, there was no reason for the miracle to end. M.I.T. economist Lester Thurow declared that the 21st century belonged to Japan. Sony co-founder Akio Morita and nationalist Shintaro Ishihara wrote a best seller arguing that Japan had an unbeatable lead in technology, thanks to its superior economic and social system.

Now it is 1996, and Japan's secret formula does not work anymore. Neither its economy nor its society enjoys a special dispensation from misery. When President Clinton arrives in Tokyo this week, he will find a country that has undergone five years of economic gloom, whose society is experiencing unprecedented strain and whose political system is fracturing. In a recent poll covering 10,000 adults, 54% of the respondents said they felt Japan was becoming worse off. Faced with all its adversity, Japan is at a crucial point in its postwar history, and the direction it takes will be vitally important, not only to its own people but also to its major commercial, diplomatic and military partner, the U.S.

The recession of the past four years has been Japan's worst since World War II. From about 1988 to 1991, the nation enjoyed a "bubble" economy that saw huge investment in new factories, real estate and equities, both at home and abroad. When the crash came, it was brutal. Between 1992 and 1995, gdp barely grew at an average of 0.6% a year. In the early 1990s, land values fell 50%, creating a burden of bad debt that could reach $1 trillion. From 1990 to 1994, industrial giants like Nissan closed factories as car production fell almost 22%.

Year in and year out, economists have vainly predicted a rebound in Japan's fortunes. Now there are again some signs of improvement: last year the economy did grow a bit faster, if only 0.9%; the stock market has risen, although it is still at just over half its 1989 high; corporate profits have improved; the dollar has strengthened against the yen, making Japanese exports more affordable.

Still, the evidence of recovery is at best mixed. One prominent Japanese economist, Johsen Takahashi of the Mitsubishi Research Institute, remains a bear. He does not believe the economy can grow at the 1.75%-a-year rate the government predicts as a minimum for the rest of the decade; but even if it did, that would set average growth for the whole decade at just 1.5%. "We are at a crossroads," says Takahashi. "If we reform through measures like deregulation, we might end up with something like the American economy. But if we don't, we could go the route of Britain, what I call a 'senile state.'"

Despite some possible signs of healing, the scars of the past few years remain. Most companies have cut bonuses, cut overtime pay, frozen salaries and slashed other benefits. University graduates, especially women, encounter what the press has dubbed "the super-ice age of employment." Homeowners who bought at the top of the real estate market in 1991 are stuck with apartments and houses worth a fraction of what they paid. "For working people like me," says Midori Suzuki, a mother of two and a nurse who works full time, "life is getting more and more difficult. I have to work harder and harder to make a living."

One of the paradoxes of Japan right now, reminiscent in some ways of the U.S., is that while some companies are doing well, their workers are not. Thousands of industrial jobs have been lost because of kudoka, which translates as "hollowing out." Giants like Sony and Toyota are investing in China, Southeast Asia, Europe and the U.S. but not in Japan. Currently, for example, Japan imports 2 1/2 times as many television sets as it exports. They are all assembled in Japanese-owned factories in places like Malaysia and Thailand. By the year 1998, Toyota expects that 65% of the cars it sells around the world will be made outside Japan.

Ichiro Otake, 77, can hardly believe what is happening to Japan. He served in the imperial army during World War II and returned to start a newspaper-distribution business in Soma, about four hours north of Tokyo. He retired in 1980, and lives in a comfortable house on a small pension in Iwaki, a pleasant seaside town that used to bustle with small electronics factories. Otake and his wife Mitsuko used to make an extra $900 a month by working a few hours a day at home assembling small parts for CD changers.

Today the little hand press they used is idle, as are most of the factories in town. The work has shifted to China, and Otake has started teaching Go to make some extra money. "There was an upper-house election recently," he says, "and, for the first time, I did not vote. Neither did my friends, who are all very disillusioned. We have no leadership. Japan has lost its way. I don't have much hope."

Americans say the same sorts of things on talk-radio shows every day, but in Japan the fear of decline is not in the script. Ezra Vogel, author of the acclaimed 1979 book Japan as Number One: Lessons for America, believes many Japanese companies are still awe-inspiring competitors. But Vogel also points out that the remarkable strengths of a company like Toyota no longer mirror those of Japan as a whole. "Today there is a malaise, a deep recognition that they are no longer on the way up," he says. "There are a lot of basic problems, like the loss of jobs and the realization that they won't surpass the U.S. in high technology as easily as they thought. There are no easy answers, and, unlike the past, no unified response."

Takahashi, the Mitsubishi economist, believes unemployment could still double from the recent postwar high of 3.4%, or 6.5% for people ages 16 to 24. Those figures may not look bad compared with 5.5% in the U.S. or 12% in France, but for a country used to full employment, they are a shock. Japan's famous lifetime-employment programs cover only about 20% of the work force, those lucky enough to be hired by certain blue-chip companies. And these firms have in fact cut staff in subtle ways, by reducing new hires, shedding part-time workers or forcing subcontractors into layoffs.

The 80% of workers who do not enjoy lifetime employment are finding that Japanese managers can be as brutal as any in what the Japanese once derided as the harsh "Anglo-Saxon business world." It is illegal to fire someone without cause and compensation, but employers will try what's called kata tataki, or the tap on the shoulder, to get workers to quit voluntarily. The humiliation might come in the form of a salary cut, a stupid assignment or some other type of harassment.

In the past 10 years the number of psychiatric clinics offering help for the burned-out, laid-off salaryman has increased tenfold. Many can't face the shame of telling their families, and they rarely have friends outside the office. Dr. Toru Sekiya, a Tokyo psychiatrist who specializes in such cases, is working almost around the clock. "What's happening is terrible," he says. "Not only are companies getting rid of older employees, they are also dumping those who are capable, hardworking and young. It's like murder to destroy the careers of young people."

If the rest of Japan's traditionally close-knit, well-ordered society were intact, the workplace crisis might be easier to accept; but there is turmoil in the schools and the family as well. Japan's public schools still produce consistently literate and numerate graduates. Nevertheless, a recent poll showed that 64% of parents distrust teachers and 67% are unhappy with the education their children receive. One apparent reason is the worsening problem of bullying, which has led to at least 20 suicides among schoolchildren since May 1994. The problem escapes easy explanation, but most experts think it is rooted in the extreme conformity demanded in public school, right down to the pencils and schoolbags of the children. Children who step out of line face merciless hazing, not only from students but also from teachers.

The most forceful indication that parents are disappointed in the public schools is the intense competition to get into private ones, from kindergarten through high school. The key to success is the juku, an evening and weekend cram school where children from the age of four prepare for entrance examinations. Nearly 60% of junior high school students take juku classes, which cost their parents as much as $400 a month. They usually study material at least a year ahead of the public school curriculum and endure rigorous schedules that leave no time for the playground.

Akiko Tsutsui, a 10-year-old fifth-grader, gets out of school at 3:30 p.m. and goes straight home to have a snack and do her homework. Three afternoons a week she leaves again at 4:45 for a juku session that lasts from 5:10 to 10:00. For almost the entire class, Akiko will listen to tutors explain how to answer test questions and will practice taking them herself. She sometimes attends all day on Sunday for extra help. The classes give Akiko a better chance of getting into a local private junior high school, and that in turn virtually guarantees her admission to a university.

Competition in Japan has always been fierce, and the schools have always demanded conformity and intense rote learning. But the system has become an extreme, decadent version of what it used to be. And not only do children suffer on account of the schools and cram courses, but they may not even be learning what they ought to. Ichiro Ozawa, the leader of the main opposition party, argues that the educational system is at the heart of Japan's difficulties because it simply forces children to memorize and solve math problems. That may have been sufficient when Japan needed nothing but obedient, selfless workers, but it does not nurture the right skills for Japan's future. "Japanese lack self-reliance and a sense of the individual," says Ozawa, "without which there is no democracy or creativity."

The strange, tawdry phenomenon of terekura, or telephone-sex clubs, also reflects the deterioration in the lives of young Japanese. A large number of high school girls in the big cities--27%, according to a 1994 study by the National Congress of Parents and Teachers--work occasionally for the services, and some unknown portion of those act as prostitutes as well. The innocent-schoolgirl type can easily command more than $1,000 a night for a date and sex and still get home in time for lights-out.

These are middle-class girls from good schools. Many sign up for the money, which they use to buy expensive designer clothes. But according to Rika Kayama, a psychiatrist who specializes in young women's difficulties, the high school girls are as eager for anonymous companionship as the men are for a sexual thrill. "I do this to kill time," says one, "and because my friend asked me to do it." She is 18, just graduated from a Christian high school in Tokyo, and makes about $16 an hour. Sometimes the work is unpleasant. "The old guys want to talk to me in a way that I find painful," she says, "but that's what they are paying for."

The independence and satisfaction of Japanese women have greatly increased in recent decades, but this has brought problems of its own, since Japanese men have not adapted their expectations accordingly. Husbands rarely perform family duties, leaving them to their wives. Rather than accept that division of labor, some women prefer to remain childless and unattached. The result is that, on average, women in Japan marry later and bear fewer children than do women in virtually any other country.

Mild in comparison with the U.S., social ills are nevertheless becoming more acute. The use of amphetamines and marijuana is growing, as is the fear of crime. In the past, only members of the Mafia, or yakuza, carried guns, and for the most part they killed only other yakuza. But last year there were several brutal handgun murders that did not involve mobsters. Three female employees at a supermarket, for example, were shot in the head in a Tokyo holdup. An advisory board to the National Police Agency last year endorsed the hiring of tens of thousands of additional police because Japan "is proceeding down the path to becoming a Western-style crime society."

In such unhappy times, no government is likely to be popular. But politicians and bureaucrats have done a great deal to bring disrepute upon themselves. The Liberal Democratic Party, which ruled Japan from the year it was founded, 1955, finally lost power in 1993 after one corruption scandal too many. Since then four successive, fragile coalitions have ruled. The current government, led by Ryutaro Hashimoto of the L.D.P., is committed to the status quo when it comes to economic reforms and other measures that are needed to revive Japan.

The once infallible bureaucrats, meanwhile, have been entangled in an unprecedented series of scandals. In recent weeks the Health and Welfare Ministry admitted that from 1983 to 1985 its officials let Japanese pharmaceutical companies sell blood products even after they knew they might be tainted with hiv. So far, an estimated 400 hemophiliacs have died. And since last year, taxpayers have been furious with officials at the powerful Ministry of Finance because it wants to start paying out billions of dollars in tax revenues to rescue Japan's banking system, which the same bureaucrats once called the world's safest. The ministry used to be far and away the most powerful organization in Japan, but now there is a nationwide call for its dismantling.

So much for the miraculous Japan, with its uncanny, clockwork economy and culture. Ichiro Ozawa now believes it's time to close the postwar chapter. He argues that Japan's highly regulated society inhibits the cultivation of talent at home and friendship abroad that Japan needs if it is to thrive in the future. He calls for a "third opening," a change in Japan as momentous as the Meiji revolution, which opened the nation to the world in 1868.

"This is really an enormous task," Ozawa says. "This is more than reform. What we need is close to a revolution. What's demanded is a change of Japanese consciousness, and whether or not we succeed is up to the people." But what would bring about revolution? It is the Japanese way to face adversity with a simple appeal to gaman, which translates more or less as "hang tough and don't complain." Perhaps anguish over Japan's decay will push people beyond gaman and put wind at the back of radicals like Ozawa and other reformers. Failing that, Japan could turn into a graying has-been of the industrial world.

--Reported by Irene M. Kunii, Satsuki Oba and Hiroko Tashiro/ Tokyo

With reporting by IRENE M. KUNII, SATSUKI OBA AND HIROKO TASHIRO/TOKYO