Japan, after its latest financial scandals, had better recognize that it has grown too big and too intertwined with the world economy to operate in isolation. It is folly to expect a prospering society based on cozy networking among its powerful interest groups to turn itself, willy-nilly, into something Westernized, open and free of xenophobia. After all, its present system has brought dazzling prosperity. But Japan, for its part, should realize that its major partners can tolerate only so much deviation from accepted norms of commerce, corporate practice and business ethics.
Two years ago, a prime minister was toppled from office when the Recruit affair revealed payoffs to politicians for favors helpful to well-positioned industries. Now the presidents of the No. 1 and No. 3 Japanese securities firms, Nomura and Nikko, have quit after they admitted dealing with gangster elements and compensating selected clients for stock-trading losses.
These scandals -- and they are real scandals -- illuminate practices that are all too common. On the day the securities bosses went through their ritualistic resignations, markets in Frankfurt, London and New York (and of course Tokyo) tumbled.
Prime Minister Toshiki Kaifu promises a crackdown. So does Finance Minister Ryutaro Hashimoto. But Mr. Kaifu is feeling the pressure of a comeback attempt by the very prime minister who was ousted in the Recruit mess. And Mr. Hashimoto's ministry is widely regarded not as a solution but at the core of the problem. His department has done more to protect than police the securities industry. It has tolerated, and even facilitated, deals among big financial interests, to the detriment of the small investor.
This protective, cartel-like arrangement appears to be a financial industry version of the collaboration that has long existed between the Japanese Ministry of Trade and Industry and the large Japanese conglomerates. It is a collaboration that continually frustrates foreigners trying to gain the same kind of access to the Japanese market that their governments give Japanese companies. Long-term, Japan has to become receptive to free market forces that are winning more and more acceptance worldwide.