It was known, said the prosecutors, as the “voice from Heaven”, and it could not be disobeyed. When his bureaucrats heard Fujio Takeuchi whispering a name down the telephone, that was the company that won the construction contract, no matter what. For nearly 20 years, Takeuchi, the 75-year-old former five-term governor nicknamed “the Lord of Mito”, ruled the farms, factories and dormitory towns of Ibaraki Prefecture, 100kms east of Tokyo.
Above all, he controlled its huge public works budget – bigger than those of Victoria and NSW combined – and doled out contracts worth tens of billions of dollars to those companies that came calling at his official residence in the city of Mito carrying shopping bags stuffed with banknotes.
But now Takeuchi is on trial for bribery, one of an ever-growing string of big names arrested in the biggest scandal ever to rock the country’s political and construction establishment, a scandal that has put a new word in the vocabulary of international trade negotiators – “dango”, or bid-rigging Japanese-style.
On a global scale, probably only drug smuggling rivals the dango as a criminal concern. The Japanese construction industry is worth $1.3 trillion a year (a third of this is public works contracts), it involves 500,000 companies, six million workers and about a fifth of the country’s gross national product.
The bribes are on the same colossal scale. The construction industry is conservatively calculated to pay crooked politicians and bureaucrats more than$500 million a year.
Takeuchi’s arrest was the most important so far by a special task force of untouchables from the Tokyo District Prosecutors’ Office which has been trying to clean up the institutionalised corruption that pervades the industry.
So far, they have locked up two prefectural governors, two mayors and nearly 30 construction company executives.
Almost every week, television shows a procession of up to 100 prosecutors, in identical black suits, carrying hundreds of boxes of documents from high-rise office buildings around Tokyo.
The names of the companies raided are a Debrett’s Peerage of the Japanese construction industry, seven of the country’s leading builders, including the three largest: Shimizu, Kajima and Taisei corporations have all had top executives arrested.
And, if evidence already given and official leaks from the prosecutors office are Continued correct, this is nowhere near the end of the investigation that began last March after the arrest of former Liberal Democratic Party powerbroker Shin Kanemaru.
“We are determined to get to the bottom of this dango system and put all those responsible on trial,” said one prosecutor.
There is no telling where this will lead. The construction industry contributes in a big way to more than half Japan’s members of parliament, and the names of former prime minister Noboru Takeshita and current coalition power-broker Ichiro Ozawa have already been dragged into the scandal.
The stain of corruption reaches from the highest to the lowest in the land. Not long ago, 18 of the 21 council members of the little town of Haga were arrested for bribery, two more admitted themselves to hospital (a favourite ruse in Japan to avoid questioning by the police) leaving only the lone Communist councillor untouched by the scandal.
Dango literally means “discussion group” but the characters can also be read as a pair of rice dumplings sticking together – and this is how the system really works. Every important government contract is cooked up by collusive tendering between the large companies and their “families” of sub-contractors – almost invariably lubricated with large amounts of money and other favours for the politicians and bureaucrats who have the final say.
You don’t have to travel more than a couple of hours from Tokyo to see the effects of the dango system. Drive along Route 117 through the mountains of Niigata Prefecture, and you are on a perfect paved highway with an extra lane for the snow-ploughs, concrete overpasses and culverts everywhere, the footpaths bathed with reticulated hot water in winter to melt the ice.
But the moment you cross the border into Nagano Prefecture, the road -still National Route 117 – has no footpaths, not even a centre-line, and in places it is too narrow for two cars to pass. Niigata, you might have guessed, was the electorate of the corrupt former Prime Minister Kakuei Tanaka, who built the dango system into the money machine that was to fund the LDP’s 38 unbroken years in power.
The bribery is as simple or as sophisticated as the participants desire. Takeuchi (so the prosecution alleges) used to be the guest of honour at geisha parties at an exclusive $1,000-a-head restaurant, where construction company heads seeking special favours would be forced to listen to hours of his off-key karaoke singing, before passing him a carrier bag containing anything up to $70,000 in cash.
But for Kajima, Japan’s second largest construction company, the method of winning “the voice from Heaven” was a little more devious. For decades, the family-founded company has made a practice of marrying its daughters into politics and the bureaucracy and promoting their husbands to company sinecures.
At last count, the company had no fewer than seven former Construction Ministry officials on its board – the men who were in charge of the country’s national public works budget one day “retired” the next to take well-paid jobs at Kajima, a process known as “amakudari”, or descent from heaven.
Politicians are generously treated in other ways – Wataru Hiraizumi, MP, a former director-general of the powerful Economic Planning Agency, has no fewer than nine staff members directly paid by Kajima. Shinichiro Shimozo, a former Welfare Minister, retired to a $700,000 a year research institute set up for him by Kajima not long after giving the company planning permission for a golf course.
The multi-member electorate system, where it can cost an ordinary back-bencher as much as $2 million or $3 million to get re-elected, is held to be the cause of Japanese politicians’ widespread susceptibility to this sort of bribery. Whether the new Prime Minister, Morihiro Hosokawa, can change the system by year’s end will be the first major test of his reform agenda.
“Paying off politicians has been seen like committing a traffic offence,”says an industry expert, Tokunosuke Hasegawa. “You know it’s against the law, but it is not seen as unethical.” To add insult to injury, the massive bribery is subsidised by Japan’s taxpayers. Each of the major companies claims a tax deduction every year for what is called “shito fumeikin”, literally”unaccounted-for expenditure”, which is mainly bribes for which no receipts can be produced.
Shimizu, Japan’s largest construction company, wrote off no less than $34 million under this heading last year. The total for the construction industry(according to the National Tax Agency, which conveniently compiles bribe totals for each industry) was an extraordinary $540 million.
Given just how lucrative these government contracts can be, even payments on this scale are small change for Japan’s crooked building barons.
There is really no “price mechanism” at all in public works bidding, according to Hasegawa, for 25 years a construction ministry bureaucrat who now heads an industry research institute. The contractors just charge whatever they want.
A ministry survey last year found that major construction jobs in Japan cost between two and three times as much as similar jobs in New York or London, which adds up to a rip-off of the Japanese tax-payers of as much as$200 billion to $300 billion a year.
The amounts of public money involved simply boggle the mind. Tokyo’s Metropolitan Government last year opened a new city administration complex that cost $2.3 billion – more than twice the cost of Australia’s Parliament House.
The contracts that even a humble governor (the equivalent of a State Premier) like Takeuchi was handing out like lollies included a dam worth $540 million and a $315 million medical school.
The anticipated prices of the projects are leaked in advance to the selected tenderer, sometimes with embarrassing consequences. Just last week, for example, the tenders clerk at a council near Tokyo made a mistake – he costed a paving job with the price per tile instead of per square metre. The lucky contractor pocketed a neat 5,000 per cent on top of his normal profit.
Foreign companies, it goes without saying, are banned from the cosy dango clubs that carve up these amazingly lucrative jobs by the use of a “designated bidder” system. They are simply excluded from bidding by secret rules.
Of the $400 billion in public contracts awarded last year, a little over$200 million went to US companies – compared with around $20 billion of US work that went to Japanese companies, something that has not escaped US trade negotiators.
The United States had been concerned about Japan’s virtually closed construction industry long before this latest round of scandals broke, and President Clinton has given the Japanese until January 20 to clean up the industry – or face sanctions against Japanese doing construction work in the US.
The Americans – and a growing number of increasingly vocal Japanese critics- have been unimpressed by the Government’s response to date.
So far, penalties have been small. Companies charged have been “suspended”from bidding for public jobs for between two and four months; they have cancelled autumn TV advertising schedules; the Construction Ministry has”advised” bureaucrats not to take jobs in the industry; “open bidding” has been recommended for a few larger contracts.
Probably the most bizarre spectacle of recent weeks has been the coalition Construction Minister – a Social Democrat named Kozo Igarashi who probably never saw one yen of the bribe money that poured into LDP coffers – promising that he and his senior bureaucrats would “reflect on the scandal”.
It is widely expected that they will volunteer for minor pay cuts for a few months to show their contrition. However, this is not going to satisfy the US, and Hasegawa believes that Japan will soon be forced to offer a genuine reform package – open tenders for public jobs worth more than $10 million, and a new and independent watchdog agency to ensure the process is transparent and above-board.
If it works – still a big if – the end of the dango system will represent the first major victory of the Hosokawa Government, and will open the Japanese market to foreign competition.
However, Hasegawa is sceptical about whether this will put much of a dent in Japan’s massive trade surplus – the US, he believes, will capture less than 1 per cent of the market for design and engineering, although the Koreans could make serious inroads.
But when the new rules are announced they will at least unblock the public works programs which have been virtually paralysed by the crisis.
For the sixth straight month, public works contracts have fallen and along the length of the country work has stopped on roads, bridges, sewers and other elements of the latest fiscal stimulus package.
Frightened of risking further attention from the prosecutors, Japan’s thousands of national, regional and local governments have gone on “contract strike”, suspending the start of any new work until the guidelines are been promulgated.
If nothing else, the silencing of the voices from heaven may help get Japan’s long-overdue economic recovery on the road.
Caption: Illus: Rocco Fazzari