Japan's Worst Political Corruption Scandal

japan has long struggled with corrupt ties between its politicians and businesses it is said that they experience one such major scandal every 10 years every time leading to calls for reform at the end of the 1980s japan experienced one of their most serious such scandals the recruit scandal it touched all of japan's political economic and social elites its widespread nature signaled a deeply corrupt system going all the way up to the prime minister himself in this video we look at one of japan's biggest political scandals but first i want to talk a little bit about the asian armature newsletter it might not be as industry specific as some of the other newsletters out there but i try to make it fun interesting and accessible the sign up link is in the video description below i try to put one out every week maybe two all right back to the show as i mentioned major political scandals are a recurring story in japan in 1955 71 people including several powerful members of the ruling liberal democratic party or ldp were arrested when it was discovered that they had received payments from shipbuilding companies and then in 1976 there was the massive lockheed scandal the americans uncovered evidence that lockheed northrup and other arms companies had built up a corruption network over the span of 10 plus years this network paid bribes to foreign officials in 15 countries including japan it was revealed that lockheed had paid then prime minister tanaka and other leading politicians 2 million dollars so that all nippon airways should buy 21 of their l-1011 tristar jets tanaka was later arrested and charged these scandals had all been serious but few would garner as much fury as the recruit scandal on the outside recruit groups seemed like an admirable rags to rich's corporate success however the situation was a bit more nuanced than that the company was founded in 1960 by a man named hiromasa ezoe it began as a three-person advertising agency for the university of tokyo newspaper starting in 1963 the company pivoted to publishing magazines with information about job placements and opportunities thus the name recruit japanese law at the time forbade companies from directly recruiting students so four-fifths of japan's hires back then were found via privately owned job bulletins the ministry of labor facilitates the other 20 but exercises broad authority over the whole sector so these job bulletins operate at the whim of the ministry and if the law changed then that would significantly impact the business for this reason recruit had to build strong relations with its regulator their general strategy was twofold first they purchased party tickets the purchase of these fundraising party tickets represented political contributions for a candidate's individual races while there were some concerns about mass purchases of these tickets they are largely seen as acceptable behavior second the company contributed sums of money to former ministers of labor this set the tone for the company's future political network building as away was a relatively young and ambitious man in the japanese business community he saw recruit has his vehicle towards immense wealth and perhaps even political power beyond that recruit grew with aggressive marketing and a decentralized high incentive structure that gave young managers in their 30s the freedom to generate profits in whatever ways they saw proper the company quickly expanded away from its core market into telecommunications finance and then real estate they started a farming business in the kagoshima prefecture and then in 1980 opened up a ski resort of all things recruit then started focusing on residential real estate development and this did very well ezoe believed that residential housing demand would explode as japanese people moved out of the rural areas into the cities for work recruits residential subsidiary was named recruit cosmos and they quickly became the company's most dynamic business arm in 1985 alone cosmos ascended to become the country's second biggest developer of condominiums up from ninth place the year before from 1983 to 1988 cosmos grew eight times over from 42.5 billion yen revenues in 1983 to 350 billion yen in 1988. by then the subsidiary was larger than the original recruit company which made 269 billion yen that year this growth was funded with torrents of borrowed money from 1986 to 1988 during the japanese real estate bubble recruit cosmos took on over 12 billion dollars worth of debt from 10 banks real estate development is a field that requires the close involvement of the authorities and recruit cosmos followed the same strategy of its parent company to gain favor over its competitors throughout the 1980s cosmos became a heavy contributor to various members of japan's political and business elite this distribution formed the heart of the scandal throughout the 1984-85 period 1.2 million unlisted recruit cosmos shares were sold to 76 people including politicians government bureaucrats and businessmen the sale price of these shares were about nine dollars each which then went to as high as 36 dollars when cosmos listed on the stock exchange two years later in the lead up to its ipo cosmos issued another 1.7 million shares to friendly companies members of the business media and political influencers the company even issued cheap loans through its financial subsidiary to make the shares even easier to purchase in total over 100 individuals received shares this included noburo takashida the prime minister at the time when the scandal finally broke when the real estate subsidiary went public most of the buyers quickly offloaded their positions the original 76 buyers netted about 8 million dollars profit or about 21.3 million in 2022 the stock handout was carefully targeted first it was done in a way that gave the senior politicians air cover for instance it was not takashita who bought the stocks but his aides in a future hearing as away would say it embarrasses me to think how indiscriminately i gave them out but the distributions reflected careful consideration and intimate knowledge of japan's political landscape across all parties the more influential the figure was the more shares i got the former vice minister of education got three thousand shares while the more powerful former deputy minister got ten thousand a former prime minister got just two thousand shares while the pm at the time nakasone got 25 to 29 000 shares in return recruit received sizable benefits in his real estate and education businesses for instance seven thousand shares to the minister of agriculture and forestry in return for releasing a forest from the protected woodlands list recruit also issued shares to a former chairman of nippon telegraph and telephone hisashi shinto as well as cushy retirement jobs to 13 senior company managers in return ntt allowed recruit to jump the line in receiving profitable contract benefits like the resale of supercomputer rental time and certain semiconductors i should note that esway also received a compensatory back rub from his friend shinto he was allowed to purchase 20 000 ntt shares from the first tranche during the company's stock privatization netting a handsome profit the scandal broke in 1988 and like with many such scandals in history it came about randomly in june 1988 some reporters from the asahi shimbun a newspaper working out of a small district office in kawasaki city discovered a small story the deputy mayor of kawasaki issued a special permit for recruit to build a 20-story building on prime land near the kawasaki techtopia area in return the mayor got about 100 million yen in stock the senior editors of the asahi shimbun which actually holds a reputation for being relatively critical of the government killed the story they then took great efforts to warn off their own reporters from digging further they correctly smelled real trouble and who wants that right well the japanese communist party sure does their primary news organ shinbon akahata literally meaning newspaper red flag has long been a bit of a troublemaker and they caught wind of the story so in july 1988 the akahata published the names of the 76 elites who received recruit cosmos shares the next day one of the named stock recipients the president of japan's wall street journal resigned from his position soon after two other recipients members of the business media and classmates of ezoe resigned to opposition party members started calling for investigations and here cosmos aired in trying to cover up the damage if you want to bribe someone to shut up make sure that no one sees you doing it in august 1988 hiroshi matsubara a senior director of cosmos visited the home of an opposition party leader yanosuke narasaki there matsubara offered narasaki 5 and then 10 million yen packed up in a box of chocolates to quietly stop talking about the recruit matter this interaction was secretly filmed and then publicly broadcast by the national news service nhk a month later matubara was arrested and sent to jail for bribery the scandal had already been spawning headlines for a while but around then it really started picking up steam when news came out observers were surprised that recruit stock sales had been so extensive even touching the bureaucracy and ntt the bureaucrats had up until now been very highly regarded had selfless managers of the japanese economy and ntt then was worth 250 billion dollars perhaps the most valuable company in the world at the time despite this however ultimately the recruit scandal shouldn't have been a big thing but it just happened to come about at the wrong time in late 1988 the ldp decided that they needed to address japan's then burgeoning public debt once at four percent of gnp in 1970 it had swollen to 40 in 1988. the japanese government budget was now growing at a very high rate especially when it came to foreign aid and defense so to pay for all this the ldp proposed a new three percent consumption tax which would come into effect in april of the next year and be very unpopular the process to pass the law was long and drawn out the opposition boycotted the diet and impeded voting on the tax bill unless the pm and the ldp answered for their role in the recruit scandal the ldp had a legislative majority but could not force the bill through without inflaming public opinion yet further so they and the opposition went back and forth for what seemed like forever the final deal was a vote in exchange for a special prosecutor team to investigate and three witnesses summoned to testify but the media would not be present at the testimony and the legal requirements for perjury were modified requiring a two-thirds vote rather than 50 vote politics am i right all the while the japanese people were watching this slow motion political car crash whipped up by the mass media by now going all in on the story they became infuriated rich japanese were buying golf club memberships and expensive houses ordinary people on the other hand had to watch house prices double year over year and were struggling to make ends meet a struggle that just got harder with the new three percent tax japan's farmers ldp's backbone were mad at the party for allowing increased agricultural imports urban and suburban japanese living in cramped apartments and watching everyone else get rich from soaring stock markets and real estate got mad too it is important to note that recruit sold shares to members of the opposition parties as well but the ldp had been in charge since 1955 so they took the brunt of the public's anger as i mentioned earlier the political deal to pass the consumption tax allowed for the appointment of an autonomous team led by a special prosecutor for that role they chose yusuke yoshinaga a decade prior yoshinaga had led the team prosecuting the lockheed scandal receiving little help from the police yoshinaga fought off a huge media frenzy and malicious rumors about his character he was very competent and cleaner than ultra pure water rated for the seven nanometer process node to secure confessions he arrested and interrogated lower-ranked figures in the scandal and worked his way up for others he would carefully leak things to the media allowing the ensuing public fur to force a resignation the first guy to break was the minister of finance ki chi miyazawa who received 10 000 shares miyazawa idiotically received the shares in his own name then it was the ntt chairman shinto who received shares through an assistant but then transferred some of his profits into his personal accounts damning him shinto and an aide were arrested in march 1989. shinto's career had been long and distinguished his work for ntt was a mighty achievement it transitioned the company from a slow footed state-owned enterprise to an actual company with things like competitive bidding on his contracts cutting costs on procured items like fax machines by almost half shinto helped ntt shed 50 000 jobs and become a world beating company its privatization share sale to the public would net the japanese government billions of dollars but that legacy will be tainted by his involvement in this scandal resignations from 20-plus government officials including three cabinet ministers would follow slowly drip by drip like a poison throughout 1989 prime minister tagashida saw his approval ratings decline first diving below 30 percent and then 20 and then reaching finally a stunning 3.9 by mid april 1989. to be fair this brutal decline probably more had to do with the profoundly unpopular consumption tax which finally took effect in april but the recruit scandal lingered like the stench of a dead woodchuck under the porch suddenly the ldp started losing elections in areas previously considered to be safe first a seat of fukuoka in february then another in chiba and then miyagi dissents started rumbling inside the party demanding takashita's resignation and subsequent political reform first from moderate diet members and then from a coalition of governors and mayors and then finally the businesses spoke up in april the chairman of keizai doyoukai an association of executives called for the pm's resignation prime minister takashita had earned 1.1 million dollars in profits from his role in the scandal at first he denied it saying that it was his assistance then he backtracked and admitted guilt and in late april takashida resigned his post and dissolved his government the next day takashida's close friend and senior aide for 30 years ihe aioki committed suicide aoki had negotiated the recruit loans on takashita's behalf the ldp bumbled for over a month trying to find a successor they found one in sosuke uno nicknamed inside the party as mr clean at least until his mistress started talking to the media leaving him to resign just two months later recruit itself finally went public a few years ago it is today one of the biggest job search websites in the world running brands like indeed and glassdoor they are now a competent multi-billion dollar business though i like that their corporate history just acts like as if the scandal never happened yep the most significant event of 1987 was their new supercomputer research institute looking back at it now the recruit scandal gave the japanese public an unpleasant look at the inner workings of their politics it probably shouldn't have been so shocking yet like with most social phenomena it intertwined with the circumstances to be the wrong thing at the worst time notable political scandals followed in 1991 1993 1993 again 1997 1998 and so on none were too serious and the ldp remains the governing party today much like it has mostly been since 1955. all right everyone that's it for tonight thanks for watching subscribe to the channel sign up for the newsletter and i'll see you guys next time

Channel: Asianometry

Views: 237,899

Keywords:

Id: ncRX_1-5xog

Length: 17min 32sec (1052 seconds)

Published: Thu Sep 15 2022