YOU ARE HERE: LAT HomeCollections
(Page 2 of 2)

Aftermath of a Scandal : Japanese Company's Story Reflects Ties Between Business, Political Practices

April 26, 1989|BILL SING | Times Staff Writer

"In Japan, they have strong ideas about who's on the inside and who's on the outside," Lewis said. "If you are on the outside, like (Recruit founder) Ezoe, you don't have much of a chance" unless you buy your way in with gifts.

That is what Ezoe is accused of trying to do. Recruit's diversification into information services, computer leasing and real estate investment gained him a high profile in Tokyo's business establishment. But he still lacked important government contacts and influence that would help him rise further.

Some Japan experts say Recruit's actions may have gone by unnoticed and tolerated had it not been done on such a large scale -- and had politicians not initially tried to cover it up by denying involvement. An aide to Takeshita, for example, had received a $381,000 loan from Recruit that, while not illegal in Japan, damaged Takeshita's political standing because he failed to mention it when explaining his involvement with Recruit before parliament earlier this month.

Huge Profits for Many

All in all, about 150 politicians, bureaucrats and business leaders are believed to have bought directly or indirectly discounted shares in Recruit Cosmos, a property subsidiary, between 1984 and 1986. The company sold its stock to the public in October, 1986, generating huge profits of as much as twice what recipients paid.

Ezoe also gave Recruit Cosmos shares to prominent businessmen like Hisashi Shinto, chairman of Nippon Telegraph & Telephone, the world's largest company. Ezoe hoped that Shinto would help Recruit enter lucrative computer and telecommunications businesses. NTT subsequently helped Recruit obtain two giant supercomputers from an American company, Cray Research.

"The rise of the company was so spectacular, and the amount of money thrown around so great, it was the Japanese equivalent of the Michael Milken case in the United States," said Frank Gibney, president of the Pacific Basin Institute, a Santa Barbara think tank, noting the case of the American "junk bond" king recently indicted for securities violations.

"They (Recruit) exceeded the norm, it was just too flagrant," Gibney said.

NTT's Shinto resigned last year. Prosecutors charged him in February with taking a bribe in connection with about $80,000 in stock received from Recruit.

First details about the Recruit scandal were revealed last July by Asahi Shimbun, a leading Japanese newspaper often critical of the government.

The scandal soon became a television spectacle, capped by the remarkable instance of Hiroshi Matsubara, an aide to Recruit Chairman Ezoe, being videotaped trying to bribe an opposition member of the Diet, Japan's parliament, with cash so that he would not ask too many questions in an investigation. The videotape was shown on national television.

"The energy with which the media went after Recruit is possible because it is an outsider," said Gerald L. Curtis, director of the East Asian Institute at Columbia University. "It's hard to imagine that a mainstream Sumitomo or Mitsubishi would get that attention."

News of the influence buying enraged some Japanese already dissatisfied with the government in general and Takeshita in particular, whose popularity ratings have plummeted to less than 5% in part because of his support of an unpopular 3% consumption tax.

Japanese workers also are harboring growing resentments about how so little of Japan's growing international wealth has trickled down to the average worker, who still cannot afford to buy his own home or apartment. Thus they resented top government and business leaders using their influence to profit on stock deals.

"This is part of a consumers' revolt, it just took a different form," said Gibney of the Pacific Basin Institute.

Whether the scandal will result in significant reforms remains to be seen, but some experts are pessimistic that the system of influence peddling will die completely.

"For there to be change, there will have to be a way to finance Japanese politics that is not dependent on big business," said former Commerce official Prestowitz. Also, he said, there may have to be changes in such things as the tradition of politicians attending weddings and funerals, and of the close relationship between business and government.

Such changes, he said, are so fundamental that they are unlikely in the near future.

Pat Steinhoff, director of the Center for Japanese Studies at the University of Hawaii, said she expects big Japanese companies will be even more careful in how they make political contributions.

"The older and more established companies are sort of snickering that this upstart company was so crude it got caught," Steinhoff said. "It will add to the finesse of how big companies give money."

Times Staff Writer Nancy Yoshihara in Honolulu contributed to this story.

Los Angeles Times Articles