01.22.10, 12:01 AM EST
Nothing seems to be going the country's way at the moment.
Does anything work in Japan?
Certainly not the floundering economy. Analysts think it may have contracted by as much as 6% last year. If so, China's economy, which grew by 8.7% according to numbers released Jan. 21, zoomed past Japan to become the world's second largest.
How about Japan's biggest companies? Japan Airlines ( JALSY - news - people ), the nation's flag carrier, filed for bankruptcy Jan. 19.
It's no mystery how the once-mighty corporate giant, commonly known as JAL, collapsed. For one thing, Tokyo bureaucrats forced the airline to service little-used airports. A third of its 151 domestic routes had load factors below 50%. Load factors on only 11 of those routes exceeded 70%. JAL, in short, was used to keep local airports--and local economies--going. Eventually the carrier, in reality a social welfare agency with landing rights, could no longer stand the financial strain.
In one sense JAL's bankruptcy is a sign of progress. Instead of keeping the airline going indefinitely with additional government subsidies--in other words, instead of subsidizing a subsidizer--the government of Prime Minister Yukio Hatoyama decided to permit the bankruptcy. Yet Tokyo is still guiding the process. As a part of a complex prepackaged reorganization to shrink JAL, the Japanese government is providing $10 billion, two-thirds of which will be in credit lines and a third in a cash infusion.
"This is not the end of JAL," said Transport Minister Seiji Maehara on the announcement of the reorganization. "Today is the beginning of a process to keep JAL alive." Is that what Tokyo should be trying to do at this time? Japan, after all, needs one fewer airline.
Among other things. The country, unfortunately, is shrinking. There are 127 million Japanese today. Due to one of the world's lowest fertility rates, Japan is in a "death spiral." Projections indicate the population will fall to 89 million by 2055.
The Washington Post put it this way: "Japan is on course for a population collapse unlike any in human history."
Whole regions are being depopulated with nature reclaiming abandoned villages. The largest cities seem to be thriving, but that's about it.
So JAL will not be the only company forced to adapt to a shriveling customer base.
Japan, as it makes the painful adjustments to a smaller society, will need an effective political system, but the country's politics are not working either. There was great optimism last August when the Japanese people, fed up with just about everything, ditched the Liberal Democratic Party, which had governed since 1955 with only one short interruption. Hatoyama's Democratic Party of Japan, which had captured the upper house of the Diet in 2007, rode into power with a resounding majority in the lower one.
Yet this, unfortunately, was not change the Japanese could believe in. Not long after taking over the DPJ stumbled, looking unsure and unsteady.
Worse, the party was soon caught up in the money politics that had tarred its predecessor. Ichiro Ozawa, who as the DPJ's secretary-general is the organization's nominal No. 2 official, is now embroiled in a political funding scandal involving a parcel of land in Tokyo. Prosecutors have raided his office and arrested three former aides, the last one on Jan. 15. Ozawa, known as the Shadow Shogun for being the most powerful politician in Japan, denies wrongdoing. "I will stay on to fulfill my given duty," the kingmaker of Japanese politics said at the end of last week.
So far Hatoyama is supporting the wily Ozawa. But that endorsement may not mean much, because the prime minister has his own scandal to fight off. Two former aides have been arrested for trying to hide the source of $4.4 million in campaign funds, some of which came from Hatoyama's mother. The prime minister, incredibly, denies knowledge that his mom was making donations. That may be good enough for the Tokyo Prosecutors Office, which has stated it will not go after Japan's leader, but it is not sufficient for others.
There have not surprisingly been calls for him to resign. "Talking about whether I will stay or leave would be tantamount to abandoning my responsibilities to the public," Hatoyama said at the end of last month. In the meantime, his popularity--and that of his government--declines.
DPJ politicians say the investigations of their top leaders have been motivated by bureaucrats resisting reform efforts. Maybe they are right, but that is no excuse for indulging in the type of behavior they campaigned so hard against. Is it too much to expect Hatoyama to change the ingrained culture of Tokyo's elite? Perhaps, but that is besides the point.
What's important is that nothing seems to be working in Japan at the moment. At a time when the country needs especially forceful leadership, the DPJ is distracted by scandal.
Hatoyama appears to be waiting for the Upper House elections, when he hopes to win a clear majority and thereby end his party's reliance on pesky coalition partners. But once those elections occur this July, the prime minister will have run out of excuses not to act.
Japan needs to completely restructure itself--from its economy to its corporate giants to its society to its politics. And despite its ability to take things slowly, the country is reaching a point where it can no longer defer the change that must occur.
Gordon G. Chang is the author of The Coming Collapse of China. He writes a weekly column for Forbes.
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