"Japan: 'The Rule of Law Without Lawyers' Reconsidered"

Remarks by Carl J. Green
Senior Representative
Hitachi Corporate Office, DC

Washington D.C., March 14, 2001

Good Morning. It is a pleasure to see such a distinguished audience at this early hour for a topic as arcane as the Rule of Law in Japan.

I have been instructed not to put you back to sleep with too much detail. That suits me since I have been away from day to day involvement with this subject for some time. But perhaps that distance will make it possible to give you a somewhat broader overview. Needless to say, the views I shall express are my own and in no way should they be taken as representing the views of my employer.

Actually the topic of the rule of law is not quite as arcane as it might, at first, appear. The issues involved in the current debate about the rule of law of law go close to the heart of what ails Japanese politics and the Japanese economy. The incomplete development of the rule of law in Japan is part and parcel of a system that has tried to achieve its ends through paternalistic guidance and control rather than through providing scope for individual autonomy and creativity. The thrust behind current efforts to reform the legal system in Japan, is as a former Minister of Justice put it, to transform an "advance-control" (or prior restraint) system into a "post-check" (post facto review) system. The goal of that effort is to release individual creativity and vitality.

While I would like to focus on what is happening today, I think the only way to understand that properly is against the historical background. I propose to review that history briefly and then examine the system that resulted from it, especially in the economic area, in relation to the challenges of today's globalization revolution. How are the Japanese responding to this revolution and what are the implications for Japan and for those who do business with Japan?

Let me begin with a caveat: I am an American lawyer and naturally tend to look at law in Japan with an American perspective. At the same time I am very conscious of the fact that our highly litigious country, with its nearly one million lawyer population, is at least as exceptional in its way as is Japan, with a mere 17,000 lawyers. Most countries of Europe have under a hundred thousand lawyers (Germany being the exception with 110,000) and are probably much better points of comparison for Japan. We should try to avoid thinking of ourselves as representing a norm.

The first thing to be said about the rule of law in Japan is that it is hardly an indigenous concept. Before the Meiji restoration in the latter part of the Nineteenth Century, there were laws in Japan, to be sure, but law was far from being considered a central organizing principle for society. The "ideology," so-to speak, of pre-modern Japan was built around Confucianism, imported from China in the 6th Century. Confucius and his followers had little interest in law, considering it suitable only for dealing with the lower orders of humanity.

The core of Confucianism was its focus on achieving social harmony based on hierarchical, non- reciprocal relationships. The role of the superior was to educate the inferior in righteous conduct through moral example and benevolence. The role of the inferior was obedience and loyalty. Punishment was reserved only for those who were not responsive to benevolent rule. The righteous conduct that the superior taught came from the example of his own teachers and ancestors as well as from the study of classic works. The thing about human relationships in the Confucian system is that they are specific relationships- master and subject, husband and wife, elder brother-younger brother, etc. Confucius and his followers had no use for universal principles equally binding on all people, which after all, is what the rule of law is all about.

No one in Japan today speaks much about Confucianism, but anyone who has observed Japanese officials dealing with Japanese citizens will recognize the legacy of Confucianism in the spirit of benevolent paternalism shown by the officials and the extravagant respect for authority shown by most citizens. Without this background, it would be hard to imagine how "administrative guidance" could have become the principal mechanism for Japan's economic governance. More about that in a moment.

Japan's adoption of Western law came about as a result of gaiatsu, i.e. foreign pressure. After Commodore Perry showed up in Tokyo Bay with his Black Ships, Japan was under constant threat of suffering the same humiliation as China in having to accept the extraterritorial jurisdiction of Western imperial nations. To fend off extraterritoriality, Japan needed not only a strong army but also a "modern" code of laws. Only by demonstrating that it had such a system of its own would Japan be able to terminate the "unequal treaties" it signed with Western countries. Over the last decades of the 19th Century Japanese leaders studied Western legal systems to find a suitable model for their new legal institutions.

For some time, by the way, the strongest faction among the Meiji innovators favored adopting English law. Had they succeeded, perhaps Japan's modern history would have been quite different. Alas, however, English common law is not codified and hence not easy for others to adopt. In the end, the Japanese turned principally to German legal codes, which, to complicate things, were rendered into Japanese under the direction of a Frenchman.

The fact that Japan's legal system is not an indigenous development but rather something adopted in order to stave off extraterritoriality goes far to explain Japanese attitudes toward the law even today. Japanese remain highly ambivalent about the law. It is theirs and not theirs. It is something to have, but not necessarily something to use. It is important for one's dealings with foreigners, but an awkward intrusion into traditional domestic relationships. A popular expression analogizes the law to a sacred sword, to be kept and occasionally displayed, but never used.

In order to establish a Western-style legal system, the Japanese had to invent words for concepts that were new to them. They had no trouble with the concept of duties, which already existed, but for "rights," they needed to make up the word "kenri." Still the new system that was established was in the authoritarian German tradition. When we speak of the "rule of law" today, we generally mean a system in which law acts as a constraint on those who govern as well as on those who are governed. Under the Meiji Constitution, there were no such constraints on the powers of government. The system could be described as representing, at most, rule by law but certainly nothing in the nature of the rule of law.

The modern concept of "rule of law" was brought to Japan courtesy of General MacArthur and the Allied Occupation. The new Constitution, drafted by MacArthur's GHQ, conferred a cornucopia of human rights, including all of those familiar to Americans, plus the right to work, the right to education and even the right to "wholesome and cultured living." The Occupation authorities also imported many other elements of American law, including antitrust law, labor law, securities regulation and the income tax. Under its current Constitution Japan has clearly taken its place high in the ranks of free and democratic countries. Still, it is far easier to proclaim the rule of law than it is to change views and practices imbedded in centuries of tradition, and in many ways the rule of law is an unachieved vision.

Japanese reluctance to use the law is reinforced by a system in which the number of lawyers is kept extraordinarily low- - a nation of 126 million has about as many lawyers as K Street, or one for every 7325 citizens. In the United States, the ratio is 1 for 288 citizens and in France, the European country with the lowest ratio, it is 1 for every 1634 citizens. Japan has some 2900 judges, 2000 fewer than France -- in Japan, there is one judge for every 43,000 people, compared to one for every 12,000 in France.

Given these numbers, it is not surprising that access to courts in Japan is limited and justice is slow. It is made even slower by the lack of consecutive day trials - -most trial are spread out over months or years of one-day hearings, - - by the absence of discovery procedures, and by the lack of effective measures for enforcing judgments in many cases, partly because it is easy to hide assets from judgment creditors. As a result of these constraints, the number of civil cases litigated in Japan is extraordinarily low.

There are American legal scholars who argue that cultural or historical explanations for the paucity of litigation in Japan are bunk and that it is all to be explained by restrictive government policies and the protectionism of Japan's legal associations. I find this sort of explanation to be question-begging. The fact that such restrictions are accepted or allowed to continue by the Japanese public is itself a reflection of Japanese history and culture. One can push the cultural issues back a level, but you cannot eliminate them.

A key factor in the restriction of the numbers of judges and lawyers is the training bottleneck. All receive their training in one institute. After finishing undergraduate degrees, candidates for the bench or bar sit for an exam that determines admission to the legal training institute. Within the institute, there are separate training tracks for judges, lawyers and prosecutors. The pass rate for entry to the institute is extraordinarily low, less than 3%, and most who enter do so only after taking the exam several years running. Over the past thirty-five years the number of trainees has gradually been expanded from 500 a year in 1965 to nearly 1000 a year today.

It goes without saying that those who pass the examination have done little with their lives except cram. As a result they may know the law but know little about life or business. Not surprisingly judicial decisions are widely thought to be overly theoretical or impractical. With their numbers so few and their training so limiting, it is also not surprising that lawyers are used sparingly in Japan. An American lawyer is not just a litigator; he or she is also frequently a personal advisor, a business consultant, and a key participant in business planning and in the negotiation of agreements. The Japanese bengoshi is basically a litigator. Some few are involved in the international business process, but usually in a very limited way. Whereas the American lawyer is likely to be part of a business deal from early stages through completion, most Japanese international lawyers tell tales of being handed voluminous contracts at 10 in the morning and asked to determine if they are legal in time for a signature ceremony at noon.

I might note that, in addition to bengoshi, there are various other professionals involved in specialized areas such as patent agents, tax agents, and judicial scriveners. There are scholars who think that they should be counted as lawyers and that our view of Japan as a grossly under-lawyered society should be revised. I disagree. These narrow specialists are engaged merely in facilitation functions and do not have the authority or standing of a lawyer to challenge bureaucratic actions. Moreover, if you are comparing the number of lawyers in Japan and the U.S., and if you add these kinds of specialists to the left hand side of the equation, I think you would have to add H. & R. Block employees and numerous paralegals to the U.S. side of the equation, leaving the comparison little changed.

With the growth of international business, many large Japanese firms have developed sizable legal departments staffed not with bengoshi but with graduates of university legal departments. (The study of law is one of the most popular and prestigious undergraduate majors). These legally trained people do play a significant role in business in drafting agreements, backstopping litigation and conducting liaison with outside counsel. Does this mean that Japanese companies have come to do business in a more international way? Well, yes and no. They key point is that these corporate legal departments generally direct nearly all of their attention to international business affairs. Domestic business still tends to be done in more or less traditional ways with little reliance on the written word.

Over the course of the 1980's, USTR led the charge to allow American and other foreign lawyers to practice in Japan as foreign legal consultants or gaikokuho jimubengoshi, or gaiben for short. I was one of the first group to hit the beaches early in 1987. Much ink has been spilled on the subject of gaiben and expanding their practice opportunities remains a priority for the American Chamber of Commerce (now headed by a distinguished gaiben, Robert Grondine) and occasionally for the U.S. Government. Overall, however, I think that gaiben represent something of a sideshow in relation to the broader issues at hand and have had very little impact on the overall legal picture in Japan.

As I said a moment ago, traditional business in Japan has little use for lawyers. Compared with business contracts in Europe or the United States, those in Japan are typically short and vague. Many of the key elements of a business deal are left for later determination as circumstances develop. In lieu of provisions for specifying how conflicts are to be resolved, the parties often agree just to negotiate their differences in good faith. Because Japanese like to think of their business deals in terms of human relationships, they like to work out problems as they arise rather than negotiate a document that purports to cover all possible contingencies. There is a gradual movement toward the use of more Western-style written contracts among certain Japanese businesses, but that is still the exception rather than the rule.

Reliance on relationships rather than legalities as the basis for business has much to be said for it and much was said over the course of the 1980s by those who urged us to emulate the Japanese system. But while a personal relationship may be stronger than law as between the parties to a business relationship, it gives third parties nothing to hold onto. One can't securitize personal relationships. A banker may be happy to lend to friends, but no one wants to buy bonds or notes on an open market without enforceable legal protections. In this respect, Japan's approach to contracts has retarded the growth of modern financial markets and thus inhibited venture capital and entrepreneurism.

Like contracts, legislation also tends to be terse and general. Especially in the economic sphere, broad discretion is left in the hands of bureaucrats to interpret and apply the law. While some bureaucratic standards are set forth in regulations, Japan has a long tradition of unpublished rules, or naiki, that may go far beyond written laws and regulations. Typically, government officials do not make formal decisions; they merely offer administrative guidance, in the form of recommendations or advice. Compliance with the guidance is, in theory, voluntary. Noncompliance, however, is rare both because of the Confucian tradition and the various ways in which government officials can exercise leverage on the uncooperative. Moreover, bureaucrats like to issue their guidance orally rather than in writing. These exercises of discretion, using secret rules, issued orally, and deemed legally not binding are all but impossible to challenge in court. Several years ago, an administrative procedures act was passed that requires bureaucrats to issue administrative guidance in writing, if the recipient demands it. Since such a request risks incurring bureaucratic displeasure, it should come as no surprise that that reform has not been particularly effective. More recently, the Cabinet decided that further steps should be taken toward strict enforcement of the rules, though what that means is somewhat difficult to discern.

It is customary to say that Japan must deregulate its economy. But that is not quite right. If by regulations we mean transparent, publicly available rules of general application, then Japan needs more regulations, not fewer. What Japan needs less of is bureaucratic control. It is only through strengthening laws and regulations, as a constraint on the governing as well as the governed, that the economy can be free to operate in accordance with market principles.

In fairness, I should point out that administrative guidance is not what it used to be. A generation ago, Japan operated on the principle that everything is prohibited except that which is expressly permitted. This meant that government approvals were needed for nearly everything that businessmen did, whether it was signing international contracts, importing, acquiring foreign currency or any of a vast number of things. Authorities often declined to receive applications they didn't like and could simply leave applicants in limbo with no legal recourse. Or they could impose various conditions before granting applications. Over time Japan has relaxed many of those requirements for bureaucratic approvals and moved closer to a system of allowing everything except that which is specifically prohibited. But there is still plenty of room for progress.

In the past, foreign investors had to jump through a complicated array of hoops and hurdles to do business in Japan. Today the Japanese Government is much more positively disposed toward foreign investment and complaints of unfair treatment are far less frequent. Nevertheless, the lack of transparency and predictability in the Japanese process places a special burden on foreign investors, because of their very different expectations. The foreign investment community has therefore been in the forefront in pressing for a more effective rule of law.

Until the mid-1990's most Japanese felt that their peculiar social and economic model was highly successful, despite whatever grumbling might be heard from some about the rule of law or a more participatory democracy. While it was necessary for the Government to make some concessions to overseas opinion and complaints, the brilliant achievements of Japanese industry and of government-business collaboration meant that mainstream opinion rejected fundamental change. Foreign businesses in Japan might present something of an irritant to the Japanese system, since foreign businesses and bureaucrats did not know how to deal with each other, but it was minor and eventually most foreign businesses learned to adapt to Japanese business norms.

But now Japan finds itself in a totally new situation. The country has been mired in low growth for a decade. Benevolent paternalism, which worked so well in marshalling the troops for success in manufacturing industries, turns out to be a bust when it comes to unleashing the entrepreneurism or creative juices of the Japanese people. This is a major problem for Japan in today's new economy. Globalization poses an even greater problem. It exposes the Achilles heel of the Japanese economy, namely the inward orientation of most of Japan's industrial establishment. For Japan to participate fully in the global economy it needs not just Carlos Ghosn of Renault/Nissan but a whole host of international business leaders able to help reshape the Japanese economy for global competitiveness.

If the Meiji Restoration and the American Occupation can be described as revolutionary changes, the new challenges confronting Japan call for a third revolution, one in which the rule of law constitutes a key element. How has Japan reacted? At one level, there is a kind of revolution underway in the way that Japanese think about their system. No one holds up the Japanese model anymore as a formula for success or as a system to be emulated abroad. The image of wise and incorruptible bureaucratic government has been completely destroyed by well-publicized mistakes and the seemingly endless string of scandals that have punctuated Japan's recent history. There is a new readiness to question nearly all of Japan's political and economic institutions.

At the practical level, however, things move much more slowly. I see three basic reasons for this. Japan's lack of political leadership is one, but only one of the reasons. A more basic barrier is simply the strength of entrenched interest groups that would be threatened by a more transparent system. A third reason relates to timing: despite low growth, Japan is still doing pretty well. The standard of living remains high, income distribution is fairly even and crime is low. The Japanese people do not yet feel a need for radical change.

Against this background of new thinking and old realities, we see the Japanese Government undertaking numerous initiatives with sweeping objectives but producing only the most modest proposals for change. Thus, in order to "revitalize" Japan, the Government has launched programs of political reform, administrative reform, deregulation, and judicial reform. The Judicial Reform Council, established in 1999 is charged with considering fundamental changes to the legal system. While the express goal of the reform is to respond to Japanese social needs, the element of foreign pressure is clearly important. In fact the Council explains its mission by noting that the international community is demanding that Japan become "more rule oriented, transparent, and open."

Among the issues being debated by the Council are further gradual expansion of the number of lawyers and judges, a change in the training system that would include the creation of graduate law schools along American lines, and the possibility of appointing mid-career lawyers to the judiciary so that they can bring a wider range of life experiences to their judicial functions. The Council is also looking at more exotic issues like the introduction of a jury system, though that particular change appears unlikely. The Judicial Reform Council is scheduled to present its findings and recommendations to the Diet by July of this year. We shall soon see what they conclude. I would expect the results to be positive but marginal.

Whether Japan's revolution in slow-motion will be adequate to meet the challenges of a rapidly changing world, or the aspirations of the Japanese people themselves, is an open question. In the long run I am cautiously optimistic that Japan will rise to the challenge as it has to the other challenges it has faced since the arrival of Commodore Perry. But it will not be easy. And the changes that we are likely to see in the near future represent just the beginning and not the end of a long process.