Japan's bureaucracy has been much studied, mostly with admiration, by Western analysts, who marvel at its extremely subtle means of control, its tentacles reaching downward into industry and upward into politics. And there is no question that Japan's bureaucracy can lay claim to being the world's most sophisticated-several rungs up the evolutionary ladder from the weak, constrained officialdom in most other countries. Bureaucrats in the United States or Europe are hedged in by politics, local activism, and above all by laws that mandate freedom of information as well as punish their receipt of favors from businesses under their control. In Communist countries, such as China, bureaucrats may be corrupt, but in the end the Party rules, and officials can see their most elaborate schemes overturned m a minute by the stroke of a Politburo member's pen.

Not so in Japan. A largely ritualistic form of democracy in force since World War II has given the bureaucracy far-reaching control over society. Ministries not only are shielded from foreign pressures but function outside Japan's own political system. Schools teach children not to speak out; hence activists are rare. The police investigate only the most flagrant cases of corruption and courts rarely punish it; cozy under-the-table give-and-take between officials and industries has become institutionalized. It is no exaggeration to say that government officials control nearly every aspect of life from stock prices to tomatoes in supermarkets and the contents of schoolbooks. From this point of view, too, Japan is a test case: what happens to a country that chooses an extreme form of bureaucratic rule?

The bureaucracy's techniques of control have a strong bearing on what is happening to Japan's rivers, cities, schoolyards, and economy, especially because of the amakudari, "descended from heaven," the retired bureaucrats who work in the industries that ministries control. MOF men become bank directors, Construction Ministry men join construction firms, ex-policemen staff the organizations that manage pachinko parlors, and so forth. The pickings are fat: a retiring high-level amakudari bureaucrat can earn an annual official salary of ?20 million plus an unofficial ?30 million in "office expenses" and, after six years, a retirement of ?20 million, which adds up to about ?320 million in six years!

The ministries meet any efforts to restrict amakudari with vigorous resistance. «It's because we are assured of a second career that we are willing to work for years at salaries below those in the private sector,» says an official at the Ministry of Agriculture, Forestry, and Fisheries. The result is an incestuous system where businesses hire and pay ex-bureaucrats, and in exchange receive favors from government ministries.

While amakudari in private industry have garnered most media attention, there is another, even more influential type-amakudari who run the vast web of semi-government agencies through which subsidy money trickles downward. The largest and most powerful of these are the tokushu hojin, « special government corporations,» almost half of whose directors are amakudari. After these directors retire from tokushu hojin, they descend another rung, becoming directors of a second group of agencies, koeki hojin, or «public corporations.» These agencies function with hardly any public scrutiny, and they are protected by ministry colleagues who look forward to enjoying amakudari benefits when their own time comes.

Consider the Japan Automobile Federation (JAF). Theoretically, JAF exists to provide road service for Japan's drivers. However, JAF spends only 10 percent of its annual ?48 billion budget on road service, paying much of the rest to amakudari officials from the Transport and Police ministries who draw double incomes from JAF and its shell subsidiaries. Where the lion's share of JAF's money goes nobody knows for sure, and this is typical of the secret jugglings and cooked books of the tokushu hojin.

Tokushu hojin are the very keystone of Japan's bureaucratic state, and they represent yet another economic addiction. Although there has been much talk of reducing or abolishing their largely anachronistic activities, they and their subsidiaries employ 580,000 people; if you count the families and dependents, they support more than 2 million people. The government can no more afford to suddenly cut back on tokushu hojin than it can afford to reduce the construction budget, since such a large percentage of the workforce depends on income from these agencies.

Other soft landing sites for amakudari bureaucrats with golden parachutes are government advisory councils and kyokai, « industry associations.» Groups such as the Electronics Communications Terminal Equipment Testing Association and the Radio Testing Association administer standards and recommend new policies. This helps to explain why Japan's industry is so slow to update technical standards, for as one journalist has observed, «When you seek to abolish certain regulations, a stone wall is immediately erected. Abolishing regulations translates into destroying these cushy post-bureaucratic careers.»

Politicians exert influence through their relations with bureaucrats, and the press call the latter zoku giin, «tribal Diet members,» according to which ministry tribe they belong to. Former prime minister Hashimoto, whose prime area of influence lay in the Ministry of Health and Welfare, derived bis power from being a member of that ministry's tribe. Industry pays vast sums to tribal members who can secure contracts for them through their associated ministries. Construction Ministry tribalists sit at the top of the heap, as was illustrated in a major scandal of the 1990s in which it was found that Diet kingmaker Kanemaru Shin had made more than $50 million.

«Power,» said Mao Zedong, «springs from the mouth of a gun.» In Japan, even greater power springs from the issuing of rule and permits. Rules exist in every area and in a bewildering variety, most of them in the form of unpublished «administrative guidance.» How do you know what the rules are? Only by maintaining close ties with government officials through tbe practice of settai, « wining and dining.» Settai means giving expensive meals, but it extends into a gray area that most other advanced nations would call bribery at high levels: free golf-club memberships, use of corporate cars, and gifts of money.

Departments lower in the food chain need to curry favor with those higher up, which requires that officials practice settai with one another as well. Government bureaucrats spend billions of yen every year to wine and dine functionaries from other agencies. In this rich stream of slush funds, they have found ways to pan for gold – overbilling and charging for fictitious trips and nonexistent functions that cost prefectural governments millions of dollars a year.

Bureaucrats alone have the power to issue permits, and permits do not come cheap, as may be seen in the following example from the sports-club business. In the 1980s, although relatively new to Japan, sports clubs attracted the interest of men working in the Ministry of Health and Welfare (MHW) and the Ministry of Education. They saw ways of enriching themselves through the time-honored techniques of giving mandatory lectures and study sessions, issuing facilities permits, and creating credentials and «levels» for sports-club professionals; agencies staffed by amakudari would administer the study sessions and permits, as the social critic Inose Naoki has described. Nothing better illustrates the baroque structures Japan's bureaucracy.

First, the MHW created the Foundation for Activities Promoting Health and Bodily Strength, which licensed two categories of workers: «health exercise guides» and «health exercise practice guides.» The MHW and the Ministry of Education then jointly sponsored a Japan Health and Sports Federation, which granted permits to the first category, while the MHW alone founded a Japan Aerobics Fitness Association, which granted permits to the latter category. Not to be outdone, the Ministry of Education set up a Japan Gymnastics Association, which devised two credentials for Sports Programmer at the First Level and Sports Programmer at the Second Level. To gain a First Level certificate, an aerobics instructor has to pay ?90,000, for the Second Level ?500,000. In addition, something called the Central Association for Prevention of Labor Disabilities requires the instructor to attend twenty days study sessions-at a cost of ?170,000-before obtaining a permit to be either a «health-care trainer» or a «health-care leader.» In short, if you want to teach aerobics, you must run the gamut of four agencies and pay for six permits. No laws explicitly require them, but nobody dares do business without at least some of these permits. The fees do not go back to the public purse but straight into the pockets of the amakudari who run the permit agencies.

With regulations earning so much money for bureaucrats, it is no wonder Japan has become one of the most heavily regulated nations on earth-former prime minister Hosokawa Morihiro once said that when he was the governor of Kumamoto he couldn't move a telephone pole without calling Tokyo for approval. Yet these regulations have created a strange paradox: they are a priori and exist solely on their own terms – they do not necessarily make business honest and efficient, products reliable, or citizens' lives safe.

The key to the paradox is that the regulations control but do not regulate in the true sense of the word. Industries in Japan are largely unregulated. There is nothing to stop you from selling medication that has fatal side effects, dumping toxic waste, building an eyesore in a historic neighborhood, or giving investors fraudulent company statements. But just running a noodle shop requires you to fill out lots of forms in triplicate, with stamps and seals. The point of Japan's red tape is bureaucratic control – the restriction of business to routine paths along which officials may profit.

Just as there is no environmental-assessment regulation, there is no product-liability law, no lender-liability law, very few rules against insider trading or other market manipulations, few testing protocols for new medicines – and no cost-benefit analyses for the gigantic building schemes of government agencies. Banks and securities firms routinely falsify financial information at the direction of the Ministry of Finance. When Yamaichi Securities went belly-up in late 1997, investigators found that MOF had instructed it to hide more than $2 billion of losses in offshore accounts. Hamanaka Yasuo, the trader who cost Sumitomo Trading $2.6 billion through his dubious commodities dealing, violated no Japanese law. While home builders must contend with a welter of ordinances that happen to keep construction-company profits high, there is no city planning in the true sense of the word.