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It’s a little before 9 a.m., and Masahiko Aoki is discussing complex adaptive systems and path dependency. It’s an odd conversation even though the topics are familiar ones for Aoki, a professor of economics at Stanford University and an author of several standard texts on the Japanese economy.

It feels strange because he is holding forth in his spacious office on the 11th floor of the annex of the Ministry of Economy, Trade and Industry, whose predecessor — the Ministry of International Trade and Industry — was supposed to be immune to that sort of theorizing.

According to “MITI and the Japanese Miracle,” Chalmers Johnson’s pathbreaking work on the bureaucracy, MITI was a hard-edged place that focused on policy and the nitty-gritty of economic reality. But it’s a new era in Kasumigaseki. For proof, just head to the Research Institute for Economy, Trade, and Industry, which Aoki now heads. Aoki makes a good poster boy for the new order: With his shock of unruly white hair, his collarless Miyake shirt and elegant sport coat, he is anything but the traditional image of the Tokyo bureaucrat.

The new look is more than just style. RIETI is still fully funded by the ministry, but as of April 1, it is an independent administrative institution with a new mandate.

“RIETI was conceived as a new platform for policy formulation and for the dissemination of what we learn and achieve to this end,” said Sozaburo Okamatsu, chairman of the institute.

It’s a novelty in Japan, explained Nobuo Tanaka, vice president and senior fellow at the institute. “No government organization has been given such a role. To make policy recommendations means to say something different from the government.”

Tanaka likes to call RIETI “Team B,” after the famous national security group that challenged the prevailing consensus in Washington during the late 1970s. “We are going to create a think tank which aspires to stand, in reputation, among those found on Massachusetts Avenue, in Washington. These think tanks have created a policy market for the U.S., something that we urgently need in Kasumigaseki,” he points out.

RIETI will bring together researchers from the public and private sectors in Japan and overseas, as well as officials from various ministries. Currently, over 50 fellows are focusing on nine different research clusters that include IT, innovation, Asian economies and deregulation. An independent advisory board, made up of outsiders, is designed to ensure that RIETI maintains its focus and its edge.

There is little question that Japan needs that new perspective. “The lost decade” has convinced many in Japan and elsewhere that the world has changed in fundamental ways and Japan has not kept pace. Old solutions to economic problems no longer work. At the same time, however, Japan needs to find its own distinctive responses to the changing economic environment.

“Japan is in the process of a great transformation,” says Aoki. “There have been tremendous changes since 1993.” It isn’t just firms that are evolving. A new mentality is taking shape among bureaucrats as well. “At METI, we have no choice but to become more market-oriented,” Aoki adds.

The problem is that old habits die hard. Creativity is hard to learn; it’s difficult to think in new ways. And, as Aoki’s writings illustrate, the bureaucracy, like many Japanese organizations, is a closed system. Information is compartmentalized throughout the government, shared on a piecemeal, need-to-know basis. Within ministries, bureaus look out for their turf, putting institutional interests ahead of the nation as a whole.

The result is gridlock and the policy paralysis that has cost Japan trillions of yen and countless opportunities. “No coherent national policy making is possible,” moans Aoki. “Bureaucrats need help to break out of their old ways,” he said. And that’s where his group comes in.

Without actually courting controversy, the institute has been doing its best to shake up the old order. Foreign scholars and analysts, many of whom have been very critical of Japanese policies and practices, had been invited to the brown bag lunch series where they share comments and criticisms with bureaucrats and other top officials. The institute has been aggressive in disseminating its views through e-mail newsletters and its Web site. RIETI’s leadership understands that it must win over the public as well as the bureaucrats if it is going to have any influence.

Acknowledging the importance of public expectations is another sign of change. Policy in Japan has been notoriously skewed toward producer interests. Bureaucrats have long considered themselves above the public and the pork-barrel politics of their elected representatives; they work in the name of some abstract “national interest.” Aoki will have none of that.

“We are using tax money,” he says, “and the ultimate benefit of our work must go to taxpayers.” The institute’s advisory council is designed to represent the taxpayer and insure that his or her money is well spent.

Aoki welcomes the oversight. As he sees it, the Japanese public’s understanding of the situation in Japan is ahead of that of politicians and bureaucrats. The results of the recent Liberal Democratic Party presidential election are proof enough of that. The grass roots drove political change in Nagata-cho.

“Voters are ahead of us. They’re more mature than political institutions.” Change is likely to be evolutionary, not revolutionary. Japan is still at the beginning of its transformation into a 21st-century economy, and the eventual outcome is anything but certain.

“Consensus is eroding. Mind sets are changing,” explained Aoki, “and that complicates a very difficult process.”

Institutions have their own mentalities, created by history, precedents and perceived self-interest. Traditionally, they are not agents of change. “We need help to break institutional inertia,” says Aoki. “Bureaucrats don’t know how to do that.”

That is where RIETI comes in. And that’s also why there may be more talk of complex adaptive systems and path dependence in Nagata-cho in the future.

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