GREAT JAPANESE MISTAKES Sure, the economic colossus of the East seems to be whipping the rest of the world with regularity. But take heart: Nobody's perfect.
By Carla Rapoport REPORTER ASSOCIATE David Kirkpatrick

(FORTUNE Magazine) – IN CASE YOU MISSED IT, the Japanese economy grew at a 9.3% rate in the second quarter of this fiscal year. Inflation? Almost nothing. Crime rate? Still among the lowest in the industrialized world. Not only is Japan rich, but everything still works. Well . . . almost everything. In the dazzling glare of Japan's economic successes, it's easy to forget that the Japanese make mistakes like the rest of us. So, for just a moment, stop worrying about the Japanese challenge, put away the latest bestseller on Japan's plans to conquer the world, forget about the Pacific Rim for the rest of the day. Kick back, put your feet up, and enjoy a tour of Japanese bloopers. They come in all shapes and sizes -- from one-day business wonders like singing underpants to pork barrel extravaganzas that would have made Mayor Daley blush. ''We are not Superman,'' says Hiroshi Mitsukawa, an official at the powerful ministry of international trade and industry (MITI). He should know. His department served as undertaker to Japan's boom-to-bust aluminum smelting industry, but not before it lost an estimated $2.5 billion. Adds Tadashi Yamamoto, head of the Japan Center for International Exchange, a foreign policy think tank: ''People still think there is some kind of machine here, spewing out answers to every question. There isn't. The magnitude of some of Japan's failures is really incredible.'' First, stop at Narita airport. Japan is a country where the trains run on time, the streets are clean, and the police spend most of their time giving directions to lost motorists. Yet Narita, Tokyo's main international airport, has only one runway. (New York's JFK has five.) Eleven years after opening, the airport remains unfinished. Some 45 airlines from 39 countries have yet to gain landing rights. If you do manage to land, you'll feel as if you're breaking out of prison when you head for town. The airport is surrounded by barbed-wire fences and guard towers manned by more than 1,500 policemen, most armed and in riot gear. What's going on here? THE ANSWER lies in a grimy two-story shack surrounded by barbed wire and fences just beyond the airport. This is the headquarters of the Chukaku-ha, a group of radicals who have managed to outsmart Japan's bureaucracy. Says Koichi Kishi, the well-dressed leader: ''Narita is the last battleground. As long as Narita exists, we'll be here to fight it.'' So far, his followers have limited themselves to nuisance bombings and physical attacks. But they intend to go further. Says Kishi calmly: ''It's our goal to destroy this airport. Our ) technology is not up to that standard yet, but it will be. We'll fight to the end.'' This perhaps lunatic but effective fringe came to the area in the late 1960s to support vegetable farmers being pushed off their land to make way for the airport. Today eight of the original farmers plus scores of supporters live on what was supposed to be Narita's second runway, with the Chukaku-ha standing guard nearby. Airport officials say they hope to clear out protesters and finish the airport by the spring of 1991. That's hard to imagine. Kimimasa Akitomi, who recently resigned as president of the airport authority, concedes that the real mistake at Narita was made years ago when farmers were not fully consulted on the government's plans. The Japanese have a word for such consultation -- nemawashi, literally the careful wrapping of a plant's roots before it is transplanted. Without nemawashi, things can go very wrong in Japan. Says a government official who asked not to be named: ''In Narita's case, I fear the roots are dead. I don't know if we'll ever be able to get things right there.'' The roots may be dead at Narita, but at least the airport is being used. In the town of Aomori, festivities earlier this year marked the opening of the Seikan tunnel, an engineering feat that took 24 years and set the government back $8.4 billion. The 86-mile tunnel, part of a grand prewar scheme to link Japan's four major islands, gets travelers from Tokyo to Sapporo in 12 hours and ten minutes, compared with 14 hours before. Of course, if travelers were in a hurry, they would fly, which takes an hour and 25 minutes. Not surprisingly, almost everyone going there takes the plane. The Seikan tunnel was a dream for postwar Japan. Explains Ryohei Kakumoto, a director of the Japan Transport Economics Research Center, a privately funded research organization: ''We could hardly imagine that airplanes would develop in the way they have. Many people died in ferry accidents in the 1950s. We thought the tunnel would be safer.'' A critic of Japan's transportation network, Kakumoto argues that even though the tunnel is finished, Japan should shut it down to eliminate further costs of maintenance and operation.

HARSH MEDICINE like that could also be prescribed for a $9 billion bridge completed last April between Japan's main island of Honshu and the semitropical, sparsely populated island of Shikoku. The bridge, the first of three aimed at bringing prosperity to backward Shikoku, is an engineering marvel but a commercial disaster. Of the 25,000 cars and trucks forecast to cross the toll bridge daily, only 13,000 are making the trip. (Heavy trucks pay $135, twice the ferry fare.) Though most of the officials who made the original decision are gone, construction on the other two bridges continues. Why three bridges? Welcome to Japanese pork. Grouses a senior government official: ''We've got three bridges in Godforsaken Shikoku and none across Tokyo Bay. These bridges are a scandal. One bridge, OK, maybe two. Three? Ridiculous.'' SO THE JAPANESE are as good as the rest of us when it comes to waste and excess. What about commercial misfires? The best way to see Japan's biggest industrial boo-boo is from the air. Some 50 miles from the mouth of of the Tigris River, at a spot known as Bandar Khomeini on Iran's Persian Gulf shore, is a one-square-mile site of rusting girders and beams. Since it's easy to see, Iraqi planes were able to hit it with bombs on 19 raids. This mess is what's left of a $4.8 billion petrochemical project, a joint venture between the Iranian government and a group of Japanese companies led by Mitsui & Co. The project was started in the early 1970s. Mitsui doggedly stuck to it through the Iranian revolution and in the face of overcapacity in the world petrochemical industry. When the Iran-Iraq war broke out, the Iranians insisted they could protect the plant. The complex was 85% finished when the first bomb fell in September 1980. Of the $4.8 billion already lost, half came from Japanese sources, with 60% of that from Mitsui. Most of Mitsui's exposure, according to the company, is guaranteed by the Japanese government; the rest is covered by a special provision on the balance sheet. As part of the deal, Mitsui had been granted oil exploration rights in Iran. How did they work out? Says a Mitsui official with a shrug: ''We didn't find a thing.'' Mitsui can't take all the blame for Bandar Khomeini. The project was backed by MITI and Japan's Export-Import Bank. MITI is often credited with orchestrating Japan's industrial successes. Official chroniclers, however, often leave out MITI's orchestrated mistakes. Top of the list has to be Japan's aluminum smelting industry. James Abegglen, an American who heads Asia Advisory Service, a management consulting firm in Tokyo, and is author of Kaisha, a book about the Japanese corporation, calls aluminum smelting in Japan ''one of the biggest strategic % mistakes in history.'' Officials at MITI don't disagree. Says Mitsukawa: ''When electricity was cheap and raw materials were easily imported, we thought it would be a good industry for us.'' He explains that his predecessors did not expect electricity prices to go up so high after the oil shock. At its peak in 1977, Japanese aluminum smelters had capacity to produce 1.64 million tons per year and employed more than 11,000 people in 14 companies. Today only one smelter is left, with 140 workers. Despite tax breaks and subsidies, accumulated losses for the industry peaked in 1985 at $1.1 billion. That was a heavy hit for the five companies still in the business. Says Abegglen: ''One of the paranoid fantasies Westerners have about Japan is that the Japanese can see the future. They can't.'' IF YOU HAVE any doubts, turn back to the table of MITI's research and development miscues of the past decade or so. Here are the projects you don't read about, the ones quietly buried away from the public eye. A nuclear- powered blast furnace and an undersea remote-controlled oil-drilling rig are two of a host of post-oil shock projects that have yielded no commercial results. More recently, MITI suffered another black eye when All Nippon Airways chose a General Electric engine for its new jets rather than the V- 2500 jet engine developed in Japan by a group of engineering companies with around $200 million of MITI subsidies. Even without MITI's help, Japanese managers make mistakes. A few are well known, like Sony's failure to capitalize on its Betamax format in videocassette recorders, eventually losing out to VHS. Most, however, are not, mainly because few Japanese companies make big, bet-the-company kinds of decisions. Further, explains Tom Zengage, a director of IBI, a consulting firm in Tokyo, Japanese annual reports are not that detailed. Says he: ''When companies get into trouble, they can smear one division's losses into another. Things don't show up. After a loss-making subsidiary is spun off, there will be 85 tons of earth on it.'' The dogged pursuer of the bungled, however, can find rich pickings among Japan's American exploits. Consider the assault on the U.S. elevator market by Osaka-based Fujitec. President Shotaro Uchiyama told the New York Times in 1982 that he planned to move the company's headquarters to New York City, buy himself a $1 million apartment, build a multimillion-dollar plant in Ohio, and boost Fujitec's worldwide sales to $500 million a year by 1985. In 1986 the - company reported a loss of $43 million, thanks largely to its U.S. efforts, its first loss in 30 years. Industry experts in the U.S. say Fujitec made a long list of mistakes. The company went after big projects all over the country instead of concentrating on one geographical area. Critics say it underbid to get business, though the company denies it. It pushed ahead with a new U.S. factory before getting a feel for the market, and neglected to build a strong maintenance arm. Says Daryl Anderson, president of Hesselberg Keesee & Associates, an elevator consulting firm in San Francisco: ''They didn't ease into the country. They saw a humongous market and became like a kid in a candy store.'' Fujitec, still firmly based in Osaka, is profitable again, but the company refuses to comment on the financial status of its U.S. operation. The Ohio plant was finally completed, two years behind schedule. A leading U.S. competitor claims that Fujitec has less than 2% of the American elevator market. He adds, ''The company is not a factor in any market at the moment.'' SOME 500 MILES southwest of Fujitec's Ohio plant is the Sanyo Manufacturing Corp. in Forrest City, Arkansas. In 1977 Sanyo, a major Japanese electronics company, bought a TV-set assembly plant from Warwick Electronics, then being spun off by Whirlpool. Employment rose from 400 to more than 2,400. But by 1985 Japanese managers found themselves battling the plant's union over fringe benefits and seniority issues. Eventually Sanyo moved about half the plant's assembly work to Mexico to cut its losses. It didn't work out. A company financial manager in Arkansas reports that the subsidiary lost more than $34 million in 1988. For the three previous years, losses totaled about $42 million. Michael Kane, director of the U.S.-Japan International Management Institute at the University of Kentucky, says, ''Japanese companies come with a mind-set. It worked in Japan so it will work in the U.S.'' Sumitomo Bank's $500 million investment in Goldman Sachs in return for 12.5% of the firm's profits was quickly made into a mistake by the U.S. Federal Reserve. As final details of the deal were being worked out in November 1986, the Fed ruled that as a commercial bank Sumitomo could have only a passive investment in Goldman, so there could be no significant new business between the firms. Sumitomo thus could send no trainees from Tokyo to Goldman Sachs in New York, as it had hoped. Goldman Sachs officials point out that because of Sumitomo's investment -- and the Fed ruling -- Sumitomo has less freedom to work with Goldman than do other Japanese banks. Sumitomo declines to comment on the matter. Privately, however, Sumitomo executives admit that they had not realized the ways in which Fed action could harm their deal until it was too late to pull out. Add another name to the list of companies that saw a major acquisition turn sour in a hurry. Ohbayashi Corp., a leading Japanese construction company, delighted Pearson PLC of Britain last year with an offer of $255 million for Bracken House, the undistinguished headquarters of the Financial Times in London. The offer was around $90 million above that of the next highest bidder. The Japanese intended to tear down the building and put up a new one on the site, one of London's best locations. Within days, however, the British government classified the building as historic, preventing any alteration of its 1959 facade. The Japanese are stuck with an overpriced building. ''They weren't getting good advice,'' says a specialist in property acquisitions in Tokyo. ''It's a case of more money than sense.'' By that measure, it is just possible that more Japanese mistakes are in the making.


PROJECT: Remote-controlled undersea oil-drilling rig 1970-75

COST $36 million

REASON FOR FAILURE: The device turned out to be no cheaper or easier to operate than conventional offshore oil rigs.

PROJECT: Electric car 1970-77

COST $46 million

REASON FOR FAILURE: Like everyone else, the Japanese have been unable to make a battery that lasts long enough for driving.

PROJECT: Nuclear-powered blast furnace for steelmaking 1973-80

COST $110 million

REASON FOR FAILURE: MITI underestimated the antinuclear lobby, which managed to kill the project before completion.

PROJECT: Petrochemicals from carbon monoxide 1980-86

COST $84 million

REASON FOR FAILURE: The worldwide oil glut made such costly alternative production unnecessary.

PROJECT: Integrated circuits to withstand cold weather 1981-85

COST $11 million

REASON FOR FAILURE: MITI realized nobody was interested in buying such circuits and dropped the project.