The racoon path is the road to economic ruin for Japan

Half a billion pounds is a fair whack to spend on a summit - even such a grand summit as that of the G8, the Group of Eight leading industrialised countries, that opens on the island of Okinawa today. The Millennium Dome looks cheap at the price. For Japan, however, the huge price tag is a matter of status. It is also a reminder of the extent to which Japan is still locked into the habits of yesteryear.

Half a billion pounds is a fair whack to spend on a summit - even such a grand summit as that of the G8, the Group of Eight leading industrialised countries, that opens on the island of Okinawa today. The Millennium Dome looks cheap at the price. For Japan, however, the huge price tag is a matter of status. It is also a reminder of the extent to which Japan is still locked into the habits of yesteryear.

In many respects, this means problems for Japan. The collapse last week of Sogo, a huge chain of department stores, was one of the biggest corporate failures in Japanese history; Sogo filed for bankruptcy with debts of £11bn. This week, it was the turn of the Seiyo property group, which collapsed with debts of £3bn. These cases reflect a growing problem for the Japanese economy as a whole. In the Sixties and Seventies, Japan achieved magical growth figures that cast a spell over envious competitors worldwide. By the Nineties, however, the dream was destroyed. Britain, the US and continental Europe have gone through tough restructuring; Japan, despite the fact that its economic growth has ground to a halt, still finds it difficult to come to terms with the need for change.

Economic reforms are widely acknowledged to be essential, but politicians are still frightened to act. The reform of the tax system and the ending of public subsidy spell wrenching change for society. But the failure to grasp those nettles will only make Japan's problems worse.

All too often, the Japanese view has seemed to be that if there is a problem, then spending more public money is the way to get round it. Superfluous projects - derided by critics as "paving racoon paths" - continue to absorb huge sums. The banks play their part by seeking to airbrush out of the picture the embarrassingly high debts that weigh them down.

Companies such as Sony and Honda remain global leaders in their field. But many others have shown themselves to be weak. Paradoxically, the collapse of Sogo and Seiyo may contain the seeds of recovery. Only if companies go to the wall is there any chance of future renewal.

The spending spree at Okinawa may prove to be the last blast of the old system, with its belief that all money spent is money well spent. Many voters see their interest as lying in the retention of the status quo; governments must fight their way past such understandable conservatism. Older generations see no reason to change anything. For the sake of Japan's future stability, however, change is essential.