A hollow Hokkaido: a historic village is a microcosm for northern woes.

NEMURO, Hokkaido: Windy and weatherbeaten, this slender slice of northeastern Japan surrenders to snow and ice much of the year. But in mind-set, the town of 33,000 has been frozen for decades.

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STREETS BRISTLE WITH slogans demanding the return of territories grabbed

by Russia in 1945. A gleaming state-of-the-art memorial hall to the lost islands, built by the prefectural government, sits in lavish contrast to the shabby commercial district. Meanwhile, the overtaxed seas around Nemuro yield fewer fish every year. The country's last coal mine, in neighboring Kushiro, closed for good two years ago. Trains, chopped down to just two cars, rarely stop nowadays; schools are being shuttered. And for every new resident, one or two leave.

Nemuro's obsession with the past is extreme, but economic distress is a tune being played out across Japan's northern island. A whopping three-quarters of Hokkaido towns are classified as "hollowed out," and the decade-old malaise has triggered a brain drain. Elite graduates once moved lockstep into the prefectural civil service or Hokkaido Takushoku Bank (Takugin), formerly one of the country's leading banks. But with Takugin's spectacular collapse in 1997 and the prefectural government struggling to downsize, the island's best and brightest have few reasons to stay.

"Our greatest problem," says Isao Hara, chairman of a Sapporo-based private think tank, "is unemployment." A chain of business failures stemming from the Takugin bankruptcy, the demise of coal mining, madcow disease and the contraction in Hokkaido's lifeline, public works spending, have left 5.6 percent of Hokkaido's workers, or 1,660,000, unemployed. "And," warns forecaster Hara, "it's going to get worse."

With a climate and topography closer to that of Topeka than Tokyo, Hokkaido residents are fond of comparing themselves to Americans, blessed with an un-Japanese "frontier spirit" inherited from hardy ancestors who came north in the late 19th century to fish, farm, log and dig coal. This mythology holds that the frontier spirit was extinguished in 1950, with the creation of the (evil) Hokkaido Development Authority. To accelerate development of its far-flung regions, Hokkaido and Okinawa, Japan's central government set up agencies to build scores of big-ticket dams, bridges, ports and roads. (Author Koyata Washida claims the agency was a high-handed ruling party ploy to squeeze out an emerging socialist government in postwar Hokkaido.) Public works orgies were being staged, of course, from Kyoto to Shikoku, but in Hokkaido's case, the long-term effects arguably were far more pernicious. Hokkaido's special treatment is widely seen as the root of its current predicament, having turned the island of six million from pioneering Daniel Boones into passive welfare queens.