The idea of a Japanese economic miracle lapsed from popular consciousness years ago. In its place the country's prolonged struggle to escape the stubborn economic stagnation and political turmoil that followed the bursting of the speculative bubble in 1991 has become one of the legendary international stories of our times. (1) As many readers will know, there has been all manner of speculation and theorizing in academic and policy-making circles about the nature of Japan's economic and political ills, their impact and the needed cures.
Evaluation of Japan's future prospects rests on an understanding of this domestic economic struggle. An economically weak Japan at home will not be an influential Japan abroad. The most widely accepted assertion is that the nation's inability to recover is related to tightly interwoven "structural" impediments that link macroeconomic conditions, the organization and management practices of a wide range of firms and financial institutions, and the manner in which the government intervenes in the economy. The country's economic troubles are thus political in nature. The eminent economist Eisuke Sakakibara argues forcefully that fundamental economic reform will occur only when the iron triangles the myriad formal and informal political ties that bind together the ruling Liberal Democratic Party (LDP), the bureaucracy and vested interests--are broken up. (2)
However, despite more than a decade of economic stagnation and "failed" reform, the LDP-dominated political system has not been disabled, nor has the party's mandate to form a government been withdrawn at election time. In upper house elections held in July 2004, the LDP--New Komeito Party coalition retained its control over the chamber, despite widespread voter unhappiness with major domestic and, more ominously, national security policies.
A standard formula for understanding the country's "lost decade" is to assume that the nation's tribulations are rooted in unavoidable tensions that unfold as the economy becomes less government-driven and more market-oriented, along the lines of Anglo-American capitalism. In a period of transformation from state-led to market-oriented capitalism, particular individuals, families, groups, firms, industries and even communities will not necessarily emerge better off. Some may be worse off, and so governments are tempted to take actions to mitigate the costs. Too often, so the argument goes, governments in any country are tempted to give in to the "vested interests."
The Japanese drama in the 1990s is thus framed in stark terms: competitive markets versus heavy-handed and incompetent state intervention. Commentators sometimes use almost utopian standards of economic rationality to find fault with Japanese government and private-sector reform efforts that are deemed not forceful enough. Reformers themselves also tend to exaggerate expectations, leading inevitably to disappointment for pro-market advocates.
A crucial key to unlocking the puzzle of why reform measures have been partial, piecemeal and not always consistent is to understand how Japanese politics is shaped by the search for security. The spectre of unpredictability, insecurity (fuan) and vulnerability has long framed foreign policy debate in Japan. Japanese imperialism was rooted in national psychological insecurity as much as overconfident nationalism. The bilateral security arrangements that link Japan with the United States are based on a conviction that the alliance is the only realistic way for Japan to secure its international security environment. What is less appreciated is that avoidance of risk and the search for security shape a broad range of domestic public policies as well.
Running through the many political and economic issues that have been prominent in public life for over a decade now are political power clashes over when and how government authority and resources might be used to lessen pervasive anxiety, be it realistic or otherwise. …