Whatever Happened to Japan?
A decade ago, Japan Inc. was an unstoppable economic juggernaut. It seemed to have it all--a surging economy, a stable currency, a trade balance to die for, and highly envious competitors. Even the mighty United States was urged to become more like Japan.
But the juggernaut stalled in the early 1990s with the collapse of the Japanese real estate and stock markets. The bubble economy burst, and five years later the economy has yet to recover.
Political reform also seems uncertain. The October 1996 national elections returned the conservative Liberal Democratic Party to power in the lower house of Parliament, albeit with less than a majority of seats.
Japan faces a number of serious problems, beginning with its aging population. Furthermore, the Ministry of International Trade and Industry has estimated that the country's growth rate will slow to between 0.8 and 1.7 percent a year over the next decade or so.
Deregulation and cuts in the income and inheritance taxes are needed to encourage the formation of new businesses. And the banking system will have to be rebuilt.
But are such fundamental reforms possible under the LDP, the historically staunch defender of the status quo? In Japan, the bureaucracy determines policy, and the LDP has close ties to government industries and private business. Can the famous iron triangle of politicians, bureaucrats, and business leaders be recast?
In his policy speech to the Diet in January, Prime Minister Ryutaro Hashimoto said he wanted to "create a new socioeconomic system suitable for the twenty-first century." Is such a sweeping change possible?
According to Nathaniel B. Thayer of the Nitze School of Advanced International Studies, all the politicians support reform. But business leaders are worried about trying to do too much and want the first reform to be deregulation and financial restructuring. …