In 1950, the leading Western expert on Japan, Edwin O. Reischauer of Harvard, declared the country a nearly hopeless case: "The economic situation in Japan may be fundamentally so unsound that no policies, no matter how wise, can save her from slow economic starvation." Instead of starving, however, Japan's economy, growing at a real average rate of nearly 10 percent annually for some thirty years--with national income increasing by a factor of nine between 1950 and 1980--has outperformed all others in the history of the human race.
Japan offers a challenge to much of the conventional wisdom of the world's intelligentsia, both right and left, about how economies grow. It will not do, for example, for conservatives to present Japan simply as an example of laissez-faire. No theory of invisible hands and free markets alone can explain the pattern of Japanese growth, as it was mustered and massaged by a many-handed state, led by Japan's intelligent and resourceful Ministry of International Trade and Industry. MITI from time to time controlled and subsidized credit, excluded imports, financed exports, guaranteed risks, organized cartels and group R&D, named and anointed "sunrise" technologies, protected "infant" industries on into burly adulthood, nursed out gently its declining companies, and in general planned and postured, nudged and signaled, pushed and regulated widely, as it waved wands and batons of "administrative guidance" over the nation's businesses.
Yet the voices of the left will have equal trouble in claiming for their side an economy that boasts the lowest taxes, welfare benefits, and share of government spending in the industrialized world, as well as some of the weakest unions, most rigid sex roles,