It is one of the great ironies of the Twentieth Century. The greatest economic success story of the century, Japan, has faltered in the century's final decade. But we should not forget that Japan was the first non-Western nation to industrialize, the first country to graduate from developing to developed status in this century, and the fastest ever to rise to economic power. Japan charted a new and distinctive model of economic growth.
Many commentators suggest, however, that Japan's economic model is now obsolete. For its own good, Japan must abandon the very institutions that made it so successful. Many have concluded that Japanese capitalism will simply wither away in face of the ineluctable force of global capitalism. But it is convincing that a distinctive Japanese capitalism will survive well into the next century, albeit in a new and different form.
To begin with, what is "Japanese capitalism" after all? Japan is sometimes referred to as a coordinated market economy, in contrast to liberal market economies such as the United States and Britain.
Japan fosters more long-term cooperative relationships between firms and labor, between firms and banks, and between different firms. These long-term relationships take the form of familiar institutions such as the lifetime employment system, the main bank system, and keiretsu networks. In addition, the government and industry associations play a critical role in facilitating this private sector coordination. This distinctive combination of government-industry cooperation and private sector coordination forms the core of the Japanese model.
But if we look closer, there is no single Japanese model, frozen in time. In fact, the model only may have existed in its pure form - including the full array of political, economic, and social institutions commonly associated with it - for a few short years during the high-growth...