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Japan's Economic Problems Essay

4051 words - 16 pages

1. A Brief Introduction
Japan was a country that defied all odds and became a world power after losing a devastating war. In the 30 years after World War II the Japanese economy grew at an incredible rate, so much so in fact that Japan became the second largest economy in the world. Japan managed to successfully enact an economic system wholly different than that of the United States and because of it Japan experienced incredibly rapid growth over a period of roughly 30 years. During that period of financial power, exports were booming, the standard of living was rising, and technology was thriving. This period of growth however, did not last; in the late 1980s the bubble burst. In 1991 and again in 1997, Japan’s stock index, the Nikkei, plummeted causing economic growth to come to an abrupt halt. Suddenly, the very institutions that Japan was praised for now came into question. Previously Japan had “a powerful bureaucracy guiding the economy, close government-industry ties, ‘lifetime’ employment, a main bank system, and dense inter-firm networks,” but now these institutions were thought to have failed and Japan would need to fundamentally alter their ways. (Vogel, 2006) One opinion, according to Steven Vogel, is that the Japanese model should try to mirror the model of the United States. (S. K. Vogel, 2006) Interestingly enough, Ezra Vogel (in 1979) essentially suggested the exact opposite as Steven Vogel. Ezra suggested that Japan would be a viable mirror for the United States, that is, the United States should try to emulate the Japanese System. Japan at that time had been doing extremely well. Ezra describes how Japan had restructured traditional institutions whereas the American system was designed two centuries ago for a completely different type of society (E. F. Vogel, 1979). This is very different from the situation today; table I illustrates how the Japanese model would have to change in order to become a Liberal Market Economy like the U.S. The current outlook on the future of Japan is grim; Japan needs to alter their ways in order to get back on track and continue being a major economic power.
Source: (Vogel, 2006)

2. A Unique Japan
2.1 Coordinated Market Economy
A key concept embedded in the Japanese model (prior to 1990) is keiretsu. Japan had a coordinated market economy rather than a liberal market economy like the U.S. (Table I). This essentially means that Japan “fostered long-term cooperative relationships between firms and labor, between firms and banks, and between different firms.” (Vogel, 2006) This network of relationships, called a keiretsu, proved stable, with the bureaucracy protecting industry from international competition and maintaining many aspects of the private sector. The bureaucracy played a large role in Japanese economics. Some claim that “Japan’s elite bureaucrats were too powerful and too inclined to meddle in markets,” thus factoring into the economic crisis facing Japan today (Vogel,...

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