Japan's Economic Problems

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...

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