4 - The Political Economy of Japan

Summary

To really understand how Japanese developmentalism is weaving together the economies of Asia, we must first know how the system works at home. This is a heavily tilled but thinly harvested field.

Some neoclassical economists argue that Japan operates just like any other capitalist economy, and thus can be analyzed adequately with the standard tools of neoclassical theory. A few even go so far as to suggest that Japan is closer to the neoclassical model – with more competition and less government intervention – than the United States or other industrial economies. There is little need for us to spend time on such a preposterous claim.

We must, though, take seriously those neoclassical economists who recognize that Japan has used a distinctive set of institutions to promote economic development, but who nonetheless insist that it began dismantling those institutions in the prolonged, post-bubble recession of the early 1990s. Bergsten and Noland, for example, foresee a coming convergence between the capitalist systems of the world's two economic superpowers, Japan and the United States.

Japanese business … will in this view ease off at least a bit as employees and suppliers demand better treatment, and as the imperative of globalization induces Japanese firms to harmonize their practices with the rest of the world. Globalization of financial markets will meanwhile weaken the financial keiretsu and equalize the cost of capital across countries. … […]