Japanization: What the World Can Learn from Japan's Lost Decades

Preface

Few words strike greater fear in the hearts of economists and politicians than Japanization. That specter of chronic malaise, deflation, crushing debt, and political paralysis drove central bankers from Ben Bernanke in the United States to Mario Draghi in Europe to flood markets with liquidity as never before in an all-out effort to avert their own lost decades.

Decades ago, the fear was of Japanese dominance. Ezra Vogel’s 1979 bestseller, Japan as Number One, was emblematic of passions across the Pacific. The Harvard University social sciences professor sketched out a scenario of a tiny island nation with no natural resources dominating the economic world that seemed as plausible as frightening to the American and Europe business elites.

Subsequent years would see entire generations of editors rushing Japanese-are-coming scare pieces into print. Time magazine’s March 30, 1981, Japan cover, “The World’s Toughest Competitor,” was illustrative of the hysteria, as was the timing. Amid oil shocks, stagflation, fiscal crises, and the Iran hostage crisis, Japan’s meteoric rise was an existential blow to an America whose main business was doing business better than anyone.

Over the next decade, Japan was just as exciting and feared in world economic terms as China is today. Its companies and banks dominated top-10 lists, while once-proud U.S. automakers were eating Japan’s exhaust. If you wanted to see some of your favorite Van Gogh, Picasso, or Warhol paintings, you had to ...