Page 202 - Global Political Economy_Understanding The International Economic Order

SYS TEMS O F POLI TICAL ECONO MY
selves with a huge burden of underperforming or bad loans. Subse-
quently, in the late 1990s, the East Asian economic crisis greatly ag-
gravated Japan’s economic slowdown and financial problems. In
1998, Japan lunged into its deepest recession since the end of World
War II; moreover, in contrast to past crises, Japan’s export-led
growth strategy has been unable to reinvigorate the economy and, as
these lines are written in the early spring of 2000, recession continues.
At a more fundamental level, Japan’s rapidly aging population, the
overcapacity and low profitability of many export industries, and the
overall low level of productivity outside the export sector portend
severe economic troubles in the decades ahead.
These accumulating difficulties have caused many Japanese to ac-
cept the idea that a radical deregulation and restructuring of the Japa-
nese political economy has become necessary. For example, Japan’s
Economic Planning Agency (EPA) published a report in 1995, To-
ward the Revival of a Dynamic Economy, in which it warned that
Japan must either reform its economy or face long-term economic
decline. Essential to any significant reform would be a shift from an
export-led to a domestic-led growth strategy, opening of the economy
to greatly increased amounts of manufactured imports and to foreign
direct investment, and extensive deregulation of the economy. Such
steps, some argue, would lead to a significant revival of the economy,
increase overall productivity growth, and enable Japan to become
more of a leader in the world economy. However, powerful resistance
from the Japanese bureaucracy and from entrenched private interests,
and the seeming indifference of the Japanese people, lead to doubt
about the ability or willingness of Japanese political leaders to make
truly significant reforms in the economy.
Nevertheless, Japan’s national system of political economy has be-
gun to change in a number of ways. The increased attention given to
the Japanese consumer, the pervasive role of the Japanese state in the
economy, and distinctive private business practices are changing. The
system of lifetime employment and seniority-based pay is weakening
because of recession and the increasing need in the information
economy to reward the most valued younger workers; some firms
have even been forced to lay off tens of thousands of workers. Under
severe financial pressure, some keiretsu have begun to unravel as
members have been forced to sell off their holdings in member firms.
Corporate mergers and restructuring are still limited by Western stan-
dards, but are increasing; Renault’s takeover of Nissan could never
have occurred in the past. A significant increase in foreign direct in-
vestment and in the number of foreigners in the economy has taken
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