Japanese Model of Capitalism and Globalization

In the late 1980s, Japan was one of the most enviable economies in the world, but since its bubble burst in 1990, the Japanese economy fell into a long and deep economic abyss, called “the lost two decades.” This chapter examines why the traditional Japanese statist coordination model encountered obstacles to globalization and digitalization following its enviable economic performance, and why Japan failed in reforms and adjustments, leading to long-term stagnation. To answer the questions, this chapter focuses on insiders’ close collaboration in bureaucracy, business, and politics, termed “bureau pluralism” and “circles of compensation.” The Japanese insider clientelist circles might work effectively for stable and incremental innovation in competition with rigid mass producers in the 1980s. But in the highly turbulent world economy and rapidly changing technology environment, closed collaboration among insiders blocked flexible innovation, Japanese innovation outmoded and unable to compete.