Five years ago, Japan could look back on three decades of extraordinary accomplishment. Its economy had grown an average of 6.5% a year. By the 1980s, it had come to dominate the market for consumer electronics and semiconductors, and claimed the best automakers in the world. In the U.S., Japanese companies seemed to be buying everything in sight, from Rockefeller Center to Universal Studios. Over and over again, the question was asked in other countries, particularly the U.S.--What is Japan's secret?
For Japan did seem to have a secret, somehow managing to exempt itself from the economic laws that governed everyone else. Its society too seemed to provide a model of hard work, thrift and cohesion. Back in the early 1990s, both Japan and its competitors believed it had invented an economic version of the perpetual-motion machine. And that being the case, there was no reason for the miracle to end. M.I.T. economist Lester Thurow declared that the 21st century belonged to Japan. Sony co-founder Akio Morita and nationalist Shintaro Ishihara wrote a best seller arguing that Japan had an unbeatable lead in technology, thanks to its superior economic and social system.
Now it is 1996, and Japan's secret formula does not work anymore. Neither its economy nor its society enjoys a special dispensation from misery. When President Clinton arrives in Tokyo this week, he will find a country that has undergone five years of economic gloom, whose society is experiencing unprecedented strain and whose political system is fracturing. In a recent poll covering 10,000 adults, 54% of the respondents said they felt Japan was becoming worse off. Faced with all its adversity, Japan is at a crucial point in its postwar history, and the direction it takes will be vitally important, not only to its own people but also to its major commercial, diplomatic and military partner, the U.S.
The recession of the past four years has been Japan's worst since World War II. From about 1988 to 1991, the nation enjoyed a "bubble" economy that saw huge investment in new factories, real estate and equities, both at home and abroad. When the crash came, it was brutal. Between 1992 and 1995, gdp barely grew at an average of 0.6% a year. In the early 1990s, land values fell 50%, creating a burden of bad debt that could reach $1 trillion. From 1990 to 1994, industrial giants like Nissan closed factories as car production fell almost 22%.
Year in and year out, economists have vainly predicted a rebound in Japan's fortunes. Now there are again some signs of improvement: last year the economy did grow a bit faster, if only 0.9%; the stock market has risen, although it is still at just over half its 1989 high; corporate profits have improved; the dollar has strengthened against the yen, making Japanese exports more affordable.