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WHAT KILLED THE BOOM The strain of being both an economic and a military superpower started to show. The federal deficit in 1959 jumped to 2.6% of gross domestic product, the largest since 1946. By the 1960s, ambitious social programs and the widening war in Vietnam led to higher taxes, while economies in Europe and Asia began to make inroads against the U.S.
1980s JAPAN INC.
Unemployment: Less than 3% throughout the decade Growth: Strong; 4% yearly average Inflation: Plunged from 8% to near zero
ECONOMIC BACKDROP Japan served as a marvel of industrial planning gone right. Japan's Ministry of International Trade and Industry kept the cost of capital low and directed resources to export sectors such as autos and consumer electronics, at the same time fiercely protecting the home market from foreign competition.
COMPETITIVE ADVANTAGE Close cooperation among all the links in the manufacturing chain--the cartel-like structure known as Keiretsu--turned the country into a production machine. A promise of lifetime employment and a culture of consensus created silky-smooth labor relations. For more than a decade, this unique brand of teamwork pushed Japan into an economic league of its own. No other country had such low unemployment and low inflation; the rest of the world struggled with stagflation (high unemployment and inflation). Japan racked up some $400 billion in trade surpluses in the decade. Indeed, by the end of the '80s, Japan had reached a standard of living that exceeded the U.S.'s (besting it by 17% as measured by gross national product per capita). Japan's ability to improve products and lower prices compensated for its lack of world-class technological innovation.
WHAT KILLED THE BOOM Wildly rich, Japanese investors splurged on stocks and drove real estate prices skyward. The speculative bubble in the financial markets and real estate popped loudly in the early 1990s and took the economy down with it. Other competitors closed the productivity gap. Now lifetime employment may be a thing of the past.
SOURCES: Burt Folsom, Mackinac Center for Public Policy; Jan de Vries and Ad van der Woude, The First Modern Economy (Cambridge University Press, 1997); Japan Economic Institute