The Sick Man of Asia

Japan is sick, but once again people are becoming hopeful that it may at long last recover, mostly because a committed reformer named Heizo Takenaka now seems to be running the economic policy. But what policymakers and pundits fail to recognise - or refuse to recognise - is that economic policies per se will not reinvigorate Japan.

Japan's crisis is systemic, not cyclical. Debt, deflation and other maladies are purely symptoms of Japan's disease. The causes are a combination of institutional sclerosis, social anomie and gerontocratic governance.

For several decades after WWII the Japanese system worked remarkably well, not only in generating growth, but in providing high levels of education, long life expectancy, security, and other welfare benefits to its citizens. This system rested on three pillars: a cohesive political-industrial establishment, the mobilisation of resources to achieve national economic ends and America's defensive shield.

Almost immediately after defeat in WWII, Japan metamorphosed from being America's enemy into its pampered protégé. This was " real geopolitik " in action. The Cold War, the rise of Maoist China, the Korean War all made Japan indispensable to America. Not only did the US provide military protection to Japan - allowing Japan to concentrate on industrial goals - but it also provided vast economic assistance, including massive technology transfers and, most important, opening up its market to Japanese exports while allowing Japan to protect its home market.