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Fixing What Really Ails Japan

Courtesy Reuters

CONVENTIONAL WISDOM

Not so long ago, the entire world stood in awe of Japan's postwar economic miracle. Some Japanese policymakers boasted that they had invented a new and superior form of capitalism. But today, Japan is stuck in the slump that just will not quit. In policy circles there is talk of a defeat, this time at the hands of Anglo-Saxon capitalism. Yet despite the depth and the persistence of the slide, remarkably few question Japan's underlying economic model. Everyone agrees that some reforms are needed but assumes that the economic engine is basically sound, if only the government would jump-start it with a massive kick of credit. Only recently, confronted with company failures and huge losses, have most Japanese begun to realize the magnitude of their problem.

The prevailing consensus over Japan's failings in the 1990s centers around three related explanations. One is the collapse of the so-called bubble

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