Japan’s Great Stagnation

Japan’s Great Stagnation

Forging Ahead, Falling Behind

W. R. Garside

This timely book presents a critical examination of the developmental premises of Japan’s high-growth success and its subsequent drift into recession, stagnation and piecemeal reform. The country, which within a few decades of wartime defeat mounted a serious challenge to American hegemony, appeared incapable of fully adjusting to shifting economic circumstance once the impulses of catch-up growth and the good fortune of an accommodating international environment faded.

Chapter 8: Reform Without Salvation: Japan 1997–2000

W. R. Garside

Subjects: asian studies, asian economics, asian politics and policy, economics and finance, asian economics, economic psychology, political economy, politics and public policy, asian politics, political economy


The financial and economic crisis that engulfed Japan in 1997 provided the country with an opportunity to effect radical policies for economic revival, ideally incorporating both macro and micro (structural) reforms that would, in earlier years, have been difficult to implement because of their distributional implications.1 Japan had already proved capable of change when moved to act. It had bailed out financial institutions as diverse as housing loan companies to the once powerful Long-Term Credit Bank of Japan and the Nippon Credit Bank, both of which were subsequently nationalized. City banks had been recapitalized from public funds and measures had been taken to enhance the protection of deposits and claims against failed institutions.2 However, until 1997 there was no clear or dominant consensus within Japan as to whether an alternative and more radical political economy was required to remedy its prolonged stagnation beyond the financial and political fixes that that hitherto been implemented. This was partly because sectoral interest groups and their political allies had a vested interest in forestalling reform and partly – indeed more fundamentally – because politicians, industrialists, bureaucrats and the public at large were ambivalent about what should be reformed, at what cost and in whose interest. Ryutaro Hashimoto, who was Prime Minister from 1996 to 1998, had been unequivocal in his rejection of ‘Japan Inc.’ as a model for the immediate future, and urged reforms in finance, education and social security. ‘The Japanese socio-economic system which has sustained the country over the 50 year post-war period,...

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