The Great Disruption

Abstract

The booming Japanese economy from the 1960s through the mid-1980s was one of the most thoroughly studied and admired phenomena of modern times. From steel to automobiles, consumer electronics to watches, Japanese companies easily overran the fortifications of their American and European competitors. Western scholars praised Tokyo's careful economic planning and the focus of Japan's keiretsu?massive, interlocked networks of companies such as Mitsui, Mitsubishi, Matsushita, and Sumitomo?on building long-term competitive advantages. Other analysts attributed Japan's economic momentum to its workers' selfless dedication to improving produc tivity and to the extraordinarily high savings rates of its consumers. Scholars cited the absence of similar factors in Europe and North America, meanwhile, to explain the stagnation afflicting those countries. In the United Kingdom, for example, the huge share of gnp taken up by government spending was seen as crippling economic growth because it crowded out private investment capital. The fortunes of these economies, of course, have now reversed. America has experienced the longest unbroken economic expansion in its history, and the United Kingdom has achieved levels of prosperity that few could have imagined 30 years ago. Japan, in contrast, has