The Japanese economy started to recover quickly from the destructio

The Japanese system apparently worked effectively during the “catch-up” period of development. However, after having “caught-up”, it’s now believed that new progress must come from autonomous risk-taking behavior by businesses and individuals. In this regard, the Japanese system of development based on consensus and cooperation that was once so successful has become an obstacle to such initiatives.

Although the long-term relationships embedded in the Japanese-style market system contributed positively to the economic development, it was exclusionary in nature. New and potential entrants to markets, particularly foreign governments and businesses repeatedly requested transparency and business opportunity.

n/destitution of World War II and jumped back to a path of rapid growth. Several favorable external/imposed conditions assisted this jumpstart and a sustained rapid economic growth followed. Endogenous factors that encouraged high growth included high savings rate, release of younger generation workforce from the agricultural sector, and high productivity growth brought by the introduction of foreign technology (and ‘improved engineering’).

Thirdly, for manufacturing companies, sales success in the markets of advanced economies was a powerful demonstration of their products’ quality and competitiveness in the domestic market. Thus, they made massive efforts to export their products, resulting in productivity enhancement, new technology development, quality control, and strengthening of non-price competitiveness that often offset increases in labor costs.

In the manufacturing sector, being exposed to domestic and global competition, systematic reforms proceeded, and while utilizing the merits of “information sharing”, the traditional system has evolved into one with more reliance on market mechanism. On the other hand, the non-manufacturing sector suffered from defects of the Japanese system. A weak competition and strong regulations led to a delay of productivity growth and new business development in this sector. This, in turn, hurt the tradable sector by imposing high structure costs and causing a “bubble”. The structural reform of the Japanese economy, therefore, should build an economic system relying more on market mechanism while utilizing the advantage of the Japanese traditional system. Key words are “marketization”, “choice”, “competition”, and “diversity”.

Until around 1960 since the end of WWII, Japan had been a developing country, judging from the level of per capita income, external debt, and from a labor market with sufficient supply of unskilled l

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