TOKYO
From a distance, the solutions to Japan's increasingly worrisome economic slide seem obvious. Japan must overhaul and globalize its creaky economy, expand domestic competition, invite foreigners in and weaken the death-like grip that bureaucrats continue to hold over the country.
As the rest of Asia shows signs of recovery from its disastrous economic decline, it is wealthy Japan that lags--still unable to confront the vested interests and other long-recognized obstacles to true reform.
Why is Japan so thoroughly paralyzed?
Reforms mean doing the equivalent of what Americans did a decade ago: shifted millions of people from steel mills in Youngstown and factories in Buffalo to service jobs in Phoenix and high-tech jobs in San Diego, in line with the global economy.
Yet Japan seems unwilling to destroy old jobs and unable to create new ones. It is around jobs, more than any other aspect of life, that the country's ancient protective instincts--embodied by powerful Japanese institutions defending their turf--are playing themselves out.
"This country is a genius at hiding its weakness and showing strength," says Kenichi Ohmae, management consultant and author of "The Borderless World."
Indeed, the downturn of the 1990s has made it painfully obvious that Japan really has two economies.
There is the one that outsiders see, made up of world-class manufacturing giants such as Sony, Toyota and Matsushita that adapt and innovate. These already strong companies, competing around the globe with Ford and Philips and Hewlett-Packard, have been reinventing themselves, eliminating jobs and starting to pierce Japan's myth of lifetime employment.
Then there's the Japan of highly protected, inefficient shopkeepers, middlemen and farmers. They make up 75% of Japan's work force. And exposing them to greater competition--and creating new jobs for them--is perhaps Japan's most difficult challenge.
The solution posed by mainstream economists--fundamental restructuring--would cost millions of jobs in the near term, forcing rapid improvements in Japan's weak social safety net and opening the door for a political shift.
"It's a very painful process," says Haruo Shimada, an economics professor at Keio University. "But unless Japan does it, it will gradually and continually decline--or suffer an acute, radical crisis."
