A special report from The Economist on Japan’s new, modernized business environment:
ONCE it was the Walkman. Then it was the PlayStation. Today it is the Toyota Prius that epitomises Japan’s technological and industrial prowess. Toyota is now known for greenery and innovation as well as manufacturing efficiency.
But the Prius also symbolises another transformation: that of Japan itself. Just as a hybrid car combines the distinct advantages of petrol and electric propulsion systems, Japan has been developing a new hybrid model of capitalism that brings together aspects of the old Japanese model, which ran into trouble in the early 1990s, with carefully chosen elements of the more dynamic American or Anglo-Saxon variety of capitalism.
The resulting hybrid model has been adopted by many firms and has already helped to transform Japan’s fortunes. After wrenching political and corporate reforms, the country in 2002 emerged from over a decade of economic stagnation.
Since then the recovery, originally export-led, has spread to the economy as a whole (see chart 1). Japanese firms have restructured, paid down their debts and are now posting record profits. The banking system has been cleaned up. Yet despite this progress, Japan still faces huge problems.