Nowhere are the changes in postwar Japan so visible as in the economic sector, where the nation has developed into a major industrial and technological power in the space of a century, surpassing such advanced Western societies as Germany, France, and Great Britain. Here indeed is the Japanese miracle in its most concrete manifestation. The process began a century ago in the single-minded determination of the Meiji modernizers to create a rich country and strong state. Their initial motive was to guarantee Japan’s survival against Western imperialism, but this defensive urge evolved into a desire to excel and, during the years before World War II, to dominate. That desire led to the war in the Pacific and, in the eyes of some observers, still contributes to Japan’s problems with its trading partners in the world today. As we have seen, the officials of the Allied occupation identified the Meiji economic system with centralized power and the rise of Japanese militarism. Accordingly, MacArthur’s planners set out to break up the zaibatsu and decentralize Japanese industry and commerce. But with the rise of Cold War tensions, the policy was scaled back in the late 1940s, and only the nineteen largest conglomerates were affected. In any event, the new antimonopoly law did not hinder the formation of looser ties between Japanese companies, and as a result, a new type of informal relationship, sometimes called the keiretsu, or “interlocking arrangement,” began to take shape after World War II. Through such arrangements among suppliers, wholesalers, retailers, and financial institutions, the zaibatsu system was reconstituted under a new name. The occupation administration had more success with its program to reform the agricultural system. Half of the population still lived on farms, and half of all farmers were still tenants. Under a stringent land reform program in the late 1940s, all lands owned by absentee landlords and all cultivated landholdings over an established maximum were sold on easy credit terms to the tenants. The maximum size of an individual farm was set at 7.5 acres, while an additional 2.5 acres could be leased to tenants. The reform program created a strong class of yeoman farmers, and tenants declined to about 10 percent of the rural population. During the next fifty years, Japan re-created the stunning results of the Meiji era. At the end of the Allied occupation in 1950, the Japanese gross national product was about one-third that of Great Britain or France. Today, it is larger than both put together and well over half that of the United States. Japan is the greatest exporting nation in the world, and its per capita income equals or surpasses that of most advanced Western states. In terms of education, mortality rates, and health care, the quality of life in Japan is superior to that in the United States or the advanced nations of Western Europe. By the mid-1980s, the economic challenge presented by Japan had begun to arouse increasing concern in both official and private circles in Europe and the United States. Explanations for the phenomenon tended to fall into two major categories. Some pointed to cultural factors: The Japanese are naturally group-oriented and find it easy to cooperate with one another. Traditionally hardworking and frugal, they are more inclined to save than to consume, a trait that boosts the savings rate and labor productivity. The Japanese are family-oriented and therefore spend less on welfare for the elderly, who normally live with their children. Like all Confucian societies, the Japanese value education, and consequently, the labor force is highly skilled. Finally, Japan is a homogeneous society in which people share common values and respond in similar ways to the challenges of the modern world. Others cited more practical reasons for Japanese success. Paradoxically, Japan benefited from the total destruction of its industrial base during World War II because it did not face the problem of antiquated plants that plagued many industries in the United States. Under the terms of its constitution and the security treaty with the United States, Japan spends less than 1 percent of its gross national product on national defense, whereas the United States spends more than 5 percent. Labor productivity is high, not only because the Japanese are hard workers (according to statistics, Japanese workers spend substantially more time on the job than workers in other advanced societies) but also because corporations reward innovation and maintain good management-labor relations. Consequently, employee mobility and the number of days lost to labor stoppages are minimized (on an average day, according to one estimate, 603 Japanese workers are on strike compared to 11,956 Americans). Just as it did before World War II, the Japanese government promotes business interests rather than hindering them. Finally, some analysts charge that Japan uses unfair trade practices, subsidizing exports through the Ministry of International Trade and Industry (MITI), dumping goods at prices below cost to break into a foreign market, maintaining an artificially low standard of living at home to encourage exports, and unduly restricting imports from other countries. There is some truth on both sides of the argument. Undoubtedly, Japan benefited from its privileged position beneath the U.S. nuclear umbrella as well as from its ability to operate in a free trade environment that provided both export markets and access to Western technology. The Japanese also took a number of practical steps to improve their competitive position in the world and the effectiveness of their economic system at home. Yet many of these steps were possible precisely because of the cultural factors described here. The tradition of loyalty to the firm, for example, derives from the communal tradition in Japanese society. The concept of sacrificing one’s personal interests to those of the state, though not necessarily rooted in the traditional period, was certainly fostered by the genro oligarchy during the Meiji era. In recent years, the Japanese economy has run into serious difficulties, raising the question as to whether the vaunted Japanese model is as appealing as many observers earlier declared. A rise in the value of the yen hurt exports and burst the bubble of investment by Japanese banks that had taken place under the umbrella of government protection. Lacking a domestic market equivalent in size to the United States, the Japanese economy slipped into a long-term recession that continues today. These economic difficulties have placed heavy pressure on some of the highly praised features of the Japanese economy. The tradition of lifetime employment created a bloated white-collar workforce and made downsizing difficult. Today, job security is on the decline as increasing numbers of workers are being laid off. Unfortunately, a disproportionate burden has fallen on women, who lack seniority and continue to suffer from various forms of discrimination in the workplace. A positive consequence is that job satisfaction is beginning to take precedence over security in the minds of many Japanese workers, and salary is beginning to reflect performance more than time on the job. A final factor is that slowly but inexorably, the Japanese market is beginning to open up to international competition. Foreign automakers are winning a growing share of the domestic market, while the government— concerned at the prospect of food shortages—has committed itself to facilitating the importation of rice from abroad. This last move was especially sensitive, given the almost sacred role that rice farming holds in the Japanese mind-set. At the same time, greater exposure to foreign economic competition may serve to improve the performance of Japanese manufacturers. In recent years, Japanese consumers have become increasingly concerned about the quality of some of their domestic products, provoking one cabinet minister to complain about “sloppiness and complacency” among Japanese firms (a scandal in the United States over defects in Firestone tires, produced by the Japanese tire manufacturer Bridgestone, was a case in point). One apparent reason for the country’s quality problems is increasing competition from the United States, which has forced Japanese companies to adopt cost-cutting measures to meet the challenge from abroad.