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Key Terms 

“The Greater China” 
Purchase price parity (PPP) 
Four Asian Tigers 
Bottom-of-the-pyramid 
markets (BOPMs) 
ASEAN 
ASEAN+3 
APEC

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The Asia Pacific
Region 11

CHAPTER LEARNING OBJECTIVES

What you should learn about in Chapter 11:

LO1 The dynamic growth in the region

LO2 The importance and slow growth of Japan

LO3 The importance of the Bottom-of-the-Pyramid
Markets

LO4 The diversity across the region

LO5 The interrelationships among countries in the
region

LO6 The diversity within China

CHAPTER OUTLINE
Global Perspective: Walmart, Tide, and Three-Snake

Wine

Dynamic Growth in the Asia Pacific Region
The Greater China
Japan
India
The Four “Asian Tigers”
Vietnam

Bottom-of-the-Pyramid Markets (BOPMs)

Market Metrics

Asia Pacific Trade Associations
Association of Southeast Asian Nations (ASEAN) and

ASEAN13
Asia-Pacific Economic Cooperation (APEC)

A Focus on Diversity Within China
Northeast China: Longtime Industrial Heartland
Beijing–Tianjin
Shanghai and the Yangtze River Delta
Pearl River Delta
The Other Billion
Differences in Business Negotiation Styles Within The

Greater China
Marketing Opportunities in The Greater China

Chapter

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Developing markets are experiencing rapid industrializa-
tion, growing industrial and consumer markets, and new
opportunities for foreign investment. Consider the follow-
ing illustration: In China, it is just a few shopping days be-
fore the Lunar New Year, and the aisles at the local Walmart
Supercenter are jammed with bargain hunters pushing carts
loaded high with food, kitchen appliances, and clothing. It
could be the preholiday shopping rush in any Walmart in
Middle America, but the shoppers here are China’s nouveau
riche. Superstores have proven popular with Chinese con-
sumers, who devote a large part of their spending to food
and daily necessities. Walmart has been able to tap into
the Chinese sense of social status by offering membership
cards that confer not only eligibility for special discounts but
social status as well.
Alongside Campbell’s soup and Bounty paper towels are
racks of dried fish and preserved plums. One shelf is stacked
high with multiple brands of congee , a popular southern
Chinese breakfast dish, and another has nam yue peanuts
and packets of bamboo shoots. In the liquor section in the
back of the store is three-snake rice wine, complete with the
dead serpents’ bodies coiled together in the potent liquid.
About 95 percent of what Walmart sells in China is sourced
locally. Gone are the efforts to sell big extension ladders
or a year’s supply of soy sauce to customers living in tiny
apartments.
At present Walmart operates over 10,000 units in
27 countries, including almost 370 in China. Revenues and
profits are growing nicely for its international operations,

and overseas expansion is set to continue particularly in
China since its entry into the World Trade Organization. As
one executive commented, “It boggles the mind to think if
everybody washed their hair every day, how much shampoo
you would sell [in China].”
The Chinese market can be difficult to tap and may not be
profitable for many years for many companies. Most foreign
retailers are in a learning mode about the ways and tastes
of Asia, which are very different from those on Main Street
U.S.A. For example, Pricesmart designed its Beijing store
with two huge loading docks to accommodate full-sized die-
sel trucks in anticipation of the big deliveries needed to keep
shelves well packed. What the company found was Chinese
distributors arriving with goods in car trunks, on three-
wheel pedicabs, or strapped to the backs of bicycles.
Procter & Gamble offered powdered Tide detergent in
large quantities, but China’s oppressive summer humid-
ity turned it into unwieldy clumps. Stocking large quanti-
ties of paper towels and disposable diapers didn’t work well
either—most customers didn’t know what a paper towel
was, and disposable diapers were too expensive a luxury for
most. Package sizes also posed a problem—small Chinese
apartments could not handle the large American-sized
packages.

Sources: Keith B. Richburg, “Attention Shenzen Shoppers! U.S. Retail
Giants Are Moving into China, and Finding the Learning Curve Formi-
dable,” Washington Post , February 12, 1997; David Barboza, “The Bold
Struggle for China’s Belly,” The New York Times , March 6, 2003, p. C1;
http://www.walmartstores.com, 2012.

Global Perspective
WALMART, TIDE, AND THREE-SNAKE WINE

PART THREE

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312 Part 3 Assessing Global Market Opportunities

As the 21st century continues to unfold, so does the dynamism of the Asia Pacific Region. 1
While economic growth rates in the Americas, Europe, and Africa remain at single-digit
levels, double-digit annual growth rates are common in the Asia Pacific region. The eco-
nomic miracle begun by Japan in the 1970s and carried on by the Four Asian Tigers in
the 1980s has now been embraced by Greater China and the region as a whole. Indeed,
marketers in the area are developing strong, new Asian brands, 2 reacting to and creating “a
transnational, imagined Asian world” based on the common “globalization, hyper-urban
and multicultural experience.” As evinced in Chapter 3, the Asia Pacific Region lagged for
the last 500 years. But now opportunities abound, brought about by the combination of fast
economic growth and half the population of the world.

LO1
The dynamic growth
in the region

2Julien Cayla and Giana M. Eckhardt, “Asian Brands and the Shaping of a Transnational Imagined
Community,” Journal of Consumer Research 35 (2008), pp. 216–30.

Dynamic Growth in the Asia Pacific Region Asia has been the fastest growing area in the
world for the past three decades, and the prospects for continued economic growth over
the long run are excellent. Beginning in 1996, the leading economies of Asia (Japan, Hong
Kong, South Korea, Singapore, and Taiwan) experienced a serious financial crisis, which
culminated in the meltdown of the Asian stock markets. A tight monetary policy, an ap-
preciating dollar, and a deceleration of exports all contributed to the downturn. Despite
this economic adjustment, the 1993 estimates by the International Monetary Fund (IMF)
that Asian economies would have 29 percent of the global output by the year 2000 were
on target. Both as sources of new products and technology and as vast consumer markets,
the countries of Asia—particularly those along the Pacific Rim—are just beginning to gain
their stride.

The term “The Greater China” refers to both the People’s Republic of China (PRC) and
the Republic of China (ROC) or Taiwan. 3 The two separate political units divided in 1949,
and each government claimed the other as its territory. The dispute has persisted to this
day. Although the ROC was one of the founding members of the United Nations in 1945,
the PRC government was officially recognized with a seat on the U.N. Security Council
in 1971. Over the years, the relationship between the disputants has been both politically
difficult and militarily dangerous. But in the 21st century, direct trade between the formerly
hostile neighbors has increased dramatically, easing much of the historical tension in all of
East Asia.

The People’s Republic of China (PRC) Aside from the United States, there is no
more important single national market than the People’s Republic of China (PRC). The
economic and social changes occurring in China since it began actively seeking economic
ties with the industrialized world have been dramatic. China’s dual economic system, em-
bracing socialism along with many tenets of capitalism, produced an economic boom with
expanded opportunity for foreign investment that has resulted in annual GNP growth aver-
aging nearly 10 percent since 1970. Most analysts predict that an 8 to 10 percent average for
the next 10 to 15 years is possible. At that rate, China’s GNP should equal that of the United
States by 2015. 4 All of this growth is dependent on China’s ability to deregulate industry,
import modern technology, privatize overstaffed and inefficient state owned enterprises
(SOEs), and continue to attract foreign investment. So far in the 21st century, China’s suc-
cesses have been astonishing; in 2009, China became the world’s biggest exporter ahead of

The Greater China

1 Mike W. Peng, Rabi S. Bhagat, and Sea-Jin Chang, “Asia and Global Business,” Journal of International
Business Studies 41, no. 3 (2010), pp. 373–76.

3 Paul Mozur and Jenny W. Hsu, “Taiwan, China Relations Set to Progress,” The Wall Street Journal, January
15, 2012.
4 “How to Get a Date,” The Economist, December 31, 2011, p. 61.

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Chapter 11 The Asia Pacific Region 313

Germany, 5 and its aggressive marketing through infrastructure development, particularly
in developing countries around the world, impresses as well. 6

Two major events that occurred in 2000 are having a profound effect on China’s econ-
omy: admission to the World Trade Organization and the United States’s granting nor-
mal trade relations (NTR) to China on a permanent basis (PNTR). The PNTR status and
China’s entry to the WTO cut import barriers previously imposed on American products
and services. The United States is obligated to maintain the market access policies that it
already applies to China, and has for over 30 years, and to make its normal trade relation
status permanent. After years of procrastination, China has begun to comply with WTO
provisions and made a wholehearted and irrevocable commitment to creating a market
economy that is tied to the world at large.

An issue that concerns many is whether China will follow WTO rules and lower  its
formidable barriers to imported goods. Enforcement of the agreement will not just happen.
Experience with many past agreements has shown that gaining compliance on some issues
is often next to impossible. Some of China’s concessions are repeats of unfulfilled agree-
ments extending back to 1979. The United States has learned from its experience with Japan
that the toughest work is yet to come. A promise to open markets to U.S. exports can be just
the beginning of a long effort at ensuring compliance.

Because of China’s size, diversity, 7 and political organization, it can be more conveniently
thought of as a group of regions rather than a single country. There is no one-growth strat-
egy for China. Each region is at a different stage economically and has its own link to other
regions, as well as links to other parts of the world. Each has its own investment patterns, is
taxed differently, and has substantial autonomy in how it is governed. But while each region
is separate enough to be considered individually, each is linked at the top to the central
government in Beijing. We discuss the diversity within China at the end of this chapter.

China has two important steps to take if the road to economic growth is to be smooth:
improving human rights and reforming the legal system. The human rights issue has been
a sticking point with the United States because of the lack of religious freedom, the Tianan-
men Square massacre in 1989, the jailing of dissidents, and China’s treatment of Tibet. The
U.S. government’s decision to award PNTR reflected, in part, the growing importance of
China in the global marketplace and the perception that trade with China was too valuable
to be jeopardized over a single issue. However, the issue remains delicate both within the
United States and between the United States and China.

Despite some positive changes, the American embassy in China has seen a big jump
in complaints from disgruntled U.S. companies fed up with their lack of protection under
China’s legal system. Outside the major urban areas of Beijing, Shanghai, and Guangzhou,
companies are discovering that local protectionism and cronyism make business tough
even when they have local partners. Many are finding that Chinese partners with local
political clout can rip off their foreign partner and, when complaints are taken to court,
influence courts to rule in their favor.

Actually there are two Chinas—one a maddening, bureaucratic, bottomless money
pit, the other an enormous emerging market. There is the old China, where holdovers of
the Communist Party’s planning apparatus heap demands on multinational corporations,
especially in politically important sectors such as autos, chemicals, and telecom equipment.

7Diversity across regions also provides other dimensions suitable for market segmentation. See
Kineta H. Hung, Flora Fang Gu, and Chi Kin (Bennett) Yim, “A Social Institutional Approach to Identifying
Generation Cohorts in China with a Comparison with American Consumers,” Journal of International
Business Studies 38 (2007), pp. 836–53.

5Judy Dempsey, “China Passes Germany as World’s Top Exporter,” The New York Times , February 10, 2010,
p. B9.
6 Gerald Yong Gao, Janet Y. Murray, Masaaki Kotabe, and Jangyong Lu, “A ‘Strategy Tripod’ Perspective on
Export Behaviors: Evidence from Domestic and Foreign Firms Based in an Emerging Economy,” Journal of
International Business Studies 41, no. 3 (2010), pp. 377–96; Yuan Lu, Lianxi Zhou, Garry Bruton, and Weiwen
Li, “Capabilities as a Mediator Linking Resources and the International Performance of Entrepreneurial
Firms in an Emerging Economy,” Journal of International Business Studies 41, no. 3 (2010), pp. 451–74.

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314 Part 3 Assessing Global Market Opportunities

Companies are shaken down by local officials, whipsawed by policy swings, railroaded into
bad partnerships, and squeezed for technology. But there is also a new, market-driven China
that is fast emerging. Consumer areas, from fast food to shampoo, are now wide open. Even
in tightly guarded sectors, the barriers to entry are eroding as provincial authorities, rival
ministries, and even the military challenge the power of Beijing’s technocrats.

No industry better illustrates the changing rules than information technology. Chinese
planners once limited imports of PCs and software to promote homegrown industries,
but the Chinese preferred smuggled imports to the local manufacturers. Beijing eventu-
ally loosened the restraints, and Microsoft is now the dominant PC operating system. The
market’s modernization plan calls for imports of equipment and technology of over $100
billion per year for the foreseeable future. Indeed, China is now the second biggest market
for personal computers, following only the United States.

After nearly a decade of frustration in trying to effectively market and service its prod-
ucts in China, IBM took a bold step and entered a venture with the Railways Ministry
that allowed IBM to set up IBM service centers dubbed the “Blue Express.” The agreement
created a national network of service centers in railway stations that has enabled IBM to
ship computer parts via the railroad around the country within 24 hours; competitors must
book cargo space weeks in advance. In addition, the ministry’s staff of more than 300 com-
puter engineers helps out by providing customer services on IBM products.

Such innovative thinking by IBM and other marketers often accelerates the development
of a more efficient market system. IBM’s service centers set an example of effective ser-
vice before and after sales—important marketing activities. Management training for the
thousands of employees of franchises such as Pizza Hut, McDonald’s, and KFC has spread
expertise throughout the marketing system as the trainees move on to more advanced po-
sitions and other companies. Other important markets in China are in the healthcare and
environmental areas.

In the long run, the economic strength of China will not be as an exporting machine but
as a vast market, particularly if consumers there can overcome the cultural hurdles of thrift
and xenophobia. The economic strength of the United States comes from its resources, pro-
ductivity, and vast internal market that drives its economy. China’s future potential might
better be compared with America’s economy, which is driven by domestic demand, than
with Japan’s, driven by exports. China is neither an economic paradise nor an economic
wasteland, but a relatively poor nation going through a painfully awkward transformation
from a socialist market system to a hybrid socialist–free market system, not yet complete
and with the rules of the game still being written. Of course, the biggest threat for China is
the economic volatility that seems to accompany fast growth 8 —let us hope that the govern-
ment manages the problem well.

Finally, two other problems face China in the longer run: (1) the well-known environ-
mental decline associated with its fast growth 9 and (2) the demographic disaster associated
with its one-child policy. By 2020 the population of the elderly will become manifest as a
burden on the economy, eventually dwarfing America’s baby boom retirement problem. 10
The one-child policy is also a divisive social issue in China, exacerbated by the recent rev-
elation that a wealthy Chinese couple has produced eight children with the help of surro-
gates. 11 Eight is a lucky number in China; we assume the couple will stop there.

8Michael Forsythe and Kevin Hamlin, “The Building Bubble in China,” Bloomberg BusinessWeek , March 1,
2010, pp. 18–19; Christopher Power, “The Slowdown in China: Who’s Exposed,” Bloomberg Businessweek,
July 11, 2011, p. 10; Aaron Back, “China Growth Continues to Slow,” The Wall Street Journal, December
20, 2011; “Deposit Flight Threatens China’s Banks,” Bloomberg Businessweek, February 27, 2012, pp. 50–51.
9 David Barboza, “China to Release More Data on Air Pollution in Beijing,” The New York Times, January
6, 2012.
10 “Illegal Children Will Be Confiscated,” The Economist, July 23, 2011, p. 12; Jeremy Page, “China’s One-
Child Plan Faces New Fire,” The Wall Street Journal, April 29, 2011.
11 Jonathan Kaiman, “8 Babies and a Rash of Protest,” Los Angeles Times, January 20, 2012, p. A3.

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Chapter 11 The Asia Pacific Region 315

Hong Kong. After 155 years of British rule, Hong Kong reverted to China in 1997
when it became a special administrative region (SAR) of the People’s Republic of China.
The Basic Law of the Hong Kong SAR forms the legal basis for China’s “one country, two
systems” agreement that guarantees Hong Kong a high degree of autonomy. The social
and economic systems, lifestyle, and rights and freedoms enjoyed by the people of Hong
Kong prior to the turnover were to remain unchanged for at least 50 years. The Hong Kong
government negotiates bilateral agreements (which are then “confirmed” by Beijing) and
makes major economic decisions on its own. The central government in Beijing is respon-
sible only for foreign affairs and defense of the SAR.

The Hong Kong dollar continues to be freely convertible, and foreign exchange, gold,
and securities markets continue to operate as before. Hong Kong is a free society with
legally protected rights. The Hong Kong SAR government continues to pursue a generally
noninterventionist approach to economic policy that stresses the predominant role of the
private sector. The first test came when the Hong Kong financial markets had a meltdown
in 1997 that reverberated around the financial world and directly threatened the mainland’s
interests. Beijing’s officials pretty much kept silent; when they said anything, they expressed
confidence in the ability of Hong Kong authorities to solve their own problems.

The decision to let Hong Kong handle the crisis on its own is considered strong evidence
that the relationship is working for the best for both sides, considering that China has so
much riding on Hong Kong. Among other things, Hong Kong is the largest investor in the
mainland, investing more than $100 billion over the last few years for factories and infra-
structure. The Hong Kong stock market is the primary source of capital for some of China’s
largest state-owned enterprises. China Telcom, for example, raised $4 billion in an initial
public offering there.

Most business problems that have arisen stem from fundamental concepts such as clear
rules and transparent dealings that are not understood the same way on the mainland as
they are in Hong Kong. Many thought the territory’s laissez-faire ways, exuberant capital-
ism, and gung-ho spirit would prove unbearable for Beijing’s heavy-handed communist
leaders. But except for changes in tone and emphasis, even opponents of communist rule
concede that Beijing is honoring the “one country, two systems” arrangement.

Taiwan, the Republic of China (ROC). Mainland–Taiwanese economic relations
continue to improve as both have entered the World Trade Organization. As both sides

Two giant pandas, four-year-old
male Le Le and two-year-old female
Ya Ye, are being loaded onto the
Panda Express, a FedEx plane,
that is airlifting them from China
to the Memphis, Tennessee, zoo
for a ten-year visit. Whether it is
pandas, time-sensitive deliveries, or
cost-saving solutions, FedEx delivers
high-value shipments door-to-door
to as many as 210 countries. Also,
notice the white arrow embedded
in the FedEx logo (between the E
and the x) that connotes motion.
Not only does China use pandas
as rewards for trade, it also uses
them as enticements. Indeed, it
has used “Panda Diplomacy” for
some 1400 years! Two Pandas
were offered to Taiwan in 2006,
but were rejected—at the time they
were called the “Trojan Pandas”
by those arguing for refusal. A new
government on the island accepted
the pair in 2008, and they now
reside in the Taipei Zoo.

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316 Part 3 Assessing Global Market Opportunities

implement WTO provisions, they are ending many restrictions and now implement di-
rect trade—not that they have not been trading. Taiwanese companies have invested over
$50 billion in China, and about 250,000 Taiwanese-run factories are responsible for about
12 percent of China’s exports. Estimates of real trade are even higher if activities conducted
through Hong Kong front companies are taken into consideration.

It is best to wrap future talks on the One China debate inside a bundle of more con-
crete issues, such as establishing the “three direct links”—transportation, trade, and com-
munications. The three direct links issue must be faced because each country has joined
the WTO, and the rules insist that members communicate about trade disputes and other
issues. Trade fits well with both countries’ needs. Taiwanese companies face rising costs at
home; China offers a nearly limitless pool of cheap labor and engineering talent. Taiwan’s
tech powerhouses also crave access to China’s market.

For Beijing, the Taiwanese companies provide plentiful jobs at a time when bloated SOEs
are laying off millions. They also bring the latest technology and management systems,
which China needs as a member of the WTO. In any case, Taiwan continues to stand tall in
the East Asian economy.

Japan’s fast growth in the 1970s and 1980s amazed the world. Then came the early 1990s,
and Japan’s economy produced a stunning surprise. Almost abruptly, it slowed, sputtered,
and stalled. Stagnation set in and it tenaciously persists. Four explanatory themes have
emerged, each with a basis in observable fact, namely, Japan’s (1) faulty economic policies,
(2) inept political apparatus, (3) disadvantages due to global circumstances, and (4) cultural
inhibitions.

Each of these four has their proponents, each their own rationale. So let’s examine each
separately.

Faulty Economic Policies. A wealth of facts describe Japan’s economic pain during
the 1990s, but none more so than its stock market collapse. In the early 1990s, its Nikkei
index level plummeted from over 35,000 to under 13,000. At this writing, it hovers at about
10,000. Japan’s woefully inflated real estate values similarly hit the skids. Its once huge (and
to some Americans, alarming) flow of investment into this country simply dried up. The
end result found Japan with an economy once accustomed to nearly double-digit annual
growth rates struggling, at first just to stay above no-growth levels, and then crashing to
“minus growth,” that is, a recession, in 1998.

Economic recessions are not, of course, unknown. But the peculiar feature of Japan’s
1990’s version was its decade-long persistence. Unsurprisingly, most economists sought
to convince us that faulty economic policies both triggered the onset and the persistence
of Japan’s troubles. They explained with commendable brevity: “The bubble burst.” But
why the bubble, and why did it burst? The most common answer went somewhat as
follows: Decades of galloping economic recovery success had bred a prideful national
overconfidence. Growing willingness to take exaggerated risks followed. Heavy borrow-
ing soon drove up levels of marginal investment. Eventually, lending agencies began
to edge away from confidence toward caution. With the caution flag up, almost sud-
denly the whole inflated structure collapsed. Caution also filtered down to consumer
levels. Spending habits were curtailed. With a fall in product demand, industry was
forced to cut back both output and hiring. Unemployment soared to unheard of levels
for that nation. The main casualty, however, was the widespread deterioration of na-
tional confidence.

No sector was hit harder than Japan’s lending institutions, especially its huge, world-class
banks. With the crash, the banks looked at loan portfolios splashed with red ink. Lending
had to be restricted, a practice that dried up sources of capital needed for financing eco-
nomic recovery. And so it went, one discouraging development following another, until a
verifiable national crisis existed.

Seeing all this, American authorities and economists could not resist the temptation to
offer remedies. “Draconian measures are needed,” they chanted from across the Pacific.
Understandable advice from on high, no doubt, but it reflected ignorance of the Japanese

LO2
The importance
and slow growth of
Japan

Japan

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Chapter 11 The Asia Pacific Region 317

society’s cultural prejudice against any action that might call for bold or rapid change. Always
remember, Japan values stability above all else. Part of the problem is that most economists
focused on overall economic performance and the dramatic slowdown in Japan’s growth,
tax revenues, and the potential disaster of deflation. And therefore, most economists have
missed the real miracle of Japan’s economic prowess. Please see Exhibit 11.1 . 12

If we control for purchase price parity (PPP) in the per capita GDP calculations, Japanese
growth simply wavered during the 1990s. That is, the PPP calculation takes into account defla-
tion and best reflects the average well-being of the Japanese people. Per capita income fell, but so
did prices. You can see that Japan pretty much avoided the Asian financial crisis that resulted in
a precipitous economic decline in neighboring South Korea. Indeed, using this metric, the sta-
bility of the Japanese economy is miraculous, particularly given the troubles its close neighbors
experienced in 1997 and the dimensions of both its stock and property market declines in the
early 1990s. It is hard to imagine how the United States’s economic performance might respond
to simultaneous 60 percent declines in both the NYSE and the housing markets.

The Political Explanation. Views of economists on Japan’s crisis have not been the
only ones heard. Political pundits also rose to the challenge. They found two major villains:

Villain #1: The Country’s Long Entrenched Liberal Democratic Political Party.
Villain #2: The Hidebound Japanese Bureaucracy.

Back in the 1970s, an authority on just about everything Japanese, one Frank Gibney,
had written a seminal book on the nation. He called it The Fragile Superpower. His insight
into the possible future of Japan’s then surging economy was confirmed when the 1990s
brought on crisis conditions. “Fragile” proved to be an apt tag.

In a new appraisal, Gibney has written that Japan became the victim of “one-party sick-
ness,” an ailment brought on by a 40-year hardening of political arteries. Meanwhile, many
observers thought politicians had to share blame with Japan’s powerful bureaucracy. Many
observers, both inside and outside Japan, had long since come to believe that the bureau-
cracy actually controlled its elected politicians. Of course, in a consensus-type society, it
is not easy, particularly for outsiders, to tell where one institution’s power leaves off and
another’s begins. In any event, to those who championed a political explanation of Japan’s
woes, these two national institutions were viewed as joint culprits. Meanwhile, other ob-
servers, particularly within Japan, were dissatisfied with …

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