Japan's economic crisis is a case study in the long-term costs of protecting inefficient industries. Yet it also shows how the pressures for protectionism become irresistible without a strong safety net and policies to aid displaced workers.
Twenty years ago, when Ezra Vogel published Japan as Number One: Lessons for Americans, the lessons seemed all too clear. Today, as Japan falls into a severe recession, it's a different story. The Japanese economy hasn't just stopped growing; it's hurting the very workers it claimed to protect. Wages are falling, pensions are being chiseled away, two million manufacturing jobs have already been lost, and the unemployment rate -- already at a postwar record -- continues to rise. Ironically, despite Japan's export-driven economic formula, it is the only major industrial nation that trades no more today relative to gross domestic product (GDP) than it did four decades ago.