Why Japan Can't Lead.

Fin de siecle discussions in Japan focused on the pace and profile of the country's economic recovery. Can Japan transform itself into a knowledge economy, where a premium is placed on innovative services rather than goods? Will the financial and high-tech industries regain their competitiveness? Elements of Japan's political economy appear up to the task; business models are changing and government agencies have been restructured and reorganized. But there are lingering doubts about whether political leaders, irrespective of party affiliation, will take on the more difficult problems of labor market, pension, and fiscal reform.

Yet despite the economic gloom of the past decade, the conventional wisdom regarding Japan's politics has not changed in the new century. The perception remains that Japan's political ills were remedied by the change brought on by the reform bills of 1994 which forced elections in the lower house of the Diet to be held under a new electoral system. However, the prime minister is still elected by members of the lower house and this remains the root cause of the country's continued political malaise.

But there is little debate over the adequacy of the existing political system in large part because Japan, on the surface, appears to have adapted to the economic uncertainty introduced by recent market and banking crises. Currently, angst reaches beyond the domestic economic malaise. Globalization and the information revolution have proven capable of transforming societies. Yet Japan, faced with corporate restructuring, enormous fiscal deficits, and significant demographic change, is still coping with rougher aspects of modernity. Given the velocity of change, many more Japanese are now beginning to question if their leaders are fighting yesterday's battles and …