3 - The “High-Water Mark” of the Japanese Economy – A “Model” of Financial Liberalization: 1980 to 1985

Summary

Introduction

In the 1970s and 1980s, Japan's economic institutions came into conflict with a new set of economic and technological changes that first emerged in the late 1960s and accelerated by the late 1970s. Japan, however, was not special in this regard. The new environment clashed with the majority of economic institutions throughout the world. Collectivist approaches to managing the economy from the mild welfare state of the United States to the command economies of China, Russia, and Eastern Europe became increasingly incompatible with a new economic and technological environment more consistent with open, transparent, and individualistic solutions to economic and political problems.

The conflict between the new environment and existing institutions throughout much of the world generated a wide variety of market and government innovations from the 1980s on to resolve the conflict. The process differed from country to country but, collectively, it involved the liberalization and internationalization of economic institutions and, in some notable cases, involved dramatic shifts in the political institutions, such as the Soviet Union and East European countries from authoritarian to more representative political regimes in the late 1980s and early 1990s. Liberalization became a widespread phenomenon in the 1980s and continues to the present. Friedman (2000) refers to this process as the “democratization” of technology, finance, and information, and argues that it has made the world “flatter” because there is now a more level playing field among countries (Friedman, 2005).