As outlined in the previous chapters, the Japanese economy experienced high growth in the 1960s and relatively high growth up to the late 1980s in international comparison. However, the Japanese economy has suffered from stagnation and low growth since the collapse of the bubble economy in the early 1990s. Although the structure of Japan's economy has been transformed significantly in some sectors to cope with economic stagnation, we can also identify some continuities in the structure of the economy despite pressure from globalization and regional economic integration in East Asia and the Asia Pacific. While we can see some structural transformations characteristic of American-style capitalism, we can also identify the continuity of structures distinctly Japanese and different from other capitalisms such as America’s.

This chapter will examine the main characteristics of Japanese capitalism. It will begin with an analysis of the state–market relations in Japan by examining the concept and practice of the “developmental state” and its transformation and continuity. The chapter will refer to several case studies of industrial policy implemented by the Ministry of International Trade and Industry (MITI, later Ministry of Economy, Trade and Industry, METI), including the recent initiatives aimed at promoting liberalization in certain economic sectors, such as energy, as well as those aimed at protecting national competitiveness as seen in the rescue of high-tech electronics companies that were financially in trouble. The chapter will then examine the role and function of keiretsu (corporate groups) as Japanese business networks. It will first examine “vertical” keiretsu (large companies and SMEs in the same business group) and identify the important, but often exploited, roles of SMEs in these business networks as well as the advantages for SMEs to be in a vertical keiretsu. The chapter will then examine the role and function of “horizontal” keiretsu (a business network of large group companies in different industrial sectors) and the institutional complementarities among several economic sectors within a keiretsu. The chapter will refer to the so-called “varieties of capitalism” (VoC) literature and criticize the rigid, apolitical VoC perspective of institutional complementarity. The chapter will also discuss the convergence and diversity among capitalisms, including Japanese, under neoliberal globalization in relation to the VoC literature.