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The Japanese economy has long been divided between world-class manufacturers, on the one hand, and uncompetitive small enterprises, inefficient service industries, and staunchly protected farmers, on the other Recent economic troubles have made the system's inefficiencies less tolerable, exacerbating the conflict of interest between the two. In political terms, however, the two Japans have not parted ways. Japan's post-war system bound the competitive and protected sectors to each other through political bargains and economic relationships. And despite enormous pressures for reform, this legacy continues to slow the pace and shape the content of Japan's economic liberalization today. Those groups with the greatest stake in liberalization, such as consumers and exporters, have not always defined their policy preferences in terms of their economic interests narrowly conceived, and have not always demanded liberalization even when they favored it. And when they have advocated it, they have not achieved clear-cut victories but only complex compromises, with considerable compensation for the potential losers from liberalization.

Can Japan disengage? Winners and losers in Japan's political economy, and the ties that bind them